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The purpose of the Nonprofit Almanac series is to provide a statistical profile
of the independent sector and its place in the U.S. economy and society. The 1996-1997
edition presents trends and statistics that go back nearly a third of this century, a
period of rapid expansion of the independent sector. The Nonprofit Almanac series
has demonstrated that the independent sector is a major force in the U.S. economy and
helped us to understand the changes and importance of the sector over time. The
independent sector (or the nonprofit, third, or voluntary sector) includes a diverse array
of organizations serving public purposes. These include organizations in health, human
services, arts and culture, foundations and federated fund-raising organizations,
religious organizations, educational and research institutions, and advocacy
organizations. They range in size from the high school band booster club, church soup
kitchen, or choirs to the great hospitals, universities and museums. As with the
government and business sectors, the independent sector is influenced by a host of
factors, including the state of the national economy, the status of changing populations
and various public policies. But, perhaps, unique to the independent sector are some of
its sources of support -- voluntary time and contributions. This volume documents the
various changes and developments in the independent sector over the last third of a
century and reveals some of the aspirations, accomplishments and shortcomings of society. In 1992, the most recent base year, the independent sector had total annual funds of $509 billion. The sector included 1.03 million institutions, 4.2 percent of all entities. Approximately 6.5 percent of national income was generated in the independent sector, up from 5.8 percent in 1987. It employed 15.l million people in 1994 -- 9.7 million full and part-time employees and 5.5 million full-time employee equivalent volunteers. From 1977 to 1992, the annual rate of growth in paid employment in the independent sector was 3.4 percent. Combined, paid employees and full-time equivalent volunteers represented nearly 11 percent of total employment in the U.S. economy in 1992, up from 8.5 percent in 1977. From 1992 to 1994, the growth in the independent sector began to decline. Total annual funds were estimated at $568 billion in 1994, and the annual rate of growth in paid employment grew at 2.9 percent. As a result, the sector's share of national income in 1994 declined to 6.3 percent
Table 1: Summary for the Independent Sector: 1977-1994 From 1977 to 1994, the growth rate of the independent sector was greatest between 1977 and 1982 and between 1987 and 1992. Between 1982 and 1987, the sector grew at a slower rate that resulted from a round of federal budget cuts aimed at reducing the growth of federal funding. However, by the mid-1980s the growth in Medicare and Medicaid entitlement funding offset some of the earlier federal budget cuts. In addition, Congress did not further cut the growth rates in other domestic federal programs. Other major events and changes in public policy occurred during the 1980s and early 1990s that had an impact on the independent sector; these included a major recession during the early 1980s and again in the early 1990s; significant growth in the stock market in the early 1980s and again in the 1990s; a major reduction in inflation; a massive transformation in the corporate sector of the economy; a significant increase in personal wealth, particularly among the top 2 percent of the population; and a continuing erosion in real wages and household income among workers and their families in 80 percent of households. All of these changes affected the various sectors of the economy differently.
Trends in Annual Sources of Funds
Figure 2: Share of Total Annual Funds by Source of
Revenue: 1977 and 1992
Figure 3: Annual Rates of Change for Selected Sources of
Funds for the Much of the increase in government funding can be attributed to the growth rate in entitlement funds, such as Medicare and Medicaid, as well as price increases in general health care. These entitlement programs grew to respond to an aging population, increased access to Medicaid for people with various types of disabilities; an increase in poor children, in both number and proportion of the total population; and an increase in the proportion of the population below the poverty line.
Trends Among the Major Subsectors of the Independent Sector
Figure 4: Share of Total Funds for Selected Subsectors in
the Independent Sector: 1977 and 1992
Health Services These figures do not reveal that, compared with other components of the health services subsector, growth in hospitals slowed down over this period, or that the whole health care subsector’s composition was changing. While there was little change in the position among the independent sector’s hospitals over this period, and an actual decline in the total number of hospitals, the real changes in the health sector were the rapid growth in nursing and personal care facilities and other health services components. From 1982 to 1992, the independent sector increased its share of total institutions in the nursing and personal care facilities component from 21 to 28 percent and its share of total revenues from 27 to 31 percent. In another component -- other health services -- the for-profit sector demonstrated major growth. From 1982 to 1992, the independent sector’s share of this component declined from 43 to 31 percent of total institutions, and from 54 to 39 percent of total revenues. The health services sector of the economy revealed the major restructuring occurring in the delivery of health services in our society. In terms of the share of each of these major components of the health services sector from 1982 to 1992, the independent sector increased its share of total revenues from hospitals by 4.1 percent among the three sectors of the economy, and by 15 percent in the nursing and personal care component. In the other health services component, however, its share of total revenues declined by 27 percent, indicating a much higher rate of growth within this area in the for-profit sector of health care. From 1977 to 1992, this subsector increased its share of the total revenues in the independent sector from 46.2 to 51.4 percent.
