The Fiscal Cliff Has Arrived — and With It, Cuts, Layoffs, and Crisis. A Look at 2024’s Hunt for Revenue.
In 2023, nonprofits were forced to make tough decisions — including mergers, layoffs, and program cuts — to stay afloat.
Every week for the past year, thousands of hungry San Franciscans have flocked to over two dozen open-air food markets where fresh produce, protein-rich foods, and canned goods are free. More than 10,000 more senior citizens, families, and people with disabilities have received groceries at their doorstep each week.
By January 2024, the number of those eligible for home deliveries will be slashed by 40 percent. And by 2025, nearly all of those pop-up farmer’s markets — among the few remaining vestiges of pandemic-era funding — will be gone, as will 30 percent of the San Francisco-Marin Food Bank’s staff.
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Every week for the past year, thousands of hungry San Franciscans have flocked to more than two dozen open-air food markets where fresh produce, protein-rich foods, and canned goods are free. More than 10,000 more senior citizens, families, and people with disabilities have received groceries at their doorsteps each week.
By January 2024, the number of those eligible for home deliveries will be slashed by 40 percent. And by 2025, nearly all of those pop-up farmers’ markets — among the few remaining vestiges of pandemic-era funding — will be gone, as will 30 percent of the San Francisco-Marin Food Bank’s staff.
Layoffs. Program cuts. Mergers, acquisitions, and dissolutions. These are the kinds of decisions no nonprofit wants to make, but thousands of organizations have had to in 2023. If an influx of billions of dollars in government stimulus and philanthropy once powered charities through the pandemic, saving hundreds of thousands of nonprofit jobs, the expiration of pandemic-era aid — coupled with runaway inflation, staffing shortages, and declines in giving — have left many nonprofits on the financial brink. Even as economic forecasts paint a rosier picture for 2024, the nonprofit terrain is already undergoing a tectonic shift.
“It was the storm after the storm,” says Kathleen Enright, president of the membership-based Council on Foundations, as government “resources pulled back at a rate much greater than demand” in the nearly four years since the pandemic uprooted the nonprofit world.
Today, the San Francisco-Marin Food Bank is still feeding nearly as many households — upward of 50,000 a week — as it did at the height of the pandemic, compared with around 32,000 in previous years.
To do so, it’s relying on a dwindling supply of relief funds. During the last fiscal year, which ended this July, the group received $10 million in local, state, and federal funds for its pandemic-era programs. In 2023, it received only $6 million.
In 2024, it will get zero.
Doubled Poverty, Dwindling Donations
In March, crucial pandemic-era SNAP benefits dried up just as inflation sent food prices skyrocketing. As the price of eggs rose to $6 or $7 a dozen, Americans turned to the only lifeline they had left: food banks, themselves under spiraling financial distress.
“The state and federal government are encouraging folks to go to their local food pantry at a time when we also are seeing cuts,” says Chris Padula, chief philanthropy and engagement officer at the San Francisco-Marin Food Bank, one of the Bay Area’s largest food distributors.
He expects the group, which has been operating on a multimillion-dollar deficit, will be able to feed only around 40,000 households by 2025 after making cuts to its staff, pop-up pantries, and home-delivery program.
It isn’t alone. Food banks across the country have been among the many nonprofit social-service organizations hit hard by reductions in government revenue, which came just as demand surged from families struggling to pay for groceries. In 2022, child poverty more than doubled after the expiration of pandemic-era child tax credits, and food insecurity increased by about 3.5 million, according to the U.S. Census Bureau and the Department of Agriculture.
At Habitat for Humanity Metro Maryland, a waitlist of low-income families seeking help for weatherization projects, like duct sealing or HVAC system repairs, ballooned to 1,600 households in 2023, says CEO Jeff Dee, because “we’re just waiting to find funding” as revenue and donations have fallen short of rising construction costs.
Even nonprofits that have avoided major program cuts have found themselves searching for ways to reduce costs across their organizations, from not filling staff positions to fewer services for beneficiaries.
“We are walking a tightrope to make all of this work,” says Shobana Gubbi, chief philanthropy officer at the Second Harvest of Silicon Valley, a food bank that serves half a million people per month.
For the past two years, Second Harvest has operated under a deficit of over $10 million and made “tough trade-offs” to help make up for a shortfall in funds, she says. It has shaved half a gallon of milk, eggs, and many meat products from the grocery haul it gives families each week.
It hasn’t helped that techies and start-up funders (at, say, the defunct Silicon Valley Bank) — whose employer-matching donations undergird local charities — have been spooked from giving by layoffs and stock-market volatility this year.
That’s left Second Harvest with a dwindling supply of cash to feed growing hunger in the region, says Gubbi: “The need has gone up, but the support and donations have not.”
