NONPROFITS IN WASHINGTONRECENT STATISTICS AND POLICY DEVELOPMENTS

November 2014

Putnam BarberNancy Bell Evans Center on

Nonprofits and PhilanthropyEvans School of Public Affairs

University of Washington

Research assistance: Daniel de Zeeuw (MPA ’14)Editorial assistance: John Compton (MPA ‘11)

The association of nonprofits for Washington State

Introduction

Nonprofits in Washington is largely based on information about the number and characteristics of nonprofit organizations available from the National Center for Charitable Statistics (NCCS) at the Urban Institute. This information is drawn from the annual filings of tax-exempt organizations and organized for research purposes by the NCCS. Additional details in this report are derived from the files of the Corporations Division of the Office of the Washington Secretary of State.

The website of the NCCS (http://nccs.urban.org) offers statistical summaries about American nonprofits as well as research reports and policy discussions on a wide range of related topics. Publication of Nonprofits in Washington would not be possible without the research tools developed by NCCS and access to detailed information about organization based in Washington state. The Nancy Bell Evans Center is grateful to NCCS and the Urban Institute for the support given to this project.

The 2014 edition of Nonprofits in Washington was written by Putnam Barber, senior advisor at the Nancy Bell Evans Center. Research support was provided by Daniel de Zeeuw (MPA ’14). The text was readied for publication by John Compton (MPA ‘11), research specialist at the Nancy Bell Evans Center. Advice, data, and assistance were provided by Alison McCaffree, executive director, , and Rick Anderson, senior policy staff, Washington Nonprofits; Pam Floyd, director of the corporations division of the Office of the Secretary of State; Professor Mary Kay Gugerty, Evans School of Public Affairs, University of Washington; Mark Hugh, CPA; and Tom Pollak, National Center for Charitable Statistics.

Highlights

By all measures, the number of nonprofits active in Washington state changed very little between 2013 and 2014.The rapid increase in the number of reported nonprofits observed a few years ago appears to have reached a plateau.

The number of organizations with $50,000 or more revenue per year has been relatively stable since 2000. The growth in numbers was primarily a result of increasing numbers of smaller organizations.

The largest number of nonprofit organizations are found, as might be expected, in the larger urban centers of the state.

The highest concentrations of nonprofit organizations on a per capita bases are found in more isolated and rural areas. The islands in San Juan County have the highest per capital number – 11.3 public charities for every 1,000 residents.

Both assets and revenues of public charities were reported to have the highest recorded current dollar amounts in 2014 filings.

The impact of financial growth by large-scale health-care organizations, while still substantial, was of lesser importance in the change from 2013 to 2014 than it had been in the previous decade.

Revenues from program activities made up three-quarters of the total received by public charities. Contributions, gifts, and grants accounted for another fifth. All other forms of revenue made up less than 5% of the total.

Newly available data from 2012 reports shows that large public charities (with over $200,000 in revenue per year) spent about 45% of their budgets on personnel and 55% on other expenses of all types.

The new data also shows that these larger organizations employed nearly 300,000 people during the reporting year, a substantially higher count than estimates of the nonprofit workforce for earlier years.

The number of out-of-state organizations raising funds from Washington residents increased by 6% over the previous year, while the number of in-state registrants declined slightly.

A Note on the Data There are many sources of information about nonprofit organizations. None, however, supports a complete presentation of the number, finances, characteristics, or activities of every organization and group that that can be described as a “nonprofit.”

Part 1 presents summaries drawn from the reports filed with the Internal Revenue Service by federally recognized “exempt organizations” – i.e., nonprofits that have successfully sought exemption from federal corporate income taxes. The NCCS at the Urban Institute receives copies of the information filed with the IRS and readies it for use in the preparation of reports like this one and by scholars investigating the dynamics of nonprofit organizations. Because exempt organizations report different information depending on classifications in the IRS regulations, and because greater detail is available when there has been time for the data to be processed by NCCS, subsections of this report use information about different sub-sets of exempt organizations and filings from both the year 2012 and the year 2014.

Part 2 is based on information provided by the Corporations Division of the Office of Washington’s Secretary of State using the limited information filed with the division annually. Nonprofits that solicit contributions from residents of the State of Washington register and report annually to the Corporations Division as well. In order to qualify for exemption from federal corporate income taxes, an organization must be registered as a nonprofit corporation (or similar entity) in some state, but not all nonprofit corporations qualify for exemption under the Internal Revenue Code.

Part 2 also summarizes other information about nonprofits in Washington state, the laws that affect their operations, and on the ways residents of the state support them with donations.

For more information about these data and their limitations, see the Data Notes section at the end of this report

Figure 1. Categorization of Public Charities

Churches and other Unregistered Groups

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PART 1: Tax-Exempt Organizations in Washington State

In June of 2014, the Internal Revenue Service (IRS) listed a total 32,611 Washington state organizations as exempt from federal corporate income taxes. Washington ranked 15th among the states with a total just below Massachusetts and above Missouri.

The 2014 total included 24,248 organizations recognized under section 501(c)(3) of the Internal Revenue Code (“Public Charities” and “Private Foundations” in the IRS terminology) and 8,363 organizations in other categories. The overall number of exempt organizations increased less than 1% between 2013 and 2014— there were 94 more 501(c)(3) organizations while the total in the other categories declined by eight. In the 2014 report, the number and percentage in each of the major classifications among Washington’s federally recognized exempt organizations were:

Public charities (501(c)(3)) 22,976 70.45% Private foundations (501(c)(3)) 1,131 3.47%

Social welfare organizations (501(c)(4)) 1,826 5.60% Agricultural, horticultural and labor educational groups (501(c)(5)) 1,395 4.28%

Business leagues (501(c)(6)) 1,438 4.41% Social and recreational clubs (501(c)(7)) 1,032 3.16%

Others 2,813 8.63% Total 32,611 100.00%

The 501(c)(3) category includes the kinds of organizations people think of first when they hear the word “nonprofit.” Most of these organizations are public charities. They accomplish their exempt purposes with fees and other revenue from services, grants and contracts from government agencies, contributions from donors, and, occasionally, grants from philanthropic foundations. In general, these groups provide health care, education, human services, research, arts, entertainment, cultural or environmental preservation, and other valued activities for the residents of Washington communities and, for that matter, people around the world. A smaller group within the 501(c)(3) classification consists of private foundations, typically grant-making philanthropies operating with investment income or contributions from a few individuals or firms.

