Government, Business and the Nonprofit Sector:  Working Together from a National Perspective

Presented by Diana Aviv at the State of the Connecticut Nonprofit Sector Symposium January 30, 2004

Thank you, Ron. Thanks also to the Connecticut Association of Nonprofits for inviting me here this morning and including me in this day of critical discussion, thinking and planning.

Today’s symposium comes at an auspicious time. We stand at the beginning of a new year – one that will certainly be marked by great challenges and opportunities for nonprofit organizations here in Connecticut and across the country.

I know that many of you begin this year worried about funding and meeting your obligations at time when resources are stretched and needs are great. The work you do has, perhaps, never been more difficult or more important. Yet despite the struggles that lie ahead, there is great strength within our sector – your coalition is one of many impressive examples.

I have been asked to share my thoughts with you on the most significant issues facing the nonprofit community, as well as its interdependence with the business and government sectors. My role at Independent Sector provides me an opportunity to have a view of the sector from 10,000 feet and understand a bit about what the issues are that impract charities and foundations, alike.

Despite the nonprofit sector’s diverse collection of groups, missions and sizes, there is much that connects our organizations and threads them into one single sector. Although many do not consider or have never thought about themselves as being part of a larger whole beyond their particular area of interest, there are a number of elements that link the work and goals of every organization within the nonprofit sector.

The overwhelming majority of nonprofits are created to enhance the public good and strengthen our democracy. They are more likely to thrive in a society that has active and engaged community members, who are interested and concerned about the affairs of the country and who see the government and business sectors as important partners in their efforts to improve the quality of life for people here and around the world. They support the system of tax incentives that has been enacted by federal and state legislatures to encourage charitable giving. They are committed to the right to form an association and to use their resources for the public good and, when necessary, to enlist corporate assistance or petition government for some greater purpose.

Although the nonprofit, corporate and government sectors serve very different purposes, they intersect in many ways, sometimes in partnership, sometimes to limit the excesses of the other and also sometimes to strengthen each others work and endeavor. The nonprofit sector, comprosing individuals organized into associations and institutions that are defined by their tax exempt status as well as their commitment to some larger benefit for society, sees to it that the health and well being of our communities and their members are sustained through the initiatives of the other sectors.

Movements within this great third sector have mobilized against unjust policies of government and injurious behavior of people; they have seen to it that people’s civil rights are secured, that our rivers and forests are preserved, that victims of violence are protected and have redress, and that our most vulnerable members of society have the wherewithal to survive. These, among other greats feats, have been achieved by petitioning government and pressing public officials, nationally and locally, to serve the common good and provide necessary resources, and by working with private and corporate foundations to support these efforts.

Government, for its part, has met some of its commitments by working with and through the voluntary sector to provide services to America’s people. And in so doing, the charitable sector becomes government’s essential partner in identifying needs and serving communities. It has also encouraged and strengthened the charitable sector through its patchwork of legislation that encourages people to take advantage of tax incentives for charitable gifts. And it has, as it must, overseen the sector to ensure that bad apples are removed from the barrel.

The sector, for its part, also serves as a watchdog for government and commerce – calling attention to bias, excess, abuse and consumption.

And so each, in their own way, partner, facilitate, empower and limit the activities of the other. Call it checks and balances. Sometimes each leg of the stool that comprise these three great elements of society set their own standards of practice, monitor and take action to address problems. And aided by an active press, these are times when the pressure or actions of government or of the voluntary sector result in a connection to the problems that have come to light. And there are times when the problems plaguing one sector “spill over” and have a great effect on the behavior and consequences for another.

Relationships are also positive in important ways. Government funding of nonprofits is about 30 percent of their budget, corporate foundation investment is almost 2 percent. Of course, individual donors – many of which are accomplished business leaders - are the largest share of funding for the nonprofit sector.

The business sector can and, at times, has played a pivotal role in bringing about much needed change in society. In South Africa, the country where I am from, the corporate sector played a critical role in restructuring our entire government system and ending the era of apartheid. The efforts of the nonprofit community there encouraged change but, in the end, it was only after the government lost the support of banks and businesses that they enacted reform and repealed the laws of discrimination and oppression.

Home Depot, in working with picketing environmentalists, was able to induce timber suppliers to be more environmentally friendly, a win-win all around.
What are the challenges that are facing our sector today? One is its rapid growth. Twenty-five years ago, there were 739,000 nonprofit organizations in the United States. Today, there are 1.8 million. These organizations address issues ranging from health and social services to the environment to education to the arts. The charitable sector is now a $650-billion dollar industry that has grown at twice the rate of the business sector.

Our sector employs 10.9 million workers. In fact, 6.1% of our national income is attributed to the charitable sector. Nonprofit employment is larger than the entire construction industry or the combined finance, insurance and real estate sectors.

In the past, proliferation was not difficult. The money was there. As stock market indexes climbed, giving increased and tax revenues grew. Over the past two decades, this dynamic has resulted in exponential – and unplanned – growth. The consequences include some overlap, lots of competition, not as much collaboration and many new entities whose future viability has not been carefully planned for and secured. In addition, adequate training, sound governance practices and oversight and control measures were not implemented to respond sufficiently to this rapidly growing sector.

