Bad News, Good News - But What Do You See?

Last week, I received a news release from the Listening Post Project, a joint project of the Center for Civil Society at The Johns Hopkins University and multiple national associations of nonprofit organizations. The Listening Post Project was started several years ago to provide timely data on the health of US nonprofits and assess how nonprofits are responding to significant policy and economic changes. It conducts periodic surveys of a nationally representative sample of nonprofits. I highly recommend checking out its web site.

This particular survey focuses on how nonprofit organizations are experiencing and responding to the current economic recession. It provides an interesting if not perplexing set of messages.

The bad news is that over 80% of responding nonprofits reported some level of fiscal stress during the target period September 2008 to March 2009 with close to 40 percent reporting severe or very severe stress. This was particularly true for mid-sized nonprofits, and for theatres and orchestras but also somewhat true for child-serving and elderly-serving nonprofits. As the report details, the stress is the result of a "perfect storm" of factors, including: a) declining revenues from individual donors, corporate and foundation support, and to a lesser extent, government; b) rising costs, especially health care benefits; c) falling endowments; d) decreasing cash flow; and e) not surprising, increasing competition for resources.

The good news is that most of the responding nonprofits stated that they have been successful in coping with the financial strain and maintained or even expanded services. Coping strategies included devising new fundraising tactics, cutting costs (especially administrative), developing new collaborative relationships with others, and relying more on volunteers. The report suggests that nonprofits that adopted fiscally conservative budget policies during the earlier post-9/11 economic recession faired better this time around.

One of the report's most important conclusions from my perspective is that some nonprofits may be "buffered" from the impact of economic downturns because of their partnership with government. As the report states, "Thanks to the substantial partnership that has been forged between government and the nonprofit sector in a wide array of fields...nonprofits appear to be at least partly buffered from the impact of economic downturns by government policies that are designed to be counter-cyclical, i.e., to expand when economic conditions deteriorate." While the longstanding "partnership" between government and the nonprofit sector has been well-documented (convincingly by Les Salamon and colleagues at Johns Hopkins), I wonder about this particular conclusion. As we have seen in Minnesota, the severe financial stress felt by cities and counties are affecting many local nonprofits. This stress is driven by tough economic times as well as the policy orientation of the current state administration.

A recent report on financial stresses experienced by our state's nonprofits by the Minnesota Council of Nonprofits, Nonprofit Current Conditions Report June 2009 contains many similar themes to the Listening Post survey results, including declines in all major revenues sources and increases in service demand. However, the MCN survey documents a fairly dramatic rise in unemployment in the sector as a result of staff cutbacks and warns that a "critical element" of the revenue picture for nonprofits would be the Governor's use of his unallotment authority to balance the state's budget. As we have seen, these unallotments are targeted at local government and health and human services.

So what about this partnership? Does government funding provide a counter-cyclical buffer for nonprofits in tough economic times? With a new administration at the federal level, stimulus funding, new capacity building dollars, and so forth, what are we likely to see here? The external environment is certainly, as academics like to say, both complex and dynamic. What are you seeing? What kinds of strategies are nonprofits using to cope and what is your assessment of the long-term sustainability of those strategies?

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