Myth or Fact: Economic Crisis Sounds a Death Knell for Nonprofits
Post #1 (in a brief series) – Just how hard a blow has the economy landed on the nonprofit sector?
Is the economy driving record numbers of nonprofits out of business? Is a huge swath of the nonprofit sector at risk of such a fate? A recent report commissioned by the Irvine Foundation (in a passage heralding fundamental, permanent changes coming to the nonprofit sector) forecast the elimination of 100,000 or more nonprofit groups.
Clearly the nonprofit sector has been hard hit by the financial crisis and the continuing economic downturn. But is there evidence at this point that the dismal economy is causing (or about to cause) a multitude of nonprofits to disappear? I will consider this question in a series of posts.
Let’s step back a moment to take stock: News reports, surveys of nonprofits, and anecdotal evidence suggest that fund raising revenues have declined in the past year and, among nonprofits that provide social services, demand for services has increased. While this is unsurprising in the midst of the worst recession in decades, the juxtaposition of declining revenues and rising demand for assistance has posed huge challenges for nonprofits.
This difficult environment is a continuing concern. In a recent essay – which offers spirited, eloquent advocacy for changes in philanthropic giving in a time of crisis – Pablo Eisenberg (”What’s Wrong With Charitable Giving – and How to Fix It” in the Wall St. Journal) describes the crisis in these words, “A severe reduction in available public and private funds has put many important nonprofit groups, especially at the local level, in grave danger. Cutbacks in their budgets and programs are depriving their clients of essential health and social services.” UCLA’s Center for Civil Society just released a report – the 10th in an annual series – which focuses on the resourcefulness of nonprofits to “do more with less” in confronting the ordeal of reduced resources and increased demands. “Resilience & Vulnerability: the State of the Nonprofit Sector in Los Angeles” [PDF] does not foresee widespread failures, but does reference nonprofits’ challenge “to keep their doors open” and “survive in the longer-term.”
Nonprofit organizations have responded to this crisis in a number of ways, including: freezing hiring and salaries, laying off staff, spending down reserves, suspending new initiatives, cutting back programs, and turning away clients in need. Nonprofits have intensified fund raising activities; many have entered into collaborations with other institutions. These all represent rational strategies in the midst of challenging times: if this is not exactly business as usual (since the times are unusually challenging), at least it is suggestive neither of panic, nor of extensive failures forcing nonprofits to shut their doors.
The Irvine Foundation report [PDF] describes the challenges posed by the economic crisis in more dire terms – with the prediction of widespread failures:
“Thoughtful observers recognize that five years from now the sector will not simply have returned to its previous, pre-crisis state. They know that a fundamental change in Americans’ attitudes toward credit, debt, risk, work and philanthropy, coupled with the loss of 100,000 or more nonprofits, will permanently change the landscape.”
This forecast (phrased as the realization of “thoughtful observers”) projects “the loss of 100,000 or more nonprofits” due to the financial crisis.
I will argue that this forecast is unjustified. The economy has dealt a tough hand to nonprofits – but not many death blows.
Next post: Appeal to Authority: Loss of 100,000 or More Nonprofits
(Mourning angel in the churchyard of San Miniato al Monte in Firenze, Italy from Wikimedia Commons.)
