PAALF: While nonprofit and philanthropic leaders stress the value of diversity in the nonprofit sector, the actual picture conflicts with that perspective.

In 2012, approximately 1.44 million nonprofits (501c3 public charities in the U.S. were registered with the IRS. In Philadelphia, 7,781 nonprofits were registered with the IRS in 2015. A study in 2010 found that one in eight full-time employees in Philadelphia and its surrounding four suburban Pennsylvania counties worked at a nonprofit organization. The 2007-2010 recession hit many nonprofits hard. Eighty-four percent of nonprofit leaders reported a negative organizational impact and one in five described the negative impact as significant. The 2007-2010 recession disproportionately affected nonprofit leaders of color. Over one quarter (28%) of people-of-color-led organizations were severely impacted by the recession compared to 18 percent of white-led nonprofits. This may be due, in part, because people of color were more likely to run heavily government-funded organizations.

Over the last ten years or so, there has been an increase in the conversations about and initiatives focused on diversity and its value at nonprofit and philanthropic organizations. Data on diversity in nonprofit and philanthropic leadership and grant making are lacking, though necessary, in order to more deeply and broadly address the issue of diversity. Some local studies show a lack of racial/ethnic diversity among nonprofit leaders and board members. In addition, research by the D5 Coalition, which focused on diversity in philanthropic organizations, suggests that diverse communities continue to be underfunded.

The close to 8,000 nonprofits in Philadelphia provide a variety of services and programs to the city’s residents. Many of these nonprofits, particularly human-service-oriented nonprofits, which are the focus of this study, are addressing significant social problems in the city, such as poverty and low education.

Landscape of Nonprofit Organizations

Nonprofit organizations are defined as organizations that serve the public interest (i.e., cannot distribute corporate income to shareholders) and are tax exempt under section 501 of the IRS code. They are made up of:

  • 501c3 public charities, which include most nonprofits involved in the arts, education, health care, human services, and community services, as well as many others.
  • 501c3 private foundations, which primarily include organizations that make grants to other nonprofits, like The Pew Charitable Trusts and the Ford Foundation.
  • Other exempt organizations registered with the IRS, including trade unions, business leagues, social and recreational clubs, and veterans associations classified under varying sections of the IRS code.

In 2012, approximately 1.44 million nonprofits (501c3 public charities) were registered with the IRS, an increase of 8.6 percent from 2002. The nonprofit sector contributed an estimated $887.3 billion to the U.S. economy in 2012, composing 5.4 percent of the country’s gross domestic product (GDP). In Philadelphia, 7,781 nonprofits were registered with the IRS in 2015. A study in 2010 counted 15,149 nonprofits in the Philadelphia five-county region; of these, 7,285 filed tax returns (the rest were exempt).

Nonprofits accounted for 11.4 million jobs in the U.S. in 2012, representing 10.3 percent of all private sector employment (up from 9.2 percent in 2007). In Pennsylvania, nonprofits accounted for 14.9 percent of private sector employment in 2007. Nonprofit jobs are heavily concentrated in healthcare and the social assistance sector, which together accounted for 68 percent of nonprofit employment in 2012. Employment in the nonprofit sector increased each year, from 2007 to 2012. A study in 2010 found that one in eight full-time employees in Philadelphia and its surrounding four suburban Pennsylvania counties worked at a nonprofit organization.

Effect of Recession on Nonprofits

The Daring to Lead survey of 2011, a national study of nonprofit executive leadership, found that the majority of nonprofits were negatively impacted by the 2007-2010 recession. Eighty-four percent of nonprofit leaders reported a negative organizational impact and one in five described the negative impact as significant.

The effects of the recession on nonprofits were twofold: an increase in organizational closures and an increase in demand for services. More nonprofits closed during the recession (2008-2012) than the period prior to the recession (2004-2008). Smaller organizations (with annual revenues of $50,000 – $99,999) were the most vulnerable to closure. Smaller organizations also experienced the greatest loss in revenue. Human service organizations, however, had the smallest increase in closure rates among nonprofits (organizations in the international subsector experienced the greatest increase in closures).

