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Nonprofits Pinched in Changing Economic Landscape

(March 16, 2009) A report by two former presidential domestic policy advisers reveals some of the challenges faced by the nonprofit sector as a result of the economy and provides public policy recommendations to help spur nonprofit recovery.

Bruce Reed, director of domestic policy for President Bill Clinton, and John M. Bridgeland, who held the same job under President George W. Bush, survey the plight of America's nonprofits, and offer a road to recovery. Their report The Quiet Crisis: The Impact of the Economic Downturn on the Nonprofit Sector, uncovers the following examples of a pinch being felt in the nonprofit sector.

  • Churches, many of which deliver social services to the poor and needy, raised $3 billion to $5 billion less than expected in the last quarter of 2008;
  • United Way saw a 68 percent increase during the past year in the number of calls for basic needs such as securing food, shelter, and warm clothing;
  • Chicago's Meals on Wheels is trimming its budget by 35 percent; and
  • The State of Arizona reports an increase of more than 100 percent in the number of people who sought social services from 2007 to 2008.

In a survey conducted of 800 nonprofits at the end of 2008 by the Bridgespan Group, 75 percent of nonprofits reported already feeling the effects of the downturn, with 52 percent already experiencing cuts in funding. Of those receiving less funding, 49 percent reported a 10 percent to 20 percent decrease in funding, while 25 percent of these nonprofits revealed that funding had been cut by 21 percent or more.

Across the country, nonprofits are feeling the pinch, particularly those that rely on government funding, the Bridgespan study revealed, (with 61 percent of nonprofits reporting cuts in government funding) and those that rely on foundations for monetary contributions (with 48 percent of nonprofits reporting cuts in foundation funding).

State Budget Troubles

Added to the increased need and decreased income many nonprofits are seeing, there are also reports of states seeing budget shortfalls, which also affect charities.

  • Michigan recently sent out letters announcing that the state had the right to delay payments to nonprofits by up to 45 days and suggesting that it may take steps to extend the delay further.
  • In California, the Human Services Department in Sonoma County had to cut its contributions to a variety of local nonprofits, various women’s and children’s shelters, and the YMCA, which will lose roughly $700,000.
  • The State of Minnesota is facing a $4.8 billion deficit in the next 2 years, despite the rising demand for public services.

Policy Proposals

Reed and Bridgeland go on to suggest a series of post-partisan solutions designed to spur nonprofit recovery and give more Americans the opportunity to serve, including:

Pass the Serve America Act. In his address to Congress last week, President Obama called on legislators to send him the Serve America Act, authored by Sen. Orrin Hatch (R-Utah) and Sen. Edward Kennedy (D-Mass.), which will triple to 250,000 the opportunities for Americans to perform national and community service to meet compelling needs (such as increasing high school graduation rates); establish a tax incentive for employers who allow employees to take paid leave for full-time service; create "Encore Fellowships" to help retirees serve long-term; establish a "Volunteer Generation Fund" to help nonprofits organize more volunteers to meet demand and provide support to social entrepreneurs.

Adopt tax incentives to expand private giving and volunteering. Making the tax code “nonprofit-friendly” would help to keep up contributions from ordinary Americans. Some of the targeted incentives highlighted in the paper include: extending the IRA rollover so that those over 70 years of age can make tax-free withdrawals to contribute to charity, creating a broad-based nonprofit investment tax credit and allowing taxpayers who do not itemize to claim a deduction for charitable contributions.

Create a "Social Innovation and Compassion Capital Fund." A fund established to give capital to social entrepreneurs, invest in new ideas and approaches, and improve existing systems could give innovation in the nonprofit community a much-needed boost.

Utilize nonprofit housing and financial institutions in solving the nation's massive mortgage and foreclosure problems. The federal government should make full use of community development financial institutions and nonprofit housing organizations that already oversee billions of dollars in mortgages and loans to low-income communities and individuals, but are driven by results—not bonuses. The paper reports that at many of these institutions, the entire payroll is smaller than the executive bonuses at the major financial firms on Wall Street.

The full text of this report can be viewed on the Democratic Leadership Council’s website.

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