Page 16 - 2024 Nonprofit Industry Trends
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                                                                                                                                                                                                                                                                                                 SUNIL AGGARWAL
                                                                                                                                                                                                                                                                                                    FOUNDER, PRINCIPAL
                                                                                                                                                                                                                                                                                              THINKFORWARD FINANCIAL


                                                                                                                                                                                For New York City nonprofits and businesses, alike, the COVID pandemic had a significant impact on their revenue and cash flows. For nonprofits, regaining lost ground
                                                                                                                                                                                continues to be a struggle. Many of these organizations are forced to exhaust limited cash reserves—just to survive.
                                                                                                                                                                                Many nonprofits weathered the storm by funding employee compensation and expenses through assistance from the Federal government in the form of the Paycheck
     MICHELLE JACKSON                                                                      ROBERT VITELLI                                                                       Protection Program (PPP), Employee Retention Tax Credit (ERTC), and other programs. However, this lifeline only lasted a couple of years.

     CHIEF EXECUTIVE OFFICER                                                               CHIEF EXECUTIVE OFFICER                                                              The difficult economic environment is exacerbated by rises in inflation and the cost  Private  schools  exemplify  the  critical  stakes  facing  many  nonprofits.  Having  lost  a
     HUMAN SERVICES COUNCIL                                                                LGBT NETWORK                                                                         of borrowing. Access  to credit is limited and generally available only to high-rated  significant portion of enrollment when families left the city and never returned, some
                                                                                                                                                                                organizations. Pre-pandemic mortgage rates have more than doubled, now close to  schools are now financially imperiled and may be forced to close or look for partners.
      Leaders  at  all  levels  of  government  are  warning  of  budget  deficits  and  cuts  in   The  non-profit  sector  is  facing  a  new  horizon  of  financial  issues  that  require  change  and   8%. Similarly, bond market interest rates for investment grade credits have increased
      spending this year and in future years, and that is something that should be front   adaptation from its leaders.                                                         to about 7% from 4%, and the interest rate on a line of credit is about 10%.
      and center for the nonprofit sector. The reality is that nonprofit programs, and the                                                                                      High interest rates are putting additional pressure on already strained operating budgets. As a result, many nonprofits are struggling to meet payroll, fund critical operating costs,
      people who rely on our services, are the first on the chopping block and bear a      Experts  consistently  encourage  non-profits  to  “diversify  funding,” and this mantra is   and manage budgets. The availability and cost of financing has also made it extremely difficult to fund capital projects acquisitions, renovations, and other important projects.
      disproportionate share of cuts or “belt tightening.” That of course is true of human   becoming increasingly futile. The 2009 economic downturn eviscerated many foundations’
      services programs, but we also see that happen with parks, libraries, and cultural   endowments and we witnessed them sunset their giving and operations, resulting in less   Social and human service providers face additional hurdles, as these organizations are heavily dependent upon state and city operating contracts that typically receive payment
      institutions as well. Unfortunately, this only creates a worse fiscal outlook as vital   funding  opportunities.  Other  funding  has  become  more  restrictive.  For  example,  many   long after services have been delivered; reimbursements can take five months or even longer. The nonprofits are then forced to bridge the funding gaps with cash reserves or raise
      services are removed from communities which has a ripple effect on the economy.      corporations have narrowed their giving to focus exclusively on STEM efforts. Government   funds from outside donors—two options that further strain already tight budgets and depleted funding sources.
