Private Action/Public Good

Transcription

1 Private Action/Public Good Maryland s Nonprofit Sector in a Time of Change Executive Summary Lester M. Salamon Institute for Policy Studies

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3 PR I VAT E AC T I O N/ PU B L I C GO O D: Ma ry l a n d s No n p rofit Sector in a Time of Change Lester M. Sa l a m o n Exe c u t i ve Su m m a ry with the assistance of Peter Berns, Amy Coates Ma d s e n Wojciech So k o l owski, and Stefan To e p l e r Ma ryland Association of No n p rofit Org a n i z a t i o n s Institute for Policy St u d i e s Johns Hopkins Un i ve r s i t y

4 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change Ma ryland Association of No n p rofit Or g a n i z a t i o n s 190 West Ostend St reet, Suite 201 Ba l t i m o re, MD Copyright 1997 Ma ryland Association of No n p rofit Or g a n i z a t i o n s All rights re s e rved. Except for short quotations, no part of this book may be re p roduced or utilized in any form or by any means, electronic or mechanical, including photocopying, re c o rding, or by information storage or re t r i e val system, without written permission from Ma ryland Association of No n p rofit Organizations or Lester M. Salamon. Pr i vate Ac t i o n / Public Good/ by Lester M. Sa l a m o n

5 Executive Summary P R E FAC E In his 1990 re p o rt, Mo re than Ju s t Charity: The Ba l t i m o re Area No n p rofit Sector in a Time of Change (1990), Dr. Lester M. Salamon of the Johns Hopkins Un i ve r s i t y Institute for Policy Studies startled the local community with his re velations about the size, scope, stru c t u re, and financing of Ba l t i m o re s n o n p rofit sector. That re p o rt demonstrated that the nonprofit sector in the Ba l t i m o re metropolitan region was a major player in the economy of the area, employing more people and pumping more money into the local economy than had ever been imagined or expected. In the re p o rt, Dr. Salamon also described the significant contribution nonprofits make to the quality of life in the region, providing programs and services that touch the lives of more than 2.3 million area residents. More Than Just Charity s findings and recommendations were of more than academic interest in the nonprofit and philanthropic community -- they were a catalyst for change. The report offered a series of recommendations to strengthen the region s nonprofit sector and many of these have since been implemented. In fact, one of those recommendations led to the creation of the Maryland Association of No n p rofit Or g a n i z a t i o n s (Maryland Nonprofits). In the intervening years, Ma ry l a n d No n p rofits has worked to organize Ma ry l a n d s n o n p rofit sector, provide training and technical assistance, create cooperative buying pro g r a m s for nonprofits, and educate political leaders, g overnment officials, business and community leaders, and the general public about the important role of the state s nonprofit community. With the publication of the present re p o rt, Ma ryland No n p rofits takes a giant step tow a rd this latter goal. Pr i vate Ac t i o n / Public Go o d : Ma ry l a n d s No n p rofit Sector in a Time of C h a n g e is the first effort that has ever been u n d e rtaken to provide a compre h e n s i ve picture of the state s entire nonprofit sector. We are pleased and privileged to have Lester M. Salamon serve as principal inve s t i g a- tor and author of this important re p o rt. T h e n o n p rofit sector in Ma ryland is extraord i n a r i l y f o rtunate to have Dr. Salamon as part of our c o m m u n i t y. Re c o g n i zed as the pre e m i n e n t authority on the nonprofit sector, nationally and internationally, Dr. Salamon brings a wealth of knowledge, insight and wisdom to enrich our understanding of Ma ry l a n d s nonp rofit sector. Just as the 1990 re p o rt startled re a d e r s, Pr i vate Ac t i o n / Public Good: Ma ry l a n d s No n p rofit Sector in a Time of Change is sure to astound as well. The re p o rt describes a nonp rofit sector that has grown substantially ove r the past six years and that plays a more significant role in the economy than anyone expected. It also describes a set of organizations that iii

6 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change reaches into eve ry corner of the state, from the Eastern Sh o re to the mountains of We s t e r n Ma ryland; and that touches the state s re s i d e n t s in a hundred different ways. Of great concern, howe ve r, is the re p o rt s description of the vulnerability of the state s n o n p rofit sector. Dr. Salamon describes how Ma ry l a n d s nonprofit organizations are stru g- gling to meet ever increasing demands for service in the face of diminishing gove r n m e n t s u p p o rt, lackluster charitable giving, and i n c reasing public skepticism. Fo rt u n a t e l y, Dr. Salamon also offers us some solutions. T h e re p o rt s Blueprint for Ac t i o n provides a five - point plan for the re n ewal of Ma ry l a n d s nonp rofit sector that is both straightforw a rd and a c h i e vable. Pr i vate Ac t i o n / Public Go o d should be studied carefully by government officials, nonprofit staff, board members, business and community leaders, and anyone who is interested in the success of Maryland s nonprofit sector and the quality of life in our state. The report s recommendations should provide the starting point for a statewide and community-wide effort to strengthen and renew this i m p o rtant segment of Ma ryland society. That effort needs to start today. Peter V. Be r n s Exe c u t i ve Di re c t o r Ma ryland Association of No n p rofit Or g a n i z a t i o n s iv

