Last Mile Food Rescue in Cincinnati started shopping in November for a refrigerated box truck to move perishable donations from food retailers to distribution sites. The purchase would take some of the pressure off overstretched volunteers, who would have to make three or more runs in their cars to haul as much food as a single truckload.
But Last Mile is experiencing sticker shock. Prices for the kind of truck its leaders have in mind have soared thousands of dollars in recent months, to as much as $80,000. For an organization with an annual budget of $650,000, that’s too big a hit to absorb.
Frustrated, the charity started looking for used trucks, but the prices of used vehicles have shot up as well.
“We look every day,” says Julie Shifman, Last Mile’s executive director. “We hope that we will be able to afford it, or a major donor might be able to come in to help us.”
Last Mile is far from alone. Nonprofits of all kinds are getting hit hard by inflation, experts say. Price and wage increases are hurting nonprofits in multiple ways, making it harder to keep up with their own basic operational expenses while also forcing them to curtail the services they provide.
At the same time, there are early sign that the burst of generosity donors showed in the first year of the pandemic may be slowing considerably.
“It’s not a pretty equation,” says Shannon McCracken, chief executive of the Nonprofit Alliance, an advocacy group.
Nonprofits that provide annual cost-of-living increases for their workers, as many do, are getting hit with higher payroll costs of about 6 percent even without any increase based on merit or seniority, McCracken says.
Canceled Projects
David Lipsetz, CEO at the Housing Assistance Council, says inflation has eaten into the number of affordable-housing units his organization can provide.
The council underwrites loans for housing developments at below-market rates in some of the poorest regions of the country, and it strives to maximize the amount of housing it can build with limited resources. “We’re operating on extraordinarily thin margins,” says Lipsetz. “We are putting those loans out the door as cheaply as we can.”
It’s stalled countless projects for us, right in the middle of a period of time when housing and shelter are the most important things needed to weather the storm of a pandemic.
When the price of building materials goes up 10 percent, says Lipsetz, there’s usually no room in the loan to accommodate that increase. Lipsetz says that sometimes his nonprofit can rework the terms of the loan or find additional sources of financing, but it doesn’t always work out.
“It’s stalled countless projects for us, right in the middle of a period of time when housing and shelter are the most important things needed to weather the storm of a pandemic,” says Lipsetz. “For us, a modest increase in costs can shut down a project in an area of the country where it’s needed the most.”
Jesse Tree, a nonprofit in Boise, Idaho, that pays rent for people who are on the verge of being evicted, has seen sharp increases in demand for assistance in recent years. Ali Rabe, the organization’s executive director, says research shows housing prices in her region shot up 75 percent from 2015 to 2020 at a time when local wages increased 18 percent.
The situation has only gotten worse since 2020, says Rabe. Work-at-home policies spurred by the pandemic allowed highly paid urban dwellers to relocate to rural areas, she says, and housing prices shot up another 40 percent or so last year.
Local courts in the Treasury Valley region of southwestern Idaho, which Jesse Tree serves, hold about 20 eviction hearings a week, says Rabe.
“We can only help about a quarter of people who apply for assistance,” she says.
A government grant provided through federal Covid assistance helped the nonprofit maintain operations, but that grant expires in September, says Rabe. The nonprofit is hoping donors will fill the gap, she says.
No Easy Answers
Nonprofits by their nature are in a poor position to adapt to rising costs, experts say. While McDonalds can offset higher beef costs by raising the cost of a Big Mac, for many nonprofits the only options are to cut services or hope for donors to come to the rescue.
Kelley Kuhn, CEO of the Michigan Nonprofit Association, says nonprofits that provide basic goods and services, like food and housing, are being hit the hardest. At the same time, nonprofits are struggling to retain workers who are being lured away by businesses that are able to offer higher salaries, says Kuhn.
“That’s something any nonprofit is experiencing now, trying to keep up with the requests for higher salaries and wages,” Kuhn says. She added that a passion for the mission won’t keep nonprofit workers from seeking higher wages elsewhere if they can’t meet basic living expenses.
“That’s a lot of strain on human capital happening for nonprofits,” she says.
