To most small, local nonprofits–and nearly all operating 501(c)(3)s are small and local–the concept of “social entrepreneurialism” that they hear touted by their funders implies earning income from business-related activities. But some of the most highly publicized nonprofit social entrepreneurs promoted as models for the nonprofit sector-and frequently mentioned by sector leaders influential with the Obama Administration-demonstrate part of their entrepreneurialism by success at the public trough.
Organizations such as Teach for America, America’s Promise, City Year, Citizen Schools, and others have delivered lots of good for many communities and they have been extremely successful at raising government funds to do it.
Nonetheless, for most nonprofits, it’s a little hard to follow the development path of these national players, much less imagine that they too can become the next America’s Promise, YouthBuild, or City Year. As national organizations with networks of local or regional affiliates, these more closely resemble national multi-site nonprofits such as Planned Parenthood, Habitat for Humanity, the Nature Conservancy, the Local Initiatives Support Corporation,[1] the Girl Scouts, the YMCA, and much more. Operating with perhaps less glitz and more marketing modesty than the mostly youth-oriented entrepreneurs, these mostly older and more established organizations are no less entrepreneurial in pursing their programs of environmental protection, community development, or reproductive rights.
The success of the new wave of social entrepreneurs in landing big time government contracts puts them well in the mainstream of large nonprofit practice. Teach for America, America’s Promise, City Year, Citizen Schools, and the New Teachers Project, for example, have all been involved in the America Forward coalition organized by Vanessa Kirsch[2] of New Profit, Inc. This coalition has also been very influential with the evolving content of the Obama Administration’s thinking about nonprofits. Most of these nonprofit social entrepreneurs have also been phenomenally successful with federal grants during the 8 years of the Bush Administration.
At USAspending.gov, the federal grant track record of some of these social entrepreneurs is noteworthy:
- Teach for America pulled down $56.9 million in federal grant assistance from FY2001 through FY2008, including $17.6 million in the Bush Administration’s penultimate year in office. According to TFA’s IRS Form 990s covering roughly FY2001 through 2007, the organization received $70,990,553 in government contributions, including $17.1 million in fiscal 2007, accounting for more than one-fifth of all of its contributed income.
- Between FY2001 and 2008, City Year got $25.5 million in federal support. Its 990s covering roughly FY2001 through 2006 reported $74.3 million in government support, almost exactly one-third of its contributed revenues.
- For America’s Promise, the government assistance for calendar years 2001 through 2007 comes to $35.2 million, a little more than 36 percent of its total revenues in direct and indirect contributions. The USAspending.gov numbers indicate that America’s Promise has received $63.9 million in federal assistance, including $14.9 million in FY2004 and $14.4 million in FY2005, numbers looking a bit inconsistent with the government income reported in AP’s 990s.
Many smaller nonprofits that get the social entrepreneurism message often think that it means earned income from the private sector. But the examples of Teach for America, City Year, Citizen Schools, the Points of Light Foundation, the New Teacher Project, and others are apparent examples that success in government contracting is just as entrepreneurially valid as private sector earned income.
For some of these national entrepreneurs, it hasn’t hurt to be associated with major political figures either; consider Laura Bush’s active involvement in Teach for America and the New Teacher Project and General Colin Powell’s founding of America’s Promise.
Due to size, entrepreneurial aggressiveness, and solid political contacts, part of TFA’s federal success, for example, is attributable to attracting juicy earmarks, not simply successful competitive grantsmanship:
- In FY2003, Teach for America got $1 million from the Department of Education’s Fund for Improvement of Education, which was followed by DOE earmarks of $2 million in FY2004 and $1.25 million in FY2005.
- In FY2006, TFA landed a $2.35 million earmark in the NASA budget, “to engage teachers in science, technology, engineering and mathematics” courtesy of Senator Barbara Mikulski (D-MD) (Mikulski put in equivalent earmarks for TFA in FY2008 and 2009).
- Mikulsi’s NASA earmarks pale when compared to the $10 million earmark pushed by President Bush for Teach for America in FY2008, but that was smaller than the $11.79 million recommended by the Senate Appropriations Committee for TFA from the “America COMPETES” program in Department of Education’s Office of Innovation and Improvement.
- President Bush’s $10 million request for TFA was attached to recommended earmarks of $8.9 million for the Points of Light Foundation, $4.45 million for America’s Promise, and over $20 million for the library program affiliated with First Lady Laura Bush (it appears that POLF did get that earmark from the budget of the Corporation for National and Community Service).
- America’s Promise did get a large earmark in FY2001 for not more than $7.5 million from the CNCS budget, of which it spent, according to an OIG audit, $7.483 million.
As admirable as the program accomplishments of these national social entrepreneurs may be, only a minuscule number of nonprofits have the financial heft and prowess, much less political connections to top Republican and Democrat politicians, to lobby for earmarks like these.
