Sunday, March 4, 2012

How the Private Non-Profit Sector Survives the Recession

The Mount Baker Community Club Building is one of those Seattle structures that has provided a roof over many private non-profit organizations striving to raise money and awareness for housing, sexual violence, human rights, legal aid and all the other private non-profit energy in our town. 

I remember it fondly when the waves of Hmong’s, Cambodians and Laotians came to Seattle in 1975/76 and later in the early eighties.  Many were housed up the street in an apartment complex and most nights for many weeks, neighbors organized language classes, provided logistical help and opened up yard jobs for them.  I had seen some of those cultures where they lived and knew how distant in time and culture they were.  It made me proud to see the people of my city helping them so personally. 

The purpose for being there was the retirement, after 19 years, of Lois Loontjens, who ran a respected domestic violence program, New Beginnings, in Seattle.  My wife had served on the board for a number of years and had been the board’s president twice and I realized how important it was to her own professional and personal development in addition to the people the program helped.  So, I was familiar with the program and admired the work it does.  I also began to realize how much I had taken for granted the fact that Lois, joined by many hundreds of volunteers and very young people working for less than their talents would bring elsewhere, decided to place their lives in the path of such a distressing social problem. 

I thought of the recent events set off by Josh Powell, the monster who bludgeoned and incinerated his children recently, after murdering their mother and setting off with the kids on an alleged camping trip where he successfully hid the body, one of now dead boys making a drawing of it months later, little stick figures showing the father driving, the two boys in the back seat and the mother in the trunk.

The work done by this organization is about hundreds of individual crises each year, the world tumbling dangerously out of control, often children standing near the mayhem, confused and scared.  It is something that makes you want to jump up and down and wave your hands, but the most important thing is to do what these people do, translate the anger to calmness, professional focus and high purpose. 

“It is doing work that matters,” said Lois in her remarks, “it is doing work that enlarges you and doesn’t grind you into the dirt.”

This non-profit agency finds a way to assemble about $3 million dollars a year, nearly $14 million over the past five years, and provide emergency shelter annually for nearly 400 women and children.  The program houses another 62 people in transitional housing, longer term placement while the clients get on their feet, get their kids back into school, find a job and restore their dignity.  It also provides legal advocacy for another 700 people and fields 4,000 calls annually from women who are trying to figure out a strategy that will make them safer and protect their children. 

Just by doing these good things, New Beginnings plays a role in another good thing, raising up young professional men and women – their board members and employees -- who learn the discipline, commitment and communication skills that make them effective advocates and providers of services that actually save lives.

All of this got me thinking about the private non-profit infrastructure in America and the role it plays in fixing up, protecting and being advocates for the people and places with whom we share the country.  I wondered how this human infrastructure is surviving the recession.  How many more people who once looked to government now look to them?  What’s the future of this sector of our society after this hardest economic time? 

There are over 1.5 million non-profits that register with the federal government and a significantly larger group who have relatively small annual revenues and are not required to file a return with the IRS.  In addition, religious congregations are not required to register a tax form though many do.  We tend to think mostly of charities when we think about non-profits, but the tax code recognizes 30 different tax exempt activities beyond the most numerous designation, public charities, 501 (c) (3).  These activities include 501 (c) (5) Labor, agricultural and horticultural organizations, (c) (6) business leagues, chambers of commerce, etc., (c) (13) cemetery companies, (c) (15) mutual insurance companies or associations, and (c) (21) black lung benefit trusts. 

One of the organizations that tracks non-profits carefully is the Urban Institute, set up 40 years ago as an independent, non-partisan policy development shop focused on America’s cities. Their recently retired leader, Bob Reischauer, headed the non-partisan Congressional Budget Office for many years.  The Urban Institute has long studied non-profit issues and is a terrific resource for emerging issues concerning them. 

Let’s start by looking at a couple of measurements describing the size of the non-profit sector.  This information often surprises people.  The Urban Institute reports that the non-profit world in 2008 had about $2 trillion in income and nearly $5 trillion in assets based upon data from 600,000 of the non-profits who were required to prepare a return to the IRS.

Another size measurement comes from the Johns Hopkins University Center for Civil Society.  It counts the number of people who are employed in the non-profit sector.  According to a recent study, the non-profit sector employs nearly 11 million workers.  That compares to slightly over a million in agriculture, 5.5 million in insurance and financial services, 5.5 million in construction, 11.5 million in manufacturing and 14.5 million in retail trade.  It is noteworthy that, in 24 of our states, the private non-profit sector produces more jobs than manufacturing. 

These jobs are not, as some think, a rag-tag collection of part timers thrown together in support of a cause.  A German study of its private non-profit sector says that German private sector employment has a profile in which one part time worker exists for every three full time jobs.  In Germany’s private non-profit sector, however, one in eight jobs is part time.  Johns Hopkins also reports that in many sectors, such as in health care and education, the non-profits pay employees more than for-profit colleague institutions.

Public charities under the 501 (c) (3) regulations totaled nearly a million of the 1.5 million non-profits operating in 2008.  However, only a third of them are required to report, about 350,000.  That group reported revenue of $1.5 trillion and assets of $2.6 trillion in 2008.

