Nonprofits and Inequality

Nonprofit donations actually end up going to wealthier counties and rural communities are left in the dark

If you watch Last Week Tonight with John Oliver, you’ll notice that on his episode on Environmental Racism from May 1 he talked about many of the points that we’ve discussed here on inequality in pollution, cancer, and superfund sites! In fact, he referenced over 15 different sources that we had used here in the articles we published a few months ago, and even used the same personal stories from the West Calumet Public Housing Complex in East Chicago and the stories of people in the communities in Louisiana and Texas that were struggling the most.

In 2017, 34% of residents of Lowndes County, Alabama tested positive for hookworm, an intestinal parasite that causes iron deficiency, weight loss, fatigue and impaired mental function. When Phillip Alston, the UN Special Rapporteur on extreme poverty and human rights visited Lowndes, he saw raw sewage bubbling up in people’s backyards, and remarked that “I haven’t seen this” in the First World.

Nonprofits were supposed to have saved Lowndes from this problem. Hookworm was thought to be eradicated in the United States, in large part due to a massive public health campaign led by the Rockefeller Foundation in the early 1900s. The return of hookworm tells a cautionary tale about what happens when philanthropies and nonprofits retreat from rural America.

Charlie Mae and Willie Holcomb are residents of Lowndes who have been suffering the consequences of this retreat for years. When it rains, sewage backs up into their house, exposing everyone inside to hookworm. Willie and one of the Holcomb’s grandsons both tested positive for hookworm in 2017. They’ve written to the county and to officials in DC, and even appeared on 60 Minutes in 2021 to ask for help. But so far, no government or nonprofit aid has arrived, leaving families like the Holcombs to deal with this public health crisis on their own.

Charlie Mae and Willie Holcomb live in Lowndes County, Alabama and feel neglected from the nonprofits and governments that have tried to help - Source: CBS News, 60 Minutes

The Role of Nonprofits in Advancing Economic Equality

Nonprofits provide a wide range of services that are critical for economic stability and mobility. They heal the sick, educate our children, feed the hungry, and meet countless other unique needs in communities across the country. 

The role of nonprofits in American society has grown significantly since the 1980s. As both Republican and Democrat administrations sought to shrink the size of the federal government, they turned to nonprofits to pick up the slack, believing them to be more agile, responsive, and effective. By 2015, Federal and State governments were paying nonprofits $678 billion a year to deliver public services. 

One example is Head Start, an early childhood education program that is federally funded but delivered by a network of 1,600 mostly nonprofit service providers. Multiple studies have shown that Head Start is highly effective in combating inequality. Students who attend Head Start programs are 19% more likely to complete college, 12% less likely to live in poverty as adults, and 29% less likely to rely on public assistance. 

Today there are 1.3 million nonprofits in the US that together employ 12.3 million people, spend over $2 trillion annually, and receive $576 billion in contributions. For context, the entire US federal budget in 2019 was $4.4 trillion.

Nonprofits Are Least Active in the Communities That Need Them the Most

Given their mission to serve the public good, we would expect nonprofits to be the most active in struggling communities like Lowndes where the average income is $21,298, and less active in so-called ‘superstar cities’ like San Francisco where the average income is $72,041. 

However, in reality we see that the opposite is the case: Lowndes county gets just $42 in nonprofit contributions per capita, whereas San Francisco county gets $14,909. This pattern of high-need communities getting the least nonprofit funding is repeated again and again in communities across the country.

Ignored by Governments and Large Foundations

Nonprofits are supposed to focus on those most in need, but cycles of poverty persist. We analyzed 310 counties in the US with deep and persistent levels of poverty (of which Lowndes is one). “Deep” and “persistent” is measured as being a county with median income 20% below the poverty line and having been at that level for more than 3 decades. These counties are stuck in cycles of poverty, with upwards mobility severely limited by underfunded public services and a lack of quality jobs.

These are exactly the counties where nonprofits should be stepping in to break cycles of poverty. But we find that the 310 persistent poverty counties receive only $584 per capita in nonprofit support, or less than $2 per day. Meanwhile, the 310 richest counties in our dataset receive $1,244 per capita, more than double what the counties most in need receive.

