(The Center Square) – In the past decade, government grants to nonprofits and the number of nonprofits that receive tax money has doubled, raising questions about whether public money is being wasted, an investigation by The Center Square found.
In 2016, federal, state and local governments gave $149.5 billion in grants to about 56,000 nonprofits registered with the IRS, an analysis of nonprofit tax returns shows. In 2020, that number went up to nearly $310 billion with more than 110,000 nonprofits receiving taxpayer funding. Two years later, the numbers peaked at $319 billion though about 10,000 fewer nonprofits received government cash, the data shows.
David Williams, president of the Taxpayers Protection Alliance, said there is not enough accountability or oversight of the money that goes to nonprofits.
“Nonprofits should survive based upon the goodwill of people, not the force of taking taxpayer dollars,” he said after The Center Square detailed the findings in the data. “Nonprofits are not accountable and government officials haven’t held them accountable.”
In 2021, the government funding for nonprofits dropped to $259 billion and two years later to nearly $222 billion. More current data was not available because many nonprofits file for extensions and do not submit their tax returns in the year they are due. And it is not clear if the 2023 tax data is complete.
The large gains coincided with an influx of government funding during the COVID-19 pandemic and the country’s recovery from it.
Nonprofit spending questioned
Since Elon Musk led the Department of Government Efficiency, there has been significant controversy about tax dollars funding nonprofits with allegations that are wasting money for frivolous programs or are being diverted to fund the lifestyles of politically connected nonprofit executives.
The database used by The Center Square for this investigation was created from digitalized nonprofit tax returns, also known as 990s, that are found on the IRS website. Artificial Intelligence was used to extract nonprofits that receive government funds and analyze the taxpayer funding.
While the tax returns also include program data – payments to nonprofits for services – the 990s do not distinguish between government and private parties paying for the program services. Therefore, The Center Square didn’t use that data in its analysis. The data also does not include nonprofits or nongovernmental agencies (NGOs) that are not registered with the IRS because they are overseas.
The Center Square’s analysis found that more than 11,000 nonprofits — or about 10% – that receive government grants have at least one executive who makes $300,000 a year or more.
Significant tax money is going to pay nonprofit insiders.
At least a fifth of the nonprofits that receive government grants had executive salaries that took up 25% of the taxpayer funding. In hundreds of nonprofits, the government money covers 90% of top employees’ compensation, including dozens of Minnesota nonprofits. The state’s nonprofits and service organizations have faced allegations of fraudulent and diversions of money to possible Somali terror groups.
“What this shows is that taxpayers are funding salaries, not programs,” Williams said. “It’s not going towards the mission of the nonprofits.”
As part of the investigation, The Center Square found a North Carolina nonprofit receiving taxpayer money that promotes gender transitions in infants despite state law prohibiting the use of government funds for gender reassignment in children.
And an Illinois nonprofit has paid more than $2 million to businesses owned by its founder, promoting an obscure PTSD treatment that involves injecting patients in their necks.
The Center Square plans to continue digging through the 3.4 million line database to find questionable expenses and nonprofits.
‘Phony philanthropy’
Williams, who runs a nonpartisan nonprofit dedicated to exposing how government uses tax money, said that government officials are using tax money to bolster their profile and get credit for funding charities without the taxpayers getting a say in how the money is spent.
“This is really a case of phony philanthropy,” he told The Center Square. “The politicians and bureaucrats are saying they’re philanthropic, but it’s really our money, our taxpayer money, and they shouldn’t be doing it, they should not be taking credit for it.”
Williams said the only way to get a handle on the problem is to make sure each nonprofit that gets tax money is audited annually and not allowed to obtain funding without providing proof that the tax money was well spent.
“You should be required to do a full audit every year,” he said. “And when I talk about a full audit, I’m talking about looking at receipts, exactly where the money was spent…”
Josh Rosenfeld, a director at Avoq which handled public relations for the National Council of Nonprofits, said no one at the council was available to do an interview on the increasing nonprofit spending.
“Unfortunately, I don’t think it is going to work out timing wise, as our team is going to be tied up throughout the next week or two,” he wrote in an email exchange.
Other nonprofit associations, like the Independent Sector and The Center for Effective Philanthropy, either didn’t respond or didn’t set up interviews despite The Center Square’s requests.
By Arthur Kane and Jared Strong | The Center Square
Editor’s Note
This is the first story in an on-going investigation into government spending on nonprofits. There has been a lot of controversy over NGO and other nonprofit funding so The Center Square decided to dig into the data to determine which nonprofits serve legitimate needs and which are a waste or misuse of taxpayer money. If you know a nonprofit that needs investigating, please email akane@thecentersquare.com.
