Nonprofits building steam
Posted by Adam Jadhav
St. Louis Post-Dispatch | July 27, 2009 | A1
An executive and regular donor was planning a charity golf tournament. An active church had plans for a new project in north St. Louis.
Both needed an official vehicle for their plans, an organization to carry the banner. But rather than look to existing groups, they all founded nonprofit organizations. And in taking matters into their own hands, they joined a gathering legion who have incorporated nonprofits to match their passions and ideas.
In Missouri, the number of new nonprofit corporations founded annually has risen steadily this decade, from 1,233 in 2000 to 2,257 in 2007. In 2008, the number exploded to 3,082, almost a 37 percent increase in a single year. In all, the state has more than 52,400 registered nonprofits.
In Illinois, nonprofit incorporations have increased almost every year since at least 1970, though they fell this year. There are almost 85,400 nonprofits in the state.
“They’re simply moral or social entrepreneurs that are concerned about the issues,” said Kirsten Grønbjerg, a professor at Indiana University and a chair at the Center on Philanthropy. “I get a request at least once a month from someone else who says, ‘I’m starting a new nonprofit. Tell me what to do.’”
Nationally the trend looks much the same; for decades, entrepreneurs have taken their resolve to the not-for-profit sector each year in greater numbers.
Experts can’t come up with any single reason why the nonprofit sector has grown like it has. But they all see one common thread: the almost mythic American, can-do spirit, as people with passions figure they can do it best themselves.
“That ‘Let’s Take Charge’ attitude leads them to start a nonprofit,” said Bob Ottenhoff, president and CEO of Guidestar, a national clearinghouse of nonprofit data that is itself an independent tax-exempt organization. “They’re saying, ‘I’m not going to wait for someone else to do it. I’m not going to wait for the government to do it. I’m going to do it myself.’”
BUILDING SUCESS
C. John Keane, who owns one company that sells medical malpractice insurance and another that provides software to physicians, started the Keane Group Foundation in March as a way to streamline his and his companies’ charitable efforts.
“We do a fair amount of giving to various organizations, and we decided to try to bring a little more organization and direction to it,” Keane said.
By the end of May, Keane’s charity had put on a golf tournament – “something small and experimental to see how it went” – as a first attempt to benefit research into leukemia and lymphoma. The event drew about 100 golfers and grossed more than $50,000.
“I never dreamed when we decided to move forward that we would be as far along as we are right now,” Keane said. Keane’s new nonprofit was one of 1,614 incorporated in the state of Missouri in the first six months of the year. That pace, if maintained, would beat last year’s high.
The Post-Dispatch reviewed a random sample from the 298 nonprofit creation filings in March and found wide variance in the purpose of the fledgling organizations.
A number were membership-based organizations – a sorority, homeowner associations, a maintenance co-op for dental offices. Some were churches: a Korean Baptist church in St. Charles and Jesus Loves You House of Prayer registered in Wentzville.
There were sports-based clubs – a football organization in Kansas City and a disc golf association near Branson, Mo. Others were medical-related: a fund dedicated to advocacy focused on obstetric fistulas and a fundraising group for medical research.
Several couldn’t be contacted. Most don’t yet have websites, telephone listings or advanced operations.
One new nonprofit – formed to provide therapy to the disabled by pairing them with horses – was already contemplating whether to continue as an organization.
POLICING NONPROFITS
Experts warn that while there has been a long trend of more individuals trying their hands at nonprofit work, it’s not always clear how long they last or whether they succeed.
Though a nonprofit must make a detailed application to the Internal Revenue Service for tax-exempt status, many don’t face regular reporting requirements. Organizations with less than $25,000 in annual income, as well as churches, are exempt from federal financial disclosure rules. The IRS only this year began asking smaller organizations to file an abbreviated form.
And the sheer volume of organizations makes policing difficult. The IRS believes there were 1.9 million tax-exempt organizations in 2008, but it has no way of knowing how many are defunct.
State attorneys general provide some financial oversight, but rules vary from state to state. In Illinois, the bulk of nonprofits – those designated charitable and tax-exempt by IRS – must register with the attorney general’s office and provide annual financial statements, as do any other nonprofits that solicit public donations. In Missouri, however, registration and reporting to the attorney general’s office is mandatory only for a minority of nonprofits: noncharitable organizations that solicit contributions, said Bob Carlson, a Missouri assistant attorney general who works with nonprofits.
Meanwhile, the Missouri attorney general’s voluntary, public “Check a Charity” online database lists only about 1,000 of the nonprofits incorporated in the state.
Carlson said he can scrutinize only a tiny sliver of the state’s nonprofits; in 2008, he opened 72 investigative files. The system requires donors to decide which are worthy causes, he said.
“The donors, they have a lot of power because they can say, ‘Look I’m not going to donate to you, I’m not going to support you because you’re not efficient, because you’re not transparent,’” Carlson said.
And with the severe recession putting pressure on charitable contributions, experts said they expect the nonprofit growth to slow or even decline in the next few years. The number of organizations given tax-exempt status approval by the IRS in 2008 fell significantly for the first time in many years.
To survive, many nonprofits will have to operate more like a business, with models, standards and practices for better efficiency and effectiveness, several analysts said. In some cases, that may mean more mergers or partnerships among nonprofits.
“It’s a market function – the market will determine some who are best positioned to move forward,” said Mary McMurtrey, president of the Gateway Center for Giving, an association of grant makers in the St. Louis area.
John R. Schmidtke, pastor at Bethlehem Lutheran Church, is banking on a record of nonprofit success for a venture incorporated in March. A nonprofit Schmidtke and his church founded nine years ago – Better Living Communities – has worked with private corporations and local and state officials to leverage tax credits to build dozens of new homes in the depressed Hyde Park neighborhood. The organization’s work has persuaded other developers to follow suit.
Buoyed by that venture, Schmidtke and the church now have a second nonprofit, focused on an educational project that they’re not quite ready to reveal.
“Given our success in the past, we hope our partners and supporters in the past will be on board with us this time,” Schmidtke said.