The 2015 State of the Nonprofit Sector Survey found an increase in the demand for services from nonprofits during and following the recession. Only 48 percent of organizations reported that they were able to meet the demand in 2014 (41% of human service nonprofits). Nonprofits also reported that their top challenge was pursuing long-term financial sustainability. This challenge is compounded by the continuing trend of state and local governments shifting the burden of service provision to nonprofits, where nonprofits are expected to fill service gaps.

The 2007-2010 recession disproportionately affected nonprofit leaders of color. Over one quarter (28%) of people-of-color-led organizations were severely impacted by the recession compared to 18 percent of white-led nonprofits. This may be due, in part, because people of color were more likely to run heavily government-funded organizations.

PAALF: In fact, the economic downturn was the impetus behind the creation of the PAALF. If the recession was causing white-led nonprofit organizations to cough, the diagnosis for African American-led nonprofits was an impending flu epidemic. To prevent such an occurrence, African American nonprofit leadership in Philadelphia convened to explore strategies to strengthen and sustain its sector.

The Landscape in Philadelphia

The close to 8,000 nonprofits in Philadelphia provide a variety of services and programs to the city’s residents. Many of these nonprofits, particularly human-service-oriented nonprofits, which are the focus of this study, are addressing social problems in the city, such as poverty and low education. Tables 1-3 present demographic and socioeconomic data on Philadelphia residents to demonstrate the need for services that many nonprofits provide. Over 1.56 million people live in Philadelphia. More than four in ten residents (42%) are African American, while 37 percent are White (non-Hispanic) and 13 percent are Hispanic (Table 1). The median household annual income is about $37,000, well below the state and national medians (Table 2). Over a quarter (26.5%) of Philadelphia residents are living in poverty; over a third of children (36.3%) in Philadelphia live in poverty (Table 2). Philadelphians of color are more likely to live in poverty: 41 percent of Hispanics, 31 percent of Blacks, and 30 percent of Asians live in poverty compared to 16 percent of whites (Table 3).

These data provide just a snapshot of the poor circumstances that many Philadelphians, particularly those of color, face. Poverty is associated with poor health, low education, and living in neighborhoods with more violence. The nonprofit sector is an important provider of services to improve the life chances of the poor.

PAALF: The nonprofit sector, and African American-led organizations in particular, are doing the heavy lifting of providing services to improve the life chances of the poor.

In 2013, the Philadelphia African American Leadership Forum (PAALF), with funding from the United Way of Southeastern Pennsylvania and Southern New Jersey, commissioned a study of African American-led nonprofits in Philadelphia. PAALF was interested in understanding whether the experiences and needs of African American-led nonprofits in Philadelphia differed in important ways from white-led nonprofits. Specifically, the group sought to document both the needs and challenges of African American-led organizations in areas such as capacity, resources, and technology, as well as the value of the organizations to the local community in their sensitivity and understanding of needs, and in the services provided and populations served.

The PAALF hopes that this research will:

  • Specifically inform how we can build greater capacity among African American nonprofit leadership and organizations to better serve the African American community.
  • Identify opportunities for greater alignment and collaboration among African American-led nonprofit organizations.
  • Reframe the conversation that African American nonprofit leadership has with the philanthropic and public sectors.
  • Advance a data driven culture among nonprofit leadership.

In 2014-2015, Branch Associates, Inc., a Philadelphia-based research and evaluation firm, conducted a survey of leaders of human service-oriented nonprofit organizations in Philadelphia. The survey research was supplemented with qualitative research with African American Executive Directors and local funders. The findings from this research are presented in this report.

The research was guided by the following research questions, formulated with the PAALF:

  • What are the organizational characteristics of African American-led organizations such as size, budget, age, sector, funding sources, services provided, populations served, etc.?
  • What are the characteristics of the Boards of Directors and their members, such as number of members, demographic characteristics of members, tenure and experience of members, etc.?
  • What are the characteristics of the Executive Directors and senior staff, such as race, gender, age, tenure, and experience?
  • How do the organizations use data and technology?
  • Are the organizations involved in policy work or advocacy? Do they have the capacity to work in these areas?
  • Do the organizations and their staff participate in trainings and technical assistance?
  • Have the organizations participated in strategic planning, including succession planning and financial sustainability?
  • Are the organizations involved in partnerships or collaborations with other organizations?
  • How do African American-led nonprofit organizations compare to other (non-African American-led) organizations on the above measures?
  • What are local funders’ perspectives on African American-led nonprofit organizations in Philadelphia and how they are positioned in the nonprofit sector?