These organizations, however, are only part of the story of charitable activity in Washington state. Major nonprofit organizations serving Washington communities may have their corporate headquarters in other states, and hence not appear in the Washington roster at all. Churches are automatically defined as tax-exempt. Thus many do not apply for IRS recognition and are not included in the lists. Furthermore, some Washington-based organizations provide the bulk of their services in other states or nations but their information is included in the Washington statistics. There is, unfortunately, no practical way of overcoming these complications in the data on which this report depends.

The first part of this report summarizes information that is available from the most recent (June 2014) report from the National Center for Charitable Statistics for 501(c)(3) organizations in Washington state

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– called “Public Charities” and “Private Foundations” by the Internal Revenue Service. More detailed information, available for larger 501(c)(3)s and from earlier (2012) reports, is included to give a more complete picture of the activities of these nonprofit organizations in Washington state.

Reports of “Active” Public Charities and Private Foundations

This section of the report concentrates on “active” 501(c)(3)s – the organizations that have filed an annual report with the IRS within the past 24 months. Of the public charities and private foundations mentioned earlier, 18,114 (70.4%) had filed such a report within two years of the 2014 report date. The number of these active organizations increased by just 58 between the August 2013 and June 2014 reports.

Geographic Distribution

Comparing the Pacific Northwest States

Compared to its neighboring northwest states, Washington has the largest number of active exempt organizations. Oregon, though, has a larger number of active organizations in relation to its population. Montana also has more active organizations per capita than Washington, while Idaho and Alaska have fewer organizations and lower per capita ratios.

Washington Oregon Idaho Montana Alaska

Active Public Charities 17,032 11,680 3,442 2,375 1,098

Active Private Foundations 1,081 694 218 15 8

Other (Non-501(c)(3)) 7,599 4,844 1,918 1,664 521

Total 25,712 17,218 5,578 4,054 1,627

Nonprofits per 1000 persons 3.7 4.4 3.5 4.0 2.2

Across Washington State Though the larger and more familiar nonprofits are located primarily in major urban areas, Washington’s 17,033 active public charities can be found in every part of the state – see Figure 2. The largest number of organizations is, as expected, found in the county with the largest population— in King County (2014 population estimate: 2,044,449) there are 6,204, or 36.5%, of the state’s active public charities. Garfield County (population: 2,256), with just 11 public charities, had the smallest number, followed by Wahkiakum (4,042) and Columbia (4,032), with 16 and 17 respectively. Across the state as a whole, there are roughly two and a half active public charities for every 1,000 people.

As shown in Figure 3, the per capita statistics for counties vary widely. In these terms, the counties with smaller populations often have the higher density of local organizations. Garfield and Columbia Counties, for example, have 4.9 and 4.2 public charities for every 1,000 residents, and Wahkiakum has 4.0. King County, in contrast, has just 3.0. Among the counties with the lowest numbers of public charities per capita, high-population counties like Snohomish (1.7) and Clark (1.8) stand out. In both cases, the proximity of another metropolitan area where many services are readily available may explain the relative lack of local organizations. The relatively inaccessible islands of San Juan County lead the state in the density of nonprofits serving their population, where there are 11.3 public charities for every 1,000 residents. The map shows how these relative numbers of public charities are distributed across the state as a whole.

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Figure 2. Numbers of Active Public Charities

Figure 3. Nonprofit Density: Relative Number of Nonprofits per Capita

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Historical Trends

As Figure 4 shows, the total number of active 501(c)(3)s in Washington state has been relatively stable for the last few years, in contrast to the significant growth that occurred between 2007 and 2011. Several changes in the reporting requirements in those years resulted in changes in the available statistics during a period that also saw significant economic turmoil. The number of active private foundations rose just slightly—from 1,010 in 2005 to 1,148 in 2011— and then declined to 1,081 by 2014. The numbers of exempt organizations in other categories grew somewhat, but not at the recorded rates of public charities. (A log scale is used on the right-hand side in Figure 4 so that the slope of the line represents the percentage change from year to year while allowing both the private foundation data— using the scale on the left— and the public charity data to be shown in one figure.)

Financial information for 501(c)(3)s with less than $50,000 in revenue is not available. Organizations with revenue below that floor are not required to include any such information in their annual reports to the IRS. In 2014 there were 11,770 active public charities in that group. As Figure 5 shows, although the total number of active public charities has grown since 2008, the number with $50,000 or more in annual revenue has not changed much since that year. The number grew from 6,889 in 2008 to 6,942 in 2012 and has declined in the most recent years. The figure for 2014 is 6,401.

Figure 4. Active 501(c)(3)s in Washington, 2003-2014

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Since no financial information is available about public charities with less than $50,000 in income, the more detailed analysis that follows focuses on the larger active public charities for which details are available.

Finances of Public Charities

Figure 6 tracks the assets (red bars) and revenues (blue bars) of active public charities with more than $50,000 in revenue from 2003 to June reports in 2014. Total assets declined from 2005 to 2006 and again from 2008 to 2009, as negative economic conditions affected donations, government contracts, and program service revenues. Revenues and assets have both grown since 2009, albeit at differing rates. Total revenue reached the sum of $32.5 billion in the 2014 reports while total assets rose to $60.1 billion.