7 Executive Summary AC K N OW L E D G M E N T S This report represents an attempt to place on the economic, political, and social map of the State of Maryland a set of institutions on which the state s citizens rely every day but of which they are largely unaware-- the thousands of day care centers, hospitals, higher education institutions, social service agencies, employment and training facilities, theaters, museums, symphonies, and countless others that comprise the state s private nonprofit sector. Although it was my privilege to carry out this study, the inspiration for it, and much of the hard work that made it possible, came largely from Peter Berns, the able and energetic exe c u t i ve director of the Ma ry l a n d Association of No n p rofit Or g a n i z a t i o n s (MANO), and Amy Coates Madsen, his thorough special assistant. It was Peter who first conceived the idea of following up on an earlier study I had done of the Baltimore area nonprofit sector. It was Peter who convinced me to take on this task. It was Peter who finally managed to secure the funding needed to support the effort. And it was Peter who, along with Amy, worked with me at every stage to design the survey, determine the sampling strategy, field the survey, convert the results into computer-readable form, and then help prepare the resulting manuscript for publication. The assistance mentioned on the title page thus understates by far the contribution that Peter and Amy made to this report. Both were full-fledged collaborators on this project without whose help the report would not have been possible. In addition to Peter and Amy, this project received invaluable assistance from Drs. Wojciech Sokolowski and Stefan Toepler of the Johns Hopkins Institute for Po l i c y Studies, who carried out the data processing and graphics development work on the survey and employment data, respectively. In the case of the survey in particular this required hours of rather complex data analysis and re-analysis and often intricate detective work to ferret out various glitches and anomalies in the data. Thanks are also due to Mr. Patrick Arnold, Director of the Division of Labor Market Analysis and Information in the Ma ryland De p a rtment of Labor, Licensing and Regulation, and to the Honorable Eugene A. Conti, Jr. Secretary of that Department, for the tremendous service they did in pulling nonprofit firms out of the regular employment data that the De p a rtment collects from employe r s throughout the state; to Beverly Valcovic and Nikki Baines of the Maryland Secretary of State s office and to the Honorable John Willis, Secretary of State for helpful information and assistance; to Tom Brown of the Johns Hopkins Department of Sociology, who assisted with the initial sampling; to v

8 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change Marcy Shackelford and Jacquelyn Perry of the Johns Hopkins Institute for Policy Studies, who made major contributions to the production of the manuscript; and to the hundreds of Maryland nonprofit organization officials who took time from their busy schedules to complete the survey on which much of this report is based. Finally, I want to express my appreciation to the funders of this project: the Morris Goldseker Foundation, the Nonprofit Sector Research Fund of the Aspen Institute, the Eugene and Agnes E. Meyer Foundation, the Abell Foundation, the National Society of Fundraising Exe c u t i ve s - Ma ryland Chapter, the Association of Ba l t i m o re Are a Grantmakers, and the Chesapeake Planned Giving Council. Despite the help I have received, any conclusions or opinions expressed in this report are my own and are not necessarily shared by those who assisted with the effort, by the institutions with which we are affiliated, or by those that supported the work. As with any project of this sort, the final task of unraveling a complex body of data of the kind assembled here and making sense of it involves as much art as science. Judgments inevitably have to be made about which findings are significant and which not, which points deserve highlighting and which are trivial, which results should be questioned and which believed. In the present study, those judgments fell to me to make. Ultimately, therefore, responsibility for any errors of fact or interpretation that remain is mine alone, and I accept it gladly. Lester M. Sa l a m o n Arnold, Ma ry l a n d August 22, 1997 vi

9 PR I VAT E AC T I O N/ PU B L I C GO O D: MA RY LA N D S NO N P RO F I TSE C TO R I N A TI M E O F CH A N G E Lester M. Sa l a m o n EX E C U T I V ESU M M A RY * IN T RO D U C T I O N Be yond the institutions of gove r n m e n t and private business so familiar to citizens of Ma ryland lies a vast collection of other organizations that play a crucial role in community life but that are largely unknown to most residents, unre p o rted in the media, and unexamined by either policy makers or re s e a rc h e r s. This collection of organizations is known va r i- ously as the n o n p rofit, the vo l u n t a ry, or the c h a r i t a b l e sector and it includes thousands of p r i vate day care centers, adoption agencies, family counseling programs, employment and training facilities, neighborhood organizations, nursing homes, hospitals, colleges, unive r s i t i e s, schools, self-help groups, museums, art galleries, theaters, and others. The purpose of this re p o rt is to fill the va s t gap in knowledge that has long existed about these organizations in Ma ryland and thus to p rovide a better foundation for appraising their c u r rent role and future prospects. To do so, the re p o rt draws on three principal sources of data: A new body of employment data generated specially for this project by the Maryland Department of Labor, Licensing, and Regulation (DLLR). * Full copies of this re p o rt are available from the Ma ryland Association of No n p rofit Organizations, 190 Ostend St re e t, Suite 201, Ba l t i m o re, MD 21230, for a cost of $ Section 501(c)(3) grants tax exemption to organizations that are o r g a n i zed and operated exc l u s i vely for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur s p o rts competition or for the pre vention of cruelty to children or animals... Section 501(c)(4) grants exemption to civic leagues or organizations not organized for profit but operated exc l u s i vely for the promotion of social we l f a re. 1 A s u rvey of nonprofit public-benefit organ i z a t i o n sconducted by this author in cooperation with the Ma ryland Association of No n p rofit Or g a n i z a t i o n s. The U.S. Census of Se rvice Industries and related data used to conve rt employment estimates into estimates of operating expenditure s. The focus of the re p o rt is that portion of the nonprofit sector that serves essentially public purposes. Such organizations enjoy exe m p- tion from federal income taxation under two of the more than 25 provisions of the U.S. tax code that provide for such exe m p t i o n n a m e l y, sections 501(c)(3) and 501(c)(4). 1 MA J O R FI N D I N G S Twe l ve major conclusions emerge fro m this work, as outlined below. 1. MA RY LAND S NONPROFIT SECTO R IS A MAJOR ECONOMIC FORC E. Mo re people work in nonprofit o rganizations in Ma ryland than in manufacturing. Em p l oy m e n t. No n p rofit organizations e m p l oyed just over 185,000 workers, or one out of eve ry 12 workers, in Ma ryland as of the end of 1996.

