Pressures born of the pandemic are squeezing nonprofit budgets as Covid relief aid wanes and some experts warn of a fiscal cliff on the horizon.
That’s according to a new national survey of charities and interviews with nonprofit leaders and industry watchers. Data suggests that inflation and rising salaries, increased demand for services, and receding pandemic-related support are cutting into revenue. Among the survey’s findings:
- 93 percent of nonprofits spent more on staff salaries and benefits in 2022 than in 2021, chiefly due to rising wages.
- 68 percent are seeing increased demand for services.
- 50 percent are having difficulty delivering programs and services due to staffing shortages.
- 78 percent are trying to fill staff vacancies.
The survey, conducted by Forvis, an accounting and advisory firm, points to a mixed post-pandemic recovery for charities. About half of the nearly 200 groups surveyed reported a decrease in net income in 2022, while nearly 40 percent saw an increase.
Some groups are in good shape financially thanks to pandemic relief funds still on the books. “Some of our clients grew in revenue size two to three times, and it came in pretty quick — almost overnight,” says Kathleen DuBois, who leads a consultant group at Wipfli that works with 2,000 nonprofits.
‘Things Are Going to Get Harder’
Long-term forecasts are uncertain, however. “Right now, as a nation, we’ve experienced a lot of up and down,” says Dan Prater, a senior managing consultant at Forvis. “There’s this giant question about the next 12 to 18 months, with corporate layoffs and global unrest and possibly a recession.”
DuBois and others warn of a potential fiscal cliff ahead, particularly when the last federal pandemic support, from the 2021 American Rescue Plan Act, dries up in a few years. Inflation, while ebbing, continues to run high, and recession remains a possibility in 2023. “My message to nonprofits is: Things are going to get harder,” says Liz Moore, executive director of the Montana Nonprofit Association.
For some groups, that cliff is already here. The Myrna Loy, a performing-arts center in Helena, Mont., says each of its three key revenue sources — arts education programs, an independent movie house, and live performances — are all struggling as post-pandemic culture keeps residents at home.
“Audiences are still pretty slow to come back,” says executive director Krys Holmes, and acts are increasingly costly to book. “So going forward, it’s like: How do we make a living without that Covid support when everything is in such upheaval?”
Industry leaders say nonprofits are caught in a tightening vise of shrinking revenue and increasing costs. “Inflation is eating us up,” says Tim Delaney, president of the National Council of Nonprofits, noting that prices, while dropping slightly in recent months, are still up well over 10 percent over two years. Foundations and governments aren’t adjusting grants to reflect the new costs, Delaney adds.
At the same time, donations by average Americans — so-called everyday donors — are once again sliding after a brief surge at the pandemic’s height in 2020. Quarterly data from the Fundraising Effectiveness Project indicate fewer and fewer people are opening their wallets for charity.
“This is a decline that began 15 years ago, and it’s gathering steam,” Delaney says. “It’s frightening.”
Social-service organizations, while buttressed by increased funding during the pandemic, report demand for their services remains high. The majority of food banks and pantries in the Feeding America network have reported demand increasing or holding steady since June 2021. In low- and moderate-income neighborhoods, about 70 percent of businesses and nonprofits report an increase in demand for their services, with 43 percent noting a significant increase, according to a Federal Reserve study.
More individuals and families are expected to line up for services in the coming months as the federal government and localities withdraw pandemic-related subsidies available to individual Americans for housing, medical care, and food in advance of the May expiration of the federal coronavirus public health emergency. The medical crisis of Covid is nearly over, but “it’s not like, ‘Everything’s fine, and the sun is shining,’” says Sudha Acharya, executive director of the South Asian Council for Social Services in Queens, N.Y.
Financial woes are not universal. Nearly a fifth of organizations in the Forvis survey reported that they are “very pleased” with their financial position — up from about 10 percent the previous year. Some groups invested the flood of emergency funds in their infrastructure — new tech systems, professional development, expanded fundraising, and senior leaders to manage some of the executive director’s workload.
Says fundraising consultant Sherry Quam Taylor: “The organizations that have come out strongest paused and said, ‘We can’t put all of this into programs; this is the opportunity to spend on things that have been in our strategic plan for years.’”
