Nonprofits Speaking for Themselves: The Impact of the National Economic Tailspin

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Focusing on only a few limited issues, this brief commentary draws on two sets of surveys of nonprofits:  1) from state nonprofit associations in New Jersey, Illinois, Minnesota, Idaho, the District of Columbia, and Colorado; and 2) from United Way agencies serving the Twin Cities (MN), Dayton (OH), Atlanta, Denver (Mile High United Way), Rochester (NY), the San Francisco Bay Area, and Hartford (Center and Northeastern Connecticut United) metropolitan areas.

Budget deficits:  As the economy went into a tailspin, many agencies ended 2008 in the red. (All percentages have been rounded to the closest whole number)

  • Almost half of Twin Cities United Way survey respondents finished the year over budget. For the Minnesota state nonprofit association survey, 47 percent had reduced their budgets by the end of 2008.
  • Forty-six percent of respondents to the survey of DC’s nonprofit association said that they did not “meet their fundraising goals” for the end of 2008.

Drawing on reserves:  The economics of 2008 and 2009 are clearly the “rainy days” to trigger organizations’ tapping their reserve funds — if they have them.

  • Almost half of DC respondents reporting to having used or lost portions of their operating reserves.
  • In 2008, 7  percent of Central Connecticut UW respondents reported having depleting their reserves, 15 percent having dipped into their reserves, and 35 percent possessing no reserve fund at all.
  • In Illinois, 45 percent reported either no operating reserves or decreased operating reserves in during the last year
  • As of January 2009, around 35 percent of the Rochester UW survey respondents reported having already drawn on their reserves and one-fourth said they were considering that in the future.
  • Forty-one percent of San Francisco Bay United Way respondents report having used or planning to use their reserves to cover current budget expenses.
  • More than half of Colorado survey respondents ended the year with less than two or three months of cash reserves.
  • In Michigan, some organizations tap banks’ lines of credit to meet their current budget obligations, 16 percent reporting having done that in 2008 and 46 percent indicated that obtaining LOCs has become more difficult.

Funding cuts:  There’s no question that large numbers of nonprofits report increasing service demands, but where the cuts are coming from varies:

  • Comparing the last six months of last year to this year, 44 percent of Atlanta UW survey respondents reported revenues decreasing more than 10 percent and 26 percent also decreasing but less.
  • The impacts in metro Rochester, NY were similar for the six months, 35 percent experiencing revenue decreases of 0-9 percent, 16 percent reporting decreases of greater than 10 percent.
  • Forty-five percent of Michigan groups reported having raised less in 2008 than in 2007, with arts and entertainment groups being hit the hardest.
  • Two thirds of Idaho nonprofit association respondents reported declines in total revenues. Two-thirds of human service agencies in this survey reported cuts in government funding.
  • More than half of Colorado respondents had already suffered the reduction or elimination of a major funding source.
  • More than half of respondents to the Minnesota nonprofit association survey reported declines in total revenues in 2008.
  • Among New Jersey respondents, 27 percent reported funding decreases of more than 5 percent.

Sources of cuts:  The big losses are predictable-government funding, foundation/corporate giving, and individual donations.  With the stimulus, government funding might not nosedive hugely, but the charitable and philanthropic revenue sources do not look like they are going to quickly return to past, higher levels.

  • Over half of UW groups reported decreases in individual donations, almost half reported decreases in corporate and foundation giving, and 43 percent decreases in government funding.
  • Among Twin Cities United Way survey respondents, 43 percent lost government money, 29 percent suffered losses in foundation grants, and 25 percent individual donations. For Minnesota nonprofit association survey respondents, 47 percent reported decreased individual donations.
  • Approximately one-third of Central Connecticut’s respondents reported decreases in individual giving in 2009 (compared to 7 percent reporting decreases in 2007). Twenty-nine percent reported decreases in corporate and foundation giving in 2008, but 35 percent said that their take did or would increase for 2008, some citing the generosity of the Hartford Foundation for Public Giving, one of the largest community foundations in the nation.
  • More than half of Rochester UW respondents reported decreases in local and state government funding and approximately 40 percent reporting losses in individual giving and corporate and foundation giving.
  • Among New Jersey respondents, Over 30 percent reported 2008 cuts in corporate funding, over 25 percent cuts in foundation grants, and a similar proportion cuts in individual donations.
  • For the Illinois groups, delays were more troubling than cuts in government funding, 36 percent facing cashflow problems due to government reimbursements. Another 29 percent reported cuts in government funding.
  • Forty-five percent of Michigan nonprofit association survey respondents reported delays in government payments: Nearly a third of those said that delays were 90 or more than late.

