The Nonprofit Finance Fund (NFF) is a national community development finance institution that promotes and advocates for more effective social sector financing practices and policies. Their website states: “From affordable housing, to education and the arts, nonprofits provide the services our society relies upon. Yet what they rely on is a flawed, inequitable funding system that often impedes their ability to make a difference.”
Their critique of the method by which America’s charities are funded is spot on. Just as New Jersey’s system of financing public education is grossly inequitable because it relies far too heavily on local property taxes to provide a thorough and efficient education to our state’s children, our nation’s charities rely on a inequitable hodgepodge system, primarily dependent on the support of individual donors, that does not always provide financial resources based on the severity or magnitude of the need or the quality of the services offered or outcomes produced.
Unfortunately, all too often a charity’s ability to raise funds is a function of the quality of its development/fundraising and public relations/marketing staff, not metrics that clearly demonstrates that its programs are addressing a salient community need. Almost 80% of all non-government support comes from individuals/bequests, with the rest being split between corporations, foundations, fee for services and other sources.
The inequitable manner in which our nation’s charities are funded will be exaggerated as a result of the coronavirus pandemic. Print, online media and television will be replete with stories about the incredible heroic efforts of the frontline workers of various charities that are providing safety net services to those who need help during the pandemic. These stories will, by and large, be seeded by the staff of charities.
Those charities with talented staff and exemplary reputations will garner more media publicity and will supplement it by use of publications, newsletter or e-blasts designed to keep donors aware of the efforts being made by the charity to provide services throughout the crisis. