Federal negotiations over legislation to raise the debt ceiling, which passed the House last night, have added to the troubling economic signs ahead for nonprofits, many of which have not yet fully recovered from the pandemic. Lawmakers and the White House are poised to put limits on federal spending that will affect nonprofits with contracts from government agencies and have ripple effects for other organizations.
“The nonprofit sector has been roasted on the outside,” says Tim Delaney, CEO of the National Council of Nonprofits, who likens the state of things to a hard pretzel rod on the verge of snapping in half. “That’s how fragile things are right now.”
A likely new debt-ceiling deal will lead to roughly $136 billion in federal spending cuts, according to a New York Times analysis, and will include new work requirements for some government-assistance recipients and a rollback on $30 billion in unspent Covid-19 relief funds for programs like rental assistance and small-business loans.
While the exact nature of the cuts is not yet clear, it appears likely that nonprofits may see fewer contracts and grants from federal agencies such as the National Science Foundation and the Department of Housing and Urban Development, which will be forced to limit their spending over the next two years.
“Any government cutbacks are going to impact us because we rely on government funding,” says Jeff Dee, CEO of Habitat for Humanity Metro Maryland, who has been budgeting cautiously for the new year while holding hope that local governments will step up to support nonprofits “even if we lose out on opportunities on the federal level.”
Many nonprofits are also grappling with the expiration of pandemic-era federal benefit programs, says Delaney, which has led to heightened demand for their services at a time when inflation is still driving up prices. Staffing shortages also remain a major issue, and employee burnout is widespread. The increasing likelihood of a recession could further imperil nonprofit finances.
It’s no wonder, says Delaney, that the most popular page on the council’s website in recent months has been an article on how to shut down a nonprofit. It’s an ominous sign of nonprofits dissolving in greater numbers, which Delaney attributes to a kind of burnout at the highest level.
“Leaders are beyond fried,” he says. “They’ve been trying to hold things together with baling wire and chewing gum.
Yet it’s not all doom and gloom, says Laura Lott, CEO of the American Alliance of Museums. A sense of “cautious optimism” prevailed recently in the group’s annual meeting, she says, despite the economy’s troubling signs.
Museum attendance is at roughly 70 percent of pre-pandemic levels, says Lott, who hopes economic turbulence won’t stand in the way of projections for museums’ full recovery.
“Maybe it’s another year or two before they’re fully back,” she says. “I have no reason to think that would change.”
Here’s a closer look at some of the economic data experts say nonprofit leaders should be watching.
Inflation
Inflation continued to show signs of easing last month, registering a 4.9 percent annual growth rate in April, down from a recent peak of 9.1 percent in June 2022. However, the rate of price increases remains well above the Federal Reserve’s inflation target of 2 percent.
While costs have been rising for months, many museums have refrained from increasing ticket prices, says Lott, for fear of scaring away visitors who are finally making their way back to exhibits and galleries that were empty during the pandemic.
“That’s part of the squeeze,” says Lott, who called raising ticket prices a “last resort” for many museums, which have been relying on donations, gift-shop sales, and other earned revenue to cope.
Across the country, Habitat for Humanity affiliates have also been trying to cope with rising prices without raising mortgages or interest rates for the families who live in the homes the nonprofit’s volunteers construct.
“As the construction costs go up, we can’t necessarily transfer that on to our families because their income hasn’t changed,” says Dee, who has been relying on fundraising and donations of construction materials to help soften the blow of higher costs.
Unemployment
The national unemployment rate remains extremely low, registering at 3.4 percent in April, despite previous indications that the labor market might be cooling.
With fewer applicants for open jobs, salaries have continued to climb, and positions have been left unfilled, says Dee.
Nonprofits, like other employers, have been struggling to fill job vacancies for months, which can have important ramifications for the people they serve, says Delaney.
“If you have to wait an additional five minutes in the drive-through to get your burger, that inconvenience is not the same as going to a domestic-violence shelter and having to put your name on a waiting list,” he says. “People are having to wait two months for what can be a life-or-death situation.”
Stock Market
The stock market has continued to bounce up and down over the past month as investors jitter over banking volatility, continued inflation, and the possibility of a recession. One benchmark equities index, the S&P 500, closed March up 1.5 percent from the month before.
With the possibility of a recession on the horizon, some nonprofits worry their larger donors might cut back on contributions in the year to come.
“If there’s any potential for a recession, that affects our corporate donors” says Dee, who noted that Habitat’s smaller individual donors tend to be more resilient during economic crises. “We’re trying to be more conservative in our fundraising projections for next year.”
Consumer Sentiment
Consumer confidence tumbled 6.8 percent in May, as measured by the University of Michigan Index of Consumer Sentiment, amid fears over the debt-ceiling negotiations and pessimism about the broader economy.
In recent months, it’s become harder for Habitat for Humanity to attract donations compared with recent years, says Dee, even as the group’s waiting list for homes has grown amid rising housing prices.
“We actually had our best fundraising during the pandemic,” he says, as supporters opted to give back while engaging in new virtual volunteering opportunities. “However, the need hasn’t gone away — it’s only increased.”
During the pandemic, museums struggled to attract funding, says Lott, as donors directed their resources toward organizations working to alleviate hunger or to provide health care. As they look toward the next year, Lott hopes philanthropists will see the value of cultural institutions as community hubs, even — or especially — in times of crisis.
“Museums are also vital to their communities and to the recovery of people’s mental health and relationships,” says Lott. “I’m optimistic that funders will continue to grow their support to museums.”
“As the construction costs go up, we can’t necessarily transfer that on to our families, because their income hasn’t changed,” says Dee, who has been relying on cash contributions and donations of construction materials to help soften the blow of higher costs.
GDP
Gross domestic product rose at a 1.1 percent annual rate in the first quarter of 2023, a significant slowdown from the 2.6 percent growth registered the previous quarter. The rate was lower than the 2 percent growth rate predicted by economists surveyed by Dow Jones, demonstrating the impact of the Federal Reserve’s attempts to cool the economy by raising interest rates.