Constituting the leading edge of social entrepreneurship being discussed at the highest levels of the Obama Administration, these national organizations all bear watching. Local nonprofits may admire much of what these organizations accomplish, but the accomplishment should not be imagined as nongovernmental. These social entrepreneurs are accomplished navigators of federal grant programs, their accomplishments depend on activist government-even during the past 8 years of the Bush Administration-willing to invest in nonprofits.
Now that these organizations and the America Forward coalition are on the inside of the Obama Administration’s discussions of nonprofit policy, they should remember that 99 percent of the nonprofit sector isn’t national, multi-site, and large. Most are small, local, and need as big shares of the upcoming nonprofit largesse of the new occupant in the White House. Their charge is not to double and triple their grantsmanship and earmarking success at the public trough, but to open public funding to the grassroots nonprofits whose daily work defines and implements nonprofit social entrepreneurialism for most of America.
[1] Full disclosure, this author was once a vice president of LISC and earlier a vice president of the Enterprise Foundation, now Enterprise Community Partners, both national multi-site nonprofits.
[2] Kirsch co-founded Public Allies in 1992. Public Allies is smaller than these other groups, but also frequently mentioned as entrepreneurial and frequently visible in the deliberations of the Obama Administration’s nonprofit advisors.
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Rick — this is great. Thank you for writing about this and debunking some of the myths of social entrepreneurship. Many of the so-called social entrepreneurs do not have a dollar of earned income and should be called what they are: innovative nonprofits with some clever ideas but no new business models. They rely on federal and foundation grants as nonprofits have done for decades. In the end, nothing new there, despite the hype. This deserves a whole series of investigative articles and reports, and I am glad you are calling a spade a spade!
Thanks for the kind comments, Katrin. I’ve long been convinced that some of this nation’s top nonprofit social entrepreneurs are small community-based nonprofits that don’t typically call themselves entrepreneurs. What I would love to see is an investigative report–maybe here at the Cohen Report!–that looks at the results of some funders’ efforts to inculcate social entrepreneurism among nonprofits, making some model of social entrepreneurism a requirement for their grants. I know of one big foundation that made social entrepreneurism–strategic plans to convert grantees to some sort of earned income social entrepreneurism model–a grant requirement, paying some TA providers decent consulting contracts to help the grantees move in this direction, with results that to me look pretty negligible. I remember the grantees chafing under the requirement, but this was the gateway to the foundation grants. Some of this entrepreneurism engineering by funders (and their consultants) might be worth some investigation as well.
Dear Rick,
All good points and, as we are all aware, we’re all taking out each others’ wash in this world of ours. As I know you’re aware, the U.S. Government (not even counting state and local governments) is (with revenue largely from tax receipts) the biggest purchaser of goods and services in the world…and while a variety of nonprofits are adept at getting a piece of the pie, most of the folks it purchases from are for-profits. Yes, Virginia, for-profits…lots of them…make most of their money from government contracts. In fact, they make alot more money than nonprofits, because they’re bigger. Among the biggest of these “social entreprises:” Raytheon, McDonnell Douglas, Cal Tech (hey, wait a minnit, that’s a nonprofit) are among the near-billion dollar annual beneficiaries of this sheltered, largely non-competitive market.
Are there anti-social enterprises? Or anti-social entrepreneure? We all could probably name a few, but it’s not that easy to find an enterprise without any social purpose at all–whether we agree with it or not. The bustling for-profit bakery in my town employs people (some of them disabled), makes a product that improves my mental health (though not necessarily my physical), and doesn’t pollute hugely (as far as I know). The owner is grouchy and votes against taxes and environmental programs most of the time, but who cares? The point is, an enterprise is a tool, not a moral stand; profitability is mandatory for any healthy enterprise, whatever the tax status; and tax status is an intentional governmental concession for value added, not a business model. We don’t talk about socially-conscious screwdrivers, do we?
From an enterprise point of view, the moral high ground for tax-exempt enterprises is simply that profits, retained earnings or equity cannot be distributed to owners (the owners are the public). Instead, principals and boards of directors are obligated to manage these assets for the continuing benefit of the general public, so profits are used to further the mission…not, primarily, to build the wealth of the owners.
So of course the new wave of government contract driven nonprofits is business as usual–at least from an “enterprise level” point of view. So the most important thing to focus on is what they’re delivering. For them, and, if our government is doing its job, for all of us, the most important indicator is what value they are creating for society. This is true whether you’re a nonprofit or a for-profit. Thus, when a defense contractor delivers defective body armor to front-line troops, it deserves to be fired, fined and otherwise drummed out of the government contracting corps. And if a nonprofit is delivering so-so teachers, or not so great medical services, well, maybe they don’t deserve the big contracts any more either.
In both of these cases, notwithstanding the well-deserved great reputations of the nonprofits named in your piece (and the sharp elbowed reality of getting space at the public trough), the process and realities of “earmarks” undermines nonprofits’ moral high ground and again focuses public attention on inputs (money) rather than what value is added.
Important piece. I’m musing in response to this on http://changematters.blogspot.com/
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