Pennsylvania ranked worst state for charities

As President Joe Biden unveiled his 2024 budget plan in Philadelphia last month, Pennsylvanians are looking for relief from rising costs of living, while donors and charities are hard at work supporting the most vulnerable in our communities. Yet a recent study finds Pennsylvania’s regulatory burden on charities might be hampering them from helping those who need it most.

In the 50 State Index of Charity Regulations, Pennsylvania comes in last, meaning it is the most burdensome place in the country for charities to operate. The door prize for this ranking is grim: Pennsylvania is home to fewer charities than other states relative to the size of the state’s economy.

Specifically, Pennsylvania has less than 60 charities per $1 billion in state GDP — this compares with 76 charities per $1 billion in state GDP for the top five states with the least burdensome regulatory environment, according to the study.

Pennsylvania could foster a healthier landscape for charities to flourish by removing policy obstacles and red tape that divert charitable funds from reaching those in need.

The Keystone State is home to over 6,000 charitable foundations and roughly 38,000 charities serving communities across the state. Supporting this thriving charitable community, Pennsylvanians generously give around $6.5 billion in charitable donations each year.

For example, Cristo Rey Philadelphia High School is a private Catholic college preparatory school funded by philanthropists and business leaders for underserved children of all faiths. With 518 students enrolled, the school provides a weekly work-study program and boasts a 100% college acceptance rate.

The success of the state’s charitable sector comes in spite of Pennsylvania having the most burdensome regulatory system for charities among the 50 states. Imagine how many additional charitable success stories Pennsylvania might have and how disadvantaged communities could be better served if the state adopted a friendlier regulatory environment.

Pennsylvania imposes charitable registration fees that are 10 times larger than neighboring New York, and only two other states in the country have higher registration fees. The state also fails to allow its generous residents to deduct charitable donations from their state income taxes, and charitable organizations must opt in for exemption from state corporate income tax.

In addition to high start-up costs for charities, Pennsylvania has the highest burden of annual filing requirements at a cost of $257 per year. Pennsylvania is also one of roughly half of all states that requires an independent audit above a modest threshold. Audits of nonprofit organizations typically cost between $10,000 and $20,000 — not a small sum for a charity.

One of the few positive marks the study credits Pennsylvania with is exempting charities from the state sales tax. However, this exemption requires a complicated application process and only applies to organizations that meet the state definition of “purely public charities.”

Pennsylvania’s policymakers should take a look at these onerous regulatory burdens placed on crucial charities. Rather than a race-to-the-bottom approach of imposing more red tape on charities, learning from the regulatory approach of states with lower burdens would bolster the charitable sector in Pennsylvania.

State policymakers could lower these regulatory burdens by examining the regulatory environment in neighboring Delaware, which doesn’t mandate registration requirements at the state level, as such requirements duplicate federal requirements. Delaware also has no additional filing requirements, while Pennsylvania has the most burdensome. These filings take up more resources and time that charities could otherwise dedicate to advancing their missions.

To prevent an increase in burdensome regulations, policymakers in Pennsylvania could consider requiring legislative approval of new regulatory requirements that raise costs for charities and foundations in the state. By lowering the high costs and hurdles charitable organizations face, charities and foundations can continue to focus efforts on advancing their missions and serving communities in need.

Jack Salmon is the director of policy and government affairs at Philanthropy Roundtable.