Make it easier to start charities

North Carolina has a robust network of charitable enterprises that deliver tremendous value across our great state.

They feed the hungry, treat the sick, shelter the homeless, counsel the hopeless, cultivate the artistic, educate the young (and not-so-young), and minister to countless other material and spiritual needs. About 10% of the state’s workers are employed in the nonprofit sector, reports the North Carolina Center for Nonprofits, and their wages totaled $19 billion last year.

While there are about 146,000 nonprofit corporations registered in the state, some 43,000 are 501(c)(3) organizations — that is, tax-exempt public charities or private foundations engaged in what is traditionally considered philanthropic work. A few are big institutions such as universities and hospitals, but most are modest organizations in size, scope, and staffing.

That’s why I found a new Philanthropy Roundtable study of charity regulations so troubling. It ranked North Carolina a disappointing 46th for costs imposed on new nonprofit enterprises. Our incorporation and registration fees are higher than the average state, for example, and we require more forms to be filed.

With the regard to ongoing regulation, North Carolina is about average when it comes to annual reporting and audit requirements. We’re worse than average in solicitation requirements. Overall, says the report, North Carolina ranks 34th in the nation in charity regulation. Montana, Wyoming, Nebraska, Delaware, and Idaho are the friendliest to charities. Connecticut, Mississippi, New Jersey, Florida, and Pennsylvania impose the greatest burdens.

For-profit and not-for-profit enterprises differ in important ways, some more obvious than others. For example, the labels I just used aren’t quite accurate. Both kinds of enterprises should strive to earn more in revenue than they spend. The difference is that in a business, the net income — the profit — has one or more discrete owners. Owners or their agents decide whether to pocket annual profits or reinvest them in the business to maximize investment returns in the long run.

What really distinguishes a nonprofit from a business is that the former has no owners. Its leaders are obligated to manage the nonprofit’s assets — that is, net incomes accumulated over time — for the public good, not for private gain.

For all their differences, however, both sectors benefit from robust competition and entrepreneurship. New enterprises create most new jobs in any economy. As for new charitable enterprises, they play key roles in innovation, in filling gaps, and in bringing new donors, volunteers, and community leaders to the table.

By regulating nonprofits the way it does, North Carolina probably reduces the startup rate for new charitable enterprises. That is, at least, a reasonable take on the Philanthropy Roundtable data. The report author, economist Wayne Winegarden, computed for each state a ratio of the number of charitable organizations to the size of each state’s economy. He then divided the states into thirds based on their regulatory burdens on charities. The group with the lightest regulations had, on average, about 15% more charities than the other groups.

It’s been a pleasure and a privilege for me to help create, fund, and govern a variety of tax-exempt charities over the years. In my current role as president of the John William Pope Foundation, I help administer some $15 million a year in grants to 501(c)(3) nonprofits, the majority of which are either based in North Carolina or deliver goods and services here. So I say this as both a practitioner and a fan: as dynamic as our independent sector is, it could be even healthier and contribute even more to making our state a great place to live, work, play, and rear children.

North Carolinians can help make that happen by becoming even more generous with their time, donations, and patronage (keep in mind that service fees and other earned revenue actually fund a larger share of nonprofit budgets, on average, than cash gifts do). As for policymakers, they can help boost North Carolina’s charitable sector by making it easier for North Carolinians to start new charities.

John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history.