Nonprofits as Engines of Social Benefit

April 1995

Andrew Blau

Communications Policy Working Paper #9 published by the Benton Foundation.

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The Benton Foundation's Communications Policy Project is a nonpartisan, foundation-sponsored initiative to strengthen public interest efforts in communications policy. It is our belief that the concurrent pressures of digital convergence, industry mergers, and renewed interest in rewriting essential elements of U.S. telecommunications policy offer a once-in-a-generation opportunity to create public policy that shapes the emerging communications system to serve the public interest.

Benton's Communications Policy Project is founded upon the belief that the vigorous participation of the nonprofit sector in these debates will strengthen the prospect for public interest outcomes. To that end, we seek to educate the public, and nonprofits in particular, about the critical issues in today's communications policy debates. Moreover, we seek to develop policy options that reflect emerging industry structures and evolving technological trends, so that public interest advocates may speak effectively to where we are heading rather than simply look back to where we have been.

In our work with nonprofits, community groups, and concerned citizens across the country, one theme has been sounded repeatedly: the need for policy makers to create mechanisms that ensure that the National Information Infrastructure (NII) serves us with more than games, movies and home shopping. Moreover, according to a recent poll conducted for Benton, the American public wants more. By overwhelming majorities, the public supports a strong government role that asserts the importance of education, health, and community benefits and that enacts programs and policies that will deliver those services.

However, much of the current telecommunications policy debate is focused on how to secure a robustly competitive environment for the telecommunications industries to build and operate an advanced network of networks. What has been missing is a parallel focus on those communications and information activities that will come from the nonprofit sector, and the specific requirements to ensure that nonprofits will be able to take their rightful place as information providers.

A fully developed NII must include both commercial and noncommercial elements from the beginning if its true potential is to be realized. The nonprofit sector is a significant and growing part of our economy. It is a focal point for the delivery of public benefits and for nurturing the civic culture upon which democratic participation depends.

Nonprofits play a unique role in delivering public interest benefits to the American people; we must develop policies that ensure that nonprofits will have the opportunity to play a similar role and advance in the information age.

Nonprofits: The Engines of Social Benefit

The press releases and corporate videos coming out of telephone and cable companies describe a digital universe where advanced telecommunications delivers enriched education, improved health care, effective social service, and widespread community participation, not to mention instant access to information, arts, and literature. Yet one of the most underdeveloped components in today's telecommunications policy debates is how to ensure that those benefits will, in fact, be delivered once the information superhighway is built.

If the optimistic scenario we hear about so often is to become reality, we must first acknowledge that nonprofits are the likeliest sources for many of these benefits; second, ensure that they will have access to the advanced networks that will carry the services; and third, create a means to support their efforts.

America's nonprofits are our leading experts in education, health care, social service, the arts and humanities, and community participation, because they stand at the front lines of delivering these services every day. Indeed, nonprofits have been created specifically to serve the public and provide public benefits.

By legal definition, they must serve a public purpose and may not make and distribute profits. These characteristics have been codified in the U.S. Tax Code in recognition of the distinct role nonprofits play in the delivery of a wide range of socially valuable benefits.

Nonprofits are a uniquely American approach to providing those benefits. To an extent not seen anywhere else in the world, we have augmented the traditional poles of business and government with a third sector composed of charitable organizations that facilitate many functions that other countries have asked their governments to provide. Here we rely on nonprofits to deliver key social services. While nonprofits may get some support from government, the vast majority of nonprofit funding comes from private sources.

As a result, we have created a system that takes many social services off government ledgers and into a private, noncommercial sector. By so doing, we deliver a remarkable array of services at a minimal cost to taxpayers. While the total revenues for the nonprofit sector (excluding religious congregations) were $416.4 billion in 1990, just 7.1% came from government grants, while the rest came from private donors and program service revenue.1 Thus, for every dollar the government put toward these services, nonprofits attracted an additional $13 from other sources.

