How many nonprofits are appropriate?

Minnesota Local History Blog.

Minnesota Local History Blog.

Advice and help with building history capacity.

The Minnesota Historical Society’s Local History Services helps Minnesotans preserve and share their history. This blog is a resource of best practices on the wide variety of museum, preservation, conservation, funding, and non-profit management topics. We’re here to help.

All MNHS Blogs

Subscribe by e-mail:

 Subscribe in a reader

How many nonprofits are appropriate?

By: grabitsdm | December 11, 2009
New York Times for December 5, 2009 carried an article, "Charities Rise, Costing U.S. Billions in Tax Breaks." After noting that the Internal Revenue Service approves 99 percent of all applications to become new 501(c)(3) charities, and that the $300 billion donated to public charities last year cost the U.S. treasury $50 billion in lost revenue, the real question is whether the pace of expansion is sustainable.

With approximately 1.1 million 501(c)(3) nonprofits on the books already, that is an appropriate question as some colleagues have noted that too many adversely affect their own local fundraising. However, even Sarah Sibley in 1860 noted her difficulty in raising funds in Minnesota for the Mount Vernon Ladies Association when she wrote, "The objects of charity among us are so numerous, as to tax very severely the means of the community at large, and thus prevent those manifestations of good will to the Mt. Vernon Association which I know to exist in the State." Not only do nonprofit charities affect the national treasury, but the more of them that there are causes increased competition for a finite amount of local resources. Nothing has seemingly changed about local competition for donations in 140 years.

The answer probably is not in establishing quotas, but in guidelines that allow for competition for some number of 501(c)(3)s available that year. If charities affect treasury revenue, they must do so for a public good. Not all good purposes are necessarily as urgent, and therefore competition probably could be one way of managing the growing demand. To speculate still further, one might imagine that an economist has studied the carrying capacity of the U.S. economy in terms of how many nonprofit charities can it safely afford, similar to bond ratings and other financial safety nets. In doing a very brief search online, no such study turned up. If you know of one, please post it here. Solutions for perceived problems in this area will require thoughtful discussion and further research. 

What have you noticed about the growth of 501(c)(3) charities in your community? Do you suppose limitations on the number of charities necessarily focus donations more effectively or limit the adverse affect on the U.S. treasury? Why or why not?