More than 1.8 million nonprofits are currently registered with the Internal Revenue Service, and most of them are small or midsize organizations. Ninety-two percent have annual revenues of less than $1,000,000; 89% earn less than $500,000 in revenue; and 76% subsist on revenues of less than $100,000. Many of these organizations ended the last fiscal year with deficits.
Nonprofits may sustain themselves through government contracts. They may also collect fees for services rendered, solicit donations from individual supporters, and seek grants from private and corporate foundations. Foundations are tax-exempt entities. To retain their tax-exempt status, they have to comply with certain IRS requirements. One such requirement is that the foundation must spend each year at least 5% of its assets on charitable purposes or activities.
Charitable activities may involve advocacy, research, and conferences. It may also include launching vast national or international programs and enterprises of charitable intent, or supporting institutions that benefit the public, such as museums, universities, hospitals, and libraries. Finally, it can be a matter of simply making grants to charitable organizations that assist the needy on the local, neighborhood level. The entities in the latter case are called “community-based organizations” and what they do falls under the heading of “direct services.”
A major disconnect, however, exists between small and mid-size community-based organizations providing direct services on the front lines of need and the foundations with the largest concentration of assets. The legendary heavyweight champion Joe Louis once said of opponent Max Schmeling, “I see something.” What I see in the world of heavyweight philanthropy is an opening for a Republican “left hook” to the Democratic chin.
To appreciate this, note first of all what direct services entail: Feeding the hungry. Building affordable, supportive housing for the homeless. Providing first-rate medical care for the uninsured and under-insured. Training the unemployed in marketable skills and assisting them in finding jobs. Creating pathways for motivated youth from poor neighborhoods to college degrees and professional careers. Assisting runaway youth, battered women, people with mental illnesses, etc. Activities of this nature are undertaken in every city in the country, with estimable results, and we can all praise and support these efforts.
What is also true and noteworthy is that the wealthiest foundations by and large don’t see the work of community-based organizations. They’re flying too high. How many parked cars can you see from a 747 at 35,000 feet? A certain kind of greed operates at the top of the foundation pyramid and often in the middle as well. It’s not greed for money, it’s greed for doing good. The directors and program officers want to do as much good as possible. They have visions of ending poverty in India and disease in Africa.
But try applying to them for the XYZ Health Center on the Lower East Side of New York City or the ABC Community Development Corporation of Orlando, Florida. These organizations may serve hundreds or thousands of clients, but that just doesn’t amount to enough good to satisfy the greed and ego of elite functionaries administering the distribution of millions of charitable dollars.
The gargantuan foundations (and, again, many of the lesser) would prefer to entertain themselves with conferences and studies, or otherwise engage in intellectual mischief. Case in point: No less than the Bill and Melinda Gates Foundation picked up the tab for the John Hopkins Center for Health Security to run pandemic scenarios.
The health centers and supportive housing nonprofits, typically short of staff and funds, must perpetually scrounge for a $5,000 grant here or a $10,000 grant there, with an award of $50,000 or higher a windfall worthy of unbridled celebration.
But suppose Republicans jumped in the ring on behalf of the small and mid-size nonprofits.
Suppose the new Republican majority in the House of Representatives sponsored a bill to stipulate that a certain percentage of a foundation’s required spending must be allocated to direct services in the localities of the United States in return for keeping that tax-exempt status.
The following table suggests what that would look like.
| Nonprofit | Total Assets | 5% Required Spending | 25% of Required Spending |
| Bill & Melinda Gates | $51,038,075,591 | $2,551,903,779 | $637,975,944 |
| Lilly Endowment | $21,014,954,742 | $1,050,747,737 | $262,686,934 |
| Getty Trust | $14,459,750,121 | $722,987,506 | $180,746,876 |
| Ford Foundation | $14,245,104,704 | $712,255,235 | $178,063,808 |
| Robert Wood Johnson | $11,917,251,112 | $595,862,555 | $148,965,638 |
| Wm & Flora Hewlett | $10,961,138,137 | $548,056,906 | $137,014,226 |
| Open Society | $10,603,152,570 | $530,157,628 | $132,539,407 |
| Total | $134,239,426,977 | $6,711,971,346 | $1,677,992,833 |
The first two columns list the seven largest private foundations in the country and their assets. This is public information, and it comes from Candid (a.k.a., the Foundation Center). The third column shows for each of the top seven the amount of money (5% of total assets) they are obligated to distribute to maintain their tax exemption. The third column represents 25% of the required distributions.
The total for hypothetical direct services spending for these foundations would amount to
$1.6 billion. And that’s just seven out of 130,444 private foundations in the U.S. Of course, many foundations already support direct services, and others do so but only on a national or regional level. But with a 25% requirement in place, the payout on the streets and neighborhoods of distressed cities would reach the proportions of a major government program–and it would cost the taxpayers zilch.
Some 12.5 million people are employed in the non-profit sector in America, and roughly a quarter of American adults volunteer at nonprofit organizations. These are dedicated people working conscientiously and realistically to address social problems. Don’t you think if the Republican house called for substantially more foundation dollars for direct services that many members of the non-profit workforce might think twice about voting for the looney Democrats — you know, the party whose policies make the subways more dangerous, the sidewalks more disorderly, and everything more expensive?
Republicans, you have nothing to lose — other than your propensity to blow close elections in blue states.
Sheldon Bart has worked for 17 years as a fundraising consultant for small to mid-size community-based organizations.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.