Stereotyping Nonprofits

By Scott Lilly | Jul 29, 2014

I keep hearing emphasis on “for profit” and “nonprofit” organizations.  When I hear that, it’s usually in the context of “nonprofit” is noble, and “for profit” is not-so-much.  Let’s examine the reality of for-profit and nonprofit organizations.

 

First let’s challenge the assumption that “nonprofit” is, by default, noble.  The qualification for being a nonprofit organization is that there is a “mission” that benefits some community and all the funds ought to be used towards that mission.  Nonprofit organizations are tax-exempt and do not pay taxes on profits.  Nonprofit organizations can and should profit – but their profits are invested back into their mission – without being taxed.

 

As that might sound like a noble mission of an organization to put all the profits toward the mission, there are nuances that might cause you to re-think any stereotype you have about nonprofits.  Some might find it surprising that the National Football League (NFL) is a nonprofit (tax-exempt) organization.  The NFL’s commissioner makes $29M/year.  Depending on how much you love football, your opinion may change on how noble those overpriced tickets and trademarked items are.

 

Let’s also consider hospitals since that has recently been in the news here in Haywood County.  I had relatives that worked in a nonprofit hospital administration.  One area hospital had control (ownership) over a medical billing company.  The medical billing company was making enough profit that it could threaten the nonprofit status of the hospital.  So it’s certainly possible that nonprofit organizations can make large profits!  And even in the direct business of a hospital, there is no limit to what they can charge – so long as they have a place to put the profits.  Using those profits, the hospital can build a new parking deck or research wing or maybe give executive bonuses to dispose of the profits – all in the name of spending the profits on their mission.  Forbes’ ranks the five most profitable hospitals in the US – and it contains three that are nonprofit!  (Think about what that means while considering why healthcare costs continue to rise.)

 

Schools operate much the same way.  Universities are best to see this.  Look at how lavish many college campuses are with gymnasiums, parking decks, and dining halls that can’t possibly exist in the for-profit economy.  The universities perpetually raise tuition.  Any “extra” they have is “invested” into bigger and better things – some arguably have little to do with “education”.  Or in the case of the nonprofit Duke University, they offer generous $1.2Million in compensation to their president – all while being a nonprofit.

 

There are ways charitable organizations can exploit nonprofit status.  Think about Jim and Tammy Faye Bakker with the PTL club that transferred money to fund their lavish spending.  In 2013, CNN reported The National Cancer Coalition out of Raleigh makes the top-50 list of worst charities (nonprofit) because of how it spends money on donors, doesn’t donate enough cash, and claims to provide services that cannot be verified.  And let’s not forget about some of our favorite nonprofits: political entities!  Yes, the Republican National Committee (RNC), Democratic National Committee (DNC), National Rifle Association (NRA), and Planned Parenthood are all nonprofits.  And these nonprofits love to pay speaker fees to people like Bill Clinton (the record holder) who in 2011 earned $13.4 Million in speaker fees.  Anyone want to guess how much of that came from nonprofit organizations?  (Sarah Palin can earn $115k to give a speech too – paid for by any nonprofit.)

 

I could sell my services to any nonprofit that will pay me $10,000/hour.  All I have to do is find one that will hire me.  If a nonprofit would like to put my buddy on their board, I might get him to agree to allocate a large chunk of budget for the nonprofit management staff to conduct offsite meetings in Cancun.  And in a really crooked situation, I could do both at the same time.

 

So next time you hear someone stereotype a nonprofit, take a few moments to reflect on how that stereotype might need to be challenged.  The description “nonprofit” should not mean “free pass”.

Comments (5)
Posted by: Charles Zimmerman | Aug 01, 2014 10:02

          Nonprofit designation was a spinoff from church provided services originally. Unfortunetly the Founding Principle of "No Taxation without Representation" has been prostituted/perverted to encompass any organization whose intent is to provide a "social service". Thank you 501(c) designations and their spawn.

 

              C.Z.



Posted by: Grass Roots WNC | Aug 01, 2014 12:59

Recently local governments have been forming alliances with 'non-profits' as though they are better than 'for profit' companies... Towns and the County should look at the smart local business owners - promote alliances with them! They actually pay taxes to support the government services we all use!



Posted by: Charles Zimmerman | Aug 01, 2014 13:49

                   Public taxes should never be used to support private enterprise. Hire more government employees sworn to abide by OUR Constitutions.

 

                 C.Z.



Posted by: Scott Lilly | Aug 01, 2014 14:00

I see some tendency to shift government work to a nonprofit that is controlled (or heavily influenced) by government.  When that happens, the nonprofit is considered a "public body" and is subject to a whole lot of stuff.  I know tensions are high in some places in Haywood County.  I know all the good counsels our government retains will advise them about nonprofits that risk lawsuits for things that are inappropriate.  We've got good people in government positions that want to do the right thing.  They sometimes just need help knowing where the limits are.  (Too much public service when considering nonprofits, not holding open meetings in nonprofits, inappropriate or unaccounted finances in nonprofits, etc.)  The use of a nonprofit as a government extension I think is legitimate if all the rules are followed.  (And there are many!)  I think there are some things a for-profit company couldn't do in that capacity or at least it would be much more hands-off for government to kick something to a for-profit.

 

Think about it like this... If a builder constructs a building that was not designed well and it starts to fall apart, who's to blame?  You sue the builder and the design firm at the same time.  Somewhere between the two of them you'll win your damages.  Government is the design firm and the nonprofit is the builder.

 

Or think about this.  If government owns a landfill and it's got toxic stuff in it.  They can't just form a nonprofit and give them the landfill and it's all the nonprofit's problem from then on.



Posted by: Charles Zimmerman | Aug 02, 2014 10:24

         Govt. workers are obligated to abide by OUR Constitutions.

         Workers at for-profit or not, are not.

 

          C.Z.



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