Since 2000, the increases in the total revenue for the public charities operating in Washington have been due in large measure to increases in the revenues of a small number of large health-care organizations. As reported in the 2013 edition of Nonprofits in Washington, the 15 largest nonprofit health-care providers accounted for slightly more than 70% of the reported growth in total revenue between 2004 and 2013 ($8 billion to $17.1 billion) while the revenues of the large number of other active public charities increased over the same span by 29% (from $11.6 to $15.2 billion). While the largest health-care organizations continued to grow between the 2013 and the 2014 reports, the increase ($1.5 billion) in their share of the total increase for all public charities during the year ($2.8 billion), at 56%, was lower than in the previous years. With the passage of the Affordable Care Act, of course, the future finances of the health-care sector are subject to considerable uncertainty. Future reports on nonprofit activity in Washington state will, no doubt, continue to reflect changes in these patterns.

Figure 5. Count of Public Charities by Total Revenue 2003-2014

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More detailed information is available for the organizations that filed a “full” Form 990 for their operations reported in 2012. More recent data are not available with this level of detail. These organizations had annual revenues of $200,000 or more. The following sections report details for this group of relatively large nonprofits based in Washington.

Sources of support

Detailed financial information is available for 3,195 Washington state 501(c)(3)s from reports filed in 2012. The active public charities that filed the more detailed Form 990 in 2012 reported that nearly 75% of their revenue came from program services, such as fees for medical services, admissions and subscriptions for museums and theaters, and sliding scale payments from clients at social service agencies. Contributions, gifts, and grants accounted for another 21%. As the summary below shows, all other sources of revenue combined came to less than 5% of the total.

Program service revenue $23,590,915,566 74.92%

Contributions, gifts, grants $6,534,612,375 20.75%

Investment income $362,508,323 1.15%

Net from sale of assets (not inventory) $246,846,988 0.78%

Net income from sales of inventory $128,873,847 0.41%

Net income from fundraising activities $26,201,428 0.08%

Net rental income $51,948,520 0.16%

Figure 6. Total Revenue and Assets of 501(C)(3) Public Charities with Revenue Greater than $50,000

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Royalties $14,306,630 0.05%

Net income from gaming activities $2,022,559 0.01%

Miscellaneous revenue $529,570,558 1.68%

Total $31,487,806,794 100.00%

Nonprofit organizations also differ broadly, of course, in the type of revenue that supports their work. Using the broad service categories present in the NCCS data files, it is possible to compare the mix of revenue sources for organizations in different fields of service. The result is shown in Figure 7.

Figure 7. Reliance on Types of Revenue in NTEE Groups

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Organizations with an international focus are more than five times as reliant on gifts, grants, and contributions as the other types of organizations while having almost no program service revenue and a very limited amount of “other” revenue—often interest on savings or “unrelated” sales. At the other end of the scale, health organizations (primarily hospital systems) are more than twice as reliant on program service revenue as other organizations and receive only a small proportion of their revenue in the form of contributions. That small proportion is, however, a large amount of money: about $867 million in 2012 for the 281 organizations in this category. In some fields of service, government contracts and reimbursements (often Medicare and Medicaid) represent a large portion of the program service revenue. In others, such as the arts, program service revenue is primarily the proceeds of ticket sales and admissions charges. The “other revenue” received by philanthropic organizations is largely interest and capital gains, of course. For mutual benefit organizations, other revenue is likely to be insurance premiums of various sorts.

These differences in the sorts of revenue among fields of service suggest the variety that exists among nonprofit organizations. Boards of directors and managers must deal with the specific challenges related to their principal sources of revenue, which can be quite different. Gifts from individuals may actually increase for social service agencies, for example, when economic conditions deteriorate and community needs become more intense. Reimbursements under government programs like Medicare and Medicaid come with complex administrative requirements, but are likely to be more predictable than grants, contracts, or other forms of revenue from clients or patrons.

Highlights of Expenses Reliable details of expenses are also available in the 2012 reports from organizations with more than $200,000 in revenue (see Figure 8). This group of moderate to large organizations reported contributing about $2.6 billion (9%) of their total expenses to other organizations (including governments) or to individuals in 2012. Personnel and a variety of other operating expenses each accounted for approximately half the remaining expenses. The “other fees” include accounting, legal, investment advising, management consulting, and similar costs. The available information on other sorts of expenses does not provide much detail. The reporting form allows each organization to list many relatively small expense amounts in whatever categories it uses for its own purposes; the available reports group the result under the general title “Other Expenses.”

Figure 8 – Expenses of Active Public Charities: 2012

$200,000 to $1 mill ion $1 mill ion and over Total %

Expense Amount % Amount %

Grants to U.S. organizations 67,470,113 8.6% 1,028,211,721 3.8% 1,095,681,834 3.9%

Grants to U.S. individuals 20,363,645 2.6% 553,637,208 2.0% 574,000,853 2.0%

Other grants 16,423,801 2.1% 867,308,272 3.2% 883,732,073 3.1%

Benefits to/for members 2,482,066 0.3% 13,535,025 0.0% 16,017,091 0.1%

Salaries and wages 198,816,692 25.3% 9,668,050,740 35.4% 9,866,867,432 35.1%

Other compensation 76,171,117 9.7% 425,430,880 1.6% 501,601,997 1.8%

Pensions and benefits 22,626,240 2.9% 1,837,933,155 6.7% 1,860,559,395 6.6%

Payroll taxes 25,497,057 3.2% 815,994,429 3.0% 841,491,486 3.0%

Office expenses 18,325,643 2.3% 1,295,549,949 4.7% 1,313,875,592 4.7%

Occupancy 48,439,257 6.2% 802,116,529 2.9% 850,555,786 3.0%

Travel & conventions 24,183,453 3.1% 252,392,568 0.9% 276,576,021 1.0%

Fundraising fees 2,182,079 0.3% 12,633,790 0.0% 14,815,869 0.1%

Other fees 50,190,683 6.4% 3,222,924,051 11.8% 3,273,114,734 11.7%

All other expenses 211,433,567 26.9% 6,506,638,378 23.8% 6,718,071,945 23.9%

Total 784,605,413 100.0% 27,302,356,695 100.0% 28,086,962,108 100.0%

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Because the information provided is limited in scope (the familiar division into program, fundraising, and management and general is not shown), the amount shown for “Professional Fundraising” reflects only contracts with fundraising firms; it does not include costs which may have been categorized as fundraising on the other expense lines. It is interesting to note that in three of the expense categories in Figure 8, the organizations with less than $1 million in revenues spend a higher proportion of their expenses than the larger ones. For benefits to members, for other (non-wage) compensation, and for fundraising fees they expend proportionally about six times (from the much smaller total) as much as the larger organizations. In contrast, they spend much less proportionally on salaries (and related payroll expenses), office expenses, and other fees. The amounts are not large, but the disparity indicates that larger organizations have larger regular payrolls, are less likely to be member-based, and are more likely to manage their fundraising activities internally than to rely on outside contractors.

