Nonprofits face decline in public funding

Public-funding decline
Public-funding decline

With the U.S. economy stuck on pause, or perhaps headed for a double-dip recession, nonprofits must plan for the possibility that public funding may never fully rebound and even may continue to shrink, a new report says.

And with the rise in unemployment, which historically has correlated to a drop in individual giving, and with flagging consumer confidence, “it is unlikely that philanthropy will be able to shoulder the decline in public finance,” says the report from “The Public Finance Crisis: Can Philanthropy Shoulder the Burden,” released by Changing Our World.

From 2008 to 2010, annual private giving dropped by $13 billion, and foundation giving fell 13 percent during the recession.

And given the dismal condition of state budgets, it is unlikely the challenges facing nonprofits will lessen before 2014.

“In past economic downturns, nonprofits could hunker down and wait it out,” the report says. “That is not the case this time. The decline is too steep, and the climb out too long to simply hope that all will be well. Hope is not a strategy.”

To deal with those long-term challenges, nonprofits must focus on becoming more efficient, the report says, not only as a way to save money, but to ensure donors that each dollar they invest is being used wisely.

They also must ensure their governing boards include experienced financial managers who can provide insight and expertise as nonprofit executives consider strategies and tactics for dealing with budget cuts and with the slowdown in payments from government partners.

Nonprofits must also look anew at collaboration and partnership both as a means to saving money on shared services and as a way to extend their reach.

And nonprofit messaging in times of financial crisis must focus on the impact of the nonprofit on its constituents and not on the challenges facing the organization itself.

“Messaging should emphasize the impact that the nonprofit is making, the results of its work, the degree to which it is making a difference for those it touches in the midst of the crisis outside of itself, not emphasize the crisis inside itself,” the report says. “Success on behalf of others, not need on behalf of oneself, will distinguish the message.”

While the economy will improve at some point, another recession will certainly come.

Nonprofits cannot predict when that will happen, but they can take steps to be prepared, the report says:

  • Keep abreast of economic and business trends.
  • Develop strategies for fostering the continued support of the organization’s most-loyal donors.
  • Develop a practical strategy for measuring results and creating a “results-culture internally.”
  • Prepare an emergency communications plan to be used during a financial crisis, including messaging, audience and lines of responsibility for implementation.
  • Begin to lessen dependence on government funding.
  • Create a fund, accessible only at the direction of the board, that can be tapped during difficult financial times.
  • Consider adding an individual with government experience to the board, ensuring first that there are no conflicts of interest.

To be successful over the long term, nonprofits must be agile, flexible and willing to change not only their financial strategies, but their fundraising strategies, the report says.

“Those who anticipate and, indeed, embrace change will thrive,” it says. “Those who fail to perceive it, or perceiving resist, will find the new economics of recover and the certainty of continued challenge to be a constant struggle. Innovation will increasingly be the coin of the nonprofit realm.”

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