10 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change Source: Author s estimates based on data from Maryland Department of Labor, Licensing, and Regulation More people are therefore employed in the nonprofit sector in Maryland than in all of the state s manufacturing industries, all of its construction businesses, all of its finance and real estate businesses, all of its transportation and communications businesses, and both the federal government and the state government (See Figure 1). With volunteer effort included, the nonpro f- it sector accounts for an even larger 11.4 percent of the state s total work f o rc e. Wages and expenditure s. The paid employment of nonprofit organizations alone accounted for over $5 billion in wages in 1996, or close to 8 percent of the state s total wages. The overall expenditures totaled close to $13 billion, or the equivalent of almost $2,600 per Ma ryland re s i d e n t. T h ree fields absorb the majority of nonpro f i t e m p l oyment in Ma ry l a n d : - He a l t h, which accounts for over 50 perc e n t of the nonprofit employ m e n t ; - Education and re s e a rc h,which accounts for 21 percent; and - Social serv i c e s, which accounts for 19 percent (Fi g u re 2). 2. MA RY LAND S NONPROFIT SECTO R HAS BEEN A MAJOR CO N T R I B U TOR TO S TATE EMPLOYMENT GROWT H. No n p rofit organizations accounted for half of the net new jobs that Ma ryland generated b e t ween 1989 and ,000 new jobs c o m p a red to 67,274 new jobs for all the s t a t e s industries. Compared to the 35,000 n ew jobs that the nonprofit sector generated, Ma ry l a n d s manufacturing firms lost 30,175 jobs, its construction industry lost 26,228 jobs, and its wholesale trade industry lost 4,905 jobs (Fi g u re 3). O ver half of the total job growth in Ma ryland between 1989 and 1996 came from the nonprofit sector. 2

11 Executive Summary Source: see Figure 1 No n p rofit job growth was particularly ro b u s t in the fields of culture and arts (+87 perc e n t ), social services (+49 percent), and health (+24 p e rcent). By contrast, it was much more restrained in the field of education (+11 percent). In virtually eve ry field, howe ve r, nonp rofits added jobs at a rate substantially g reater than that of the overall state economy. The growth rate of nonprofit employ m e n t has slowed considerably in the past couple of Source: see Figure 1 3

12 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change years, howe ve r, dropping from an ave r a g e annual growth rate of 4.9 percent betwe e n 1989 and 1992 to only 1.0 percent betwe e n 1995 and Despite often substantial growth, nonpro f i t organizations appear to be losing mark e t s h a re to for-profit firms in the larger fields of n o n p rofit action--i.e. health, education, and social services. This is particularly striking in the field of social services, where nonpro f i t organizations suffered a 6 percent decline in their market position re l a t i ve to for-pro f i t companies between 1989 and NO N P ROFIT ORG A N I ZATIONS ARE PRESENT IN EVERY REGION OF THE STATE. Even in Western Ma ryland and the Eastern Sh o re, nonprofit organizations account for 6 to 8 percent of total employment, thus outdistancing construction, transport a t i o n, wholesale trade, real estate and insurance, and manufacturing as sources of employ m e n t. Even in We s t e rn Ma ryland and the Ea s t e rn Sh o re, nonprofit org a n i z a t i o n s outdistance construction, tra n s p o rt a- tion, wholesale trade, real estate and i n s u rance, and manufacturing as s o u rces of employment. Although the nonprofit sector is present in all p o rtions of the state, like the state s population m o re generally its c a p i t a l is clearly Ba l t i m o re City and the Ba l t i m o re region. T h i rt y - n i n e p e rcent of all Ma ryland nonprofit employe e s w o rk in Ba l t i m o re City alone and another 25 p e rcent in the Ba l t i m o re metropolitan are a outside of the city. In fact, 18 percent of the c i t y s jobs--or one out of five - - a re in the nonp rofit sector. Like the state s population, howe ve r, nonp rofit employment has been d e c e n t ra l i z i n g, with the greatest growth in the outlying regions. Thus nonprofit employment grew by 9 percent in Ba l t i m o re City between 1989 and 1996, but by 22 percent in We s t e r n Source: see Figure 1 4