The average of expenses for the 1,869 organizations in the $200,000 to $1 million range comes to $424,653; the median organization in this group reported $402,276 in expenses. The 1,326 organizations with total revenue over $1 million averaged $20,730,719 in expenses, with a median of $8,863,036. This large difference between the average and the median is another indication of the strong effect on statistics about public charities of the small number of very large organizations.

Recalling the extent to which very large hospital systems influence these reports of finances prompts an examination of those organizations separately. It turns out that the six largest health care organizations account for nearly a quarter of the total of all expenses for this group of moderate to large sized nonprofits and more than half (55%) of the “other fees” paid by all the organization combined. In contrast, these large organizations reported no expenditures for professional fundraising contractors and a smaller proportion on grants, “other” compensation, and travel than the rest of the organizations in the group.

Employment During the year 2012, 3,169 Washington public charities with total revenue greater than $200,000 reported a total of 297,906 full- and part-time employees within the covered calendar year. Total personnel costs for these organizations came to $13 billion for an average of $43,875 per employee. The median organization among these public charities reported nine employees; the average number (again reflecting the influence of very large organizations on this statistic) was 97. In addition, they reported using 4,078 independent contractors who received a fee totaling $100,000 or more in the covered year.

The Employment Security Department reported total non-farm employment in Washington state totaled 2,951,000 persons in December 2012. Though the methods of collecting the statistics are not the same for the nonprofit data from the IRS and total employment from the state, these numbers suggest that the proportion of the labor force in nonprofit work in Washington— roughly 10%— matched or exceeded the estimates for nonprofit employment in the nation as a whole. Earlier editions of Nonprofits in Washington used estimating techniques developed by labor-force analysts (but not reports from nonprofit employers) to report a smaller nonprofit labor force; a result which is not confirmed by the IRS data presented here.

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Program Services In IRS reports, organizations are linked to one of 25 broad service areas to describe their primary focus. The five service areas listed here include nearly 80% of all the organizations; only these five categories include more than 5% of the active public charities in Washington in the 2014 reports:

Human Services 2,234 35.3%

Education 1,116 17.6%

Arts, Culture, and Humanities 726 11.5%

Health 675 10.7%

Religion, Spiritual Development 414 6.5%

The revenue of the health-related organizations makes up 72.9% of revenues for all the active public charities. Only two other categories have more than 5%: education – 7.8% – and human services – 10.4%. These three categories hold the largest proportions of assets as well: 65.4%, 14.3%, and 10.3% respectively. These patterns are shown graphically in Figure 9.

Focusing on the full list of service areas in Figure 10 shows the predominance of a variety of human and community service organizations among active public charities. The combined total for organizations in related fields is 2,235. Among the organizations with substantial representation in the list, very different revenue patterns exist. In the health category, the average annual organizational revenue is $41.9 million; in education, including the many small private schools, the average is, in contrast, $2.7 million. Overall, the eight categories of human and community service agencies average $1.8 million. A similar pattern exists in the assets column, with the difference that educational organizations have, on average, more assets at $7.8 million while human service agencies average $2.8. The assets of health organizations (mostly, of course, hospitals and clinics with substantial buildings) average $58.7 million.

Figure 9 – Total Assets of Active Public Charities (Total Revenue Greater than $50,000)

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The breadth and variety of services that nonprofits provide is suggested by the range of activities named in Figure 10. This figure, like other data in this report, includes only the active public charities reporting $50,000 or more in annual revenues. (A similar figure for each of Washington’s counties is on the website of the Nancy Bell Evans Center at the University of Washington.)

The presence of philanthropic organizations may appear odd in a list of public charities. The explanation is that community foundations, supported as they are by large numbers of active donors, are classified as public charities by the IRS. Private foundations (not included in these figures) are those that operate with income from endowments or large gifts from individuals or corporations. Information about the organizations classified as private foundations by the IRS appears in the next section.

The Financial Record for Private Foundations

In June of 2014, IRS files included 1,131 private foundations located in Washington state. Of these, 1,081 (96%) were “active,” meaning they had filed an annual information return with the IRS in the previous 24 months.

Program Service Area (NTEE code)

Arts, Culture, and Humanities 726 11.5% 713,564,164 1.8% 2,041,288,516 3.4%

Education 1,116 17.6% 3,030,309,687 7.8% 8,649,104,369 14.3%

Environmental Quality, Protection, and Beautification 196 3.1% 146,953,106 0.4% 415,035,597 0.7%

Animal-Related 174 2.7% 167,965,361 0.4% 201,191,732 0.3%

Hospitals and Clinics 350 5.5% 26,800,258,299 69.2% 37,774,656,475 62.3%

Mental Health, Crisis Intervention 153 2.4% 608,822,768 1.6% 684,341,608 1.1%

Diseases, Disorders, Medical Disciplines 134 2.1% 178,837,219 0.5% 143,627,059 0.2%

Medical Research 37 0.6% 649,741,108 1.7% 1,014,153,164 1.7%

Health-related total 674 11% 28,237,659,394 73% 39,616,778,306 65%

Crime, Legal Related 130 2.1% 250,049,443 0.6% 195,572,936 0.3%

Employment, Job Related 108 1.7% 579,780,922 1.5% 533,514,162 0.9%

Food, Agriculture, and Nutrition 109 1.7% 241,332,506 0.6% 92,637,854 0.2%

Housing, Shelter 313 4.9% 338,918,020 0.9% 1,350,090,736 2.2%

Public Safety 32 0.5% 10,845,486 0.0% 37,593,156 0.1%

Recreation, Sports, Leisure, Athletics 583 9.2% 234,987,682 0.6% 325,169,886 0.5%

