Milwaukee nonprofit formation exceeds aggregate revenue growth

The number of nonprofit organizations in the Greater Milwaukee area has grown over the past two decades, but each now has a smaller piece of the revenue pie, according to a new report from the Milwaukee-based Public Policy Forum.

The report, “Give and You Will Receive: An analysis of nonprofit revenue trends and charitable giving in Greater Milwaukee,” analyzed revenues and contributions at public charities in the four-county Milwaukee Metropolitan Statistical Area from 1989 to 2011 (the most recent data available).

“On the whole, it is reassuring to find that the nonprofit sector has expanded considerably in the past 25 years and that the philanthropic contributions that support it have similarly increased,” said Phillip Laper, the Forum’s 2013-14 Norman N. Gill Fellow and lead author of the report. “At the same time, policymakers and civic leaders should heed the concerns raised by our analysis regarding the ability of individual nonprofit organizations to maintain an appropriate scale in the face of growing competition for funding.”

The report found that total revenue for public charities in the area was $3.68 billion in 2011, up 134 percent from 1989. Contributions were up 193 percent to $1.86 billion during that span. At the same time, the number of public charities increased from 824 to 2,333, a 183 percent jump.

Meanwhile, the size of the average organization in terms of revenue has decreased by 17 percent since 1989. According to the report, this is because new organizations have formed faster than the total revenue has grown.

“As more organizations compete for funding, the amount received by each organization falls,” the report said. “Whereas in 1989 the average nonprofit had revenues of $1.9 million, that figure declined steadily to $1.57 million by 2011.”

The report found that increasing contributions can be linked to rising incomes and growing asset prices. According to the PPF’s model, a 1 percent increase in the value of the S&P 500 drives a 0.51 percent increase in charitable contributions.

On the other hand, income tax hikes decrease the rate of charitable contributions. A 1 percent higher income tax means local public charities can expect 0.38 percent fewer contributions.

The diminished per-organization revenues demonstrated in the report could have a detrimental effect on the administration of large-scale nonprofit programs, the report said.

“The downward trend in per-organization revenues also raises questions about nonprofit capacity,” says Laper. “As organizations experience falling revenues and scale back the scope of their services, some programs may be eliminated, leaving portions of the population who are unable to secure those services in the for-profit sector with limited options.”

The full report is available here.

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