Too Many Charities?

Does Canada have too many registered charities chasing too few dollars? This is a complaint that is often heard.  There is simply too much competition and not enough entities with scale that are effective. Or so goes the narrative.

I think it’s the wrong question to ask. Those asking are big funders, efficiency experts, fiercely competitive fundraisers, and policy wonks. It reflects a profound misunderstanding about charities and their role in society.

In January 2020, Canada had 85,756 registered charities. That one big number tells us very little. We need to understand how charities are organized, why they are important, and how the numbers are trending.

Trends

The trend line is clear. The number of registered charities had been climbing since Federal registration was introduced in 1967. It peaked at just fewer than 87,000 in 2017, and for the last two years has been declining.

The charitable sector researcher Don McRae has been tracking the ins and outs for a number of years. In his 2019 report, McRae noted there were 2,146 revocations, with only 12 due to audits. Some of the trends he observes are the decline in the number of Christian churches, reorganizations to meet funding and logistical challenges, and the difficulty in finding volunteers. Poverty and education were over represented as categories.

Revocation for failure to file a T3010 is also a major category that often indicates underlying organizational exhaustion. Failure to file charities totaled 958 in 2019. A few organizations will reapply with Canada Revenue Agency to regain their status.

In 2019, Canada also welcomed 1,558 new registered charities. One upward trend is the increase in private foundations, one of the three categories of registered charities. On January 22, 2020 there were 5,974 private foundations. These charities are typically set up, funded and controlled by an individual or family. In contrast there are 4,963 public foundations. A decade ago public foundations outnumbered private.

Is Canada losing its traditional social backbone of religious organizations, seeing a shrinking pool of volunteers (who were often involved with religious organizations) and an increase in private philanthropy? Are we in a world of more funders and fewer doers? The answer to these questions is “yes”.

Too many charities?

The big trending numbers don’t, however, answer the “too many” question.

At a macro level, it’s essential to remember that most charities are volunteer organizations serving a specific community. Two-thirds of charities have revenue under $100,000 per annum and no staff people.  They are small!

Look at Sydney Mines, Nova Scotia. The Cape Breton community of 14,135 people has 11 charities, including 6 churches, 3 social service organizations, a scholarship trust and a heritage organization. All are privately funded, none are flush with money, and all address local needs.

Down the road in Sydney, population 29,904, there are some new charities addressing new needs, such as a palliative care, sexual health, the spiritual needs of the Muslim population and autism.

At the other end of the registered charity “hockey stick” distribution curve are large educational institutions and hospitals. They receive the majority of their funding from government.  They also have service fees and often significant donations — either directly or through a parallel fundraising foundation. Annual budgets can range from $50 million to $2 billion or more. Yes, that’s billion, but these entities are rare.

The middle, which is actually the sector’s top end, has charities with revenue of $1 to $10 million. This group has more fundraising needs and often greater geographic service reach. There are about 6,000 charities in this revenue band.

Mergers

There is no question that some charities could benefit from mergers. A number of major national health charities, such as Heart and Stroke Foundation, have done this in the past decade. These national organizations inherited a grassroots network of local chapters, which served another time.

Another group of charities in the system that dates from another time is testamentary (established by will) charitable trusts that have been registered as standalone private foundations. There are, for example, 71 registered charities with “estate of” in the name. This structure has largely been replaced by legacy donor advised funds within public foundations.

Expectations

Criticizing charities for being too numerous reflects mistaken expectations.

Charities are imperfect, human organizations. Some are highly effective and have huge ambitions. Others are grassroots, volunteer-run, and have modest goals and resources — and are important community organizations. Both ends of the spectrum are essential to Canada.

This is also true in the business world where similar inequities exist among entities. But no one says there should be fewer small businesses. New businesses emerge to address new opportunities and, frankly, most don’t thrive.

Charities are a structure for caring individuals to come together to address community needs. This process has been formalized in charity law and the Income Tax Act, but at the most basic level it’s a grassroots process to organize collectively to produce public benefit.

There is no cap on public needs to address. And there is no requirement for charities to be big, efficient and impactful. If such a requirement existed, local organizations addressing local needs would be stymied. We need a diverse and open charitable sector, and that’s what we have in Canada.