Youth Development 160 2.5% 185,736,309 0.5% 352,142,523 0.6%

Human Services - Multipurpose and Other 800 12.6% 2,221,389,887 5.7% 3,365,573,074 5.6%

Human Service total 2235 35% 4,063,040,255 10% 6,252,294,327 10%

International, Foreign Affairs, and National Security 180 2.8% 1,290,294,656 3.3% 906,955,254 1.5%

Civil Rights, Social Action, Advocacy 33 0.5% 25,841,237 0.1% 29,146,102 0.0%

Community Improvement, Capacity Building 281 4.4% 179,720,466 0.5% 353,543,792 0.6%

Philanthropy, Voluntarism, and Grantmaking Foundations 170 2.7% 464,831,785 1.2% 1,542,457,172 2.5%

Science and Technology Research Institutes, Services 41 0.6% 117,879,825 0.3% 189,067,287 0.3%

Social Science Research Institutes, Services 10 0.2% 27,834,071 0.1% 68,088,459 0.1%

Public, Society Benefit - Multipurpose and Other 58 0.9% 32,516,177 0.1% 35,663,987 0.1%

Religion Related, Spiritual Development 414 6.5% 188,433,993 0.5% 220,708,304 0.4%

Mutual/Membership Benefit Organizations, Other 11 0.2% 26,991,906 0.1% 109,391,301 0.2%

Unknown 14 0.2% 7,125,182 0.0% 8,196,661 0.0%

Total 6,333 100.0% 38,720,961,265 100.0% 60,638,911,166 100.0%

Public Charities Total Revenue Total Assets

Figure 10 – Revenue and Assets by Service Area: 2014

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The number of active foundations in Washington increased by nearly 25% between 2003 and 2008, but since 2008 this number has varied only slightly; the total number of foundations in 2014 was just 10 more than the 2008 count.

The combined assets of the Bill & Melinda Gates Foundation and its associated asset trust total $73.6 billion. This organization dominates the average for the philanthropic sector in Washington state. The 1,079 other active private foundations collectively hold $7.5 billion in assets. Most of these foundations are quite small— 200 reported less than $50,000 in assets and just 173 have more than $5 million. As foundations experienced high rates of growth in the early 2000s, the total assets of the smaller foundations grew by 64%, from $4.9 billion in 2003 to $8 billion in 2008. Since then, however, the assets of these foundations have declined to a low of just under $6.8 billion in 2012 and recovered to $7.5 billion in June of this year.

As shown in Figure 11, the record for the much larger total including the assets of the Bill & Melinda Gates Foundation and trust has been volatile. The dramatic increase in 2008 is due to the decision by Warren Buffett to donate a substantial amount of his holdings of Berkshire Hathaway stock to the Gates Asset Trust each year, on the understanding that the Gates Foundation will in turn use those funds in its grant program. Grant-making decisions and fluctuations in the stock market have resulted in the changes from year to year since.

Figure 11. Assets of Private Foundations (with and without the Gates Foundation)

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The impact of the Great Recession is visible, of course, in the decline in total assets of the smaller foundations discussed above. The impact of the financial crisis and uncertainties of 2008 appears even more strikingly in the record of gifts and contributions received by those organizations before, during, and after the financial markets froze. Reported gifts to these foundations increased dramatically to $798 million in 2007 but then fell by 65% to $280 million in the following year. More recently, the annual totals for gifts to smaller foundations have fluctuated: $318 million in 2010, $648 million in 2011 and $397 million in 2012 (the most recent year for which this detail is available).

PART 2: Washington Nonprofit Corporations

Though the federally recognized exempt organizations discussed in Part 1 must be organized as nonprofit corporations (or similar entities), not every nonprofit corporation is eligible for federal tax exemption. The difference is clear from the tally provided by the Corporations Division of the Office of the Secretary of State—on April 30 of this year, there were 58,240 nonprofit corporations in that roster; in the spring of 1994 that count stood at 31,835. The increase over that two-decade span is 85%.

Nonprofit corporations do not automatically receive any tax exemptions or preferences in the Washington state revenue code. Several sections do provide for exemptions from property taxes for specified types of organizations; other sections provide for exemptions from collecting or paying sales tax and other taxes for a more limited list. Important features of Washington’s tax laws also facilitate various kinds of fundraising activity by charitable nonprofits.

The nonprofit corporations registered with the Secretary of State are found in every part of the state. The largest numbers are found in the densely populated areas along the I-5 corridor, as might be expected, but nonprofits are found throughout the state in less densely populated areas as well. 38% of the corporations are located in King County (including Seattle) and Bainbridge Island; another 29% are located along the I-5 corridor between the Canadian border and Thurston County (including Bellingham, Everett, Tacoma, and Olympia). 10% are located on the Olympic Peninsula (including the Shelton area near Olympia) while 6% each are located in North Central counties, South Central counties, Spokane city and County, and the balance of Eastern Washington.

State Nonprofit Corporations: Historic Look From 2005 to 2010, the number of nonprofit corporations increased by an average of 9% each year. The effect of the financial recession that began in 2008 can be seen in the later years in Figure 13, where two years of declines followed those years of solid growth. The most recent data from the Corporations Division show the numbers rebounding to the largest total ever recorded in 2013 and receding slightly in 2014 to 58,240. Data provided by the Corporations Division suggest that the principal cause of the

Nonprofit Corporations registered with the Washington Secretary of

State Corporations Division

Tax-Exempt Organizations

501(c)(3)s

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change in the pattern of increasing numbers of nonprofits has been a decline in the number of new corporations being formed, rather than a sharp increase in the number of organizations ceasing operations. The pattern has continued from 2013 to 2014— the decline of 245 in the total closely parallels the decline in the number of new corporations registered (from 4,078 to 3,845).

