Most nonprofits emerge from pandemic wounded, but still open

Nonprofits across the nation suffered deep economic hardships and many cut services during the pandemic, but strong government support and stepped-up giving by foundations and individuals averted the widespread charity failures that many experts had feared, according to interviews with experts and a new study out Tuesday.

Steve Hayes, executive director of the Guilford Nonprofit Consortium, an organization in North Carolina that works to strengthen the management of nonprofits, said he’s not aware of any nonprofits in his region that have closed permanently. A few have ceased operating temporarily, he says, and it’s unclear if they will be able to resume services. But overall, he has not seen evidence to support predictions a year ago of widespread nonprofit failures.

“I had the same expectation,” Hayes said. “It did not come to pass.”

A new study released Tuesday by the Center for Effective Philanthropy backs up that perspective on how charities weathered the pandemic. “We were a bit surprised that they fared better than expected,” said Ellie Buteau, vice president for research.

“Nonprofits were hit hard by the public health and economic consequences of the COVID-19 pandemic. The needs of the communities that nonprofits serve rose sharply,” the report states. “At the same time, nonprofits had fewer resources to provide crucial services because of declining revenues — and safety restrictions made providing these services even more challenging. Yet nonprofits fared better than they had feared they would because of increased support from the government, foundations, and individual donors.”

Jakada Imani, CEO of the Management Center, a consultant for social-justice advocacy organizations, said the impact of the pandemic on nonprofits was lessened by the fact that the stock market held up well, unlike during the Great Recession that began in 2007, so giving didn’t suffer.

“It’s been much more choppy sailing as opposed to devastating storms that we couldn’t weather,” Imani said.

Imani said that at the start of the pandemic his organization braced for clients to cancel contracts, but not a single one did.

The overall picture of the future for nonprofits remains troubled, as demand for services remains high and many nonprofits emerge from the pandemic financially hobbled.

Fifty-eight percent of nonprofits reduced their services last year, according to the report, and 49% cut operational costs. Thirty-eight percent drew down their reserves, and 31% laid off or furloughed employees.

The findings are based on responses in February from 163 leaders of nonprofits that receive at least one grant from foundations that give $5 million or more annually. Annual expenses for the nonprofits studied ranged from about $100,000 to $88 million, with a median of $1.5 million.

The authors caution that the nonprofits in the study tend to be more financially secure than those that do not receive grants from large foundations. The National Council of Nonprofits has compiled data from across the nation, which makes clear that many charities, especially the smallest ones, remain under heavy financial stress.

Some types of nonprofits were hit much harder than others. For example, 15% of museum directors say their institutions remain at risk of closing permanently , according to a recent survey by the American Alliance of Museums. That translates to as many as 5,000 museums nationwide that are still in danger of closing.

A major concern raised by the Center for Effective Philanthropy study was the widespread disparities in how nonprofits led by women and men were treated by foundations last year.

For example, 25% of women leaders said some or all of the foundations that support their organizations provided new multiyear grants, compared with 46% of male nonprofit leaders. Thirty-three percent of female nonprofit leaders said that most or all foundations discussed future grant-making plans with them compared with 56% of male nonprofit leaders. And 15% of women said most or all foundations allowed them to shift the goals of their current grants, compared with 28% of men.

Buteau said the data doesn’t reveal the reasons for those differences, but one factor could be that some foundations are less likely to trust women than men. “Foundations may want to reflect on their practices and the consistency of their practices,” Buteau said.

The data shows a mixed picture for nonprofits that primarily serve people of color. For example, charities serving Asians saw somewhat lower rates of unrestricted funding from donors than other groups, but Buteau noted that the study didn’t find evidence of such disparities affecting nonprofits serving Black or Hispanic people.

While increased support from foundations and other donors was important, nonprofits and their advocates credited the lobbying push that made nonprofits eligible for forgivable Paycheck Protection Program loans as the most important factor in keeping nonprofits afloat through the pandemic.

Nonprofit advocates credit the lobbying done on behalf of charities for ensuring that nonprofits would be eligible for the program.

“It was really the PPP loans that saved so many nonprofits,” said Tim Delaney, CEO of the National Council of Nonprofits,.

Dan Cardinali, CEO of Independent Sector, agreed on the importance of that lobbying effort and the PPP loan program.

Citing statistics from the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University in Grand Rapids, Mich., Cardinali said the PPP program saved 4.1 million nonprofit jobs.

”It was not a natural sensibility on the White House’s part to include nonprofits,” Cardinali says. “They’re always a little shocked when we mention how large a part of the work force they are.”

Cardinali said the PPP program was “really clunky” for nonprofits to tap into because it was designed more for businesses. He said it’s an example of why his organization is pushing for the creation of a new Office on the Nonprofit Sector in the White House — to help make sure important policies are designed with nonprofits in mind.

Other advocates agreed on the importance of forgivable PPP loans to nonprofits.

“The PPP loans were hugely helpful,” said Jim Klocke, CEO of the Massachusetts Nonprofit Network. “Now organizations must find new revenue to replace the PPP loans.”

The report by the Center for Effective Philanthropy, along with the people interviewed for this article, make clear that nonprofits still have a rough road ahead. The demand for services remains high, and many former nonprofit workers are still unemployed. Also, nonprofits continue to struggle with how to resume events, especially in-person ones, that were major sources of revenue before the pandemic.

“Nonprofits are not through this crisis,” Delaney said.

And there remains the question of whether grant makers will continue to be flexible with grantees. Delaney said nonprofits’ performance during the pandemic should convince foundations and other donors that there’s no need to revert back to the old ways of doing things.

“I hope they saw that nonprofits earned their trust and spent the resources appropriately,” Delaney said.

Suzy Lee, director of nonprofit strategy and engagement at Forefront, a membership group that represents charities and grant makers in Illinois, said it’s hard to know how many nonprofits might have gone out of business since the pandemic struck or how many that idled operations may never reopen.

Nonprofits, especially smaller ones, typically don’t issue news releases when they cease operating; they often just go away quietly with little notice except by the people they served.

Lee said the number of nonprofits paying membership dues to her organization is “significantly down,” but that could be due mostly to belt-tightening rather than nonprofits ceasing to operate. Lee noted that her own organization scaled back its memberships to cut costs.

Shannon McCracken, chief executive of the Nonprofit Alliance, a national advocacy organization with nearly 300 members, said she’s not aware of any nonprofits in her network that have failed, which she attributes to strong donor and government support as well as smart, strategic cost-cutting by nonprofits.

McCracken said that anecdotally she’s hearing from members that giving continues to hold up well so far this year despite fears that donors would pull back as the pandemic faded.

Still, anxiety remains high among many nonprofits.

“Everybody is kind of waiting for a shoe to drop,” McCracken said. “How long will donors continue to sustain this level of generosity?”

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This article was provided to The Associated Press by the Chronicle of Philanthropy. Dan Parks is a senior editor at the Chronicle. Email: dan.parks@philanthropy.com. The AP and the Chronicle receive support from the Lilly Endowment for coverage of philanthropy and nonprofits. The AP and the Chronicle are solely responsible for all content. For all of AP’s philanthropy coverage, visit https://apnews.com/hub/philanthropy.

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