It could be a while: nonprofits and state funding crises

Nonprofits should expect a long wait for state governments to boost spending for social programs, according to a new report.

With continued high unemployment and the end of Federal stimulus programs, states will have cut a total of $38.5 billion from only three programs—social services, Medicaid, and education—in FY 2011 and 2012.

Even when employment rebounds, it will take several years for state budgets to recover, say the authors of The Public Finance Crisis: Can Philanthropy Shoulder the Burden? It will take at least a year for the benefits to translate to more taxes for state budgets, and another year or more for them to be reflected in state expenditures.

The report, developed by international fundraising and philanthropy consulting firm Changing Our World, Inc., analyzes the dramatic changes in public funding affecting the nonprofit sector in the recent years of the recession.

In the Mid-South, Tennessee had a total budget gap of $1 billion and Mississippi had a $716 million budget gap in FY 2011. Arkansas is one of only a handful of states in the country not experiencing budget shortfalls.

To make up for the economic loss from state budgets, private giving to nonprofits would have had to increase by 30 percent in 2011 and by 60 percent in 2012. Clearly private grants and donations haven’t compensated for state budget crises. Between 2008 and 2010, annual private giving fell by $13 billion. Foundations, whose assets and revenues are largely tied to investment portfolios, lost $150 billion in assets and reduced giving by 13 percent during the recession.

The report provides an excellent timeline of the recession’s impact on nonprofits and an in-depth analysis of the various government effects on nonprofit revenue flows and strategies. It discusses the drying up of the Federal financial stimulus, how budget cutbacks affect various nonprofit sectors, and what it would take to relieve the shortages through private giving.

We’d like to think this research could raise awareness among government leaders about the nonprofit effects of state budget problems, given that nonprofits comprise eight to ten percent of the workforce in most states. The effects of the downturn on the sector are unprecedented, and the authors make a convincing case that major shifts in nonprofit funding are unavoidable.

Unfortunately they only offer the same old advice to nonprofit managers to diversify funding sources, measure impact, and hire volunteers. It’d be nice to see an overlay of state and Federal tax structure revision strategies on the state-nonprofit finance matrix, especially since so much nonprofit advocacy is now focused on maintaining tax breaks for the wealthy to preserve charitable deductions.

The Alliance has just released Downstream and In Demand III, our updated report on how the recession has affected Mid-South nonprofits. We’d love to hear your comments on The Public Finance Crisis: Can Philanthropy Shoulder the Burden? and your own experiences with government funding.

One response to “It could be a while: nonprofits and state funding crises

  1. Pingback: Alliance publishes new report on nonprofits and the economy | npexcellence

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