The nonprofit sector in the United States is increasingly important and very diverse; however, the largest component of the nonprofit sector in the United States is public charities registered as 501(c)(3) tax-exempt organizations. Many of these organizations provide public services to the citizenry with public funds, advocate for important policy goals, and offer an opportunity for volunteer and community engagement. In addition, private foundations and federated fundraising organizations such as the United Way provide funding to countless nonprofit organizations for their programs and services. A much smaller segment of the nonprofit sector is 501(c)(4) organizations or ‘social welfare’ organizations concerned with the broader public good. This chapter focuses on the use of policy analysis by these two types of nonprofit organizations, offering services to local communities and participating in the broader public arena, as well as philanthropic institutions such as foundations and other philanthropic funding organizations. In this chapter I will employ the broad definition of policy analysis offered by Weimer (this volume): ‘professionally provided advice relevant to public decisions and informed by social values.’ Using this definition, nonprofits have used policy analysis since at least the late 19th century; however, the use of policy analysis and related tools in the nonprofit sector has grown substantially in recent years, including in the context of evaluation and strategic planning by nonprofits. Moreover, the austere and turbulent fiscal environment for nonprofits also encourages nonprofits to utilize policy analysis to advocate for their programs and develop long-term plans for sustainability and improved performance.

Mapping the nonprofit sector

The nonprofit sector dates to the colonial period when many prominent universities and hospitals were established. The sector grew in the 19th century and early 20th century but many nonprofits were relatively small and primarily dependent on private philanthropy, with some exceptions, especially in major urban areas. The growth of the contemporary nonprofit sector dates to the 1960s when the federal government launched multiple initiatives that relied upon the nonprofit sector to provide local community services. Subsequently, the sector has grown due to the continued expansion of government, growing demand for nonprofit services such as community care, a shift in funding and service responsibility from government to the nonprofit sector, and growing wealth leading to many new foundations.