After the Funding Disappears
But the most important source of revenue for charities is not everyday donors and foundations or tech entrepreneurs-turned-philanthropists. It’s the government, whose labyrinth of grant-making and contract-wrangling agencies account for more than 30 percent of nonprofit revenue every year.
That was especially true at the height of the pandemic, when charitable donations initially dropped by around 20 percent and government grants increased by more than 65 percent, according to a study by the economists Jennifer Mayo and Stephanie Karol.
That’s no longer the case. Since the end of 2021, government spending has had a negative effect on GDP, driven largely by waning relief programs, according to the Hutchins Center Fiscal Impact Measure, which analyzes the impact of fiscal policy.
And temporary stopgaps like the $800 billion Paycheck Protection Program, which protected the jobs of around 450,000 nonprofit workers, have gradually expired.
“What happens once that funding disappears?” asks Mayo, who says that charities will now “need to look to other sources of revenues” to retain those workers and services once propped up by relief programs.
Though government revenue is often volatile — subject to political tides and bureaucratic wrangling — there is little precedent for such a rapid surge, and subsequent decline, in funding.
“I’m not blaming the charities for spending the money” they received in stimulus packages and emergency contracts, says Patrick Rooney, an economist at Indiana University’s Lilly Family School of Philanthropy.
“At the same time, they needed to plan and recognize that the money was not going to keep coming,” he says. “How they manage that varies from charity to charity.”
Mergers on the Rise
Three years ago, charities might have felt relatively flush thanks to government revenue and a record-high $471.44 billion in donations from those eager to help food banks, health centers, and homeless shelters strained by the pandemic.
At the time, some charities built new programs — like the pop-up food markets — or hired more staff to cope with increased demand for their services, Rooney says. While charities say that demand is still high — thanks to inflation and the end of pandemic-era poverty-relief programs — most of those emergency stopgaps have ended, forcing them to make tough decisions about the future of their programming.
Some charities have called people like Lindsay Kijewski, senior vice president at SeaChange Capital Partners, a nonprofit consulting firm with expertise in nonprofit restructuring, including mergers and acquisitions. Her phone line has never been this busy.
“People are bracing themselves. It’s like, ‘What’s next?’” she says. “It may not be a pandemic, but it might be a budget impasse at the state level. It might be a change in administration.”
Over half of the grantees in Kijewiski’s portfolio — part of the national philanthropy-funded Sustained Collaboration Network — are looking to merge with other nonprofits, a move that can help cut costs on, say, tech licenses or office space and offset the impact of staffing shortages.
“It’s hitting a point where organizations have to make choices” to shutter programs or scale back services, says Kate Barr, CEO of Propel Nonprofits, which provides financial services to nonprofits. “The financial pressures right now may simply accelerate some of those decisions,” she says.
In Omaha, a point-in-time count of homeless people living on the street tripled from 2019 to 2023, just one symptom of the increased demand inflicted on human-service agencies in the region, says Anne Hindery, CEO of the Nonprofit Association of the Midlands.
Mounting financial pressures have even led some of the association’s nearly 800 members to consider merging or closing their doors altogether. It doesn’t come as a surprise to Hindery. In fact, “I thought that would have happened a lot sooner” in the pandemic, she says. “But the influx of funds put off some of those inevitable conversations.”
Looking Beyond Crises
After a year replete with false alarms over a perennially looming recession, there are reasons to believe 2024 may bring smoother financial waters. Earlier this month, the Federal Reserve announced it expected to lower interest rates in 2024, signaling a victory in its campaign to quell inflation without plunging the economy into a recession.
It couldn’t be coming at a better time for nonprofits, which earn much of their revenue through end-of-year fundraising and could use a reprieve, says Enright of the Council on Foundations: “Four years is a long time to be in crisis mode — making it hard to plan and look for the future.
“Hopefully, that’s a corner that’s being turned,” she says.
Still, even if the economy improves, it might be too late or too limited for some of the country’s more than 1.8 million nonprofits, some of which have already been irrevocably changed by their funding shortfalls.
In September, the drug-treatment center Phoenix House Texas for adolescents announced it would shutter its residential programs — which served hundreds of low-income teens per year — and lay off dozens of staff members because of government contracts that, for a decade, have failed to keep up with inflation and whose reimbursements “were short to begin with,” says CEO Drew Dutton.
Phoenix House was the last treatment center of its kind in Central Texas, leaving no alternatives for young patients in the region, many of whom entered its program as an alternative to incarceration.
For now, the group is focusing on more affordable preventative and education services. But when running a residential treatment center becomes financially feasible again, Dutton hopes to reopen.
“When it’s sustainable, we will be there,” he says. “We want to be the first ones back.”