The report begins with background information on the nonprofit sector, including diversity within the sector, and the landscape and needs in Philadelphia. This is followed by the research methodology and a presentation of survey findings. Key findings from qualitative interviews and focus groups are interspersed with the survey results. The report concludes with a summary of the key findings for PAALF to use going forward.

Study Findings

The findings in this report are based on a survey of 145 Executive Directors or CEOs (“EDs”) of human service-oriented nonprofits in Philadelphia, two focus groups with African American EDs, and four interviews with local funders. Of the survey respondents, 74 are African American (51%), 63 are White (43%), and 8 are another race/ethnicity (6%). We compared survey findings between African American and White EDs to uncover similarities and differences in their experiences and organizations. Qualitative data enhanced our understanding of nonprofits, their challenges, and the funding environment in Philadelphia.

The study uncovered both similarities and differences between organizations led by African Americans and those led by white Executive Directors. Overall, there were some similarities — in the background and experiences of EDs, in what EDs do in their daily work, in several organizational characteristics such as age and budget, and in the gender composition and expertise of board members and senior staff.

However, a number of interesting differences emerged. Organizations led by African Americans are smaller, as defined by the number of staff and volunteers. African American-led organizations have fewer cash reserves and are more dependent on government grants than white-led organizations. The latter likely explains the greater likelihood of African American-led organizations to track data and program outcomes, as accountability measures for public funds has increased over time. These findings regarding cash reserves and government funding may make African American-led organizations more vulnerable to recessions and changes in government, and thus more financially precarious than white-led organizations. Focus group participants (African American EDs) acknowledged the need for diverse funding streams and creative funding strategies.

The findings from this study also show a degree of segregation and isolation between African American-led and white-led organizations.

  • African American-led organizations are more likely to have African American board members and senior staff, and white-led organizations are more likely to have white board member and senior staff. In fact, at 27 percent of African American-led organizations, all board members are African American. At 59 percent of African American-led organizations, all senior staff are African American; at 48 percent of white-led organizations, all senior staff are white.
  • While study participants express the value of leaders and staff reflecting the population they serve, the downside to this homogeneity, particularly among board members, is the lack of diverse professional and social networks, which can negatively impact access to funding.
  • The paucity of African American senior staff at white-led organizations also has implications for the future of African Americans in the nonprofit sector. The pipeline for African American leaders appears to be weaker at white-led organizations.

African American-led and white-led organizations in this study are serving different populations.

  • African American-led organizations are more likely to serve teens, African Americans, and low-income residents than white-led organizations.
  • African American-led organizations are also more likely to be serving and located in low-income Philadelphia neighborhoods.
  • These findings suggest that African American-led organizations are serving some of the neediest populations in Philadelphia. Being located in the places where services are most needed makes the organizations more accessible to clients and allows them to become trusted members of the community. These findings highlight the value of African American-led organizations to the Philadelphia community.

All study participants reported significant challenges with fundraising, particularly with only the recent end of the recession. However, African American EDs reported even greater challenges. While there is a perception of racial differences in funding, this study cannot confirm whether African American-led organizations are not funded as often or as generously as white-led organizations. Funders explained that a large percentage of grants benefit African Americans because nonprofits serve large black populations in Philadelphia. The survey data also showed that nonprofits primarily serve black clients. What is not clear is the whether African American-led organizations receive less funding than white-led organizations, although many believe this is the case.

Overall, this unique and first-of-its-kind study should provide valuable information to the Philadelphia African American Leadership Forum and other city and nonprofit leaders and funders to use to improve the strength of nonprofits in Philadelphia and the services they provide throughout the city, particularly to the neediest populations.