Changes in Property Tax Rules for Washington Nonprofit Corporations

On June 12, 2014, new rules about property taxes for nonprofits took effect, having been adopted as Senate Bill 6405 by the Legislature during its 2014 Session.

Under the new rules, facilities that are exempt from property taxes may be used for non-exempt purposes for up to 50 days per year; on 35 of these days, the payment received may not exceed the maintenance and operations costs of the area used, while on the remaining 15 days, the facility may be rented for “pecuniary gain” by the taxpayer or used for non-exempt business purposes. Such uses for up to 50 days per year will not compromise the tax-exempt status of the facility.

Previously, only certain kinds of facilities were permitted to allow non-exempt uses, for fewer days, and under more restrictive conditions. The rules now apply to all tax-exempt nonprofit facilities and permit organizations to rent their premises for a price that adds to their own operating revenues on 15 days each year, not just for limited usage by others on a cost-reimbursable basis.

The rules that apply to fundraising events have not changed: such events must be consistent with the exempt purposes of the organization or conducted by a nonprofit; they must be limited and of short duration; and the nonprofit that owns the property must receive at least 51% of net proceeds. If a fundraising event does not return at least 51% to the property owner, it may be held and counted against the 15 days allowed for commercial activities and pecuniary gain.

One thing hasn’t changed, though. As the accounting firm Clark Nuber warns in its September 2014 not-for-profit newsletter, property taxes for the past three years – plus interest – may be due if a tax-exempt property is sold. Exceptions include property that has been held for more than 10 years and

Figure 13. Number of Nonprofit Organizations

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property sold to another organization that is eligible to use the property under an exemption from property taxes.

Charitable Solicitations

Like many other states, Washington law requires organizations making charitable appeals to the public to register with the Secretary of State. In the spring of 2014, there were 6,199 such organizations with addresses in Washington state and an additional 3,997 organizations based in other states were also registered to solicit donations from Washingtonians. The number of out-of-state registrations increased by 235 from 2013 to 2014, while the number of Washington-based organization making fundraising appeals declined by 163. In addition to these officially registered fundraisers, the Charities Program in the Secretary of State’s office allows organizations that do not register – primarily churches and volunteer groups with less than $50,000 in annual revenue – to be identified as exempt from registration on the Secretary of State’s website in order to avoid the suggestion that their fundraising is questionable. There has been a rapid increase in the numbers of such organizations in recent years, from 2,613 in 2011 to 5,455 in 2014. This increase is likely due to the fact that the threshold in the state’s law for exemption for entirely volunteer organizations was recently raised from $25,000 to $50,000.

Urban Online Giving

In “Most Generous Online US Cities,” a 2013 report from the donor-relations management company Blackbaud, King County is identified as ranking number one in the nation in per capita online giving using the firm’s software. Four other Washington cities were also included among the 265 for which Blackbaud reported online giving results. Bellevue was 11th in the 2013 totals; Vancouver 77th; Tacoma 88th; and Spokane 123rd. The Seattle area’s 2013 result – the average of 201,502 gifts was $53.54 per capita – represented an increase by 44% over the previous year and followed substantial increases in each of the years since 2009. The other Washington cities also saw increases – suggesting the potential for online support for nonprofits’ work exists throughout the state.

Recent Survey of Nonprofits in the Northwest and Alaska

The nonprofit associations in the five northwest states recently conducted parallel surveys of the nonprofits in their states as part of an ongoing project of the M. J. Murdock Charitable Trust. The survey was designed and the results were analyzed by TCC Group, a national consulting organization with a focus on nonprofit organizations.

The majority of respondents to this survey were smaller: 82% of the 1,085 Washington-based groups reported annual budgets of less than $500,000, reflecting the pattern for nonprofit organizations across the nation. Though the number of respondents from all five states represented a small proportion of the total numbers of nonprofits in those states, the 2014 “Pacific Northwest Nonprofit Survey” offers an opportunity to compare key operating characteristics of organizations across the region. In four of the five states, for example, earned income (program service revenue) was reported to be the predominant source of revenue – only for Idaho did state and federal grants rank first (with earned income second).

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Nonprofits in Washington

This 2014 edition of the series Nonprofits in Washington reports on increasingly stable nonprofits serving Washington communities with more revenue and greater financial and other assets. The share of the most recent growth due to increases in revenue for health-care organizations is still large, but it has been proportionally smaller since 2013 than in earlier years – perhaps reflected early adjustments to the impact of the Affordable Care Act. Future year’s reports will cast more light on that subject. It is still true that nonprofits providing health care services represent a larger proportion of Washington’s nonprofits than is found in other states. There are relatively few private or government-operated hospitals serving Washington communities. Education, on the other hand, appears more prominently in other states, mostly Eastern, with larger numbers of substantial nonprofit colleges and universities.

The increased levels of revenue and assets are welcome, of course, but they are not so large as to suggest that the large number of small nonprofits providing human services, education, and other community benefits are able to completely meet the needs and fulfill the aspirations reflected in their missions. In this respect, Washington’s nonprofits fit well within the broad outlines of the way nonprofits organizations serve communities all across America. They work with limited resources to provide needed community services, cooperate with government to address difficult challenges, offer a vehicle for the articulation of people’s values, and add richness and variety to life. This report has drawn on administrative data to sketch the characteristics of the nonprofits that are active today in Washington state. A sketch based on that sort of data can, though, only hint at the ways nonprofit organizations represent an essential part of everyday life for everyone in the state in rich and varied ways. Readers must supplement the information found in these pages with more personal information about the nonprofit organizations that play important parts in their everyday lives and do the important work of building healthy communities.