Today, there are just under one million tax-exempt voluntary and philanthropic organizations such as schools, hospitals, social service organizations, civic, social, and fraternal organizations, advocacy groups, arts and cultural organizations, foundations, and religious institutions. According to the most recent figures available, the nonprofit sector accounts for 10.4% of total U.S. employment.2 Among the nonreligious organizations in this sector, 36.6% provide human services, 20.4% provide health care services, 13.6% deliver education, 11.4% provide arts, culture or humanities services, and 8.7% deliver other public benefits, such as civil rights work, community improvement efforts, public affairs information, and scientific information.3 Charitable organizations overwhelmingly provide service to clients at the local and regional levels. Almost 40% of these organizations report that they provide local service, while 43% serve multi-county, statewide and multi-state areas.4

In sum, nonprofits are our traditional means of dealing with a wide range of human needs that we have long acknowledged lie outside the boundaries of the commercial marketplace: the health and education of our children; the fabric of local community, knit together through private voluntary associations; the ties of culture and history that link people across generations; and the vigor of our democracy, animated by civic associations, advocates, and citizen groups. These services get delivered thanks to a legal and public policy structure that acknowledges the special role that nonprofits play in each of these areas.

If that legacy is to be carried into the information age, we must include nonprofits in the planning and implementation of the NII and make them part of "basic" service, not an afterthought or corrective to a commercial system that predictably fails to serve public interest values. We must acknowledge their special attributes and unique contributions, and build policy that includes the nonprofit sector from the outset.

Nonprofits and Tomorrow's Information Infrastructure

Many of the services that nonprofits provide today are in the very areas that could be revolutionized by the application of telecommunications technology. As noted above, nonprofits are concentrated in areas such as human services, health care, education, arts, and humanities, and they deliver other public benefits, such as civil rights work, community improvement efforts, public affairs, and scientific information. These are the very areas where futurists and industry promotions suggest that advanced networks can provide direct benefits to the public.5 And through experiments across the country, the potential is becoming clearer: nonprofit activities can be enhanced through communications and information technology.

The "Telecommunications and Information Infrastructure Applications Program" (TIIAP), administered by the Commerce Department's National Telecommunications and Information Administration, offers a powerful indication of the potential that we can capture. TIIAP awarded $24 million in FY94 to nonprofit institutions, as well as state and local governments, to create telecommunications plans and to demonstrate applications in health, education, community service, and other public interest areas. Announced the first week of March 1994, almost 1,100 state and local governments and nonprofits submitted applications by the May 12 deadline. Applications came from all 50 states and the District of Columbia, and requested $556 million in assistance funds, over 20 times the amount available. For the 1995 round of the program, NTIA received 4,000 letters of intent. There is clearly a pent-up demand among nonprofits and other noncommercial entities to develop applications and use advanced communications systems if the barriers of cost and access are lowered.

Accommodating the Needs of Nonprofits

But if nonprofits are to take their rightful place in shaping tomorrow's information infrastructure, we must acknowledge the constraints under which they deliver their invaluable services and craft policy accordingly.

While the nonprofit sector in the aggregate represents a substantial portion of the economy, especially in the key public service fields, most nonprofits are small organizations with small budgets that depend on volunteers to deliver their services. Excluding religious congregations, nonprofits had $416.4 billion in revenues in 1990 and $395.3 billion in expenses that year.6 In particular, nonprofits in health care spent $227.5 billion; in education, $67.8 billion; in human services, $37.9 billion; and $13.4 billion in arts and culture.7 Yet many of these services were provided by small organizations. IRS filings from 1989 reveal that over 70% of the country's 501(c)(3) organizations had total revenues below $25,000. Of the remaining 30%, the median annual expenses were $157,000, with median assets of $158,000.

These figures do not reflect the full value of what nonprofits deliver because many nonprofits rely on volunteer efforts to further stretch their resources. In 1989, 41% of total employment among nonprofits was volunteer time. Volunteers accounted for 74% of total employment in religious organizations, 67% of total employment in arts and cultural organizations, 62% of total employment in civic, social, and fraternal organizations, 43% in social and legal services, 22% in education, and 15% in health services.9 In light of these basic economic realities, nonprofits cannot compete on fully commercial terms with the private sector. What works for HBO or QVC will not work for the PTA, the local hospital, or the League of Women Voters, yet these are the very institutions that must have access if we are to see the social benefits of the NII.

Crafting Communications Policy to Promote Noncommercial Speech

Communications policy has long acknowledged the special roles and needs of nonprofit, charitable, and public institutions, as well as the need to balance pure market forces with the government's compelling interest in encouraging diverse sources of noncommercial speech over communications networks.

