PA Study Finds Nonprofits Aren't Getting Rich Off the Public Dollar

On April 16, the Legislative Budget and Finance Committee (LBFC) quickly and quietly disposed of a study of the salaries of nonprofit and for-profit human service providers. The study was commissioned by House Resolution 2012-798, sponsored by state Representative Scott Petri, not long after the acrimonious debate over the Human Service Development Block Grant that dominated the 2012 legislative session.

The resolution called for the LBFC to look at the salaries and compensation of nonprofit providers in the intellectual disabilities, drug and alcohol, community-based mental health, and child welfare systems. Limiting the review to the service areas whose members happened to be the most vocal about the block grant was probably not a coincidence.

After some hue and cry, the scope of the study was expanded to include for-profit service providers (HR 2012-888).  

The report used IRS 990 filings from 2010 to determine total compensation (from the primary company and related companies — a kind of combined reporting for nonprofits), operating expenses, debt, administrative expenses, and lobbying association expenses for 662 nonprofits in 28 Department of Public Welfare (DPW) service areas, plus drug and alcohol service providers from a list provided by the Department of Drug and Alcohol Programs.

Questionnaires were sent to for-profit providers, and the LBFC looked at 10-K filings of the handful of publicly-traded companies. 

The list of service providers covered by the study included nonprofit general acute-care hospitals, which tended to skew the data, as most of the highest paid employees were based in hospitals. As a result, the LBFC did the study two ways — with all providers, then with the hospitals removed from the analysis.

The results:

48% of nonprofits had no employees with total compensation over $100,000. Total compensation is defined as pretty much everything: salary, health benefits, deferred compensation, fringe, housing allowances, or any other employer-sponsored incentive. Of those that did have such employees, 443 were at the Thomas Jefferson University Hospital, which ranked number one.

When you take out the hospitals, of 599 organizations, 52% had no individuals with total compensation over $100,000, and 21% had 1. According to the data, 89% of nonprofits had 4 or fewer individuals with total compensation above $100,000.

The study found (surprise!) that salary structure tracked total revenue — the bigger the organization, the greater the chance that there was at least one highly compensated individual.

The report also looked at total compensation for all executives in all related companies, whether or not the executive was involved in service delivery in Pennsylvania or even based in the commonwealth at all.

Of all executives, 39 made more than $1 million; after taking out the hospitals that left exactly 2. 

What else did the report find? First, the bulk of the nonprofit service providers are big businesses with significant revenue. By extension, they are also big employers.

Of the 599 non-hospital nonprofits in the study, only 15% had revenue of less than $1 million; 50% had revenue of $1 million to $10 million; and another third were in the $10 million to $100 million range. Almost 3% of non-hospital providers had revenue greater than $100 million.

The LBFC took pains to point out that these nonprofits are not particularly wealthy. More than one-third (34%) had negative revenue in 2010, meaning they lost money that year. Another 48% had net revenue between zero and $100,000. Only 18% had net revenue greater than $100,000.

Only 89 of 662 total nonprofits (13%) were registered as lobbyists and reported any lobbying expenditures, with a little more than half reporting lobbying expenses for at least one quarter in 2011.

On the for-profit side, 65% of those that responded reported no individuals earning more than $100,000. The publicly traded for-profits were in a different league, with three of the five reporting 2010 revenue of more than a $1 billion and national senior level managers (CEO, CFO, Senior VP) reporting total compensation of several hundred thousand dollars. Three CEOs had compensation packages that exceeded $1 million.

The report provides no evidence that nonprofits are getting rich off the public dollar. It does paint a picture of large, professional organizations that provide a wide variety of services for Pennsylvanians. For years, we have heard that government should operate more like a business, and this report is evidence that nonprofits operate like the private-sector organizations they are. Except they can’t be paid like the private sector.

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