March 24, 2020; University of San Diego, School of Leadership and Executive Sciences
Nonprofit managers all across the country are under considerable stress, as their programs have often been effectively shut down and other segments of the economy offer no indications of how long the conditions will remain in place. A survey of 428 nonprofit leaders conducted by the Nonprofit Institute at the University of San Diego reveals that many are already experiencing immediate serious problems related to the onset of the COVID-19 pandemic.
This may not be entirely surprising, in that the institute previously found that many area nonprofits had reserves amounting to two months or less of their operating budgets. In this case, however, the onset of financial issues may be more precipitous; most often, they appear related to changes in groups’ ability to offer traditional programs in the face of coronavirus containment measures.
Eighty percent of respondents reported a reduction of normal services or programs related to school closures, stay at home orders, and social distancing. Twenty percent of respondents reported they were unable to offer any programs at this time. If conditions do not improve, more than half report they are “very unlikely” or “somewhat unlikely” to be able to provide ongoing services eight weeks from now. In an effort to continue offering services, many nonprofits are considering moving programs to online formats. However, technology access and moving programs online present challenges for nonprofits staff and their clients.
This, of course, is connected to the loss of fee-for-service revenue when programs cannot be delivered, and concerns about the likely need to lay off staff. We have suggested previously that states should step in and continue funding safety net programs even when they are unable to deliver on contracts due to the pandemic. To do otherwise is more than foolhardy.
Respondents to the survey indicated some worries about donations and declines in volunteers, but staff layoffs appear to be a major concern, with 57 percent of groups reporting they are “very likely” to make payroll in the next four weeks but only 35 percent feeling sure about their ability to pay staff eight weeks from now. Those are the healthier majority, however, and there are 14 percent who see themselves as “very unlikely” to make payroll in the next four weeks and 24 percent reporting that they are unlikely to meet those costs eight weeks hence.
Previous research conducted by The Nonprofit Institute has documented that the majority of nonprofits operate on very lean reserves of two months or less. In this latest study, even fiscally strong nonprofits reported that they have already lost revenue streams due to cancellation of programs and events. As a nonprofit executive of an environmental education organization explained, “We typically keep reserves for three months. Depending on the length of time the pandemic lasts, all our reserves could be depleted, and we may need to lay off staff.” As a result of lean operating margins coupled with declining revenue, some organizations reported struggling to retain staff members and have already either furloughed, laid off, or terminated part-time employees due to lack of resources.
The study also found that essential service nonprofits such as those providing food, shelter, and health care remain open to serve the community, yet are challenged with securing supplies to maintain the health and safety of staff members, volunteers, and clients including cleaning supplies, personal protective equipment such as gloves and face masks, and paper goods (toilet paper, paper towels, etc.). In addition, nonprofits are facing workforce challenges as volunteers and employees are forced to stay home as a result of health concerns or childcare responsibilities.
Dr. Emily Young, the Nonprofit Institute’s executive director, points out that “the unfolding public health and economic crisis is taking a major toll on the capacity of these organizations to help others. They need immediate economic assistance from government, philanthropy, and the community at large. We encourage everyone to do their part in donating to the organizations they hold dear.”
We need a national push to get states to pay nonprofits consistently through the pandemic. We discussed this last week in a newswire about childcare providers, but it applies with some variation to many direct service groups who depend primarily on state and local government contracts for their revenue. If we do not want to put hard-won community infrastructure at risk, states must commit to paying their contracts with or without service provision, while asking those groups to reorganize, if appropriate, in the ways they see best for the interim. That strategy will bring with it the benefits of promoting flexibility and innovation.—Ruth McCambridge