News and analysis
April 27, 2015

Nonprofit System Is “Chronically Brittle,” Survey Results Suggest

The Great Recession ended nearly six years ago, and Detroit emerged from bankruptcy last December. With those two gorillas off their backs, the city’s nonprofits plunged into work this year with renewed hope and vigor, says Mariam Noland, president of the Community Foundation for Southeast Michigan.

Yet most of those organizations are hardly the picture of health. “When we look at the balance sheets of grantees, they’re stressed,” Ms. Noland says. Compounding the financial strain, the demand for services has hardly receded, if at all.

That summary of the situation in Southeast Michigan reflects the nation’s nonprofit community as a whole, according to an annual survey conducted by the Nonprofit Finance Fund. Most organizations have moved out of crisis mode and regained at least some measure of financial stability, the survey indicates. But with inequality rates stubbornly high around the country, many groups see demand for their services continuing to climb. More than half reported that they couldn’t adequately meet the needs of those seeking their services — the third straight year that the number has topped 50 percent in the survey.

Last year, roughly 225 families came to the Greater Fox Cities Area Habitat for Humanity in central Wisconsin seeking a new home. That’s down from the more than 300 families who sought help at the height of the recession, but the group typically can build only 15 homes a year. “Demand has just grown exponentially,” says the group’s executive director, John Weyenberg.

Persistent Struggles

Continuing struggles like these suggest that, despite the nation’s economic recovery and shrinking rate of unemployment, nonprofits are facing chronic pressures, says Antony Bugg-Levine, chief executive of the Nonprofit Finance Fund. Fewer than one in five groups surveyed said they expected their financial situation to improve in 2015.

“The sector has stabilized, but stabilized into a continuing fragility,” says Mr. Bugg-Levine.

Adds Kerry Sullivan, president of the Bank of America Charitable Foundation, the survey’s sponsor: “Nonprofits have done an amazing job navigating through a really tough time. But right now, when a lot of other parts of the economy are starting to feel more hopeful, they are still stuck in that same place.”

Mr. Bugg-Levine says the “chronically brittle” nonprofit system needs to reimagine its funding and work to ensure stability even during downturns. “What are nonprofits and funders going to do differently to get onto a trajectory where we can build a more resilient system?”

Signs in the survey point to a ripening conversation about new ways of funding organizations. Mr. Bugg-Levine says, Nearly three-quarters of the groups surveyed reported that they are collecting data to gauge their impact — the kind of data that is in line with what private foundations and government want to see, says Mr. Bugg-Levine. “In that is a kernel of what could be a new way of organizing our system,” whereby grant makers and governments offer full funding in return for nonprofit accountability through outcome measures.

New Strategies

The survey also showed nonprofits pursuing new strategies to meet increasing demand and address their financial future. Fifty-one percent of nonprofits reported collaborating with other organizations to improve or increase services. More than 40 percent said they plan to conduct long-term strategic or financial planning in the next year.

San Diego’s Voices for Children, whose volunteers advocate for foster children, is weighing an endowment campaign after the recession forced layoffs of nearly a quarter of the staff. It’s not easy to set aside money when there are immediate and dire needs for help, says Anne Farrell, the group’s chief philanthropy officer. But leaders of the organization, now in its 35th year, believe the group must strengthen long-term sustainability. “We have helped tens of thousands of children,” Ms. Farrell says, “and if we’re going to make sure we can do that into the future, even if there is another crash, we have to have something in reserve.”

The Nonprofit Finance Fund survey was first conducted in 2009. Other findings from this year’s edition include:

  • 24 percent of nonprofits ended fiscal year 2014 with a budget deficit, the smallest proportion in the survey’s history.
  • 44 percent hired staff members for new positions.
  • 74 percent are collecting data on how their services improve the lives of clients or audience members.
  • 35 percent identified affordable housing as the most critical need in their communities.

Send an email to Drew Lindsay.