Stolid Nonprofit Associations Not Recession-Proof

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Is the recession that is currently whacking 501(c)(3) nonprofits hitting tax exempt “associations” such as the Chamber of Commerce? The front page story in the April 11-12, 2009 Wall Street Journal on the impact of the recession in Loganville, Georgia (population 9,500)[i] noted that the number of dues-paying members in the small town’s Chamber of Commerce had dropped from 300 to 180.

Maybe there are some recession-resistant businesses (“social media marketers”,[ii] Dunkin’ Donuts franchises,[iii] and Apple I-PODs[iv], perhaps), but its seems that even reliable nonprofit performers such as chambers of commerce are not among them.How does the economy affect trade associations differently than 501(c)(3)s if at all?  And how are business leagues and trade associations strategizing their way through this devastating global economic spiral?

Much of the American public may not be aware of the various types of tax exempt associations across the nation, but these associations are everywhere (many established as 501(c)(6) organizations [v] such as business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues, others sometimes incorporated as 501(c)(3) charities).  Chambers of commerce such as Loganville’s are particularly well known.  Other typical associations are business trade organizations such as the National Alliance of Manufacturers (NAM) and the National Federation of Independent Businesses (NFIB), local and national boards of Realtors, economic development groups such as “downtown associations” and visitors bureaus, and professional associations such as the Bar Association or the American Medical Association and the National Association of Women Business Owners.  Less well known as associations are various sports entities, including even the National Football League (essentially, an association of football teams with a common business interest), whose distinctive interpretation of tax exempt requirements was covered in the Cohen Report last August.

The trade association for these various trade associations–the American Society of Association Executives, a 501(c)(6) organization–contracted with McKinley Marketing (not McKinsey & Company) to gauge the impact of the economy on ASAE’s 2,500 members.[vi] The McKinley/ASEA survey reveals some expected and unexpected results:

Negative impacts anticipated:  Nearly 75 percent of the respondents (284) indicated that the economy would have a “somewhat negative” impact on their ability to “achieve (their) goals in 2009”, only 10 percent replied that the impact would be extremely negative (n=284).

Varying areas of revenue concern:  The negative impacts center on non-dues areas of revenue:  45% are somewhat concerned and 43% extremely concerned about sponsorship revenues, 42% somewhat concerned and 32% extremely concerned about advertising revenues.  These are the discretionary expenditures of association members, at risk as the economy squeezes their bottom lines (n=283).

Membership revenue contraction:  While members have strong motivations to protect their interests through their trade associations, membership dues might be another of the discretionary “free rider” expenditures they might cut:  60% of respondents were somewhat concerned and 28% extremely concerned about membership retention, and 48% were somewhat concerned and 35% extremely concerned about members’ attendance at their associations’ annual meetings (n=283).  The plummeting enrollment in the Loganville Chamber of Commerce exemplifies this finding.

Budget cuts, but not program reductions:  One-third report already making budget cuts, another third say that cuts will probably happen, and one-fifth say that they haven’t cut yet, but they definitely will, but only 8% say that they are reducing programs and services, 9% that program retrenchment will definitely occur, and 29% responding “probably” (n=283).

Protecting staff from the economy:  While one-fourth have already frozen hiring and another third suggest that they probably or definitely will freeze hiring, only 8% report having had to resort to layoffs, only 4% say they will definitely have to do layoffs, and only 14% indicate that they will probably have to do layoffs (n=283).

Strategies focused on members:  How do trade associations imagine getting through the recession?  By being more effective membership associations.  Respondents’ top priorities for 2009 were improving member retention” (50%), new member acquisition (41%), branding/public awareness (36%), and developing new methods of member engagement (34%).[vii]

Spending for effective strategies:  Evaluating the potential effectiveness of various strategies for helping associations achieve their goals, respondents said their strongest tools were direct mail, event marketing, and public relations.  Surprisingly, they identified online media (blogs, Facebook, twitter, etc.) as the least effective tool at their disposal.  Nonetheless, 52% of the respondents say they will increase their budgets for these social media techniques (and one-quarter will keep their budgets stable), 56% will increase their spending on email communications with members, and 60% will spend on website modifications.  Despite their positive feelings about direct mail, 42% report they will decrease their 2009 direct mail budget and 40% print advertising.