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Data Notes

Page 1 Classification of exempt organizations – An organization can be tax-exempt for many reasons. Usually, organizations are exempt from some taxes and not from others. This section describes organizations that are exempt from federal corporate income taxes as defined in the Internal Revenue Code. They are exempt from federal tax because they have demonstrated to the IRS that they are organized and operated for one of the “exempt purposes” Congress has defined. Information is available about these organizations from reports filed with the Internal Revenue Service (IRS) which the National Center for Charitable Statistics (NCCS) makes available for study. The principal types of exempt organizations are defined in section 501(c) of the Internal Revenue Code (IRC). 501(c)(3) are the “religious, charitable, scientific, …literary, or educational” organizations (often called charities). The IRC distinguishes between “public charities” and “private foundations” based on the sources of their revenue. Public charities are supported by large numbers of donors, fees for service, and sometimes grants or contracts, usually from multiple funders. Private foundations typically operate with funds from an endowment or with current support from a family or a business. The rules for private foundations require more disclosure, impose a small tax on investment income, and require a minimum level of expenditure each year. Public charities and private foundations are both recognized as exempt from federal corporate income taxes under section 501(c)(3). For the complete text of section 501(c) of the IRC, see http://www.law.cornell.edu/uscode/text/26/501

Page 2 “Active Public Charities” – The NCCS files include information about some organizations that have not been updated recently. Many filings arrive at the IRS long after the period to which the information applies. Nonprofits that close down frequently neglect to inform the government that they are no longer operating. The law requires the IRS to remove organizations from the roster when they fail to file any sort of report for more than three consecutive years. To focus more closely on current information, the NCCS provides a way to select only those that have filed a report in the 24 months before the date of publication of the data.

Washington Nonprofits has posted an interactive map of reporting public charities for each Congressional District. The maps allow examination of the organizations operating in various parts of the state and the principal services they provide. Choose “Nonprofit Maps” on the “Public Policy” tab at http://www.washingtonnonprofits.org to see the maps and options for exploration.

The source for population estimates – 2013 estimates by state from the Bureau of the Census: http://factfinder2.census.gov/bkmk/table/1.0/en/PEP/2013/PEPAGESEX; 2013 estimates by county: http://www.census.gov/popest/data/counties/totals/2013/index.html

Page 4 Reports filed by exempt organizations – Exempt organizations use four versions of the IRS Form 990 to report – usually annually. Larger organizations file on the “full” 990; those with annual revenues between $50,000 and $200,000 file the Form 990-EZ; and those with annual revenues of less than $50,000 file Form 990-N (which contains no financial information). Private foundations of all sizes used Form 990-PF.

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Causes in changed in the count of exempt organizations in the 2000s – In the first years of the 21st century, Congress and the IRS made several changes in the reporting requirements for exempt organizations that altered the characteristics of the reporting population in significant ways. Filing was made mandatory for all organizations (previously, only those with more than $25,000 in annual revenues were included). Organizations that failed to file at least once in three consecutive years were automatically dropped from the roster, leading to a large number of revocations of organizations that were (presumably) not actually operating. Further, the contents of the annual report (Form 990) were changed for each of its versions, and revenue thresholds requiring use of the more complex versions were moved upward, altering the ranges of data that could be used for year-to-year comparisons.

Page 5 “Active public charities with more than $50,000 in revenues” – IRS regulations permit organizations with less than $50,000 in revenue to file a Form 990-EZ (or even the full Form 990 intended for organizations with revenue greater than $200,000). As a result, the reported financial data and other statistics for organizations with less than $50,000 in revenue include an unknown number of organizations providing those details. Most organizations under that threshold file a Form 990-N, which contains only identifying information (and serves primarily to affirm that the organization continues to operate). Using totals that include both the organizations filing Form 990-N and the other, more detailed, versions of the Form 990 would result in misleadingly low averages and other counts, since the totals would include all filing organizations while the details would reflect only the small number of organizations that filed the longer forms

The source of the longer discussion on the influence of large health care organizations on financial statistics – The 2013 edition of Nonprofits in Washington is available online at http://evans.uw.edu/centers-projects/nbec/nonprofits-washington; see Figure 7 on page 6 of that report.

Page 6 Reasons for the smaller number of 2012 organizations – The smaller number is due to the threshold for completing the more complicated full version of the Form 990 – commonly revenues over $200,000 per year – and to screening of this data set by the NCCS to limit the number of organizations filing in that year for earlier periods.

Page 7 Calculations in Figure 7 – The calculations used to create Figure 7 relate the proportion of total revenue from each source received by organizations in each service category to the average proportion of total revenue from the same source for the other 24 categories combined.

Page 8 “Functional expenses” – Part 9 of Form 990 requires the reporting organization to provide details of expenses in multiple categories and for three broad functional areas of organizational work: “Program service expenses,” “Management and general expenses,” and “Fundraising expenses.” The instructions advise use of “any reasonable method” to allocate an expense among the three areas when it is not possible to attribute it based on financial records. The data provided online by NCCS from the 2012 “full 990” filers does not include the breakout of expenses into these three areas, only the total for each category. See page 10 of http://www.irs.gov/pub/irs-pdf/f990.pdf

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Page 9 Count of employees – This total comes from the “full 990s” available for 2012 from NCCS and thus includes only organizations with more than $200,000 in revenue. There are, of course, a large number of organizations with less than $200,000 in revenue, which suggests that the total workforce is larger than the reported 297,000; there is no reliable source from which to collect statistics or estimated for the number of employees of these smaller organizations.

Source of workforce statistics – Washington’s Employment Security Department publishes workforce estimates at https://fortress.wa.gov/esd/employmentdata/reports-publications/economic-reports/washington-employment-estimates

The estimate of the national 10% average is included in the Nonprofit Almanac (Urban Institute, 2012) on page 35.

Page 10 “Broad service areas” – The IRS and NCCS use “National Taxonomy of Exempt Organizations” (NTEE) coding to identify the primary service activity of each organization. The history and design of the NTEE coding system are explained at http://nccs.urban.org/classification/ntee.cfm

Page 11 For a brief explanation of “private foundations” in the tax code, see the note to Page 1 above.