Social and Legal Services The annual rate of change in private contributions dropped to 3.0 percent and in private payments to 5.9 percent, but government payments increased to 8.4 percent a year (Figure 4). Much of the increase in government payments during this period is attributed to government contracts for services and increases in Medicaid payments. While the social and legal services subsector had the highest annual rate of increase among all other subsectors in the independent sector, its rate of change was exceeded by the other two sectors of the economy. Both in terms of numbers of institutions and revenues, social services grew faster in other sectors of the economy, particularly in the for-profit sector. In 1982, the independent sector had 66 percent of all institutions, 85 percent of all revenues and 80 percent of total employees in the social services sector of the economy. In 1992, the independent sector had 58 percent of all social services institutions, 80 percent of all revenues and 74 percent of total employees. Therefore, the independent sector's share of social services compared with other sectors of the economy declined 11 percent in number of institutions, 5 percent in total revenues and 8 percent in total employees. The component of social services where independent sector lost its greatest percentage share between 1982 and 1992 was child day care services.
Education/Research The subsector was unique, however, in the composition of its funding in comparison to most of the other subsectors and the independent sector as a whole. The education/ research subsector was the only subsector in which private contributions increased as a proportion of total funds, from 9 percent in 1977 to 13 percent in 1992. The annual rate of change in private contributions was highest in this subsector at 5.7 percent. Private payments as a portion of total annual funds increased from 53 to 57 percent, as did payments from government, from 18 to 20 percent. The sector is dominated by governmentally owned institutions especially in elementary and secondary schools, and in higher education, particularly by community colleges. New schools of higher education tend to be created in the public or for-profit sector and, particularly, in the component of vocational and correspondence schools. As a result, the independent sector lost share of most of the components of the education/research subsector. In higher education, its share in terms of number of institutions declined by 11 percent over this period, even though it increased its percentage share of total revenues by 8 percent.
Religious Organizations
Arts and Cultural Organizations Most of the components of the arts and cultural subsector, with the exception of museums and zoological and botanical gardens, are dominated by other sectors of the economy. In 1992, the independent sector represented over 90 percent of the revenues in the museums and zoological and botanical gardens component. However, it represented only about one quarter of the producers, orchestras and entertainers component, and 3 percent of the radio and TV broadcasting component.
Trends in Individual and Household Contributions and Volunteering Despite the fact that the level of some of these forms of support vary with the condition of the economy, tax policies and other public policies, the percentage of the population engaged in giving and volunteering has proven to be an important indicator of public support and engagement in the sector and on a variety of issues. One of the most positive findings in recent surveys on giving and volunteering in the United States is that nearly three-quarters of all households report charitable contributions. This percentage has remained stable for nearly a decade. Average household contributions and household income have declined in real terms since 1989. Even during recessions and periods of increased unemployment, Americans contribute to a variety of causes. Rather than eliminating contributions, households just give less. A more disturbing finding, as reported on in INDEPENDENT SECTOR’s biennial survey on giving and volunteering, is the change in the percentage of Americans who worry about having enough money in the future. In 1994, when the economy had improved and unemployment was decreasing, the percentage of Americans reporting that they were worried about the future increased to 73 percent, up from 67 percent in 1990. It is also becoming more evident that giving is slowly increasing among affluent households which have experienced increases in their household income and can claim charitable deductions on their income tax returns. Among the 75 percent of households that have not experienced much change in household income, the percentage of income given to charity has declined somewhat. Volunteering is important to charitable organizations. In 1994, volunteer time provided 36 percent of total employment to the independent sector but represented only 9 percent of total employment in government and a negligible percentage in business. Some subsectors of the independent sector could not survive without volunteer employment. Volunteers in 1992 provided 71 percent of total employment in the religion subsector; 60 percent in the arts subsector; and 56 percent in civic, social and fraternal organizations. Volunteers provided 22 percent of the employment in the education subsector and 16 percent in the health services subsector. In 1994, 48 percent of all American adults volunteered at an average rate of 4 hours per week. This was down from a high of 54 percent in 1989, however, still higher than the 45 percent in 1987. In 1994, an estimated 89 million adults contributed over 19 billion hours. In terms of full-time equivalent employment, this translated into 8.8 million employees whose assigned value was $182 billion. Survey findings have shown that worrying greatly about having enough money in the future also affects volunteer participation rates. One very positive trend, however, is the increased rates of volunteering among retirees. Giving and volunteering surveys have consistently shown that behavioral habits are very important predictors of not only present, but future volunteering and contributing patterns. These behavioral characteristics include membership and regular attendance at religious institutions and membership in community, voluntary and professional associations. Participation also increases by level of education. Having been a member of a youth group and having had a volunteer experience when young have a major influence on the level of volunteering of an individual as an adult. However, one of the most important factors is that members of organization are more likely to be asked to give and volunteer than non-members, this increases their likelihood to contribute or volunteer. Other data series provide a view of total contributions from all sources. Recently, the greatest growth in total contributions and individual giving, per capita, was between 1980 and 1986. After adjusting for inflation, total contributions, per capita, grew 21 percent. During this same period, individual contributions per capita, increased 16 percent. In constant (1987) dollars, individual giving actually declined after 1986 and did not reach its 1986 high again until 1993. This decline can be attributed to multiple factors, including major changes in the 1986 Tax Law, the recession in the early 1990s and a general restructuring of the economy. Other Trends In 1993, there were 37,571 foundations, up from 22,088 in 1980. Thus, from 1980 to 1993, the number of foundations increased by 70 percent. The average annual number of foundations formed with assets of $1 million or more, or grants of $100,000, was 308 during the 1980s, greatly exceeding the average annual formation of foundations (186) in the previous largest decade of growth, the 1950s.
