Regulators Urged to Adapt to New Breed of Charities

State officials have not kept up with the sweeping changes in the nonprofit landscape, a Johns Hopkins University scholar told a meeting of state charity regulators held here last week.

“There is a significant mismatch between the nonprofit sector as it now exists and what you’ve been asked to regulate,” Lester M. Salamon, director of the Center for Civil Society Studies at Johns Hopkins, said in a keynote speech to the annual conference of the National Association of State Charity Officials.

Mr. Salamon warned the group that if the gulf in knowledge between nonprofit groups and those who keep watch over them continues, the public may be affected. “You might not be effectively protecting the people you’re sworn to protect,” he said, citing a lack of government oversight of for-profit operations run by nonprofit groups.

‘Fundamental Reinvention’

Instead of focusing merely on obtaining additional funds or seeking a stronger commitment to enforcement from states, regulatory agencies and state lawmakers need to recognize the transformation of nonprofit groups from the slow-growing charities of the 1960s to the multifaceted, rapidly evolving organizations of today, Mr. Salamon said. Many nonprofit organizations now include for-profit businesses and are structured in ways that resemble for-profit organizations, he added.

“There has been a fundamental reinvention of America’s charitable sector,” Mr. Salamon said. Because of that, “nonprofits need new guidelines and the public needs better information on the financial doings of nonprofits,” he added.

Mr. Salamon pointed to research showing that total nonprofit revenue grew by 107 percent in inflation-adjusted dollars from 1977 to 1997, but that private donations to charities accounted for only a small amount — about 6 percent — of that growth. “The trends seem to be moving away from the world of charity,” he said. Most of the growth has been fueled by a surge in commercial income, he added. “We’re seeing more aggressive attempts by nonprofits to get involved in profitable enterprises.”

That creates an “identity crisis,” Mr. Salamon said, as an organization may seesaw between a push toward achieving its mission and a concomitant impulse to increase moneymaking commercial activities.

The quantum change in the nature of nonprofit groups also presents a challenge for agencies that regulate nonprofit organizations, he added. Agencies have typically concentrated on fund-raising activities and not on the growth of commercial entities run by nonprofit groups, Mr. Salamon said. He gently chided regulators for the lack of relevant laws on the books in some states regarding commercial ventures run by organizations. “Many publicly owned for-profit businesses are held to stricter requirements than many nonprofits,” he said.

Mr. Salamon suggested that making regulators see more closely the reality of today’s nonprofit groups could be achieved through a spirit of cooperation between organizations and regulators.

Among other items discussed at the conference was electronic filing of Internal Revenue Service Forms 990. Steven Miller, director of the IRS’s tax-exempt division, said the agency’s goal is to institute electronic filing for returns in 2003.