                                                                                           grant funding continues to reduce and restrict administrative and overhead costs that are
      The  sector  will  need  to  face  economic  challenges  in  new  ways-  by  saying  no.   vital to operating and sustaining programs, forcing non-profits to contribute more in-kind and   Merger opportunities can establish economies of scale and reduce pressure on budgets. For example, a number of private schools in New York City have merged, increasing the
      Government cannot cut funding and expect nonprofits to provide the same level of     taking away support in other areas, reducing flexibility, and reducing opportunities to develop   enrollment base and making operating budgets more efficient. Other nonprofits, particularly faith-based organizations, are monetizing their real estate assets by partnering with
      services, nor can they expect nonprofits to volunteer their time and resources to    a reserve.  Individual donors also face the challenges of economic volatility including changes   developers to both improve facilities and bolster critically needed cash reserves.
      meet needs that government should be paying for. Time and again nonprofits step      in tax laws that impact their giving.  These conditions present the dilemma of where and how
      up to meet needs and do more with less, and at this point, nonprofits are doing more   organizations will diversity funding when all major areas of giving are becoming diminished or   The good news is governments, foundations, and corporations are stepping up and providing critical funding to help struggling nonprofits. The support is made available through
      with nothing. That is not a sustainable model, and so as government makes tough      compromised.                                                                         certified Community Development Financial Institutions. CDFI loan rates are lower than bank rates and provide significant flexibility for credit approval, financing structure, and
      choices about what to fund, nonprofits also need to make tough decisions about                                                                                            many other terms. For instance, a CDFI can lend up to 90% of total project costs for a capital project. Compare this figure to the 75% for a traditional commercial bank loan. As
      what contracts they can take on to best serve the community and ensure they will     One way for non-profit organizations to counter these financial challenges is to reflect the   a result, borrowers can retain more of their critical cash reserves.
      remain solvent to serve in the future.                                               true costs of running programs more accurately to its funders, inclusive of all administrative
                                                                                           and overhead costs, and let funders know that more dollars are needed to meet the full, real   New York State and the New York City Council are providing critical capital grants to fund a significant portion of a   City and state capital grants are often a key component
      My recommendation to nonprofits is to join wage advocacy, whether that be for        costs of a program.  At the same time organizations also need to identify other, non-traditional   nonprofit’s capital project. The City Council can fund up to 90% of the first $2 million of a capital project and 50%   in making once infeasible projects a reality.
      childcare, home care or the #JustPay campaign, because if we as a sector continue    channels of revenue.  This includes entrepreneurial initiatives that help fulfill an organization’s   of all costs in excess of $2 million. Additionally, the City Council is looking to provide additional zoning to faith-based
      to offer low salaries, jobs will stay vacant and we will see a real brain drain in talent   mission while also raising critical funds. This can include forms of program revenue or fee-for-  organizations to develop additional housing stock.
      from the sector. This is an impossible position, as in human services, government    service efforts.
      is the predominant payer and setter of wages, so it is their deliberate actions that                                                                                      Under the Inflation Reduction Act, nonprofits are benefiting in several ways. Non-tax-paying entities can now obtain direct cash payments, instead of tax credits, for energy-
      cause the near poverty wages of some positions in the sector, but nonprofits must    Similar to the business sector, non-profits are also going to need to continue to demonstrate   related projects. In addition, housing developers now have access to increased tax credits per unit of development, which makes projects more affordable and helps pay for energy
      join movements and stand up to these practices if we want to have quality programs   the  effectiveness  of  its  diversity,  equity,  and  inclusion  (DEI)  efforts.  It’s  been  more  than   efficient residences. The 179D deduction has increased from $1.8 per square foot to $5 per square foot and is being made available to architects and the construction team to
      to serve communities and also serve our community by having good paying, local       three years since a major boom in DEI programming, and, as a result, DEI staff positions are   subsidize project costs.
      jobs at nonprofits.                                                                  beginning to decrease. Non-profit organizations will need to find ways to demonstrate the
                                                                                           effectiveness and impact of their DEI efforts, while at the same time identifying ways to sustain   We expect current market trends will continue for the foreseeable future. Consequently, many struggling organizations will need to adapt to this new economic environment to
                                                                                           these vital efforts.  Further, it is incumbent upon non-profit leaders to identify how DEI efforts   survive. In the meantime, nonprofits should take full advantage of the many new programs, funding opportunities, and benefits being offered through government and community
                                                                                           have enhanced the recruitment and retainment of a new and diversified talent base – another   organizations.
                                                                                           issue facing the sector.
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