Future Prospects Depending upon what proposals are enacted in the areas of welfare reform, Medicare and Medicaid, major changes could occur in both the health services sector and support programs for people in poverty. The locus of administration for many of these programs will continue to be shifted to state and local governments. There will be greater opportunities for citizens to participate more fully in the decision making processes affecting their communities. This may lead to more inventive solutions provided that adequate resources are made available. While many new efficiencies could occur in the use of federal funds, it may take many years to determine under which different programs and in what localities, low income individuals are best served. The congressional budget resolution and the president’s deficit reduction proposals would have different impacts on the nonprofit sector. A recent analysis indicates that the six-year reductions called for in the congressional plan would be 1.4 times greater than the president's plan. Under the congressional plan, federal funding to nonprofit organizations would decline by 18 percent, or $89 billion, between 1996 and 2002, using 1995 as the base year. Under the president's plan, the cumulative decline would be 12 percent, or $65 billion. Cuts in federal funding will affect all nonprofit organizations, and some subsectors disproportionately, particularly in the areas of community and regional development, international affairs and social services (Abramson and Salamon, 1996). Both plans seek outright reductions and reduced growth rates in funding and assume a growing economy. If a serious economic recession occurs, little room exists in these budgets to account for worker dislocation or severe unemployment. In such a scenario, governments, at all levels, and charitable organizations would not have the capacity to meet major increases in new need. Current trends to provide waivers to states to experiment with new service delivery plans for welfare benefits and Medicaid funding structures could lead to new efficiencies in the delivery of welfare and health services. Evidence from some states that are currently experimenting, such as Hawaii and Tennessee, reveal that more uninsured people can receive access to health care. Programs that move retirees and Medicaid recipients to health maintenance plans may also lead to some efficiencies. Should these trends continue, it is expected that the nonprofit health, and part of the human services, subsectors will shrink over time. Many of these services will be provided by the for-profit sector. The question remains, however, about how much real need will be met and how much pressure will be put on charitable organizations to meet the needs for services to individuals no longer eligible for welfare. Competition between nonprofit and for-profit organizations at the state level in contracting for a variety of services will accelerate in the areas of health services, job training, family services and residential care. At the same time, as government funding declines, competition among nonprofits for private contributions will accelerate. Private foundations will come under pressure to fund more immediate needs rather than to serve as institutions that provide seed money for new and experimental programs. It is clear that even a doubling of total private contributions could not replace the cumulative loss in projected government spending at both the federal and state levels through 2002. Even if contributions did double, there is no assurance from past history that these contributions would be targeted to meet new human needs. Private contributions to the social services subsector grew at a slower rate than giving to other types of charities and comprised a much smaller percentage of total annual funds in that subsector in 1992 than in 1977. Trends are similar for contributions to the health services subsector, and particularly, hospitals. Accelerating competition for contributions among independent sector organizations and for contracts for services at the state and local levels with for-profit businesses may lead nonprofits to form coalitions at the local level, to merge, and in some cases, to close. As organizations compete for private contributions and government funds, accountability and performance will become increasingly more important. Organizations will have to demonstrate the efficient use of funds and positive outcomes from the use of funds more than ever. Independent sector organizations will be required to produce quantifiable measures of program achievement and effectiveness to donors, foundations and government funding agencies. Finally, the great challenge for communities, government and business will be to determine the roles and responsibilities of governments and charitable organizations in order to provide necessary services to communities and the nation. In a recent article, Brian O'Connell (1996) argued that the fundamental question is not the level of private contributions, fees for service among those who can afford to pay or the delivery of services among the sectors, but rather, "whatever funding patterns are appropriate and possible, making certain that essential services are in fact funded is ultimately government's responsibility." (O’Connell, 224)