For a long time, most organizations within our sector have had little reason to collaborate, except around a particular short-term goal concerning an issue of mutual interest. Although some of the most successful initiatives – both locally and nationally - were undertaken by organizations coming together around a common purpose and achieving their goal, collaboration was not required. The availability of resources made it possible for organizations not to have to work with others, not to have to determine if the need was being met before creating a new program and not to learn what other resources existed in a community before embarking on a particular course of action.

Another challenge is our current financial picture. We have entered a new era. Despite some recent upsurges in the stock market, our financial and cultural landscape has changed. Our priorities are shifting and, now, our sector must decide how it plans to move forward.

The issues of the day affect individual organizations in different ways. State budget cuts will have greater impact upon social services organizations, which receive 52% of their funding from the government. However, arts and cultural groups, who receive just 10% of their funding from government sources, will not be as affected directly – though they will feel the domino effect. But these organizations are deeply affected when private giving decreases, as these contributions constitute 44% of their budgets.

Decreases in the stock market have caused foundation assets to drop for the second year in a row. And individual donors have not increased their giving.

We are facing a $500 billion dollar national deficit and, unless radical policy changes are put in place, this will continue. In fact, The Center on Budget and Policy Priorities reports that with pending and intended legislation taken into account and enacted, we can expect a $5.1 trillion deficit over the next 10 years.

States across the country are still facing their own serious deficits. At the state level, the shortfall for last year totaled approximately $80 billion. States have been forced to cut back and meet balanced budget requirements. This means fewer teachers, fewer police officers, fewer jobs in general, as well as closed childcare centers, soup kitchens and shelters. And we know that private donors will not be able to make up for this loss in public funding.

The budgets drawn up for fiscal year 2005 project deficits in 21 states. In the coming years, federal aid may well continue to decrease with an adverse impact on the nonprofit sector.

This will further hurt the 35 million Americans, including 12 million children, living below the poverty level and the 4.5 million people without health care coverage.

This is the right time for our sector to consider what role we ought to play, as a whole, in this changed and challenging environment. Together, we must harness the collective power of this sector to sustain our organizations and our work, and to build a stronger society that reflects our values and priorities. This means working together and recognizing out collective power is greater that our individual efforts. Two states last year, through their nonprofits working together, were able to limit the extent of budget cuts in Ohio and New York.

This year’s elections present an opportunity for all of us. Unless something changes, our public officials will be elected by only a portion of citizens. On the political front, voting across the country is down. In the 2000 presidential election, only 51% of eligible voters cast votes – a decrease from 63 percent in 1960. Compare this with the United Kingdom’s voting rate of 72 percent, Turkey’s of 80 percent and Italy’s of 90 percent.

Fewer younger people voted in the 2000 elections—an astounding 32 percent. In 1972, 50 percent of this same age group voted. And this problem extends to other age groups. Seventy-one percent of people aged 25-44 voted in 1972 as compared with 49 percent in 2000.

This disengagement should matter to all of us because it weakens the core of our democracy, the very thing we are all – in our individual ways – working to strengthen.

With the 2004 elections ahead, we have an opportunity, even an obligation, to encourage participation and to engage ourselves in this process. We should make sure that candidates on both sides of the aisle running for public office, locally and nationally, meet with us and commit to supporting our issues—not only on particular areas, but also on the broader questions pertaining to adequate public resources for budget cuts that would harm the entire charitable sector.

The best way to be effective advocates is to be sure that our own houses are in order. Our ability to meet these goals is being challenged by the behavior of some organizations and leaders within the sector. Most nonprofits and foundations fulfill their responsibilities and manage their organizations and resources in an ethical and responsible way. Unfortunately for all of us, some do not. Since I joined Independent Sector last April, we have collected nearly 150 press stories from major papers across the nation citing ill-advised policies, wrongdoing, and excessive, irresponsible and even illegal activity by some leaders within the nonprofit sector.

If we are going to effect change we must promote ethical behavior and transparency in our operations. We must earn back our good name. We must all aspire to the highest levels of responsible stewardship and we must all make sure our practices are ethical and our oversight is effective. There are actions that all nonprofits can take immediately to promote transparency and good governance.

These include adopting a code of ethics and using it to implement a culture of integrity. Within your packets you will find a draft code of ethics produced by Independent Sector. Just yesterday, our Board approved this code of ethics and we hope that other organizations will consider and subscribe to similar standards. Our organizations should also review our board practices, inform board members of their responsibilities, and call for adequate funding at every level of government so that existing laws can be enforced. Also within your packets, you will find a report we released on the Sarbanes-Oxley legislation that, although it was developed to regulate the corporate sector, serves as a wake up call to our organizations and includes many provisions that nonprofits might consider adopting voluntarily. If we do not regulate ourselves, there is no doubt that Congress will.

If we are constantly on the offensive, we can’t advance. And we must advance – for we have much work to do.

There are no clear or easy solutions to the financial and structural problems we face, but I have mentioned a few of the steps we can take. We can plan ahead; we can better manage our expenses and look for strategic ways to cut our costs; we can diversify our revenue sources; we can work to create strategic alliances and mergers with other organizations; we can advocate on our own behalf; we can be sure our own organizations are functioning ethically and appropriately; and we can encourage greater civic and political engagement by our community members.

As I look around this room, it is clear that you have committed yourselves to these important causes and that you are accompanied by many good traveling companions. There is great potential in the partnerships you have formed and will continue to foster. I look forward to hearing about the possibilities of this coalition and to working with you in Washington, DC.

Thank you.