News and analysis
December 08, 2011

State Budget Losses Expected to Cause Problems for Nonprofits Through 2013

Despite signs the economy is improving, nonprofits that rely on state money should brace for at least two more years of tough times, a new report warns.

“Even when employment rebounds and economic productivity returns, it will take at least a year for the benefits to be realized in state budgets, due to the nature of tax collection, and even additional time for the new conditions to be reflected in state expenditures,” it says.

The report, prepared by Changing Our World, a philanthropy consulting firm, traces the evolution of the economic crisis, assesses its impact on state budgets, and explores whether philanthropy can make up for the loss of government spending on social programs.

Forty-four states have significantly reduced spending from their general funds since the recession began, while using federal money, especially from the stimulus program, to help cover the gap. But the stimulus money is almost gone, and during the 2011 and 2012 fiscal years, states are projected to cut spending by $38.5-billion in three areas alone—social services, Medicaid, and education.

To help nonprofits cover cuts in those services, households in the hardest-hit states would have to step up their giving by 30 percent in 2011 and 60 percent in 2012—an increase the report says would be “historically unprecedented.”

The report offers the following tips to help nonprofits respond to the current economic downturn and prepare for the next one:

  • Tap unemployed people to work as volunteers, possibly with an honorarium. The organization benefits from their experience while they gain a position that will make them more attractive to potential employers.
  • When raising money, emphasize the positive. Instead of saying the organization is hurting financially, explain the impact a gift could make. Develop a strategy for measuring results if one does not already exist to be prepared for the next crisis.
  • Consider adding to the board people who have financial expertise and relevant government experience.
  • Get educated about domestic and international business and economic trends. Read the Financial Times and The Wall Street Journal.
  • Set up a board committee that meets when an economic measure, like unemployment or consumer confidence, hits a designated number.
  • Make sure no more than 60 percent of any program’s budget comes from government money.