13 Executive Summary Ma ryland, 36 percent on the Eastern Sh o re, 38 percent in the Washington suburbs, and 40 percent in the Ba l t i m o re suburbs. In the p rocess it outdistanced overall employ m e n t g rowth in eve ry region (Fi g u re 4). 4. THE NONPROFIT SECTOR IS E X T R E M E LY DIVERSE, TOUCHING V I R- T UA L LY EV E RY MAN, WOMAN, AND CHILD IN THE STAT E. The more than 12,000 nonprofit organizations operating in Ma ryland affect virt u a l l y e ve ry aspect of community life, from health and education to culture and re c re a t i o n. T h e re are few areas of community life in which nonprofit o rganizations are not making a contribution in Ma ry l a n d. By far the most common field of nonpro f i t action is social serv i c e s. Just over half of all Ma ryland agencies re p o rted some invo l vement in this field (Table 1). Just behind social services as a focus of nonp rofit action is e d u c a t i o n, which engages nearly half of Ma ryland nonprofit organizations. Included here are actual educational institutions as well as parent-teacher associations and information centers of various sorts. The third most commonly cited activity of Ma ryland nonprofit organizations, signific a n t l y, is a d vo c a c y. Just over 30 percent of all agencies re p o rted some invo l vement in advoc a c y, civil rights, or legal rights. In addition, 29 percent indicated some invo l vement in community development, which is ve ry similar to advo c a c y. When measured in terms of p r i m a ry service field, i.e. the field that absorbs the majority of agency expenditures, three fields-- c u l t u re, arts, and re c reation; social serv i c e s ;a n d e d u c a t i o n--clearly attract the majority of Ma ryland nonprofit agencies. Taken togethe r, these three components account for ove r half (56 percent) of all nonprofit agencies in the state. Ma ryland nonprofit agencies also differ considerably by size : Table 1 Fields of Activity of Ma ryland No n p rofit Agencies, 1996 (n=12,981) Agencies Re p o rting Some Activity in the Fi e l d Fi e l d Nu m b e r Pe rc e n t * Social serv i c e s 6, % Ed u c a t i o n 5, Ad vo c a c y, legal serv i c e s 4, Community deve l o p m e n t 3, A rts and culture 3, Ph i l a n t h ro p y, vo l u n t e e r i s m 2, Re s e a rc h 2, En v i ronment, animal pro t e c t i o n 2, He a l t h 2, Mental health 1, Sp o rts, re c re a t i o n 1, Em p l oyment, job training 1, Crime, criminal justice 1, In t e r n a t i o n a l 1, So u rce: MANO/JHU Ma ryland No n p rofit Su rve y, 1996 * Because agencies we re free to re p o rt more than one service, percentages here total more than 100 perc e n t. 5

14 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change The top 7 percent of Ma r yland n o n p rofit organizations account for 93 percent of total n o n p rofit ex p e n d i t u re s. - Tw o - t h i rds of Ma ryland nonprofit organizations have total expenditures of less than $25,000. Taken together, howe ve r, these agencies account for only 1 percent of total n o n p rofit expenditures in the state (Fi g u re 5). - At the opposite extreme, 7 percent of the agencies have expenditures of $1 million or m o re. Howe ve r, these agencies account for 93 percent of all expenditures. - Smaller agencies make more extensive use of volunteers than they do of paid staff (13 percent vs. 1 percent). Howe ve r, the 7 percent of agencies in the largest size category still absorbed a dispro p o rtionate share (43 percent) of the vo l u n t e e r s. 5. THE MARY LAND NONPROFIT SEC- TOR IS DYNAMIC. Almost two-thirds of the organizations in existence at the time we conducted our survey in 1996 had been created since 1971, and ove r 40 percent since This suggests the critical role that the nonprofit sector performs as a mechanism for surfacing and responding to n ew social concerns and thus as a significant s o u rce of social vitality. It may also reflect the m ovement of nonprofit organizations to the suburbs identified above. Almost two-thirds of the organizations in existence in 1996 had been created since Especially large shares of newer agencies are evident in the employment and training field, in social s e rvices, in community deve l o p- ment and environmental protection, and in the other category. By contrast, much higher proportions of multipurpose, advocacy, and education organizations were formed prior to Included here are the large family service agencies that have become so pivotal a part of the human service scene in the state (Figure 6). Source: MANO/JHU Maryland Nonprofit Survey

15 Executive Summary operate primarily at the city or county level. Ma ry l a n d s nonprofit sector is not primarily c h a r i t a b l e in the narrow sense of the word. Another quarter of Maryland s nonprofit organizations serve a metropolitan or state-wide clientele. T h e y therefore provide a mechanism for addressing problems that span local governmental jurisdictions. Source: MANO/JHU Maryland Nonprofit Survey 1996 While the younger agencies are far more n u m e rous than the older ones, they are also much smaller. Thus, the 26 percent of all agencies formed prior to the 1960s account for a striking 84 percent of the expenditure s. 6. MARYLAND NONPROFIT ORGA- NIZATIONS SERVE A BROAD CROSS- SECTION OF THE STATE S CITIZENS. Ma ryland nonprofit organizations perform a variety of social roles. Many serve a community-building function, linking individuals to the communities where they live. Re f l e c t i n g this, the largest single group of agencies, accounting for 27 percent of the total, re p o rt a neighborhood focus, and another 26 perc e n t Despite the conve n t i o n a l notion that nonprofit organizations primarily serve the p o o r, most agencies serve a d i verse clientele. The poor thus comprise the majority of the clients of only 16 perc e n t of the agencies. And only 26 p e rcent of the agencies re p o rted that the poor comprise as many as 10 p e rcent of their clients. Clearly, Ma ry l a n d s nonprofit sector is by no means primarily c h a r i t a b l e in the diction a ry sense of the term. The agencies most likely to focus primarily on the poor are large agencies, younger agencies, agencies in the fields of health and mental health, and agencies located in Baltimore City (see Figure 7). In no case, however, does a majority of the agencies report focusing primarily on the poor. 7