Page 13 On “nonprofit corporations” – Washington’s nonprofit corporation statute is chapter 24.03 in the Revised Code of Washington. The text is available online at http://app.leg.wa.gov/rcw/default.aspx?cite=24.03. The number of nonprofit corporations is larger than the number of exempt organizations discussed in Part 1 for a variety of reasons, the most important of which is that there are many nonprofit corporations (“taxable nonprofits”) which do not qualify for recognition as tax-exempt under the Internal Revenue Code. Churches are not required to seek recognition as exempt organizations or provide information returns with the IRS but they may nevertheless file incorporation papers with the State of Washington to qualify for property tax exemption. It is also true that many nonprofit corporations have so little income ($5,000 or less per year) that they are not required to seek exemption from federal corporate taxes.

Page 14 On changes in property tax rules – Information for this section was provided by Mark Hugh, CPA. The Washington State Department of Revenue explains the various exemptions and preferences available to nonprofits on its website at http://dor.wa.gov/Content/FindTaxesAndRates/PropertyTax/IncentivePrograms.aspx (scroll down) and http://dor.wa.gov/content/doingbusiness/businesstypes/industry/NonProfit/default.aspx# The Department of Revenue published a Special Notice on June 17 describing the effect of SB 6405 – http://dor.wa.gov/Docs/Pubs/SpecialNotices/2014/sn_14_ExemptNonprofits.pdf. The text of the bill can be found at http://apps.leg.wa.gov/documents/billdocs/2013-14/Pdf/Bills/Session%20Laws/Senate/6405.SL.pdf

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The Clark Nuber not-for-profit newsletter discussion of the property tax “clawback” rules is available online at http://origin.library.constantcontact.com/download/get/file/1109406134085-167/NFP+Article+-+Property+Tax+Clawback+final.pdf

Page 15 Charitable solicitations rules – The Washington State Charities Program is described on the Secretary of State’s website at https://www.sos.wa.gov/charities

Blackbaud Online Giving Report – USA Today summarized the report in “Seattle top city for online donations 3rd year in a row” at http://www.usatoday.com/story/news/nation/2014/06/21/seattle-blackbaud-ranks-top-cities-for-online-based-donating-in-2013/11098073/ The detailed city-by-city list is available (as a Microsoft Excel file) at http://www.blackbaud.com/mostgen

“Pacific Northwest Nonprofit Survey” – The 2014 report is available online at https://www.nonprofitoregon.org/sites/default/files/uploads/file/Murdock-report-v5.pdf.

Nonprofit support organizations

501 Commons http://www.501commons.org Institute of Public Service at Seattle University https://www.seattleu.edu/artsci/publicservice Jefferson County Nonprofit Alliance http://www.jccfgives.org/our-services Nancy Bell Evans Center on Nonprofits and Philanthropy Evans School of Public Affairs, University of Washington http://evans.uw.edu/centers-projects/nbec The Nonprofit Network of Southwest Washington http://nonprofitnetworkwa.org Northwest Nonprofit Resources (Spokane) http://www.nnr.org Shunpike http://www.shunpike.org United Ways of Washington http://www.unitedway-wa.org Washington Nonprofits http://www.washingtonnonprofits.org Wayfind: Attorneys Supporting Communities http://www.wayfindlegal.org Whatcom Council of Nonprofits http://www.wcnwebsite.org For more resource listings such as Nonprofit Centers, Programs and Associations or Regional Support and Training, visit the Nancy Bell Evans Center webpage.

Community Impact Project

Washington Nonprofits is working with First Lady Trudi Inslee to grow strong cross-sector networks within communities across Washington. The Community Impact Project helps nonprofits working collaboratively within communities to demonstrate and communicate impact on complex social problems. CIP aligns state and local policy and budget decisions so that the frontline work of nonprofits connects to state initiatives and policy decisions.

In 2013-2014, Washington Nonprofits organized three First Lady "community impact visits" in Thurston, Whatcom, and Spokane Counties. Leveraging the influence of the First Lady and her interest in nonprofit effectiveness, these visits have convened a wide range of local leaders and officials around the topics of education, health and food security. Together, we are building effective platforms for collaborative action.

The Nancy Bell Evans Center (the Center) works to

enhance the understanding and vitality of the

nonprofit and philanthropic sector through

research, education, and community engagement.

The Center's faculty and affiliates conduct research

on a variety of topics including nonprofit and

philanthropic accountability and certification,

charitable solicitations and regulation, nonprofit

resiliency, financial accountability and performance

management, and public private partnerships. The

Center also convenes members of the academic,

nonprofit, and philanthropic communities to

stimulate thinking on current issues, share research

and best practices, and promote increased dialogue

and collaboration. The faculty advisors for the

Nancy Bell Evans Center are Assistant Professor

Rachel Fyall, Nancy Bell Evans Professor of

Nonprofit Management Mary Kay Gugerty,

Associate Professor Just Marlowe, and Associate

Professor David Suarez; Putnam Barber is Senior

Advisor to the Center.

Bringing together nonprofits from throughout the state, Washington Nonprofits hones the skills of staff and boards, convenes regional and topical groups to share information to improve performance and connects organizations to larger networks in ways that make communities better able to tackle their most pressing issues. Washington Nonprofits strengthens the capacity of nonprofits to advocate for their mission and encourages nonprofits to become engaged in sector-wide policy issues. Washington Nonprofits collaborates with other regional and national organizations to strengthen nonprofits and to increase public understanding for the impact nonprofits have throughout the state. Founded in 2009, Washington Nonprofits officially launched services in October 2011. By the summer of 2014, Washington Nonprofits has grown to include over 415 members and has programming in every region of the state. Washington Nonprofits is recognized by the National Council of Nonprofits as Washington State’s nonprofit state association; underscoring WN’s success in serving nonprofits across all sizes, sub-sectors and geography. Alison McCaffree serves as the executive director.

203 Parrington Hall • Box 353055 Seattle, WA 98195-3055

nbec@uw.edu • 206.221.4629

http://evans.uw.edu/centers-projects/nbec/nancy-bell-evans-center

120 State Avenue NE, #303 Olympia, WA 98501

info@washingtonnonprofits.org • 253.330.8850

http://www.washingtonnonprofits.org