The Vulnerability of Nonprofits Helping the Most Vulnerable
Nonprofit organizations of all types are struggling to make ends meet. Unlike other recent downturns, this economic recession has hit every key source of revenue for nonprofits – public, charitable giving, foundation support, as well commercial and earned revenue. Although we should be concerned with the health of all nonprofits, it is important for us to recognize a bitter irony of the current economic crisis: the most vulnerable nonprofits are those that serve the most vulnerable poor populations and operate in the most resource-poor areas.
Social or human service nonprofits helping poor families provide for basic needs, find jobs, address physical and mental health problems, and care for children are in particular financial trouble. Demand for assistance is rising, while program funding is falling. Because social service nonprofits are more dependent upon public dollars than most other types of nonprofits, cuts in government funding are especially painful. At the same time, these nonprofits face tougher challenges than most other organizations when it comes to raising private donations to support programs.
Government grants and contracts are by far the most important source of revenue for the nonprofit social service sector. Recently, the New York Times ran a story discussing the financial crisis spreading through nonprofit organizations in America. The story made reference to a finding from my recent book, Out of Reach: Place, Poverty, and the New American Welfare State, which uses unique survey data explores the health of nonprofit social service providers in three cities (Chicago, Los Angeles, and Washington D.C.). In the book, I find nearly 75 percent of social service nonprofits interviewed in these three cities receive some type of government funding, and that half of those nonprofits depend on government funds for a majority of their budgets. Dependency upon public funding is even more acute in high-poverty neighborhoods of these three cities, where almost 80 percent of nonprofits receive public funding and more than 60 percent were dependent on those funds.
Nonprofit service organizations are dependent on public funding partly because government grants and contracts are reliable sources of revenue from year to year. While public funding may be dependable during good economic times, public funding for social services are among the first items cut when state and local governments encounter budget deficits. As we see in every city and town today, nonprofits are faced with declining government funding just as requests for help are rising. My three-city survey indicates 4 out of 10 nonprofits in high-poverty neighborhoods that receive public funding, report a recent decrease in that funding. Almost all of these agencies report a decrease in staffing, service provision, or number of clients served as a result.
Nonprofit social service agencies also are reliant on public funding because of the steep challenges they face in generating private charitable giving. High-poverty neighborhoods simply lack private wealth and resources needed to support very many nonprofit service organizations. The geographic isolation of poor neighborhoods from the surrounding community creates additional hurdles to private fundraising. Programs offered and populations served by nonprofits operating in high-poverty areas often will feel far removed from the daily experiences of potential donors in more affluent communities. Such distance between cause and donor make it difficult to successfully appeal for charitable gifts.
It is no surprise, therefore, to see that less than 10 percent of the more than $300 billion Americans give to charity each year is targeted at nonprofit social service providers. Similarly, when looking at my data on urban nonprofits, I find that only 15 percent of nonprofit agencies in high-poverty areas draw more than a quarter of their budget from private giving. Moreover, for nearly all of these organizations, the amount of private giving received has not changed appreciably in recent years.
If we are to successfully pull ourselves from the current economic quagmire, we must not only channel public and private investment into activities that create jobs, but we must channel public and private funds to the nonprofit service organizations that help Americans cope with job loss and temporary needs. Sustained support for the nonprofit service sector is critical if we are to help connect poor populations with better opportunities and strengthen poor communities battered by the recession.