At issue | Sept. 9. Herald-Leader editorial, "Weak rationale for luxury boxes," and various columns, articles and editorials on non-profit organizations.
High-profile instances of overspending and compensation at several organizations in Kentucky recently have generated public outrage and led to some misinformation about our non-profit sector.
On behalf of the thousands of organizations doing the daily work of strengthening our communities across this commonwealth, now is an opportunity to set the record straight and help all of us better understand what a non-profit is and who owns it.
A charitable nonprofit organization is classified as a tax-exempt, 501(c)(3) organization, which means that, because of its charitable purpose, it is exempt from paying federal and state income taxes in most instances; donations made to the organization may be tax deductible and it is governed by a volunteer board of directors.
The term "non-profit" is a bit misleading. Non-profits are allowed and certainly benefit from ending each fiscal year with money in the bank. But that money must be reinvested in the organization's mission and cannot be distributed among board and staff for a job well done like a for-profit might do. A quasi-governmental organization is not a charitable non-profit.
There are thousands of non-profits in Kentucky and they are not simply feel-good organizations. Together, they are a critical community partner and an economic engine — providing vital human services, access to the arts, educational opportunities, health care and much more.
Roughly one in 10 Kentucky workers is employed by a non-profit. The sector contributed over $17 billion to the Kentucky economy in 2007, nearly 10 percent of the state's gross domestic product — more than retail, construction, transportation or agriculture.
In some communities, a non-profit is one of the largest employers. Yet the vast majority of non-profits in Kentucky are smaller organizations, with 76 percent having annual operating budgets of less than $500,000.
Non-profits are governed by a volunteer board of directors charged with oversight, fund-raising and other duties. These boards are charged with supervising the executive director or CEO, including determining this person's compensation. The board must walk a fine line.
It must ensure that the compensation is reasonable and that it is being a good steward of the funds entrusted to it — from donors, government contracts, fee-for-service revenue, investments and other sources. At the same time, the board is charged with developing the most competitive compensation package possible to attract and retain the most qualified leader.
Front-page stories about non-profit mismanagement of funds, poor decision-making, fraud, accusations of excessive compensation and more are important in the interest of transparency. After all, we the public are the owners of nonprofit organizations.
But those of us at non-profits cringe each time such a story breaks. How will this affect us? Will donations suffer, will fewer folks volunteer, will the public continue to misunderstand the unique nature and incredible value of the non-profit sector?
Perhaps the most important thing we non-profit leaders hope the public understands is that these stories are outliers, anomalies. The real story, the more common story, is one of great innovation, transparency, commitment to best practices and passion for mission that transforms lives and communities.
Our neighbors need our support now more than ever before. When non-profits are suffering, the people they serve are suffering — and right now, non-profits are suffering. Research and feedback tell us that non-profits are stretched to the limit, facing an increased demand for services, a decrease in donations and other revenue and looking at fewer potential partnerships with cash-strapped governments and corporations.
Nonprofit organizations enrich our lives in ways not always easy to quantify. But for a better Kentucky, a vibrant nonprofit sector is essential.
For a Kentucky where we and our neighbors can enjoy a healthier, safer and happier quality of life, we are counting on one another. One important way to do this is through understanding and support of the non-profit sector. This is only possible with you and me as donors, volunteers and advocates.