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Last update: December 14, 2003 at 3:56 PM

John J. Oslund,  Star Tribune Staff Writers

The biggest has gotten quite a bit bigger.

The smallest have gotten a bit smaller.

And those in the middle are just holding on and hoping for better times ahead.

That about sums up the economic fortunes of Minnesota's biggest nonprofit organizations, where health care nonprofits are booming, arts and culture organizations are begging, and social-services providers and private schools are riding out what have been a tough couple of years.

"There was quite a lot of woe" at a recent gathering of Minnesota nonprofit and foundation executives, said Doris Rubenstein, a Minneapolis-based author and consultant who helps companies develop giving strategies. "It was not an optimistic gathering."

While Minnesota's diversified private-sector economy appears to be on the offensive, the nonprofit sector marches to decidedly different drummers.

For example, Minnesota's health care services providers have traditionally have operated as nonprofits. Not surprisingly, then, health insurers, HMOs, hospitals, clinics and nursing care facilities account for by far the largest share of revenue in our eighth annual Star Tribune survey of Minnesota's 100 largest nonprofits.

And as anyone who's made a copayment lately can tell you, health care costs are rising. That helps to explain why 54 of the 59 health care nonprofits on the Star Tribune's Nonprofit 100 saw yearly revenue increases.

Meanwhile, arts and culture nonprofits have been battered at the box office and at the bank. Customers have had fewer discretionary dollars to spend on concerts and shows, and investment losses have trimmed (in some cases slashed) their endowments. This explains why, for the first time in the survey's history, all 12 of Minnesota's largest arts and culture organizations showed year-over-year revenue declines in 2002.

"There was more uncertainty last year," said Jon Pratt, executive director of the Minnesota Council of Nonprofits. But now that the state budget cuts have been made, he said, "people are looking at another year of tough sledding. It is just much tighter everywhere."

The survey

The Star Tribune's Nonprofit 100 survey relies on IRS financial disclosures filed with the Minnesota attorney general's office. In most cases, financial information is from fiscal year 2002, the most recent year for the filings. To compile the list, the newspaper surveys more than 140 of the state's largest nonprofits, ranks them by revenue and places them into five categories: health care, education, social services, arts and culture, and "other."

Overall revenue for the Star Tribune's Nonprofit 100 grew 9.5 percent in 2002, significantly faster than Minnesota's private sector. For example, sales for the Star Tribune 100 survey of Minnesota's 100 largest publicly held companies rose just 1 percent in 2002.

As Minnesota's private sector stalled and shed about 1 percent of total state jobs in 2002, employment in the nonprofit sector grew by about 3.5 percent - or 8,300 jobs, according to the Minnesota Council of Nonprofits 2003 survey.

As a result, Minnesota's 245,705 nonprofit employees accounted for about 9.5 percent of the state's total workforce in 2002, up from 9.1 in 2001.

But job growth in the sector has tailed off, according to Pratt. In the first seven months of this year, more than 7,000 unemployment insurance claims were filed by nonprofit workers, up 20 percent from the year-ago period.

The financial fortunes of nonprofits tend to lag a year or two behind the private sector, so for some nonprofits things may get worse even though the overall economy is starting to get better, Pratt explained.

Health care

For every dollar of revenue generated by the Nonprofit 100, health care organizations accounted for nearly 90 cents.

No. 1 on the list is Blue Cross and Blue Shield of Minnesota, where revenue jumped 23.6 percent - or nearly $1 billion - to $5 billion.

"We have grown quite substantially," said Richard Neuner, senior vice president and chief marketing officer for the Eagan-based company. "It was the largest increase in our 70-year history."

Neuner said about half of the increase is explained by the secular trends in the health care industry. Those include rising insurance premiums, the result of more patients undergoing more (and more complex) procedures and rising drug costs.

Industrywide, these trends result in revenue growth in the 10 to 12 percent range for health care providers and for the insurers, who pass through those costs. Indeed, average revenue for the 56 health care nonprofits in our survey rose 11.5 percent in 2002 compared with 9.9 percent in 2001.

At Blue Cross, however, internal growth also helped boost sales growth by more than 23 percent, Neuner said. The big health insurer added more than 230,000 net new members in 2002 alone, for a total of 2.6 million, Neuner said.

The primary revenue driver in 2002, and for the past several years, has been the national Blue Card program, he said.

Blue Cross and Blue Shield of Minnesota counts about two-thirds of Minnesota's Fortune 500 companies among its customers. Through the Blue Card program, a Blue Cross client such as Golden Valley-based General Mills, for example, can insure employees in other states, such as California.

