2018 NFF State of the Nonprofit Sector Survey Results Warn of Danger

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It is always interesting to read the Nonprofit Finance Fund State of the Nonprofit Sector Survey. For those who work in the sector the findings usually are not terribly surprising, but they do provide important validation and documentation of what we already know. But this time, some of the data is alarming. 

Without exception, every single person in our country benefits from a strong and vibrant nonprofit sector in some way. To begin with, nonprofit employees make up about 10 percent or more of the US workforce, significantly impacting our country’s economy. Nonprofits also enhance the livability of our communities by supporting the arts and environment. Still others ensure the safety and well-being of individuals, families, and neighborhoods. Quite literally, nonprofits save lives every day.

Imagine living where there are no clean lakes or rivers, no museums, no theater, no music, and no one to stop the abuse of children, the elderly, or people living with physical or mental challenges. What if there were no one to assist people in need obtain food, shelter, much less maintain their health. That is exactly what will happen without nonprofits. They are a vital asset in every community across our country.

If not having any of these benefits, programs, and services seems unlikely, consider a 2010 study conducted by the Government Accountability Office (GAO). That study noted that federal, state, and local governments increasingly rely on hiring nonprofits to deliver public services. Yet the report found that governments routinely do not reimburse nonprofits for the full costs they incur, including the primary focus of the study: payment of indirect costs. Consequently, “nonprofits often struggle to cover the costs of doing business, which raises concerns about the long-term financial health and durability of the sector and its ability to effectively deliver federal services and programs.” GAO’s report concluded by warning that such gaps in reimbursing nonprofits their indirect costs “potentially limit the sector’s ability to effectively partner with the government, can lead to nonprofits providing fewer or lower-quality services, and, over the long term, could risk the viability of the sector.” 

The Nonprofit Finance Fund (NFF) 2018 State of the Nonprofit Sector Survey includes some unsettling results relative to the GAO prediction. The percentage of nonprofits that identified financial sustainability as their major concern almost doubled from 32 percent in 2015, to 62 percent in this most recent survey. The challenge of being paid for the full cost of services tripled from 19 percent to 57 percent. The need to raise unrestricted revenue almost tripled as well. Still, the number of nonprofits reporting being paid less than 10 percent for indirect costs, despite laws to the contrary, remains virtually unchanged, at between 49 and 60 percent, depending on whether grants or contracts are with the federal, state, or local government.  

Top Nonprofit Operational Challenges

Nonprofits providing quality programs and services needed by the public and governments should not have to exist in a constant state of crisis, struggling to survive. Doing so hurts the economy, our communities, and most importantly, vulnerable people who need protection and support to live. Unfortunately, according to the NFF survey data, the ability to continue providing these essential programs and services is a rapidly increasing concern for nonprofits.

For this very reason, the National Council of Nonprofits has long encouraged, advocated for, and supported government-nonprofit contracting reform efforts, including the proper implementation of the OMB Uniform Guidance. Contracting reform is not just about streamlining and simplifying grant/contracting systems, but rather is a method to strengthen the viability of the sector by ensuring its sustainability. Without any additional government funding, it is about freeing up money that is currently being wasted so it can be used fill these funding gaps instead. Contracting reform is about ensuring nonprofits are paid fairly, covering the actual costs incurred for the services provided.

Last year, Illinois state government saved $236 million as a result of contracting reform efforts developed through a highly collaborative partnership between the state government and Forefront, the state association of nonprofits, and its members. Maryland just enacted legislation to ensure it pays nonprofits fairly. The same can, and should, be done in every state, before it’s too late.

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