March 26, 2009

Nearly a Third of Charities Had Operating Deficits Last Year, Study Finds

The recession is undermining the financial health of nonprofit groups, nearly a third of which ended last year with a deficit, according to a new survey.

Sixty-two percent of charities have less than three months’ worth of cash on hand to cover costs, and just 16 percent expect to be able to pay for their expenses this year and next.

Many of those nonprofit organizations “were not necessarily robust going into this,” said Clara Miller, president of the Nonprofit Finance Fund, which conducted the study. “And now they’re virtually all seeing a future increase in demand for their services while they have a tightening cash cushion.”

The Nonprofit Finance Fund surveyed nearly 1,000 nonprofit leaders in February and March. Roughly 40 percent described their groups as “lifeline” organizations that provide basic services.

Charities in the survey reported that all forms of financial support are drying up. Sixty-two percent said they were bracing for their foundation grants to fall this year, while 49 percent predicted that contributions from individuals would drop and 43 percent expected less government support.

Twenty-seven percent of organizations said the recession had forced them to take out a loan or line of credit.

Many were also scrambling to cut costs. Sixty-five percent of survey respondents said they had developed a “worst-case scenario contingency budget or were considering doing so. Forty-one percent were considering cutting jobs or salaries or had already done so, while 39 percent had cut or reduced programs or were mulling that step.

To help them through tough times, charity leaders said they could use assistance in financial planning (58 percent), tools to communicate their financial picture to board members (52 percent), and assistance analyzing their organizations’ financial situation (32 percent).

Thirty-two percent expected the recession’s impact on their charity would last more than two years, and 20 percent said the economy would have a permanent effect.

Ms. Miller said the financial pickle facing many charities is due, in part, to governments’ failure to adequately reimburse charities for work they do, and to put too many restrictions on support. At the same time, she said nonprofit groups are too willing to take on new projects even if they don’t have a secure way to support the work.

“We haven’t said no enough,” she said.