The postal system has a multipart rate structure with designated "nonprofit rates" (third class bulk). Nonprofit rates make a substantial difference in the ability of nonprofits to distribute information to their own members and to the public at large.
Reservations of radio spectrum for noncommercial and educational use have been discussed since before the FCC was created in 1934. In January 1938, the FCC allocated the first AM channels for noncommercial educational radio. In 1945, 20 FM frequencies were allocated for noncommercial and educational users.11
Specially-designated noncommercial television channels were allocated as part of the original VHF/UHF allocations in 1952. Under the leadership of FCC Commissioner Frieda Hennock, 242 TV channels (80 VHF and 162 UHF) were reserved for noncommercial and educational use. As an influential Commerce Department report noted in 1988, "This FCC action, to set aside frequencies, was crucial to allowing the growth of educational broadcasting stations."
In 1967, Congress created the Corporation for Public Broadcasting to provide funds for public radio and public television programming, as well as to stimulate the development of public broadcasting entities. Those efforts joined the Public Telecommunications Facilities Program, which, since its inception in 1963, has made approximately 2,700 grants totalling $448 million to strengthen and support public broadcasting facilities. The government's commitment to public telecommunications has been updated and extended as recently as 1992, when Congress found that "it is in the public interest for the Federal Government to ensure that all citizens of the United States have access to public telecommunications services through all appropriate available telecommunications distribution technologies...."13
In 1972, the FCC adopted its first set of comprehensive rules to regulate the cable industry, including a requirement that all cable systems in the 100 largest television markets "shall maintain at least one specially designated, noncommercial public access channel available on a first-come, nondiscriminatory basis." In addition, the rules specified that the cable operator "shall maintain and have available for public use at least the minimal equipment and facilities necessary for the production of programming for such a channel."14 Related access requirements were codified in Section 611 of the Cable Communications Policy Act of 1984.15 Substantial and socially significant use of these channels is being made by nonprofits across the country.16
Although the telephone network, as a fully switched system, has never had noncommercial channels set aside, the traditional universal service programs at both the Federal and state levels acknowledge that access to essential communications networks is too important to be determined by market forces alone. In addition, 12 states report reduced-rate tariffs for schools, charitable organizations, or religious institutions.17

Without such measures, which acknowledge the needs of noncommercial users through reserved capacity, support mechanisms and/or preferential rates, there is no evidence that noncommercial public communications services would have any significant access to today's communications systems. In those instances where commercial providers initially promised to provide for noncommercial needs such as education, our experience has been that without government mandates, those promises have been forgotten in favor of commercial pressures. While perhaps not surprising inasmuch as these providers are commercial firms, the lesson must be that we can not rely on a purely private, commercial marketplace to deliver noncommercial public benefits.

The Public Supports Dedicating Resources for Noncommercial Use According to a recent nationwide poll of 1,000 likely voters jointly conducted by the Tarrance Group and Mellman Lazarus Lake for the Benton Foundation, 76% of respondents support or strongly support the statement:

Government should require companies that prof- it from the new [communications] technologies to dedicate part of their resources to supporting community uses and community access to government information.

Only 18% of respondents oppose the statement.18 Such a result suggests surprisingly strong support among the American public for a government mandate that ensures that the industry turn back a portion of the coming communications resources for noncommercial, public use.

Conclusion

In today's debates over communications policy, the American public is being asked to agree to a trade: the rewrite of U.S. communications policy in return for a great rush of benefits, including easy access to improved health care services; enriched education for our children; a global network of libraries that puts the world's latest information at our fingertips; faster access to government information and a wide range of government services; and electronically-aided participation in local, state, and national civic affairs.

But what if all we get are movies, games, and shopping, while the benefits for which we traded away 60 years of telecommunications regulation keep receding behind the horizon? We will have traded away a rich legacy of public interest principles in return for a digital mall. And while there may be a bookstore, there is no library at the mall. There is no school or health care clinic there either. The mall is not even open for free political dialogue. The mall is a private sector initiative with private sector benefits of consumer choice and convenience. Yet we do not rely on the mall to deliver K-12 education, health services, noncommercial access to information, or basic government services. If these-the true public interest benefits-are to be delivered, we must act now to create the noncommercial, public spaces in which these services can flourish. We must build in the nonprofit sector to the planning and implementation of the next century's communications systems and support nonprofit efforts to provide noncommercial services.

