Thad D. Calabrese

The Accumulation of Nonprofit Profits: A Dynamic Analysis

Notwithstanding its importance as an internal source of financing, no analysis has examined why nonprofits choose to retain unrestricted net assets. As restricted net assets might not be used as desired by the nonprofit manager, unrestricted net assets are a more accurate definition of available internal resources than total net assets. This article tests several theories that might motivate nonprofit accumulation of unrestricted net assets. Furthermore, the empirical strategy employed allows an analysis of unrestricted net asset accumulation over time and overcomes several significant statistical estimation issues. The results suggest that nonprofits target profits and seek their accumulation over time, although targets may be set at very low levels. Furthermore, the results suggest that the low levels of profits accumulated annually are for the purpose of reducing organizational financial vulnerability. The results also suggest that many nonprofits behave as if leverage and unrestricted net assets are substitutes.

Borrowing for the Public Good The Growing Importance of Tax-Exempt Bonds for Public Charities

The importance of tax-exempt borrowing as a capital source to the nonprofit sector has significantly grown over time. Outstanding tax-exempt bonds issued by nonprofits have risen from an inflation-adjusted US

Alternative Service Delivery Does Nonprofit Financing Influence State Tax Burden

106.3 billion in 1993 to US

Debt, donors, and the decision to give

388.5 billion in 2010 representing an 8% compound annual growth rate over the period. The increased importance of tax-exempt borrowing relative to other borrowing for nonprofits has gone unnoticed. Here, we ask what factors are associated with this trend. We find wide variation in the increasing use of tax-exempt bond usage between nonprofit sectors. Although nonprofit borrowers other than hospitals have increasingly entered the tax-exempt capital market over the past decade, they still tend to be large organizations with lower risk of bankruptcy or default. Our empirical findings continue to raise the questions that others have raised: How do we make smaller, capital-starved nonprofits better able to take advantage of the tax-exempt market in a responsible manner?

Understanding and Measuring Endowment in Public Charities

We analyze panel data of U.S. states to determine whether nonprofit contribution and program service revenues are correlated with state tax burden. State tax burden is modeled as a function of (a) state tax policy, (b) nontax policy factors that affect state income, and (c) other exogenous factors that are independent of state tax policy and do not directly induce income; regression results reveal correlations with variables in all three categories. Intergovernmental revenue (IGR) paid to local governments, debt burden, tax exporting, a tax revenue limitation, and nonprofit revenue are most consistently correlated with state tax burden. Financial support for nonprofits in the form of contributions helps to reduce state tax burden and does so at a meaningful level. This finding implies nonprofits provide goods and services that are supplementary to government provision. However, the supplementary nature of nonprofit service provision is not universal. Further analysis of contribution and program service revenues for nonprofits in particular service categories finds either no correlation with state tax burden, a reduction in state tax burden, or an increase in tax burden imposed on state residents over time. By controlling for factors influencing demand for service provision and state tax policy changes, the regression results also provide evidence that government acts as a free rider.

To Give Is to Get: The Promotional Role of Investment Bankers in Local Bond Elections

Despite the enormous size of the nonprofit sector, there has been very little empirical research done on the capital structure of nonprofit organizations, and no one has examined the potential effects of borrowing on individual contributions. Using a representative sample of nonprofits, the empirical analysis first determines whether secured or unsecured borrowing by nonprofits influence future contributions. The results for the full sample support a “crowding-out” effect. When the analysis is repeated on a subsample of nonprofits that are older, larger, and more dependent upon donations, the results are more ambiguous: secured debt has little or no effect, while unsecured debt has a “crowd-in” effect. The empirical analysis is then expanded to test whether nonprofits with higher than average debt levels have different results than nonprofits with below average debt levels. The results suggest that donors do remove future donations when a nonprofit is more highly leveraged compared to similar organizations.

Proverbs of Nonprofit Financial Management

This note delineates different motivations for holding endowment by nonprofits, analyzes the definitions and measurement of endowment in the literature, and details newly available data on endowment contained in the Form 990 since 2008. More than 43% of organizations report owning an endowment, and the overwhelming majority of endowment funds are held by higher education nonprofits. One third of endowment funds are unrestricted and 41% are permanently restricted, with heterogeneity across subsectors. Endowed nonprofits exceed average payout rates each year of 5%. Annual endowment payouts average 4.1% of total organizational expenses, which measures the sector’s dependence on endowment revenue for operations. We evaluate past endowment measurement approaches using actual endowment data and find wide variation in validity. Although still imperfect, the new endowment data allow researchers to better understand a key distinguishing financial feature of the nonprofit sector.

Pension Obligation Bonds and Government Spending

Public managers and elected officials are generally restricted from supporting election campaigns with public resources. In the case of legislative referenda, the public stakeholders responsible for putting a policy question on the ballot must play a neutral role when acting in their official capacity. A system where private money supports public goals has emerged as regulatory provisions simultaneously restrict direct private giving to elected officials and public support for election campaigns. Using campaign finance disclosures, election results, and municipal bond issuance data, we find that post-election fees paid to firms making political contributions are significantly higher than for non-contributors. The finding improves the understanding of how private dollars support public policy outcomes, raises questions about the circumvention of laws restricting the use of public resources in election campaigns, and informs ongoing consideration of the need for additional regulatory action and disclosure requirements to address issue committee campaign contributions.

A Replication of 'Agency Problems of Excess Endowment Holdings in Not-for-Profit Firms' (Journal of Accounting and Economics, 2006)

Whereas the field of public administration has benefited from periods of critical reflection and reform aimed at reexamining the field’s traditional management paradigms, the related field of nonprofit management has generally lacked such an analogously explicit and sustained research program to reevaluate its own conventional wisdoms. Meanwhile, accumulated findings from the last several decades of nonprofit management research have problematized many traditional assumptions and practices in nonprofit management, specifically regarding the soundness of nomothetic management theory, the unintended negative consequences of certain management norms, and underlying assumptions about the nature and purpose of nonprofit management. This article critically reexamines four well-known “proverbs” of nonprofit financial management—minimize overhead, diversify revenues, be lean, and avoid debt—to demonstrate the need for a critical and reflective research program that takes stock and reconsiders the field’s foundational principles and assumptions. Implications are derived for scholars and practitioners, as well as for information intermediaries that evaluate nonprofits based on financial information.

What are the Financial Implications of Public Quality Disclosure? Evidence from New York City’s Restaurant Food Safety Grading Policy

We examine the use of pension obligation bonds (POBs) as a financing strategy to address the effects of unfunded pension liabilities on government operating budgets. POBs are publicly marketed as money‐saving mechanisms that reduce pension system payments while allowing for increased spending on other government priorities. We review general POB usage and examine whether POBs altered school district spending patterns in Oregon and Indiana. Our results indicate that districts issuing POBs have not increased educational spending relative to other districts. Because POBs cost money to issue and manage, decision makers are encouraged to consider annual budgetary effects prior to issuance.