The World of Speed museum in Wilsonville, Ore., has seen its last visitor.
The five-year-old museum featured an array of race cars, motorcycles, and other exhibits. The nonprofit’s board decided it couldn’t survive an extended closure due to the coronavirus, according to the museum’s website.
Many more nonprofits undoubtedly are on the way toward the same heartbreaking decision, experts say. While most charities are hanging on for now, many with help from the federal Paycheck Protection Program, a huge wave of nonprofit failures is likely to hit during the next month or two as those federal funds run out and closures drag on, experts say. “I am in the apocalyptic camp, and I’m usually not in that camp,” said John MacIntosh managing partner of SeaChange Capital Partners, which helps nonprofits facing complex financial challenges. He added, “We’re just a month or two away” from seeing widespread, permanent closure of many nonprofits.
MacIntosh said that even many nonprofits that were doing fine before the coronavirus may see their financial fortunes change quickly and find themselves struggling to survive unless they have big endowments to fall back on, as many hospitals and universities do. For example, large human-service organizations that are funded mostly by government could find themselves in tough financial shape quickly, he said. “Most government funding does not cover the full cost of doing the associated work.”
He added that facilities-based arts and culture nonprofits also could see their finances collapse quickly due to the loss of earned income from tickets sales, membership losses, and renting their facilities.
“A lot of groups just aren’t going to be able to make it,” he said. MacIntosh and other experts said that when nonprofits fail, it often happens quietly and doesn’t make the news. Nonprofits can sometimes sit idle for months or even years with little activity without officially shutting down.
It’s often tough for nonprofit leaders to accept the inevitable, MacIntosh says, because by nature they tend to be optimistic, dedicated people who don’t want to give up on people in need.
“The things that make nonprofit leaders so special often make these tough decisions even tougher,” he said.
Planning for the Worst
Nonprofits facing financial calamity should explore “proactive, dignified dissolutions” that may help keep some workers employed and may help other organizations carry on their mission, MacIntosh said.
Ways to do that include mergers, and transferring assets and workers to more stable institutions.
“We’ve certainly seen an uptick in merger and collaboration discussions, often from a group that sees that the current situation is not sustainable,” MacIntosh says.
He added that boards and executive directors should stay focused on executing the mission, which may require hard choices. “There is no long-term mission unless the organization continues in a minimally effective state or is able to transfer its programs or assets to organizations able to continue them,” MacIntosh said. “It can never be the right answer to hit the wall without planning or to limp along with any available resources used for mere survival.”
‘Canary in the Coal Mine’
Jim White, executive director of the Nonprofit Association of Oregon, also said that the full extent of nonprofit failures won’t be known for years.
White called the closure of the World of Speed “the canary in the coal mine for what we’re going to see.”
He said the nonprofit made the decision promptly because its leaders wanted to get started on a plan to distribute the museum’s assets to other facilities around the country.
White noted that many nonprofits don’t have succession plans, which can multiply the negative effects of a closure.
The World of Speed’s closure announcement drew a lot of attention in the state because of the museum’s high profile, but many other organizations will go away with little public notice.
“With a lot of nonprofits, they’re just going to slip quietly into the night, and we’ll never know,” White said.
The economics for nonprofits are about to get a lot worse as states tighten their budgets amid declining revenue. White noted that the State of Oregon thought it had about $13 billion to spend this year, the second year of its two-year budget cycle. But now the state is working to cut about $2.7 billion from that amount — about one-fifth of this year’s spending — and much of that cut will hit nonprofits that are paid to provide services for the state, White said.
The budget has sparked fierce lobbying that sometimes inadvertently pits nonprofits against each other, White said.
“We all kind of end up throwing each other under the bus,” he said. “Somebody’s piece is going to have to be cut.”
To the extent that states continue to pay nonprofits to provide services, payments typically start slowing down when times are tough, said Tim Delaney, president of the National Council of Nonprofits. That’s what happened during the Great Recession, when some nonprofits waited as much as a year for payments they were due from the states, said Delaney. He added that the financial pain of that recession for nonprofits lasted for years after the downturn had officially ended.
Delaney fears that many nonprofits that are idling now will never reopen, and it will take years to understand the full scope of the failures.
“It is my belief, based on my years of experience in good times and bad, that the nonprofit community will suffer significant losses in terms of the number of nonprofits operating,” Delaney said.
As nonprofits close, whether officially or unofficially, the burden on other nonprofits that continue to provide similar services increases, Delaney said, adding financial stress throughout the nonprofit world.
“It’s a snowball effect when funding gets cut,” he said.
Seeing the Signs
Kelley Kuhn, vice president of the Michigan Nonprofit Association, also is starting to see signs of nonprofits contracting. One early example; the YMCA of Metropolitan Detroit recently announced it will close two branch locations. Those locations had been struggling financially for years, Kuhn said, and the Covid-19 crisis made it clear it was time to close them.
Other Michigan nonprofits have been hanging on thanks to Paycheck Protection Program loans, Kuhn said. “We know of at least 100 nonprofits that took advantage of that Paycheck Protection Program,” she said.
Pooled emergency pots of money funded by foundations, corporations, United Ways, and other nonprofits also have helped keep nonprofits afloat, as has increased grant maker flexibility in terms of how grant money is spent, Kuhn said.
However, Kuhn says the toughest times may yet lie ahead. “In another 60 days, it could look much different,” she said.