These funding disparities are emblematic of a broader lack of support for rural communities and communities of color in America. 86% of deep and persistent poverty counties are rural, and residents of these counties are disproportionately Black and Native American. As Catherine Coleman Flowers, who grew up in Lowndes and is the Founder of the Center for Rural Enterprise and Environmental Justice, said on 60 Minutes:“The reason that the situation has continued for so long is because of the type of benign neglect that has happened to Black communities, poor communities, and rural communities across the United States”

Both the federal government and large foundations bear responsibility for this neglect. Per capita federal investments in community resources and development were 36% lower in rural counties in 2001. This includes funding for business assistance, transportation, housing, and community development. And just 6-7% of large foundation grants from 2005-2010 benefited rural areas, despite the fact that over 19% of the population lives in rural communities. 

Back in the 1900s, when the Rockefeller Foundation realized that hookworm was ravaging the rural south, they worked with public health agencies to take immediate action. Today, facing a similar crisis in Lowndes and in rural counties across the country, nonprofits and the philanthropies and governments that fund them have been conspicuous by their absence.

Charitable giving has increased over time, but many measures of in-region inequality have not gone down - source: CCS Fundraising

Back in Lowndes

Not much has changed in Lowndes since the 2017 hookworm study came out. Despite widespread media attention, visits from politicians, and a Department of Justice investigation, 70-80% of homes still have inadequate septic systems.

Tired of waiting, Sherry Bradley launched the nonprofit Black Belt Unincorporated Wastewater Program to install working sewage systems in 175 low-income homes in Lowndes County. However, after successfully installing the first five systems earlier this year, they lost their grant funding from the USDA and had to put their plans on hold.

Until new funding sources can be secured, residents of Lowndes County are back to waiting, and hoping that it won’t rain.

The Path Forward 

Persistent funding disparities have left nonprofits in struggling communities less able to help disadvantaged residents who are most in need. Closing this gap will require meaningful change from the three largest funders of nonprofits: 1) The Federal government, 2) individual donors, and 3) foundations

1. Shift government support to communities with the greatest need: The Federal government is the single largest nonprofit funder, providing over $491 billion a year. However, rural areas get 36% less federal funding for community development than urban areas. To close this gap, the Biden administration should first conduct an audit of rural-urban funding disparities across government agencies, and then reallocate funding to rural communities until the gap is closed. Second, the Community Development Block Grant should be reformed to better target communities with the greatest need. This could be done by removing the distinction between urban entitlement counties and rural non-entitlement counties, and re-allocating funds away from wealthy counties and towards persistent poverty counties.

2. Make a difference with your donations: Individuals are the second largest source of nonprofit funding, donating over $324 billion in 2020. However, individuals are less likely to donate to smaller nonprofits, which we know tend to be located in poorer, rural areas. The pandemic disrupted legacy giving patterns and showed all of us how big a difference our donations can make. This is one example where individuals can actually make more of an impact than large organizations - and that change starts with which organizations you choose to donate to this year. 

3. Rally foundations to address US poverty and inequality: Foundations contribute $44 billion each year to US nonprofits, but as Catherine Coleman Flowers astutely observed, “Our billionaire philanthropists like Bill Gates fund water treatment around the world, but they don’t fund it here in the US because no one acknowledges that this level of poverty exists in the richest nation in the world”. If foundations want to make good on last year’s equity and justice pledges, they need to acknowledge the poverty and inequality that exists here at home. Supporting nonprofits working in persistent poverty counties, whose residents are disproportionately Black and Native American, would be a good start. Foundations can also help elevate impactful nonprofits working in these communities, and make it easier for individual donors to support their work. 

Nonprofits are a powerful force for positive change in America, but for too long nonprofits in struggling communities have been subject to systemic underinvestment. We can catalyze economic opportunity and reduce inequality in communities across the country, but this will first require investing in the local nonprofits who will lead the charge. If we want this vision to become reality, then all of us - from the government, to individual donors, to large foundations – need to start doing the work to make it happen.

Girish is a guest author who previously advised nonprofits and foundations as a Senior Project Manager with Dalberg Advisors. He is currently pursuing his masters at the Harvard Kennedy School.