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Tough Times Now for Nonprofits, Tougher Times Ahead?

March 26th, 2009 No comments

A survey of 986 nonprofit organizations by the Nonprofit Finance Fund (NNF) provides yet further evidence that the nonprofit sector is being crushed by the simultaneous decline of government spending, private philanthropy, and endowments. One-third of nonprofits expect to finish the current fiscal year in a deficit position. Nearly half of respondents indicated they would reduce staff or salaries to cope with budget problems; about 40% indicated they would eliminate programs in an effort to weather current fiscal challenges.

Although we should be concerned with mounting evidence that the recession is creating volatility in nonprofit funding, this is not a new phenomenon – particularly among nonprofit human service organizations. To this point, a related article in the New York Times by Stephanie Strom examines the impact of current fiscal pressures on human service nonprofits. Strom quotes Carrie Karasaw, an executive director of a human service organization in Bensalem, PA, who underscores the persistent fragility of nonprofit human service financing:

‘It’s not a new story that nonprofits like us are struggling,’ Ms. Karasaw said. ‘It’s that we’re just hitting a critical mass of financial problems now.’

My own interviews with about 900 nonprofit human service organizations between 2004 and 2005 in Chicago, Los Angeles, and Washington, D.C., underscore this point. Even in the relatively stable economy of the mid-2000s, 46% of nonprofit human service providers report recent losses in funding. Of those, about half reduced staffing and/or programs available to cope with funding loss. As surprising as it might seem, nonprofit human service providers in my study were still experiencing shocks to funding and programs for several years after the recession that started in 2001.

There are many reasons why the nonprofit sector – particularly the nonprofit human services sector – might not recover quickly from a recession. Perhaps most importantly, program funding streams are normally volatile. Priorities and agendas shift. Focusing events or crises draw attention to particular causes or needs. Government budgets ebb and flow. Moreover, it takes time for foundations and charitable organizations to rebuild endowments and grantmaking capacity. In addition, nonprofits are forced to trim professional staff during tough times, which make it difficult to ramp up fundraising efforts quickly when public and private revenue streams expand.

Thus, we should expect the current fiscal crisis to have lingering effects on the stability of the nonprofit service sector for many years. Although nonprofits are facing tough times now, we should expect tougher times ahead.

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