Connecting the dots between the health of nonprofits and the health of communities

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For the past 7 years, the Nonprofit Finance Fund has surveyed nonprofits to learn about their financial health. The data reported in the 2015 State of the Sector survey focus on nonprofits, but also give us a look at the well-being of individuals and communities, because when charitable nonprofits are too strained to meet community needs, it signals that individuals and communities are strained, too. A new question added to the survey in 2015 highlights that the steady increase in demands on charitable nonprofits have left many individuals without services they need. So while the 2015 State of the Sector survey offers useful data about the current financial health of charitable nonprofits, the report also serves to connect the dots between the “state of the sector” and the state of individuals in communities who receive services from charitable nonprofits.

Reinforcing that the recovery for Wall Street, and even Main Street, has not yet trickled down to charitable nonprofits, the NFF notes: “Recovery of the U.S. economy hasn't addressed the systemic and perpetual funding challenges facing nonprofits. While we are seeing some positive economic indicators, in many cases nonprofits are still hampered by insufficient funding and a lack of investment in long-term sustainability.”

Achieving long-term financial sustainability was reported as the #1 financial challenge for nonprofits participating in the NFF 2015 State of the Sector survey. What is contributing to this challenge? For anyone aware of the severity of government funding cuts all around the country it is no surprise that the vast majority (76%) of nonprofits surveyed by NFF reported an increase in demand for their services for the seventh year in a row. It is also not surprising that for the third year in a row a majority (52%) of nonprofits reported they were unable to meet this rising demand. The 2015 State of the Sector survey asked nonprofits what happens when the nonprofit is unable to meet demands for its services? The predominant answer was not: “We approached several private foundations that made up the difference” or “We tapped our reserve fund to provide services. Rather, 71% of nonprofits that were unable to meet demands reported candidly that in 2014: Clients’ needs remain unmet.”

For each of the past 7 years the 2015 State of the Sector survey has offered data illustrating growing demands and also how nonprofits are unable to keep up with increasing social challenges. Other reports, some authored by fundraising vendors, have trumpeted that philanthropic giving is finally reaching pre-recession levels. But tell that to the millions of individuals still without jobs, or homes, or opportunities to lift themselves from poverty, and they will point to their lives as examples of how a slight rise in giving hasn’t helped them shake off the long-lingering effects of the recession. And for nonprofits racing as fast as they can to address pressing social challenges, a slow rise in philanthropic giving doesn’t help with the quite common reality that even when able to provide services, nonprofits too often do not recover the full costs of providing those services to individuals and communities. Failing to recover their full costs is a significant factor in failing to achieve long-term financial sustainability.

Prior years’ NFF data show that historically nonprofits have been reluctant to turn people away or cut services, but the NFF data reported in 2015 illustrate that indeed the majority of nonprofits experiencing an increase in demand for their services simply did not have the capacity in 2014 required to serve all potential clients. What can be done to extend the reach of charitable nonprofits so they can provide services to all those in need?

We believe that full cost recovery and nonprofit advocacy are two solutions

To advance their missions, charitable nonprofits must be financially sustainable, but sustainability is threatened by lack of full cost recovery. Accordingly, the National Council of Nonprofits has adopted a strategic initiative to educate and advocate for full cost recovery, particularly when nonprofits are delivering programs and services on behalf of governments. Additionally, to help nonprofits adapt to fast-changing policy environments, including such ill-conceived proposals as capping charitable deductions (see past issues of Nonprofit Advocacy Matters), the National Council of Nonprofits continues our efforts to educate and encourage nonprofits and board members to embrace - rather than run away from -  advocacy (such as through the Stand For Your Mission campaign).

Since 2009 the National Council of Nonprofits has strategically focused on government/nonprofit contracting reform and its link to nonprofits’ financial sustainability. We believe that a more sustainable future lies ahead if your nonprofit learns to #OwnYourOwnCosts and that knowing the actual costs to provide programs and services is only the first step. Equally important is for nonprofit staff and board members, as well as donors and grantmakers, to advocate for your nonprofit’s rights to receive reimbursement of its indirect costs when receiving payments from governments, as well as to receive the full costs of services provided without government dollars. (See this post by Henry Berman, CEO of Exponent Philanthropy, urging grantmakers to incorporate “overhead funding” into their grantmaking practices.)

Join us in connecting the dots

By joining together with other nonprofits as a member of your state association of nonprofits, you will stay up-to-date with developments that affect your work, such as those in your state and at the federal level that are essential to your nonprofit’s operations; information. You will gain access to fresh insights about the new federal rules addressing indirect costs, as well as educational programs that help your nonprofit identify and allocate costs properly. And you can participate in advocacy efforts that champion the rights of your nonprofit to advance its mission. Most importantly, you will be part of a network that exists to connect the dots between your own work and the well-being of individuals and communities.  Just as protecting and enriching people, places, and the planet matters to you, protecting and enriching the sustainability and effectiveness of charitable nonprofits matter to your state association of nonprofits, and to the National Council of Nonprofits. Learn more about the benefits of joining your state association of nonprofits and join us in our efforts to increase the financial sustainability of charitable nonprofits.

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