There are over 2.3 million charities in the United States and 1.6 million are registered with the IRS. In the Philadelphia Metropolitan Area, which includes Philadelphia-Camden-Wilmington, PA-NJ-DE-MD (part), there is strong competition among 501(c)(3) nonprofits for grant support from foundations and corporations. The number of public charities has increased but few grantmakers are increasing their budgets for awards.
The Urban Institute Center on Nonprofits and Philanthropy posed the question of whether there are too many nonprofits. The question may not be whether there are too many nonprofits but whether or not they are serving the populations in need. This is particularly true of human service public charities.
Will the growing number of public charities affect how they go about seeking grants to support their missions? Through collaboration, many of these nonprofits may be more effective.
"It is the long history of humankind (and animal kind, too) that those who learn to collaborate and improvise most effectively have prevailed."
Public Charity and/or Private Foundation ?
There are actually 27 types of tax-exempt organizations but 501(c)(3) is the only type that is either a private foundation or public charity. The IRS has a helpful slide presentation, The Wonderful World of Foundation Classification, which includes an explanation of how the IRS 501©(3) determination letter documents a nonprofit’s status. All 501©(3) organizations are private foundations unless they meet an exception. The exception is being a “public charity”. Public charities include charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. A charitable contribution to a 501(c)(3) public charity is tax-deductible, which is another distinction about this particular classification.
Number of Public Charities is large and growing
Nationally, the number of tax-exempt nonprofits is significant and continues to grow. In New Jersey, the number of tax-exempt 501(c)(3) organizations grew by 72% between 1998 and 2008 - and 70% of nonprofits in the state were formed after 1990. In Pennsylvania, the number of nonprofits has grown by 40% since 2000. The number of public charities registered in Delaware has grown by 65% since 2000.
The numbers are still climbing. In 2012, the IRS files indicate that there were 51,748 applicants for tax-exempt status as “religious, charitable and similar organizations”, among which 45,029 were approved.
Chuck McLean , vice-president of research for GuideStar, Inc., which collects and analyzes nonprofit data, has observed a change since 9/11 that is "almost a knee-jerk reaction". Qualifying his comments as not being perjorative, he noted:
"Somebody gets very excited about something and thinks 'I can do this better than other people'," adding that "very few of these charities are going to last."
By state, as of May 2013, there were a substantial number of registered nonprofits that file a 990 with the IRS annually as well as those with revenue zero to $50,000 which file a 990-N.
- New Jersey, 44,052, with 21,943 filing form 990 and 11, 036 filing form 990-N;
- Pennsylvania, 72,184 with 39,078 filing form 990 and 19,835 filing form 990-N;
- Delaware, 6.921 with 4,077 filing form 990 and 1100 filing form 990-N
The Philadelphia Metropolitan Area includes five counties in the Philadelphia division (Philadelphia, Bucks, Chester, Delaware, Montgomery), three counties in the Camden division (Camden, Gloucester, Burlington) and Wilmington division (New Castle, DE, Salem, NJ and Cecil County, MD).
Smaller charities with revenue under $50,000 had not been required to file until 2006 when they were required to send in a "postcard" reporting basic information, 990-N. Those that failed to provide this report for three consecutive years have had their tax-exempt status revoked. The August 2013 IRS report indicates that 9,611 nonprofits in New Jersey, 11,478 in Pennsylvania and 1097 in Delaware have had their tax-exempt 501(c)(3) status revoked for failing to file either the form 990 or notice for three consecutive years. They may have their tax-exempt status restored or pending while their name remains on the list.
“Advance Ruling” and Publically Supported Organizations
One important change for public charities is elimination of the “advance ruling” from the IRS. Previously, an organization would have 5 years to show that it is a publically supported organization and not a private foundation. With the elimination of the advance ruling, a new organizations with 501©(3) status is immediately classified as a publically supported organization and not a private foundation if it has a reasonable expectation of being publically supported.
Challenges and Solutions for Public Charities Seeking Grant Support in the Philadelphia Metropolitan Area
Are there enough grantsmakers to contribute to the work of so many public charities? Most public charities should be prepared to find alternative ways to support their missions, even those which have historically received significant funding from foundation and corporate grants. Grant makers simply cannot afford to show largesse without a concrete basis for their investment. Many grantmakers have yet to recover from the recession and do not anticipate giving at 2008 until 2017. At the same time, nonprofits which deliver human services have the "double whammy" of increased demands for services and shrinking support in the form of donations and government support.
Wise investments now can stem job losses in nonprofits and sustain services to those in need—a double dividend. Philanthropy can seed and reap significant long-term benefits for our communities by acting now.
- Elizabeth Boris, Director, Center on Nonprofits and Philanthropy
Charities that survive may need to adapt their grant seeking approach. At the February 2013 conference among regional grantmakers held at Neumann University, “Communicating with Grantmakers in the Current Economic Environment”, these five tips were offered to grantseekers:
- read the grant application, a seemingly obvious but often overlooked step;
- establish a relationship with the grant maker;
- candidly address the organization’s problems;
- make use of free resources such as those found at the regional Foundation Center libraries;
- and collaborate with others – even the competition
Collaborate and Improvise
The most important step a public charity may take is to collaborate. The Nonprofit Finance Fund has established the Catylst Fund, which is a regional and national model that focuses on voluntary collaborations and mergers. In the Stanford Social Innovation Review, Jean Butzen interviewed the Nonprofit Finance Fund's Catalyst Manager, Peter Kramer. He stressed the role of the board in the process: “Have the boards passed some type of resolution for the initiative?” Uninvolved boards are key to starting the process and carrying it out. In measuring success, the Catalyst Fund looks for meaningful change in the business model and utilizing collaboration strategies.
Among others, the Foundation Center has a database on collaboration resources. Grantmakers may also want to inquire about "capacity building" grants in their searches
Harvard Business Review explores this subject in Ben Hecht's blog, "Collaboration is the new competition". Hecht hones in on key factors that make or break a successful collaboration, including the need to transcend parochialism and not focus on one's own priorities.
Free Resources for Grantseekers
In New Jersey, important resources for include the Center for Nonprofits and the Council of New Jersey Grantmakers. The Center for Nonprofits lists funding announcements and pertinent legal information. The State of New Jersey has its own web page for nonprofits, providing information a directory of registered charities and relevant news.
Pennsylvania grant seekers will benefit from visiting the web site of Delaware Valley Grantmakers. It does not provide technical assistance to grant seekers. Grantseekers should not directly contact this membership organization for any reason. A visit to its web site does provide insight into the grantmakers' perspective. It provides links to its members, on its website.
The Foundation Center has several regional libaries, including an exemplary branch of its regional libraries in the Logan Square site of the Free Library. Grant seekers who visit the library can use the Foundation Center's online databases at no cost. Other libraries with Foundation Center resources can be found on this map.
Delaware nonprofits will benefit from the work of the Delaware Grantmakers Association. There was a guide to grants in Delaware but it has ceased production. Delaware grantseekers are encouraged to visit the Foundation Center, online and at the regional libraries.
The number of public charities seeking grant funding should not discourage public charities from grant seeking. This glut of public charities at a time funding is scarce may create opportunities. Charities with strong boards and a willingness to collaborate can develop projects and services that better carry the public interest they were intended to serve.