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Cynder Sinclair: Nonprofit Sector Wields Powerful Economic Force in Our Region

The nonprofit sector hires more people, holds more assets and contributes more to our economy that most people realize. In fact, many don’t even think in terms of the “nonprofit sector.” We think about my church or my daughter’s Girl Scout troop or my mother’s nursing care facility or the local art museum or the local hospital. We usually fail to realize that 2,249 nonprofits on the Central Coast comprise this powerful sector, substantially impacting our lives every day.

Landmark Study Looks at California Nonprofits

The California Association of Nonprofits, a statewide policy alliance of 10,000 organizations, recently completed its groundbreaking study in collaboration with the Caster Family Center for Nonprofit and Philanthropic Research at the University of San Diego. I attended the presentation of the study’s findings and will highlight the conclusions of this first-ever report in this article. The size, scope and economic power of the nonprofit sector may surprise you. Certainly, our state, our region and our community benefit from this sector’s overwhelming influence.

Nonprofits contribute 15 percent of California’s gross state product, or $260 billion, and hold $328 billion in assets. For the Central Coast, that translates to $4.3 billion in revenue annually and $8.7 billion in assets. Despite being exempt from corporate income tax, California nonprofits generate $37 billion in taxes.

One of Largest Employers in the State

Employment represents another strength of the nonprofit sector, ranking as the fourth-largest industry in California by producing more jobs than the construction, finance or real estate industries. This translates to 1 million people employed by nonprofits, accounting for 6 percent of the total state employment. On average, small nonprofits employ more people than for-profit small businesses. Five percent of nonprofits have 100 or more employees, while only slightly more than 2 percent of other employers report the same.

Of course, volunteers play a key role in most nonprofits. Twenty-five percent of Californians report they served as board members, executive staff, administrators and program providers in the past year. The study shows volunteers contribute more than $24.7 million in unpaid labor each year, the equivalent of 450,000 full-time jobs. In fact, volunteers outnumber paid staff by 30 percent.

The nonprofit sector is a growth industry, experiencing increases in revenue, assets, jobs and wages. California nonprofits are encountering a higher percentage of annual revenue growth (12 percent) than the overall U.S. nonprofit sector (4 percent). However, they are growing in size more than in number, indicating a potential increase in their capacity and productivity.

Contracts and Fees Generate Majority of Nonprofit Revenue

Most respondents to the study thought nonprofit revenue is generated primarily by charitable donations; however, in reality, nonprofit programs generate 64 percent of their revenue through contracts and fees. Seventeen percent comes from individual, corporate and foundation contributions; government grants contribute 15 percent; and less than 1 percent comes from fundraising events.

In the U.S. last year, individuals, corporations and foundations contributed $335.17 billion to nonprofits, representing an increase of 4.4 percent over the previous year. A sustained increase in charitable giving over the past four years is good news for nonprofits even though it still has not reached pre-recession levels. Seventy-two percent came from individual gifts, 15 percent from foundations and 5 percent from businesses. Over the last 20 years, annual giving represented 2 percent of GDP; however, in the last decade charitable donations accounted for 3.5 percent of the growth in GDP. It appears that individual giving has increased due to donors becoming more confident about giving to their favorite causes as their financial situations continue to improve.

Economy’s Steady Growth Boosts Nonprofit Coffers

Giving USA reports that giving by corporations fell 1.9 percent this past year. They conjecture this was caused by slow growth in corporate pre-tax profits. Business giving in 2013 was 0.8 percent of pre-tax profits. With the steady growth in the economy, donations from businesses are expected to increase in the coming year.

There is also a trend toward increases in cause-related marketing, where businesses highlight their favorite nonprofits in their marketing materials. This has shown to produce financial benefits for the businesses and increased visibility for the nonprofits. Similarly, more businesses are engaging in corporate social responsibility programs as they recognize the larger role business can play in the overall well-being of the community.

In summary, these studies show the nonprofit sector plays an instrumental role in making our state, our region and our community an economic driver, a leader in innovation and a champion for hope and opportunity. Businesses, government and community leaders are beginning to realize the strong economic power of the nonprofit sector and its ability to use that power for the common good.

— Dr. Cynder Sinclair is a consultant to nonprofits and founder and CEO of Nonprofit Kinect. She has been successfully leading nonprofits for 30 years and holds a doctorate in organizational management. To read her blog, click here. To read her previous articles, click here. She can be contacted at 805.689.2137 or .(JavaScript must be enabled to view this email address). The opinions expressed are her own.

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