The California-based General Mills employee becomes a member of Blue Cross of Minnesota. The Minnesota insurer (and the California-based member) can take advantage of contracts with California-based hospitals and clinics that were negotiated by Blue Cross affiliates in California.

Through this national program, which began in the mid-1990s, Blue Cross and Blue Shield of Minnesota has added about 500,000 out-of-state members to its network in the past five years, bringing its total out-of-state membership to about 850,000, Neuner said.

Revenue grew a comparatively modest 6.5 percent at the No. 2-ranked Mayo Foundation.Health care nonprofits accounted for most of the growth in employment between 2001 and 2002, with hospitals, nursing homes and residential care facilities hiring more than 5,000 employees. Health care employees account for 65 percent, or about 160,000, of total nonprofit payrolls in Minnesota, according to the Minnesota Council of Nonprofits survey.

Median total compensation for the top officers of health care nonprofits rose 6.5 percent to $230,139 in 2002 from $215,557 in 2001.

Social services

Growth has slowed in this sector, which is heavily reliant on government grants and contracts and charitable donations. Social-services revenue rose 5.3 percent in 2002, compared with 8.8 percent in 2001.

Fourteen of the 31 social-services agencies surveyed posted revenue drops. Among those was the largest social-services nonprofit -- the Greater Twin Cities United Way, where revenue was down 10 percent.

Expenses matched or exceeded revenue at 10 social-services nonprofits, with the biggest deficit occurring at the United Way, which spent $1.08 on expenses for each $1 of revenue. Median total compensation for top officers at social-services agencies rose 8.2 percent to $140,683 in 2002 from $129,984 in 2001.

Education

Revenue dropped 3 percent among the 29 colleges and schools in our survey, but that's a marked improvement from 2001, when revenue for this group fell 20 percent.

The decline mirrors the stock market's troubles in 2002. Education nonprofits, and many arts and culture organizations as well, enjoy large endowments, which are typically invested in stocks, bonds and other types of securities.

IRS regulations require nonprofits to record investment gains or losses as a component of revenue. And several colleges are still recording large losses.

At Macalester, the fair market value of its investments dropped by almost $19 million in 2002. Hamline's investments dropped in value from $52.7 million to $49.5 million.

In 2002, for the second consecutive year, Carleton College had double-digit losses in its investments. "As a result, the investment committee worked hard to review all managers and its asset allocation," said controller Beverlee DeCoux.

The committee fired some longtime money managers and hired new ones.

Results for the year ended June 30 were much better, showing only a small decline, DeCoux said. Still the string of losses over the previous two years has left its mark. "We are in a three-year plan to reduce spending," DeCoux said.

Meanwhile, median total compensation for top officers of education nonprofits climbed higher than in any other category. Total pay rose 13.4 percent to $201,531 in 2002, compared with $177,708 the year before.

Arts & culture

The 19.1 percent drop in average revenue for arts-and-culture nonprofits stands out. The figure represents a continuing lag in investment income from endowments, a reduction in public funding available and, in some cases, the ebb of capital campaigns.

For example, the Guthrie Theatre Foundation's 48.1 percent drop in revenue was a direct reflection of the organization's fundraising for a new riverfront complex.

"We'd received $17 million in capital gifts the previous year," said managing director Tom Proehl. "That went down to $5.6 million." Proehl said he anticipates a rise in that revenue now that the state has approved a bonding request for the construction. "Many of the gifts were contingent on state funding," he said.

At the Minnesota Orchestra, spokesperson Gwen Pappas said a 43.1 percent revenue drop was "Totally due to market activity. '02 was our year where our endowment was hit hard."

Too, attendance overall for the arts has declined slightly. For example, Theatre Live!, which earns 99 percent of its revenue from ticket sales, reported a 12.9 percent drop.

Neal Cuthbert, arts program director for the McKnight Foundation, said arts groups probably face another rough year.

"This was a year when a lot of the cuts really hit," he said. "Several groups have gone under for varying reasons, but I don't think you can pull the economy out of any of them. And for a lot of groups, they did their cuts this year -- and if next year is as bad as this year, it's going to be harder because people cut down to the bone."

The improving stock market has helped endowment investments, Cuthbert said, but there continues to be a lag. Cuts in the State Arts Board appropriation have affected smaller arts groups and even though the second year of the biennium will stabilize, "It's going to stabilize at a reduced level," he said. "Even for funders like us, the groups on our list are getting a lot less than they used to."

Median total compensation for top arts executives declined 3.4 percent in 2002 to $263,701, compared with $273,125 in 2001.

Staff writer Graydon Royce contributed to this report.

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