Video on the Nonprofit Sector http://www.youtube.com/watch?v= 0myNj8BHt_4 Nonprofit Force MA ranks 9 in the country for number of active th registered nonprofits in the state As of 2008, there were 22,344 registered nonprofits Nonprofits employ more people than the entire public sector—federal, state and local government combined— in Massachusetts – 14% or one in 7 of us. Why do nonprofits exist? "market failure" there are desired services or collective "goods" that do not have sufficient potential for profit to attract business providers – homeless people represent a need for housing, but not an economic demand for same. there are public services that the for-profit sector will not provide for reasons that may include the cost or the limited constituency that desires the service Economic Impact With more than $100 billion in revenues, $207 billion in assets, and close to 467,000 workers, the Massachusetts nonprofit sector emerged as a major economic force. Nonprofits hold state government contracts worth more than $2.5 billion, delivering social services on behalf of the Commonwealth to thousands of Massachusetts residents - Mass. Inc, 2005 Unique Characteristics of Nonprofits Financial: greater multiplier - less outsourcing - The three E’s: -Efficient – do more with less – necessity & volunteerism - Effective – do good, but also do it well – transcendent motivation - Essential – not just nice, but necessary - critical to the other two sectors - Measuring Impacts “how do you measure a smile, a life saved, a full belly?” “funders such as foundations, governmental departments, and international aid agencies are better positioned than most nonprofits to measure impacts because so many of the benefits nonprofits provide come in the form of positive externalities. Responsibilities of Government Provide for: Infrastructure Public safety Health and human services Education and Culture Protect: civil rights and equal opportunity Note: All involve creating positive externalities or reducing negative externalities,) or they should not be performed by government . Are provided directly and/or through contracted for-profit and/or nonprofit entities. Note: All three use resources and create surplus value Polls find only 1 in 10 Americans believes that charities are ethical in their use of donated funds, reports NBC News. "The fundamental difference between nonprofit organizations and their profit-making counterparts is that nonprofits tend to take a greater portion of their compensation from easier working conditions, more time off, favors and under-the-table payments. Profit-making organizations take a greater portion of their compensation in cash, except those that are highly regulated. In the profit-making world, there is much greater monitoring of the behavior of people who act for the organization. Profit-making organizations have a financial bottom line they must meet, or sooner or later, heads will roll. Not so with nonprofits, which have no bottom line to meet. On top of that, incompetence for nonprofits means bigger budgets, higher pay and less oversight.“- Walter Williams - “Three Legs of the Stool” Effects of a Recession Externalities Taxes *Employees in each sector pay most of the taxes Government For- Profit Non-Profit Revenue Demand Spending cuts Revenue Demand Revenue Demand No taxing power Never a good time to raise taxes Has to cover fixed costs, not variable Most hard hit during recession Receiver of the public good pays for the benefit through taxation. Forprofit market will not supply the public good no excludability and can not price. Ex. paved roads, fireworks • Provides less than it receives (profit) •Taxation of profit is its way of addressing positive and negative externalities. Serves a target population and provides an externality. Taxing power* Taxed* Tax- Exempt* Ex. Childhood health care, aesthetically improving parks Gives more service than receives. Challenges for Governor in Privatizing Is it good policy: -savings? - efficiency ? - effectiveness – long and short term? -flexibility – better targeting an local applicability? Effects on employees – From whence the “savings” ? Does the capacity exist or does it have to be created? Is there a transition strategy? - public research - nonprofit/for-profit exploitation – bringing to scale Political/ Risks/Rewards? - can it be done? key stakeholders? (eg. early childhood education) - potential and penalties of long term thinking Go DuBois’ slides