— GOP presidential candidate Ben Carson, interview on ABC’s “This Week,” Oct. 18
“As you know, nine out of 10 nonprofits fail. And not only has [this one] not failed but thrived and has won major national awards that are only given to one philanthropic organization per year that come with six-figure checks.”
— Carson, interview with Washington Examiner, Sept. 23
“I’m not aware of anyone [in the GOP field] who’s put together a nonprofit that, as you know, nine out of 10 fail. Ours not only has succeeded but has won major national awards that are only given to one organization in the country. You know, that requires a lot of organizational skill and know-how.”
— Carson, interview with Charlie Rose, Aug. 3
“There are people who say, ‘But you can’t do this. You don’t have any experience.’ … But I do have a lot of experience in solving problems, complex surgical problems that have never been done by anybody before. … Candy and I do have experience starting a national nonprofit scholars fund. Nine out of 10 of those fail. Ours is thriving in all 50 states, and has won several national awards.”
— Carson, presidential campaign announcement, May 4, 2015
The GOP presidential hopeful often points to his success with the Carson Scholars Fund, a college scholarship fund he and his wife founded in 1994. Carson touts his experience growing the nonprofit to 50 states and winning exclusive national awards — against a nine out of 10 chance of failing.
Carson most recently used this statistic and his experience with the nonprofit to demonstrate his negotiating skills, responding to challenger Donald Trump’s attack that Carson is a doctor and lacks leadership and negotiating skills necessary of a world leader.
Our friends at FactCheck.org recently looked into this claim, and we decided to explore it as well. Is it accurate that nine out of 10 nonprofits fail?
It’s unclear exactly what Carson means by “fail,” or if he is basing this claim on data. Carson’s campaign did not respond to our requests for comment. Carson often makes it seem as though this is a widely accepted statistic (“As you know, nine out of 10 nonprofits fail”). We consulted several experts in nonprofit management, but they were unaware of data that support this statistic.
The Urban Institute’s National Center for Charitable Statistics is the main source of nonprofit-sector data in the United States, and analyzes federally tax-exempt nonprofit organizations’ filings to the Internal Revenue Service. Organizations are required to report revenue, expenses and assets on IRS Form 990 or 990-EZ. Smaller nonprofits that have $50,000 or less in gross receipts do not have financial reporting requirements, and file a Form 990-N e-Postcard instead.
NCCS program director Thomas Pollak pointed us to the data he provided FactCheck.org: There were 50,089 nonprofits (public charities, private foundations and other organizations) that obtained tax-exempt status in 2005. Of them, 32,063, or 64 percent, are still listed on the most recent IRS list of registered nonprofits. And 13,780 of them, or 28 percent, reported financial activity in their most recent IRS file. These are the standard measures of whether a nonprofit is active.
Among 29,542 public charity organizations that obtained tax-exempt status in 1994, the same year Carson founded his public charity, 16,298 (55 percent) were still registered as nonprofits with the IRS and 8,696 (29.4) percent reported financial activity.
During the first few months of his campaign, Carson compared the success of his scholarship fund to other nonprofit scholarship funds. But still, the data on nonprofit scholarship funds do not support his statistic.
An apples-to-apples comparison would be comparing public charity scholarship funds (such as Carson Scholars). NCCS data on nonprofits classified in the “Scholarships and Student Financial Aid” category showed that 491 such nonprofits were created in 1994. Of them, 249 (51 percent) were still on the most recent IRS list of registered nonprofits, and 113 (23 percent) reported financial activity. So, even in the most specific, narrow version of this data, nearly one in four of nonprofits like Carson’s created in the same year are still active.
One expert told us Carson may be referring to nonprofits that fail to achieve financial sustainability, or fail to reach scale. But such concepts go beyond what it means for any organization, nonprofit or for-profit, to fail, Pollak said. For example, an organization may lose money for 10 years in a row but if it is still active, it hasn’t necessarily “failed.”
Plus, smaller organizations such as parent-teacher associations or Little Leagues have a narrow mission focus, without a goal of exceeding any specific budget threshold, said Rick Cohen, a spokesman for the National Council of Nonprofits. “For nonprofits, the goal isn’t scale, it’s achieving their mission,” Cohen said.
The Nonprofit Finance Fund’s 2015 State of the Nonprofit Sector survey showed that 52 percent of 5,451 respondents in 50 states and Puerto Rico reported that they did not have resources necessary to meet the demand for services in 2014. Of the respondents, 47 percent had an operating surplus at the end of fiscal 2014 and 24 percent had a deficit. But that doesn’t necessarily mean they are not sustainable. “Organizations can be sustainable, but still not be able to keep up with rising demand for services in their community,” Cohen said.
But just because an organization is not filing a Form 990 or 990-EZ with the IRS anymore does not necessarily mean it “failed.” The IRS removes organizations from its list of tax-exempt groups after three consecutive years of not filing. It may be that the organization grew smaller, and is now filing the e-Postcard instead of a full financial reporting form. Plus, this three-year requirement was enacted in 2006, because many groups had remained on the rolls despite having dissolved years ago. Cohen said this provision has not been effective long enough to gather enough data showing a trend of how many nonprofits survive.
What about the exclusive, major national awards Carson touts? A spokesman for Carson Scholars said the candidate is referring to the William E. Simon Award for Philanthropic Leadership that Carson received in 2005. Indeed, this is a major national award given to a philanthropist, with $250,000 that can be given to any charity. Carson donated his award to Carson Scholars.
The Pinocchio Test
Carson Scholars is a major charity that reported $8 million in assets, and Carson has been praised nationally for his work with the organization. He certainly has a point that many nonprofits face financial challenges.
But his specific statistic that “nine out of 10 nonprofits fail” is not supported by IRS data. There are many ways to slice the nonprofit categories, but even the most narrow comparison of public charity scholarship funds such as Carson Scholars to those that were created in 1994 have a survival rate of 23 percent and 51 percent — not nearly as abysmal as Carson makes it sound.
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