16 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change Pr i vate giving comprises less than 5 percent of total n o n p rofit sector income in Ma ryland, much smaller than is the case nationally. This means that private phila n t h ro p y s share of total nonp rofit income is pro p o rt i o n a l l y two and one-half times smaller in Ma ryland than it is nationally (4 percent vs. 10 perc e n t ). Source: MANO/JHU Maryland Nonprofit Survey PR I VATE CHARITABLE GIVING P LAYS A MUCH SMALLER ROLE IN T H E FINANCING OF NONPROFIT AC T I V I TY THAN IS W I D E LY BELIEV E D. More than three-fourths (78 percent) of Maryland nonprofit agencies report some income from private giving, including giving by individuals, foundations and corporations; yet private giving accounts for only 4 percent of total nonprofit sector income in the State (Figure 8). Instead of private giving, the major source of support for Ma ryland nonprofit agencies is e a rned income f rom fees, related businesses, unre l a t e d businesses, and inve s t m e n t s. Such earned income comprises over 50 percent of the total re venue of Ma ryland nonpro f- it agencies, most of it fro m fees and charges, and almost as many agencies re c e i ve income f rom this source (70 perc e n t ) as from private giving. If earned income is the major source of nonp rofit income in Ma ryland, g ove rn m e n t s u p- p o rt is a close second. Federal, state, and local governments provide 44 percent of the income of Ma ryland nonprofit agencies, c o m p a red to 34 percent nationally. Of the ten major types of agencies we identified in our surve y, five get the pre p o n d e r a n c e of their income from government support. Included here are mental health, employment and training, social services, health, and multipurpose agencies. Of the five remaining types of agencies, four get the majority of their support fro m 8

17 Executive Summary Source: MANO/JHU Maryland Nonprofit Survey 1996 earned income. Included here are community development, education, culture and re c reation, and other agencies. In addition, earned income accounts for more than 49 p e rcent of total income in the huge field of health, where it shares top funding honors with gove r n m e n t. In only one field--advocacy--does priva t e giving provide the majority of funding, and this is a re l a t i vely small, though import a n t, field of nonprofit action. Pr i vate giving is a far more significant sourc e of income for small agencies and young agencies. For the latter, howe ve r, the l a r g e s ts o u rc e of income is still government. Sixty percent of the income of the youngest agencies, and 54 p e rcent of the income of the next yo u n g e s t agencies, comes from government. This suggests the important e n a b l i n g function that g overnment performs for nonprofit organizations in Ma ry l a n d. Agencies that primarily serve the poor also tend to have much higher levels of gove r n- ment support than those that do not. Indeed, among primarily poor-serving agencies, government accounts for 74 percent of total income. With volunteer time included, the share of p r i vate giving in total nonprofit re ve n u e m o re than triples from 4 percent to 15 percent. At the same time, even with vo l u n t e e r time included, private giving remains the third most important source of income for Maryland nonprofit agencies, and a distant third at that. Agencies that primarily serve the poor tend to have much higher levels of gove rnment support than those that do not. 9

18 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change 8. MA RY LAND NONPROFIT ORG A N I- ZATIONS HAVE BEEN CONFRONTING SERIOUS CHALLENGES IN RECENT YEARS. THESE CHALLENGES TAKE AT LEAST FIVE DIFFERENT FORMS. In c reased Demand for Se rv i c e s.in the first place, the early 1990s was a period of expanding demand for the services that Ma ry l a n d n o n p rofit agencies provide. Nearly two-third s of the agencies (64 percent) re p o rted noticeable increases in the demand for their serv i c e s during the previous two years, and for nearly 40 percent the increases we re substantial (i.e. 10 percent or more) (Fi g u re 9). Constrained Income Grow t h. In the face of this growth in demand, nonprofit agencies in Ma ryland re p o rted only modest growth in income. Although 45 percent of Ma ry l a n d agencies re p o rted increases in income betwe e n 1989 and 1994, for only 14 percent did the re p o rted increase exceed the rate of inflation (see Fi g u re 10). This means that 86 percent of Ma ry l a n d s nonprofit agencies we re not able to boost their incomes enough to keep pace with inflation. Vi rtually all the sources of income contributed to this tepid perf o r m a n c e, m o re ove r. Staffing Challenges. Reflecting these fiscal p re s s u res Ma ryland nonprofit organizations e n c o u n t e red a variety of staffing problems. Thus, twot h i rds of the agencies re p o rt e d p roblems maintaining competi t i ve benefit packages for their e m p l oyees; and over 60 perc e n t re p o rted increases in the workload per paid employee over the p revious two years. No n p ro f i t agencies thus seem to be demanding more of their e m p l oyees while finding thems e l ves unable to rew a rd the i n c reased work with higher pay. The volunteer s o l u t i o n is h a rdly a panacea for the staffing problems c o n f ronting Ma ryland n o n p rofit organizations. Source: MANO/JHU Maryland Nonprofit Survey 1996 Volunteer Challenges. In addition to experiencing pro b- lems re c ruiting and re t a i n i n g p a i d s t a f f, Ma ryland nonpro f i t organizations are also experiencing problems with the vo l- 10

