Are Nonproftts Risking Their Souls?

__"The Future of the Nonprofit Sector: Its Entwining with Private Enterprise and Government" by Burton A. Weisbrod, in Journal of Policy Analysis and Management (Fall 1997), Univ. of Pennsylvania, 3620 Locust Walk, Ste. 3100, Philadelphia, Pa. 19104–6372.__

In their quest for revenue, many museums, universities, and other nonprofit organizations have been plunging into commercial ventures. The Metropolitan Museum of Art, in New York, for example, now operates 16 museum shops in the United States and 21 abroad, and also deluges Americans with mail-order catalogs. As nonprofits increasingly behave like private firms, asks Weisbrod, an economist at Northwestern University, are they undermining their basic justification for being tax exempt?

Nonprofits are proliferating. They now number nearly one million, three times the total in 1967, with total revenues in 1990 amounting to more than 10 percent of the gross national product. They do everything from supplying social services to supporting medical research.

Some nonprofits are launching for-profit subsidiaries. Northwestern University’s Institute for Learning Sciences, for example, has established a for-profit firm to market a customized computer program; the institute’s director is the new corporation’s acting president. Other nonprofits have been forced to compete as well. Private health clubs, for instance, have moved into the traditional preserve of the nonprofit YMCAs and YWCAs.

Nonprofits also are increasingly joining forces with profit-making firms. The March of Dimes, for instance, recently accepted $100,000 from Kellogg’s, the cereal manufacturer, in return for what amounts to an endorsement of a Kellogg’s cereal that contains folic acid, which helps to prevent certain birth defects. Virtually every major university in the country has collaborated with drug and chemical firms in scientific research, stirring charges that some such research may be "tainted" (see p. 133).

The nonprofits’ tax-exempt status is coming under increasing scrutiny, Weisbrod notes. Their taxpaying competitors complain about unfair competition. Local governments worry about the erosion of their tax base as nonprofits expand. In 1993, 59 percent of the real estate in Syracuse, New York, was tax exempt; in Buffalo, New York, 34 percent was. Some cities have withheld zoning approval or construction permits in order to wrest "voluntary" payments from hospitals and universities.

Some economists, Weisbrod notes, regard nonprofits "as little more than inefficient private firms" that "waste resources and perform no socially desirable role." But he argues that many undertake tasks that neither government nor the private sector perform, and some (e.g., nonprofit nursing homes) simply do a better job. Calls for limits on the nonprofits, however, if not their abolition, are bound to get louder.