What is the third (sector’s) state?

How is the third sector doing in the recession? After a 2007 study on the administrative and financial burdens it faces, a May 2009 report by the Wellesley Institute revisited its informants to see how conditions have changed. Entitled Canada’s non-profit maze, it surveyed 32 non-profits, charities and voluntary organizations. The findings are grim, but not for the reasons you might expect.

The strongest message that came from the survey was that the Canadian legislative and regulatory framework is pathologically complex and difficult to negotiate. Similar constraints on revenue sources and the changing dynamics of revenue generation in the third sector further compound the problem. The sector has three main sources of revenue: charitable donations, government funding and earned income. In recent years, the proportion of government funding has declined and earned income’s share has increased. Increasingly, non-profits are raising funds from all three sources. How is this a problem? The idiosyncrasies associated with each multiply the challenges that non-profits face.

What are the specific barriers that third-sector organizations report?

For charities:

Abbé Sieyes, ideologue of the French Revolution, and author of the famous Pamphlet What is the Third Estate?
  • All of a charities’ activities must be charitable
  • Charities can’t own more than 10% of a business
  • 80% of expenditures must be charitable
  • Blurry lines between policy development and advocacy

For recipients of government funding:

  • Lengthy applications for short-term funding and small grants
  • Complex reporting procedures
  • Line-by-line restrictions on using funds

For organizations that earn income:

  • Lack of access to investment capital and funding from foundations
  • Social enterprise strategies must be secondary to charitable purposes

The sector has a long history of finding creative ways to work around these barriers. But it appears that the sector has reached a tipping point: the report forcefully concludes that “making do is no longer working.” The report puts the onus for change on two bodies: government and policy activists in the third-sector. Until two weeks ago, standing federal NFP legislation dated from 1917 (see NFP Legislation and its Discontents). Until this year, legislation in Ontario was over 50 years old.

To ensure that updates fit the sector’s needs, a number of groups (including SiG@MaRS) have begun efforts in research and advocacy. The report lists them in an Appendix. What still remains is a clear sense of the legislative and regulatory reforms needed to best empower the third sector—a development that the report hopes to set in motion. The report narrowly precedes just such an effort by the federal government: the Not-For-Profit Corporations Act (again, see NFP legislation and its discontents).

I’m curious to know what the authors—and the sector in general—think about it.