19 Executive Summary a p p a rent lack of public supp o rt. Over half of the nonp rofit exe c u t i ves we surve ye d re p o rt that they believe that the public is becoming i n c reasingly distrustful of n o n p rofit organizations. O ver half of the n o n p rofit exe c u t i ves we surveyed re p o rt that they believe that the public is becoming increasingly d i s t rustful of nonpro f i t o rg a n i z a t i o n s. *Represents agencies reporting increase in income of 20% or more, enough to exceed the 23% inflation rate during this period. Source: MANO/JHU Maryland Nonprofit Survey 1996 unteer side of their operations. Thus, over 70 percent of the agencies reported difficulties recruiting dependable, qualified volunteers; 62 percent reported difficulties retaining such volunteers once recruited; and close to 70 percent reported problems providing sufficient training for volunteers. What these data make clear is that the vo l- unteer s o l u t i o n is hardly a panacea for the staffing problems confronting Ma ry l a n d n o n p rofit organizations. To the contrary, volunteerism itself faces important challenges in the state. Public At t i t u d e s. Added to the fiscal p re s s u res and resulting staffing difficulties they are confronting, Ma ryland nonp rofit organizations are also facing an Fo r - Profit Competition. Fi n a l l y, Ma ryland nonpro f i t organizations are confronting increased for-profit competition in traditional areas of nonprofit operation. 9. MA RY LAND NONPRO F I TS HAV E RESPONDED TO THE CHALLENGES T H EY FACE BY MAKING MANAG E M E N T AND FUNDRAISING CHANGES. Protecting the Client Ba s e. In the face of these pre s s u res, a quarter of all agencies, and half of the large agencies, re p o rted that funding pre s s u res we re pushing them tow a rd becoming less re s p o n s i ve to client needs and more re s p o n s i ve to market forces. Reflecting this, some percent of all agencies, and 35 percent of the larger organizations, introduced new client fees or i n c reased those already in operation. At the same time, agencies appear to be re s i s t- 11

20 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change ing more direct changes that would re s t r i c t client access. Thus, only 5 percent tightened their eligibility re q u i rements, only 6 perc e n t reduced the number of services they prov i d e or the number of people served, and only 1 p e rcent reduced their hours of serv i c e. Management Changes. Instead, Ma ry l a n d n o n p rofits have turned to a variety of management changes. T h u s : - Almost half of all agencies are making more e x t e n s i ve use of vo l u n t e e r sin their basic program operations; - Mo re than 45 percent of all agencies, and 90 p e rcent of the large agencies, have re c e n t l y instituted new management practices; - Other widespread management changes adopted over the past two years invo l ve i n c reasing user invo l ve m e n t (28 percent of agencies), sharing re s o u rces with other agencies (27 perc e n t ), i n c reased staff training (27 perc e n t ), and reorganizing agency functions ( 2 1 p e rcent). Fundraising Changes. Perhaps the major strategy Ma ryland nonprofit organizations a re relying on to withstand the pre s s u re s they are under is to change their fundraising practices. - Nearly two-thirds of Ma ry l a n d s nonpro f i t organizations re p o rt that they tried at least one new fundraising approach in the pre v i- ous two years, and thre e - f o u rths re p o rt that they are planning additional changes over the next two years. - A third of all agencies applied to new corporate and foundation donors in the past two years and half expect to make a try over the next two years. - About a quarter of the agencies re p o rted trying special events fundraising, product sales, and new gove rnment pro g ra m sover the pre v i- ous two years and between 40 percent and 50 percent plan to turn to them over the next two ye a r s. - Among large agencies, over 60 perc e n t i n c reased their f e e sover the previous two ye a r s. Anticipated Funding Tre n d s. Ma ry l a n d n o n p rofit organizations are rather optimistic about the likelihood that these new fundraising strategies will yield results. Thus, ove r half (55 percent) expect to boost their re v- enues by at least 10 percent over the next two years. Gi ven the pre vailing patterns of funding, howe ve r, there is reason to be somew h a t skeptical about these expectations. 10. MARYLAND NONPROFIT O RG A - N I ZAT I O N S G E N E R A L LY FOLLOW E T HICAL MANAGEMENT PRAC T I C E S, BUT SIGNIFICANT ROOM FOR IMPROV E - MENT STILL EXISTS. Ma ryland nonprofit boards appear to meet the basic structural and operational characteristics thought to be most conducive to e f f e c t i ve operation. Thus, nine out of ten b o a rds contain 5 or more members and ove r 90 percent meet at least four times a ye a r ( Fi g u re 11). Although virtually no nonprofit board members are compensated for their service, a significant minority of agencies (31 perc e n t ) re p o rted that their board members use their positions for personal enrichment, and 9 p e rcent re p o rted that their organizations had p u rchased goods or services from a board member or a board member s immediate family in the past ye a r. 12

21 Executive Summary Despite this, only 21 percent of the agencies re p o rted having written conflict of i n t e rest policies in place (Fi g u re 11). On l y among the large nonprofits does a majority (62 percent) have such a written policy in place. For medium and smaller nonpro f i t s, written conflict of interest policies are the e xception rather than the rule (10 perc e n t and 33 percent, re s p e c t i ve l y ). Only one in five Ma ryland nonprofit agencies has a written conflict of interest policy in place. Most of Ma ryland nonp rofit boards are substantially or highly invo l ved in the central management functions of their organizations--determining the o r g a n i z a t i o n s mission, d e veloping its strategic plan, selecting its board m e m b e r s. Howe ve r, only about half of the organizations indicated that their board s we re substantially or highly invo l ved in re v i ew i n g the organization s perf o r- mance or setting its fundraising strategy; and less than half indicated that the boards had this level of i n vo l vement in hiring, firing, and evaluating the e xe c u t i ve dire c t o r, setting e xe c u t i ve compensation, deciding to purchase goods or services from a board m e m b e r, or setting policy on fees. As stipulated in recommended practice in this field, the vast majority of Ma ry l a n d n o n p rofits (85%) re p o rt having a written mission statement. Howe ve r, fewer than half of the organizations re p o rted having systems in place to evaluate the success of a n y of their p rograms, and less than 20 percent re p o rt e d having systems in place to evaluate a l l o f their programs. Si m i l a r l y, while virtually all re s p o n d e n t s a c k n owledged the importance of disclosure, only thre e - q u a rters re p o rted that they re g u- larly circulate program information; only 54 p e rcent publish an annual re p o rt; and less Source: MANO/JHU Maryland Nonprofit Survey

