Page 16 - 2024 Nonprofit Industry Trends

15
MICHELLE JACKSON
CHIEF EXECUTIVE OFFICER
HUMAN SERVICES COUNCIL
Leaders at all levels of government are warning of budget deficits and cuts in
spending this year and in future years, and that is something that should be front
and center for the nonprofit sector. The reality is that nonprofit programs, and the
people who rely on our services, are the first on the chopping block and bear a
disproportionate share of cuts or “belt tightening.” That of course is true of human
services programs, but we also see that happen with parks, libraries, and cultural
institutions as well. Unfortunately, this only creates a worse fiscal outlook as vital
services are removed from communities which has a ripple effect on the economy.
The sector will need to face economic challenges in new ways- by saying no.
Government cannot cut funding and expect nonprofits to provide the same level of
services, nor can they expect nonprofits to volunteer their time and resources to
meet needs that government should be paying for. Time and again nonprofits step
up to meet needs and do more with less, and at this point, nonprofits are doing more
with nothing. That is not a sustainable model, and so as government makes tough
choices about what to fund, nonprofits also need to make tough decisions about
what contracts they can take on to best serve the community and ensure they will
remain solvent to serve in the future.
My recommendation to nonprofits is to join wage advocacy, whether that be for
childcare, home care or the #JustPay campaign, because if we as a sector continue
to offer low salaries, jobs will stay vacant and we will see a real brain drain in talent
from the sector. This is an impossible position, as in human services, government
is the predominant payer and setter of wages, so it is their deliberate actions that
cause the near poverty wages of some positions in the sector, but nonprofits must
join movements and stand up to these practices if we want to have quality programs
to serve communities and also serve our community by having good paying, local
jobs at nonprofits.
16
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
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 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
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.
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
adaptation from its leaders. to about 7% from 4%, and the interest rate on a line of credit is about 10%.
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,
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.
becoming increasingly futile. The 2009 economic downturn eviscerated many foundations’
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
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
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
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
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
a reserve. Individual donors also face the challenges of economic volatility including changes developers to both improve facilities and bolster critically needed cash reserves.
in tax laws that impact their giving. These conditions present the dilemma of where and how
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
compromised. certified Community Development Financial Institutions. CDFI loan rates are lower than bank rates and provide significant flexibility for credit approval, financing structure, and
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
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.
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
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.
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
mission while also raising critical funds. This can include forms of program revenue or fee-for- organizations to develop additional housing stock.
service efforts.
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-
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
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
three years since a major boom in DEI programming, and, as a result, DEI staff positions are subsidize project costs.
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.