Trends in Private Contributions and the Capacity to Increase Individual Giving These trends confirm some trends found in other studies and data series. The INDEPENDENT SECTOR biennial surveys on giving and volunteering show a declining capacity to increase giving among households with eroding incomes. However, the evidence also shows that household contributions and volunteering increase when there is a decline in unemployment and an increase in wages. While upper income taxpayers have increased their giving, these increases have been small and do not correspond to the increase in wealth. Growing wealth also reveals an enhanced capacity to increase contributions and bequests. In a recent analysis of the capacity of giving among taxpayers who itemized on their income taxes in 1991, Claude Rosenberg (1994) estimated that itemizers could have given $100 billion rather than the $60 billion actually given. This would be possible if persons of wealth considered their real capacity to give, including both income and earning assets. He estimated that the top income group, those with an adjusted gross income of $1 million or over, gave 40 times what low income earners gave. However, if one includes their earning assets, they had a capacity to give 450 times what the low income earner could give. While earnings on assets could be related to the condition of the stock market and their individual situations, he did show that from 1980 to 1991, real family income increased 80 percent in this group, compared with an increase of less than 5 percent of the median family income. This reveals a much enlarged capacity to increase charitable contributions (Rosenberg, 15). There also is a great capacity to increase charitable bequests. Only 19 percent of the wealthiest one and a half percent of individuals leave a charitable bequest. While the amount of money left at death by that 19 percent has increased by 79 percent in real terms since 1977, the amount left in charitable bequests has increased by only 23 percent. The potential to increase giving in bequests is great over the next decade as the World War II population that achieved wealth dies. However, tax policy that reduces taxation at death could lead to a further decline in the amount left in charitable bequests. The challenge for foundations and voluntary organizations will be to convince these wealthy individuals to reinvest in their own communities and special causes.
Progress on Data Acquisition About the Independent Sector There are, however, two major areas of weakness in data collection that seriously hamper the full and accurate analysis of this sector and its place in the economy and society. These include data collection on private contributions from individuals and institutional information on religious institutions. In some ways, these two major weaknesses in data go together; over 90 percent of the total revenues of religious institutions come from individual contributions. In this series, and our reports on trends, the weakest link is of our estimates in the area of private contributions. Since we maintain that what is unique to the independent sector is the relative importance of individual contributions and volunteer time as sources of revenue, it is regrettable that little investment or progress has been made in constructing a reliable data series on individual giving based upon solid data collection over time. Our estimates still rely on the incomplete picture of giving by itemizers from IRS data. This data provides the aggregate amount of charitable deductions, but no information on which organizations receive the gifts. Since itemizers represent only slightly more than one quarter of all taxpayers, we must rely on survey data or models with little backup data to estimate giving among the rest of the population. Although household surveys on giving are useful, they cannot be used as a replacement for the verifiable data of a longitudinal data series. Some recent studies that attempt to analyze patterns of giving among the wealthy, while very interesting, are flawed because they are not real random samples. The last survey of the upper two percent of the wealthy was in 1973 and was commissioned by the Commission on Private Philanthropy and Public Needs in cooperation with the U.S. Department of the Treasury. Total giving can now be verified through institutional data, but cannot be disaggregated by individuals. It is this discrepancy between what institutions record on their 990 returns and other estimates of total contributions that calls for a much more intense and serious attempt to build a reliable series of data. Until there is progress made in this critical area, figures about total individual giving and its designation are subject to gross estimates.
Trends in Voluntary Service More and more Americans and associations are using interactive technology, such as the Internet and local cable television, to keep in touch and to engage in discourse about public issues. At a time when there is concern that there is a civic decline in America, Everett C. Ladd (1996) concluded in a recent review of the research on citizen participation that "America in its post-industrial era is a vigorously civic America." (Ladd, 1). While the future presents challenges about government, continued services and maintaining the quality of life in this country, there are signs that the levels of participation and voluntary association and service will increase. There is the possibility for citizens to renew their commitments to community development and engage in the kinds of public discussion that make possible wise decisions about their future course. At the very heart of the independent sector and its voluntary associations is enhanced citizen participation, voluntary service and responsibility. Such is one of its unique roles and with this role lies its future.
For more information see: References
Abramson, Alan J. and Lester M. Salamon,
"The Federal Budget and the Nonprofit Sector: FY 1996 and FY 1997". A report
prepared for INDEPENDENT SECTOR. |
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Copyright © 2004 Independent Sector. All Rights Reserved.
