Nonprofits

The role of nonprofits has developed over the years, comprising a vital and growing sector of the nation’s economy and society. Due to their assumed roles, “nonprofits essentially fill the gaps left by market failure and government failure by providing the goods and services that the other two sectors can not” (Worth, 2009, p. 50).
In an attempt to ensure the longevity of much needed services, many nonprofits started endowments. While many argue that this is provides an economical advantage, others see this as unjust. This paper seeks to explain arguments for and against it, while offering the author’s perspective on use of endowments in the nonprofit sector. An endowment is “a reserve [built] for the purpose of creating a financial bedrock for the organization” (Hager, 2006). While the principal can’t be drawn down for use, the income from the principal can be. According to Fisman and Hubbard (2003), the National Center for Nonprofit Boards guidelines state that “not more than two years’ expenses” should be held as an endowment. Despite this, many nonprofits aim to have several years’ worth of expenditures held in an …show more content…
For organizations such as homeless shelters and universities, I believe if funds are available they should be used in present day. On the other hand, for organizations like museums, perhaps they should make use of endowments to ensure that they have funds for future rainy days. Having money readily available will be important to museums if their sources of revenues are negatively impacted.
According to Hansmann (1987) “the first general economic theory of the role of nonprofit enterprise … suggests that nonprofits serve as private producers of public goods”. With this being the case, nonprofits should do what is in the best interest of the population it intends to provide service