22 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change than half (49 percent) regularly publish financial statements. Fe wer than half of the organizations re p o rted having systems in place to evaluate the success of any of their pro g rams. In the face of the gaps in accountability noted above, few nonprofit leaders (15 percent) believe that there is a need for additional government regulation. However, a plurality (43 percent) believe that there should be more vigorous enforcement of existing laws and regulations gove r n i n g charitable solicitations; 57 percent favor more effective self-regulation by nonprofits and 59 percent agree that the nonprofit sector should develop a strong code of conduct for nonprofit management practices. 11. THE SCOPE AND STRUCTURE OF THE NONPROFIT SECTOR DIFFERS CONSIDERABLY IN DIFFERENT PARTS OF THE STATE. Ba l t i m o re are a.the Ba l t i m o re region, historically the hub of Ma ry l a n d s economy and its political powe r, is also the capital of its nonp rofit sector. - This region houses half of the state s nonp rofit institutions and accounts for close to t w o - t h i rds of its nonprofit employment. - Close to 11 percent of all employment in the Ba l t i m o re area--one out of eve ry 9 jobs--is in the nonprofit sector, and in Ba l t i m o re City alone this figure reaches 18 percent. - No n p rofit employment has been grow i n g especially rapidly in the Ba l t i m o re suburbs, while growth in the city has been considerably slower between 1989 and Reflecting its role as a regional capital of the n o n p rofit sector, the Ba l t i m o re area has disp ro p o rtionate shares of large agencies, statewide or regional organizations; social serv i c e, education, health, and advocacy organizations; nonprofit health, education, and cultural employment; and agencies focusing primarily on the poor. In addition, Ba l t i m o re a rea nonprofits re c e i ve re l a t i vely more of their support from government, and less f rom either private giving or earned income. Washington suburbs. A ve ry different nonp rofit reality operates in Ma ry l a n d s Washington suburbs. - With 36 percent of the state s population, this region accounts for about 30 percent of Ma ry l a n d s nonprofit institutions and about o n e - f o u rth of the state s total nonpro f i t e m p l oyment. - Though re p resenting only 5.8 percent of total employment, nonprofit employment in the Washington suburbs grew by 38 perc e n t b e t ween 1989 and 1996 and accounted for 37 percent of all job grow t h. - Reflecting its less highly developed charact e r, the nonprofit sector in Ma ry l a n d s Washington suburbs has a larger share of young agencies; significantly smaller shares of nonprofit employment in the traditional fields of health, education, and culture; and a funding base that relies much more heavily on service fees and charges than the state as a whole. It also focuses even less heavily on those in poverty than is the case for the rest of the state. We s t e rn Ma ryland and the Eastern Sh o re. Though often associated exc l u s i vely with urban areas, the nonprofit sector is also ve ry much in evidence in the more rural parts of Ma ryland in the western counties and the Eastern Sh o re. 14

23 Executive Summary - With 15 percent of the state s population, these areas account for just over 12 percent of its nonprofit employment and around 20 percent of its nonprofit organizations. This re p resents half as many people as are employed in all the manufacturing industries in these re g i o n s. - Be t ween 1989 and 1996, nonprofit employment grew by close to 28 percent in these two regions, compared to total employ m e n t g rowth of only 14 percent. - C o m p a red to its counterparts elsew h e re in the state, the nonprofit sector in We s t e r n Ma ryland and the Eastern Sh o re has more health providers, fewer educational institutions; and more social service, cultural, and re c reational associations. In addition, it relies more heavily on government and private giving and less on earned income and focuses less heavily on the poor than is the case for the state as a whole. 12. TO CO PE WITH THE CHAL- LENGES IT FACES, THE MARY LA N D N O N P ROFIT SECTOR IS IN NEED OF A T H O ROUGHGOING PROCESS OF R E N EWAL INVO LVING AT LEAST FIVE CRITICAL STEPS. A Ma ryland Civil Society Commission- - t o engage opinion leaders in Ma ryland in a serious re - e valuation of the state s nonprofit sector and the directions in which it is headed. A Monitoring System for the St a t e s No n p rofit Se c t o r--to ove rcome the gross lack of basic information now available about the n o n p rofit sector in Ma ryland. Data deve l o p e d by the Ma ryland De p a rtment of Labor, Licensing, and Regulation for this project provide a useful starting point for such a system. With these data made available, the state government and the state s philanthropic community should join forces to commission an annual State of Ma ry l a n d s No n p rofit Se c t o r re p o rt. Such a re p o rt could be featured along with existing re p o rts on the business sector in annual round-ups on the state s economy. No business sector would stand for the gross lack of basic information that the nonprofit sector has had to endure in this state. Boosting Pr i vate Giving and Bu t t re s s i n g the St a t e s Pr i vate Ph i l a n t h ropic Ba s e- - t o ove rcome the limited support that Ma ry l a n d n o n p rofit organizations re c e i ve from priva t e charitable giving. This will re q u i re a multip ronged approach including: - Improved Tax Incentives for Giving, such as adoption of an above-the-line charitable deduction for nonitemizers or the establishment of a tax credit system for generous donors. - A Community Foundation In i t i a t i ve to encoura g e the further development of Ma ry l a n d s i m p o rtant but still embryonic communitybased philanthropic institutions. - Fu rther Fu n d raising Tra i n i n g for existing a g e n c i e s. - A Media Campaign to Ce l e b rate Giving and Pa rt n e r s h i p. Bolstering the levels of private giving and buttressing the state s private p h i l a n t h ropic base are crucial to the continued vitality and independence of the state s nonprofit sector. Building Organizational Ca p a c i t y to further strengthen the institutional infrastru c- t u re of the nonprofit sector in the state. T h i s will invo l ve at least four steps: 15