It is imperative to act quickly, because the telephone, cable, wireless and other companies are not only building networks, they are building public expectations. Without the active participation of nonprofits as information and program providers, those expectations will be limited to the narrow commercial vision of entertainment and shopping. If, instead, we expect great public benefits from the networks of tomorrow, we must act accordingly and set public policy that will make those benefits possible. That will mean guaranteeing nonprofits a place at the table to help shape these systems and their services and giving nonprofits the support they need to use the new tools effectively. Such policies would enable nonprofit groups to become creators of content, users of information systems, and participants in the marketplace where the NII is being built.

And therein lies the challenge for policymakers: to see the current communications policy debate as more than a horse race between giant industries but as a dialogue about how to set the stage for delivering enhanced public benefits in the information age. The answer begins with the nonprofit sector, which delivers those benefits today and must be included in policy proposals and network planning if they are to do the same tomorrow.

Notes

1. Hodgkinson, Virginia A., Murray S. Weitzman, Stephen M. Moga, & Heather A. Gorski, A Portrait of the Independent Sector: The Activities and Finances of Charitable Organizations (Washington, D.C.: Independent Sector), 1993, pp. 26-27, Table 9 (hereinafter, Portrait).
2. Independent Sector, Highlights and Summary Data from The Nonprofit Almanac 1992-1993: Dimensions of the Independent Sector (Washington, D.C.: Independent Sector), 1993, pp. 1-2 (hereinafter, Highlights). The Nonprofit Almanac 1992-1993: Dimensions of the Independent Sector (San Francisco: Jossey-Bass), 1992.
3. Portrait, pp. 9-10.
4. Ibid., pp. 19-20.
5. See, for example, Bell Atlantic, Delivering the Promise: A Vision of Tomorrow's Communications Consumer (1989); Pacific Telephone, The Intelligent Network Task Force Report (1987); Holliday, C. and V. Junkman, "The Integrated Broadband Network-How Will It Evolve," Telephony, August 12, 1991, p. 28.
6. Portrait, pp. 26-27, table 9; p. 38, table 13.
7. Portrait, calculations based on figure 45, p. 43.
8. Highlights, p. 12.
9. Nonprofit Almanac, p. 7.
10. Compare, for example, U.S. Congress, Office of Technology Assessment, Critical Connections: Communication for the Future, OTA-CIT-407 (Washington, D.C.: U.S. Government Printing Office) 1990: "Government policy to encourage the creation and development of local community-based information has a history going back as far as the early postal service." p. 192.
11. Ibid.
12. Mitchell, Helena, "Public Broadcasting," in NTIA Telecom 2000: Charting the Course for a New Century, NTIA Special Publication 88-21 (Washington, D.C.: U.S. Department of Commerce) October 1988, p. 575.
13. Cable Television Consumer Protection and Competition Act of 1992 (emphasis added).
14. Cable Television Report and Order on Rules and Regulations Relative to CATV Systems, 36 F.C.C.2d 141 (1972). While these access rules were later struck down, the Court's rationale was that the Commission had exceeded its statutory authority, not that the underlying concept was unsound. Midwest Video Corp. v. FCC, 571 F.2d 1025 (8th Circuit, 1978), aff'd on other grounds, 440 U.S. 689, 1979.
15. 47 U.S.C. 531.
16. See, for example, Nicholson, Margie, Cable Access: Community Channels and Productions for Nonprofits (Washington, D.C.: Benton Foundation and Center for Strategic Communications), 1990.
17. NARUC Compilation of Utility Regulatory Policy 1991-1992, p. 251, table 115 ("Reduced Telephone Rates for Non-Profit Organizations").
18. Mellman Lazarus Lake, What People Think About New Communications Technologies, Communications Policy Briefing 2 (Washington, D.C.: Benton Foundation) 1994. The Briefing reports the results of a nationwide survey of 1,000 men and women. The survey was a telephone poll of likely voters chosen at random to represent the American electorate. Respondents were asked seven questions about the government's role in providing new communications technologies, as well as additional demographic questions. The survey results have a margin of error of +/- 3.1 percentage points.

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