Jen Talansky, vice president of marketing and communications at the Nonprofit Finance Fund, worries that long-term funding sources for nonprofits, such as multi-year grants and government contracts, typically are not adjusted for inflation. “So the gap between what a nonprofit gets paid to provide services and their full cost of actually providing those services grows even wider than it typically is,” she says.
“Inflation has been affecting prices for all of us as individual consumers; it has similarly been impacting nonprofits,” she adds. “The cost of supplies to run their programs also goes up with inflation.”
Billionaire philanthropist MacKenzie Scott recently took the sting of inflation away for some nonprofits with another round of major gifts. The Housing Assistance Council, for example, got $7 million. And Habitat for Humanity, which has had to scale back the number of houses it builds due to increased costs of lumber and land, got $439 million, which will allow it to reverse course and ramp up operations.
Corinne O’Connell, CEO of Habitat for Humanity Philadelphia, which received $5 million of Scott’s gift, says the unrestricted nature of her philanthropy is especially helpful at a time when billing invoices routinely arrive with huge markups for supplies. For example, she says, the nonprofit recently got an invoice from a window installer with $6,400 added on. The only explanation offered, she says, was “price adjustment.” The cost of replacing a roof on a row house shot up from $5,000 to $8,500 in a single year, O’Connell says.
An unrestricted gift, says O’Connell, helps nonprofits meet those kinds of unexpected expenses.
“I don’t need to tell you what that means — it’s the golden ticket,” she says. “It’s going to allow us to keep moving. It allows us to be responsive in real time and meet the rising demand and costs.”
O’Connell says that generous local donors have helped her organization fill the budget gap created by inflation, but she notes that most nonprofits can’t count on getting bailed out by a generous billionaire. “The screws just keep tightening on nonprofits who are working on the front lines,” O’Connell says. “This economy with inflation is death by a thousand bee stings.”
Even something as mundane as insurance is putting a strain on nonprofit budgets. Many insurers are raising premiums by 10 percent or more, cutting coverage, or both says Pamela Davis, CEO of the Nonprofits Insurance Alliance, a nonprofit that provides insurance to other nonprofits.
Davis says that while her organization has been able to hold premiums steady and maintain most coverage, it had to drop some nonprofits in areas with a high danger of wildfires. She calls it “a tough decision we had to make so we can cover the other 98 percent” of its customers.
Fundraising Expenses
With costs of providing services soaring, fundraising to close the gap has become more important than ever. But fundraising has gotten more expensive, too. Reggie Rivers, president of the Gala Team, which provides auctioneering services to nonprofits, says live events are coming back in a big way this year, and he is not hearing word yet of nonprofits cutting back on gala expenses due to inflation.
However, Rivers noted that many of the venues that hold live events are having trouble hiring staff to reopen. And Rivers says he expects that nonprofits will have to eat higher costs to hold events.
“Prices will go up on venues, prices will go up on catering, prices will go up on valet services,” Rivers says.
Dan Cardinali, CEO of Independent Sector, a national coalition of charities and foundations, says inflation has hidden costs as well. For example, higher household expenses could cause some people to curtail their volunteering so they can work and earn more.
“It has this very hidden labor impact for nonprofits,” says Cardinali.
Cardinali also noted in a recent Senate Finance Committee hearing that inflation is hitting nonprofits hard at a time when a lot of pandemic-era help from Washington is drying up, such as the recent expiration of a temporary law that allowed taxpayers who don’t itemize to deduct up to $300 in charitable giving.
Like Shifman at Last Mile, Diana Lara leads a charity that collects and distributes food that was otherwise headed for the garbage. Lara’s Southern California nonprofit Food Finders has three trucks and a van, all refrigerated, and the fuel costs are gobbling up a bigger share of its budget.
At the same time, grocery stores are hanging onto perishable food longer, she says. Food that previously would have been donated is getting marked down for a quick sale instead.
The group purchases some nonperishable food to supplement donated goods, and those costs are rising, says Lara. Meanwhile new hires are demanding higher starting pay.
In short, a wide array of expenses are over budget.
“So we’re starting to feel that in our pockets,” she says. “It’s just insane.”
