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Hard-Hit Nonprofits Face Rising Demand, Less Funding

Hard-Hit Nonprofits Face Rising Demand, Less Funding

Barron’s
By Stan Litow
July 23, 2020

Covid-19 has completely altered the way people live their lives. The health-care system is near breaking point. A deep recession has put millions of Americans out of work. Businesses are going bankrupt, and educational progress for millions of students has stalled. The virus is causing a spike in mental health problems, domestic violence, child abuse, food insecurity, and substance abuse. A critical segment of the economy, nonprofit health and human services organizations, who are also first responders, work on the front lines addressing each and every one of these problems. Their ability to serve their communities is severely threatened by funding shortfalls, right when demand for their services has been increasing. They are vitally important, not just based on who they serve, but based on their critical economic value. Nonprofits pump more than $1 trillion a year into the U.S. economy, representing over 5% of U.S. gross domestic product, and they account for 12.3 million jobs.

They are at serious risk due to the Covid-19 pandemic and the economic crisis. A June survey by the Independent Sector showed that 83% of these organizations have already seen a marked reduction in their revenue. Nearly two-thirds of 125 agencies surveyed by the Human Services Council of New York believe they will have to reduce services to those most in need as a result of budget shortfalls, and 70% expect to be laying off staff. State and local budget shortfalls will only increase the risks.

Some are more vulnerable to cuts than others. New York City’s Safe Horizon, the major provider of domestic violence and child abuse services in the nation’s largest city, receives 92% of their revenue from government contracts. According to their CEO, Ariel Zwang, they don’t even come close to covering their costs. Any cuts would be devastating.

On a national level, the American Cancer Society has seen a spike in demand for their services, which include a hotline and advice for cancer victims,concurrent with a steep decline in funding. I recently interviewed CEO Gary Reedy, who said they have already laid off roughly 1,000 people, about 25% of their workforce. He expects a revenue decline of close to $200 million. These cuts, he said, would impact their ability to continue their significant investment in cancer research, which totaled nearly $150 million in 2018.

To address these budget holes in the short term, philanthropic support must be increased. Less than a quarter of the $450 billion in philanthropic giving last year went to agencies providing critical health and human services, according to data from GivingUSA. If businesses, which contributed $21 billion to nonprofits in 2019, increased their giving by only 20%, an additional $4 billion would be available to help fill the shortfall. Adding incentives for their employees to donate by increasing the level of matching grants to at least two dollars for every dollar employees give would also add considerably to the amounts needed.

Firms can also provide incentives for individual employees to contribute not only cash, but their expertise through skills-based volunteering. In 2019, 66% of large companies provided time off for volunteering, according to the Chief Executives for Corporate Purpose “Giving in Numbers Brief.”Adding the remaining 34% and having all provide at least the equivalent of another day of service would add millions of additional hours in valuable service time. Private foundations can also increase their level of giving as well and consider using their endowments to invest in capital improvements.

Sustained government support is just as important in continuing this critical work. Governments at all levels, as they prioritize funding, ought to make sure these essential services are maintained and must commit to not reducing contracts for nonprofits. Advance payments, amounting to a third of a contract’s value, should also be paid up front. Such payments would be critical to cushion the blow of rising costs and increased need.

The next federal stimulus package support for state and local governments will modestly help cushion the blow. Support of this nature must be made a priority. In addition,the Federal Reserve also needs to step up and expand no-interest lending specifically for these agencies. Finally, the federal charitable tax deduction needs to be increased to provide incentives for increased donations.

While Covid-19 has disrupted all our lives, the challenge at this point is to minimize the long-term health and economic effects by acting responsibly and forcing a much-needed national response. It is also making sure that the recovery is managed effectively, so the gaps in income inequality and racial inequity don’t magnify. It is clear that those most in need are most at risk of having the effect of the pandemic last not for months, but for years to come, shaping their lives and the lives of the next generation.

No sector of the economy is more vital to achieving equality and social justice, or more deserving of support, than nonprofit agencies that are directly responsible for ensuring the social safety net doesn’t completely shred. When tough budget decisions get made, these social services organizations need to be at the table as a close partner with government agencies and not just left to cope with the decisions they had no part in making. That would help prevent serious damage to our communities. In the end, their future is our future.

Read the original article here.

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