With creative thinking, effective politics, and some luck, the Obama Administration's first success will be the passage of a massive stimulus package designed to create millions of jobs while addressing America's depreciated public infrastructure and paltry progress on clean energy. We need it; it's important; I hope the bill passes the morning of January 21.
But the people shaping this bill ought to be thinking more broadly about the American economy. This bill needs to include significant provisions for job creation, infrastructure improvements and green technology not only in the commercial world and government but also in the nonprofit sector.
Much has been made of the needs of corporate America since the precipitous fall of the stock market began for real last summer. Each week we hear more dire news of the impact of the recession on various industries. Their needs are very real, and the government's response has been very real too. The $700 billion TARP (Troubled Asset Relief Program) for investment houses, insurance firms and banks may now be supplemented with billions in assistance to the big auto makers. State and local governments are lobbying for their own piece of the bailout, with good reasons, and Obama seems inclined to address their needs as well.
And the Administration-in-formation has also suggested that it will create a new agency—the Office of Social Entrepreneurship—which will recognize the importance of outstanding models of nonprofit social entrepreneurship and seek to take replicable models to scale. This is refreshingly original thinking.
But what about the impacts of the recession on the rest of the nonprofit sector, the third essential leg of the American economy? We have heard almost nothing about this—the significant economic and social effects on people and communities as nonprofit organizations cut back their payrolls, curtail their services and turn away people who need their assistance now more than ever. Nonprofits are a substantial part of the infrastructure of our economy, and any infrastructure stimulus should bolster this sector as well as others.
Nonprofits in the United States encompass 1.9 million organizations, including public charities, private foundations, religious organizations and other entities. About 1.4 million of these groups are charitable organizations such as hospitals, museums and other cultural institutions, soup kitchens, social service organizations, community development corporations, colleges, public television and radio stations, religious organizations, alliances for parks and open spaces, wildlife conservation groups, and foundations—distributed across the 50 states. One in ten working individuals is employed by a nonprofit organization. Independent Sector reports that as of 2005, nonprofits employed 12.9 million people, or approximately 10 percent of the U.S. economy—far more than are employed by the financial sector and about the same number that GM suggests are employed in auto-related businesses. In 2006, nonprofits paid 8% of total U.S. wages.
Nonprofit organizations provide the glue that holds communities together—afterschool programs, community service groups, community health clinics, arts and cultural organizations, food banks and homeless shelters. Four out of five nonprofits are equivalent to small businesses, with budgets ranging from $500,000 to $10 million, employing 10-100 people. And the vast majority of those budgets go to pay employees to provide services to the public. The average annual salary of a nonprofit employee in 2005 was $34,000.
This vast network of nonprofit organizations is seriously imperiled by the current economic crisis. The sector's revenue is derived from four primary sources—dues and fees, government contracts, charitable contributions, and other income such as interest on investments. As the economy slides, all these revenue sources are crumpling. Students cannot pay tuition, audiences cannot afford ticket prices, clients cannot afford the fees for health or other services. Government contracts are being slashed, or worse—reimbursements for services already rendered are not being paid on time or ever. Giving levels by many private foundations are shrinking with their investment portfolios, and individual donors are cutting back on their contributions, in some instances reneging on pledges of long standing. And those nonprofits that have been frugal enough to create endowments or accumulate cash reserves have seen these assets shrivel with the tumbling stock market. The entire sector is weakening, and NYU Professor of Public Service Paul Light suggested recently that as many as 100,000 nonprofit organizations might fail completely during this economic crisis, including several of our largest institutions.
The comprehensive stimulus package likely to be passed in January will be more effective in energizing the entire economy if nonprofit organizations can benefit from its provisions. The bill is likely to have three components—focused on physical infrastructure, job creation and green technology. Through appropriate competitive processes, nonprofits should have access to funds to renovate their facilities or build new ones, save or create jobs, and convert to green technology. This kind of support is not all that nonprofit organizations need to weather the economic storm, but even 10% of the stimulus package earmarked for nonprofits would have powerful positive ripple effects across communities large and small.
The economy will not rebound completely through investments in the corporate sector alone. The country's fiscal health, long-term global competitiveness and social fabric depend, in part, on sustaining a robust nonprofit sector. We all hope that we will need only one massive stimulus package to reverse our current economic trajectory. That is more likely to be true if the nonprofit sector is included from the start.