24 Private Action/Public Good: Maryland s Nonprofit Sector in a Time of Change - Tra i n i n g. Ma ryland still lacks an accessible, full-fledged program of nonprofit management training comparable to those that have d e veloped in other states. A group of nonp rofit leaders is now working with the Jo h n s Hopkins Institute for Policy Studies to deve l- op such a degree program, and these effort s d e s e rve widespread support. Ma ryland still lacks an accessible, full-fledged pro g ram of nonprofit management training comparable to those that have developed in other states. - Technical Assistance: A No n p rofit Ma n a g e - ment Im p rovement Fu n d - -to enable nonpro f- it organizations to rethink and rew o rk basic f e a t u res of their organizational stru c t u re and behavior just as business organizations have recently done. - Im p roved Be n e f i t s - -to ove rcome the re p o rt e d difficulties Ma ryland nonprofits are facing in maintaining adequate benefit levels for agency staff. - St rengthened In f ra s t ru c t u e r Or g a n i z a t i o n s - t -o d e velop Ma ryland No n p rofits into an eve n m o re effective service and advocacy ve h i c l e for the state s nonprofit sector. Promoting Public Confidence. Fi n a l l y, serious steps need to be taken to re c a p t u re the p u b l i c s trust in the nonprofit sector. This can be done in at least two ways. - By encouraging a more systematic process of p e rformance measurement among nonpro f i t organizations; and - By establishing standards for appro p r i a t e organizational behavior in the nonprofit sector and creating a mechanism to encourage organizations to adhere to these standard s. CO N C LU S I O N The State of Ma ryland has a vast re s o u rc e for good in its nonprofit sector. The organizations that comprise this sector provide vital community services and contribute to the quality of life in dozens of other ways as well. As this re p o rt has shown, these organizations also play an important economic ro l e. Indeed, they have become one of the state s principal engines of job grow t h. To date, howe ve r, the role of this import a n t set of organizations has been systematically ove r- looked. Worse yet, that neglect has re c e n t l y begun to take its toll. This is evident in significant popular disaffection, limited levels of private charitable support, significant threats to organizational effectiveness, and a slow, steady drift tow a rds greater commercialization. The ultimate goal of this re p o rt is not simply to give Ma ry l a n d s nonprofit sector the attention it deserves, but to stimulate the actions that will allow it to a c h i e ve the promise of which it is capable. The objective of this re p o rt has been to bring this important sector out of the shadow s, to document its basic scale and contours, and to identify some of the challenges it now conf ronts. The ultimate goal, howe ve r, is not simply to give this sector the attention it deserve s, but to stimulate the actions that will allow it to a c h i e ve the promise of which it is capable. Ho p e f u l l y, that task can now proceed with g reater vigor. 16

25 Executive Summary AB O U T T H E AU T H O R Dr. Lester M. Sa l a m o n Lester M. Salamon is a Professor at The Johns Hopkins University and was Founding Di rector of the unive r s i t y s Institute for Policy Studies, a post he left in July 1997 to head the Institute s Center for Civil Society Studies. Dr. Salamon previously served as Director of the Center for Governance and Management Re s e a rch at The Ur b a n Institute in Washington, D.C. and was Deputy Associate Director of the U.S. Office of Management and Budget in the Executive Office of the President. Before that, he taught at Duke Un i ve r s i t y, Va n d e r b i l t University, and, during the American civil rights struggle of the mid-1960s, at Tougaloo College in Tougaloo, Mississippi. Aw a rd for Distinguished Book in No n p ro f i t and Vo l u n t a ry Action Re s e a rch. Dr. Salamon re c e i ved his B.A. degree in Economics and Policy Studies from Pr i n c e t o n Un i versity and his Ph.D. in Government fro m Ha rva rd Un i ve r s i t y. He is married, has two sons, and serves on the Board of the International Society for T h i rd - Sector Re s e a rc h and on the Editorial Boards of Vo l u n t a s, Ad m i n i s t ration and Society, and No n p rofit and Vo l u n t a ry Sector Qu a rt e rl y. Dr. Salamon was a pioneer in the empirical study of the nonprofit sector. His 1982 book, The Fe d e ral Budget and the No n p ro f i t Se c t o r, was the first to document the scale of the American nonprofit sector and the extent of government support to it. As director of the Johns Hopkins Comparative No n p rofit Se c t o r Project, Dr. Salamon has extended this analysis to the international sphere, producing the first c o m p a r a t i ve empirical assessment ever undertaken of the size, stru c t u re, financing, and ro l e of the nonprofit sector at the global level. Dr. Salamon is the author or editor of m o re than a dozen books and has contributed a rticles to more than 50 different journals. Hi s book, Am e r i c a s No n p rofit Sector: A Pr i m e r, is the standard text used in college-level courses on the nonprofit sector in the United St a t e s. His Pa rtners in Public Se rvice: Gove rnment and the No n p rofit Sector in the Mo d e rn We l f a re St a t e, published in 1995 by the Johns Ho p k i n s Un i versity Press, won the 1996 ARNOVA 17

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28 Maryland Association of Nonprofit Organizations Suite West Ostend Street Baltimore, Maryland Tel: Fax: