Budgets / Fiscal Matters

National Council Special Report: State Budgets Threaten Nonprofits

As state governments across the country grapple with severe budget deficits, many are placing extraordinary burdens on nonprofits. On March 16, the National Council of Nonprofits released a special report, State Budget Crises: Ripping the Safety Net Held by Nonprofits, documenting how states are delaying contract payments to their nonprofit partners, slashing funds for essential programs, and imposing new fees and taxes on 501(c)(3) organizations. The report encourages leaders of governments, foundations, and nonprofits to work together to address challenges posed by state budget crises.

“Governments in Crisis”

When the Chronicle of Philanthropy published its forecast of the Top 10 issues nonprofits will face in 2010, it identified the nonprofit sector’s most pressing issue as “Governments in Crisis.” The Chronicle also identified the following trends: state spending cuts, the end of stimulus money, and county and local budget crunches, leading it to conclude that “more cash-strapped local [and state] governments may try to seek money from nonprofit groups.” The article quotes the President of the National Council of Nonprofits, who advised: “Leaders of nonprofits must get engaged in the policy process because this problem is not going away.”

State Budget Situations Continue to Worsen

At least 41 states have significant deficits in their current year budgets, according to a recent report from the Center on Budget and Policy Priorities. For example:

• New York is facing a budget deficit of $3 billion. The Governor declared New York to be "on the brink" of financial crisis.
• California recently released a budget forecast for the 2010-2011 fiscal year that projects a $20.7 billion deficit in the state's 2010-2011 budget. The Los Angeles Times offers a good summary of the forecast and its projection that state revenues will not rebound until 2015.
• In Arizona, a recent budget forecast predicts the state's economy will not recover for the foreseeable future. The state recently had to borrow money for the first time since the Great Depression, with the State Treasurer reporting, "Literally, the state is out of money."
• In New Jersey, the Governor recently declared a "fiscal emergency", allowing him to freeze spending to cope with a projected $11 billion deficit in the upcoming 2011 fiscal year.

Government Perspective

• National Conference of State Legislatures: “Forty-five states … will convene legislative sessions in 2010, and most will have to deal with another round of budget gaps. Thirty-five states currently project a cumulative budget gap of $55.5 billion in FY 2011, and 23 states project a $68.8 billion budget gap for FY 2012.”
  • This updated FY 2010 Tax Collection Report indicates that some states are starting to project modest revenue increases.
• National Association of State Budget Officers: “States are currently facing one of the worst, if not the worst, fiscal periods since the Great Depression. Fiscal conditions significantly deteriorated for states during fiscal 2009, with the trend expected to continue through fiscal 2010 and even into 2011 and 2012.”
• National Governors Association: “The long climb toward recovery of state fiscal health has not yet begun, and this has prompted urgent efforts to redesign and downsize government. In some instances, this has given states an opportunity to enact needed changes that have been avoided during prosperous times. But in other cases, it has prompted hard choices on the best way to ‘cut to the bone’ while doing the least harm to state competitiveness and quality of life.”

Nonprofit Perspective

The Nonprofit Quarterly has a new micro site, "The State We're In," that examines the variables "in individual state economies that most impact the work of nonprofits and the health of the communities they serve." The site offers profiles of conditions on the ground in more than a dozen states written by various nonprofit leaders. The unique perspective is a "must-read" resource for all nonprofit leaders.

What Nonprofits Can Do

These severe budget deficits have led some in government to resort to unauthorized actions – such as delaying their payments to nonprofits for contracted services – as well as attempts to impose new fees and taxes on tax-exempt nonprofits. It is essential for nonprofits to stay vigilant regarding their state budgets.