Are the McKinley findings, based on survey respondents’ expectations and prognostications, beginning to show in the actual membership and performance of trade associations?  Loganville’s Chamber is not alone in dealing with membership disintegration as the press covers a regular stream of stories of declining membership rolls:

“Only about 70 local businesses have maintained their membership in the Kuna [Idaho] Chamber of Commerce and even fewer remain actively involved.”[viii]

The Indio [California] Chamber of Commerce, with membership down from 750 to 709, dismissed its executive director for “economic reasons”.[ix]

The Las Vegas Chamber of Commerce laid off 20 percent of its employees, having dropped from 6,800 to 6,550 members during the past year.[x]

Perhaps the most telling example comes from Redondo Beach, California.  Responding to the economic times, the Chamber held this year’s annual meeting not in the fancy digs of the Portofino Hotel & Yacht Club, but on the second floor of the local public library, and reduced the advanced registration fee from $50 to $30.  The theme of this year’s program? “Surviving Challenging Times.”[xi]

Are there lessons in the trade associations’ perspectives?  Two seem obvious:

  1.  Membership and constituency development and expansion strengthen organizations in normal times and sustain them through financial challenges.  As membership rolls shrink, the strength of associations such as chambers of commerce, or any others, withers.
  2.  To survive economic downturns, you might have to spend money on the strategies that build short and long term organizational sustainability or watch your organization lose its muscle and edge.

There’s probably a third lesson in the McKinley study findings as well, exemplified by the contradictory responses regarding social media.  Just like most nonprofits, these business associations don’t have sure-fire silver bullets to draw on.  This is one sweeping, deep recession, with reverberations that will clearly extend into 2010.  501(c) organizations of all sorts will suffer.

But like these trade associations, all nonprofits have constituencies, formalized as members or not.  That’s the core strength of the nonprofit sector, whether 501(c)(3)s or 501(c)(6)s.  To weather this storm, investing in the sector’s core strength is the lesson to be learned from the nation’s top trade associations.

[i] Gary Fields, “Tough Times for Town Fathers”, Wall Street Journal (April 11-12, 2009)

[ii] http://blogs.forrester.com/groundswell/2009/03/recession-resis.html

[iii] Brian Anderson, “Dunkin’ Donuts: A Recession-Resistant Franchise”, Entrepreneur (March 4, 2009) (http://www.entrepreneur.com/franchises/franchisezone/article200454.html)

[iv] Tom Krazit, “Apple Proves Recession-Resistant, for Now”, CNET News (January 21, 2009) (http://news.cnet.com/8301-13579_3-10147621-37.html)

[v] According to the Internal Revenue Service Data Book, 2008 (Publication 55B, March 2009), Table 25, p. 56 (http://www.irs.gov/pub/irs-soi/08databk.pdf), there are 89,409 organizations officially classified as 501(c)(6) “business leagues”.  The National Center for Charitable Statistics (http://nccsdataweb.urban.org/PubApps/nonprofit-overview-sumRpt.php?v=ntee&t=c6&f=0) counts 69,984 organizations as 501(c)(6)s, with 40,165 filing annually.

[vi] 2009 Economic Impact on Associations: A Benchmarking Report on Association Priorities, Challenges and Strategies for the Coming Year (McKinley Marketing, Inc. 2009) (http://www.mckinleymarketing.com/resources/EIAsurvey2009_McKinley.pdf)

[vii] Totals exceed 100% because respondents were asked to identify top three priorities.

[viii] “Membership Melts at Kuna Chamber of Commerce”, South Valley Press (March 2, 2009) (http://southvalleypress.com/kuna-chamber-of-commerce/771)

[ix] Aldrich M. Tan, “Decline Forces Updates to Chamber’s Events”, The Desert Sun (February 27, 2009) (http://www.mydesert.com/article/20090227/BUSINESS/902260375/1026/news12)

[x] “LV Chamber Lays Off 20 Percent of Staff”, Las Vegas Review-Journal (April 8, 2009)

[xi] Muhammed El-Hasan, “Commerce Groups Are Cutting Back”, Daily Breeze (March 17, 2009)