Hospitals and primary care facilities represent nearly half of that total revenue, just under $750 billion, while higher education is about 12%, around $150 billion.

Individuals are by far the largest single donors to charities, totaling 80% of all donations.  The recession hit individual donors hard.  Donations to 501 (c) (3) organizations dropped 7% in 2008 and an additional 6% in 2009.  Individual donations in 2010 were up very slightly.  

Donations from all sources – corporations, foundations, individuals and bequests -- have remained relatively steady over the past 40 years, just a little over 1.5% of Gross Domestic Product.  However, beginning about 1995, donations grew steadily, topping out in 2005 at 2.35% of GDP.  The recession has brought it back closer to earth and charitable giving as a percentage of GDP stands at about 2%.  GDP in 2010 was about $14.5 trillion.

GuideStar, a company that provides on-line linkages to IRS tax filings by non-profits and trend analysis of their contributions and expenditures, has another way of following the recession’s effect on private non-profits.  In the six years between 2002 and 2007, its surveys of selected non-profits showed that contributions had been steadily and robustly increasing until, in 2007, 52% of reporting non-profits said that their contributions had increased over the previous year compared to just 19% who said their contributions had decreased.

The punishment of the financial crisis in 2008 was swift.  In 2008, 38% said their contributions had increased while 35% reported a decrease in contributions.  The next year, 2009, had 51% of non-profits reporting decreases and 23 percent increases.  In 2010, it got a bit better with decreasing contributions down to 37% and increasing contributions at 36%.  The 2011 report shows a slight improvement over the 2010, but not truly significant. 

In the same survey, GuideStar sought information on demands for services.  A substantial number, 65%, said that demands for service increased very substantially in 2011 over 2010.

The numbers compiled in surveys like GuideStar’s mask the circumstances of smaller non-profits who live closer to the economic margins than their larger non-profit colleagues.  

90% of 501 (c) (3) charities have budgets less than $3 million and 75% of charities have budgets under $500,000.  These smaller entities are two times more likely to see decreased income from both private and governmental sources.  They are more likely to lay off staff, more likely to draw harder on their smaller fiscal reserves and more likely to rely on a narrow band of supporters for donations.  Of the group of small non-profits under $250,000, 20% reported to GuideStar that they were considering ceasing operations in 2012 for fiscal reasons. 

The Urban Institute has studied another important factor in the health of the non-profit community, the effect of state budget cutting on human services non-profits. Those organizations deal with a multitude of problems, housing and shelter, youth development, community development, employment training, some health care and nutrition.  Human services non-profits have strong relationships with their states for lots of political and service delivery reasons.  Because of the recession’s hit on state tax revenue, the non-profits are taking collateral damage that is serious in its effect and has an unknown duration.

Human services non-profits represent, according to the Urban Institute, about 33,000 reporting 501 (c) (3) organizations – about a tenth of reporting charitable organizations.

The recession saw them losing significant investment income, corporate contributions and individual contributions – but nearly all non-profits went through that.  Significant for the human services group was a reduction, across the country, of $425 billion from state budgets in 08, 09 and 10.  In Washington state, the reduction as of January 2012 from January of 2009 has been $10 billion with another $1.5 or so billion coming after decisions are made in Olympia this spring. 

Human services cuts in Washington state range across the system – early learning, health care coverage for non-insured children, long term care, mental health, disability, sexual assault, domestic violence.  It’s hard to come up with a clean figure, but cuts over the past three years affecting human services delivery are at least a billion and maybe range upward to $1.5 billion. 

The outlook for non-profits appears slightly better, taken as a whole.  The uptick, however slight, of individual donations is a sight for sore eyes after two years of plunging investment values and individual donations.   The strength of the states as a partner to non-profits is a wild card.  The effect of the stimulus package, which buoyed state budgets, particularly in health funding, has all but run out.   Some state governments, our own included, have a kind of third world quality to them, their social safety nets fully tattered.  Their boom or bust tax systems have amply demonstrated again how quickly good times give way to bad.  The $10-$12 billion in cuts will not be restored any time soon and many non-profits will have to lean a bit harder on their donors, volunteers and stockbrokers.  Many smaller non-profits are at risk and remain at risk.

The ceremonies at the Mount Baker Community Club conclude and the mostly young audience crowds around the woman who is leaving.  Despite all that has happened, New Beginnings has kept to its mission of protecting women and children from abusive relationships through these difficult years. 

Their budget has more exposure to state and local funds than they would like and they have little investment income.  They would like to do more – the demand, especially for emergency shelter, far exceeds what they can provide – but they are realistic about getting through this hard time and perhaps coming up for air later. 

What is impressive is that they are here at all, under the sheltering roof of the Mount Baker Community Club, calm and dedicated to something way beyond themselves.  They file out the door into a rainy Seattle night, fumbling with their umbrellas and keys, about to meet people tomorrow or the next day who they do not know but who need them completely and for whom they will do their best.

1 comment:

  1. Yay for nonprofit social service agencies! As long as there are people in the world there will be a need for social services. Now if only we could convince the public that it is more cost effective to save and fund these programs than toss them out the door.