Anticipated future cuts:  All of these surveys were conducted before the enactment of the $787 billion stimulus package, not to mention the omnibus spending bill with $7.7 billion in earmarks and a possible second stimulus package that might be passed in the first or second quarter of 2009.  Pre-stimulus, many anticipated smaller budgets:

  • Approximately one-third of Twin Cities UW respondents anticipated smaller 2009 budgets, and nearly the same anticipated larger budgets. Most respondents to the state nonprofit association survey report reducing their 2009 budgets, particularly legal/civil rights groups (80 percent), arts and culture (62 percent), and human services (62 percent)
  • A similar proportion anticipates reduced revenues in 2009 among Hartford metro area United Way survey respondents.
  • More than half of the Idaho respondents planned 2009 budget reductions.
  • Only 12 percent of Colorado survey respondents anticipate their major funders to maintain their 2008 funding levels in to 2009.
  • Forty-two percent of New Jersey survey respondents anticipated funding decreases in 2009, compared to 13 percent that had anticipated decreases in 2008.

Personnel-related retrenchment strategies: For most nonprofits, by far the largest budget item is personnel, making it a necessary target for reduction in times of fiscal stress:

  • Nearly two-fifths of UW agencies in the Twin Cities survey anticipate salary freezes in 2009 compared to less than one-fifth in 2009 and an almost identical proportion of survey respondents were freezing hiring. 29 percent are anticipating layoffs, though that is a smaller proportion than 2008. One-fourth of respondents to the state nonprofit association survey reported having eliminating staff positions, proportions rising to 45 percent of employment/job-related nonprofits and 33 percent of legal/civil rights organizations.
  • Twenty-one percent of the Atlanta UW groups report that they have laid off staff and 20 percent have reduced staff hours. Roughly the same proportions anticipate those actions in 2009.
  • Forty-two percent of Central Connecticut UW groups reported cutting paid staffing, though a larger proportion increased staffing (49 percent) in 2009.
  • For Rochester groups, around 20 percent had already laid off staff and an equal amount reduced staff hours, and similar proportions were contemplating those actions for 2009.
  • The economy has had discernible staff impacts among the Colorado survey respondents: 19 percent have already cut staff through attribution, 9 percent through layoffs, with roughly comparable proportions considering those actions in the future.
  • Over one-fifth of Bay Area respondents reported laying off staff or planning to do so.
  • Almost one-fifth of the Idaho respondents reported having already put a hiring freeze into effect and almost one-forth had laid off staff, similar proportions planning the same in 2009.
  • Thirty-eight percent of New Jersey respondents report freezing salaries or planning do to so, and 34 percent have already cut staff or plan to do so.

Mergers in the works:  For funders, this is the strategy they want to see among nonprofits.  The nonprofit surveys vary, however, in terms of how many nonprofits are seriously looking at merger solutions and perhaps what the mean by “merger”:

  • For Twin Cities UW agencies in the survey, the proportion looking at mergers grew from 3 percent in 2008 to 8 percent considering that option for getting through 2009.
  • In metro Connecticut, 21 percent “considered” mergers in 2008, compared to 15 percent looking at mergers in 2007.
  • Ten percent of the Colorado respondents report already working on merging “programs” with another organization and 20 percent considering this strategy in the future.
  • Seventy-one percent of the Illinois respondents said that they were interested in exploring mergers and 31 percent said that they were currently pursuing a merger (though the number of respondents to the Illinois survey was small, and the report isn’t clear whether there is overlap between those interested and those already engaged in merger activities.
  • Almost half of the New Jersey respondents reported “launching new partnerships/collaborations in 2008”, though specifically on mergers, it appears that less than 5 percent explored a merger in 2008 and less than 3 percent completed a merger, unclear whether the mergers were of programs or organizations.

The numbers may differ from place to place, one area’s nonprofits feeling the crunch more from government cutbacks, another’s suffering philanthropic retrenchment, nearly all contemplating some package of staff cuts, salary freezes, and operating reserve calls.

But there is a common theme to many of the surveys.  Despite these dire economic circumstances, the majority of respondents express confidence in their organizations’ resilience and survival through the recession.  Is it bravado?  Posturing for the sake of fundraising?  Or a sense that despite the difficulties ahead, their members, constituents, and donors will in the end carry them through?

However it turns out, the depth and projected length of this recession promises that the nonprofit sector will be fundamentally different after the “recovery”.