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ASU Lodestar Center Blog

Nonprofit Start-Up Fever Hits the Valley, Sweeps the Nation

Early each semester I graph five years-worth of the number of Arizona nonprofits that gained status as income-tax-exempt under §501(c)(3) of the Internal Revenue Code. The graph and the data I used to create it is material for one of my graduate seminars at ASU called The Nonprofit Sector, and students always seem interested in thinking about why exemptions might bounce around from year to year. The (great) data is readily downloadable from the exempt organization section of the IRS Business Master File.

This fall I got a pretty good surprise from the spike in number of exemptions that the IRS okayed earlier this summer.  In a normal month, 40 to 50 Arizona nonprofits will gain ‘public charity’ status from the IRS.  You can see this reflected in the chart, with a low-point coming in the average for November and December 2012: 31 new Arizona charities.  That’s actually 41 in November and only 20 that December (2012).  The earlier high point had come in September 2011, with 84 exemptions approved.

Then came the summer of 2014.  In May it was a whopping 97 approvals.  June broke all records with 182 approvals.  July maintained the spike with 144 more.  That is where the data file leaves off, but I’m now really curious to see what happens this fall.  Ooh, I’m on pins and needles.

What is driving this explosion in public charities in Arizona?  One answer might be a real uptick in charitable organizations in a recovering economy.  The new exemptions this summer include an unusually large group of arts organizations, such as Kids Unlimited in Tucson, the Arizona Shaolin Cultural Center in Chandler, Arizona Youth Ballet in Mesa, and the Flagstaff Youth Theater.  After an economic downturn that hit the nonprofit arts pretty hard, this uptick may be great news for the future of the arts in Arizona.

The other sub-sector with a noticeable number of new exemptions is education.  Most of these organizations are small, and some are booster clubs attached to particular schools, but others represent the growth in educational options for Arizona kids.  Newly recognized public charities include the Chandler Christian Academy, the Crossroads Academy in Tonopah, the Arizona Autism Charter Schools in Goodyear, and the Maryvale Preparatory Academy in Phoenix.

So, now you’re asking yourself whether start-up fever is just happening in Arizona, or if it is happening all over the country. As much as I’d like to say that this is some fun new thing that is only sweeping across The Copper State, this appears to not be the case. The same graph using national data shows the same summer 2014 spike.  Over the past five years, the IRS averaged a little under 3,000 charitable exemption approvals each month.  For this past May and June, the average was 6,353, with 7,509 in June alone.   

Realistically, we should also consider that the spike really isn’t a spike at all.  Maybe the IRS started handing out caffeine supplements to their workers, and they made great and sudden headway on the backlog of applications.  Or, more likely, they hired a cadre of new workers who helped double the productivity of the Exempt Entities division. The conservative theory here is that the spike might just be an administrative accident, not a true explosion in applications.

But it might be the beginning of something real.  Administrative accident or no, the explosion in the number of public charities is certainly noticeable.  Something to keep our eyes on, for sure.

Mark Hager is associate professor of philanthropic studies at ASU. If you want to see what all he has written and talked about, click here. In January, he takes over the helm as Editor-in-Chief at Nonprofit Management & Leadership.


ASU Lodestar Center Blog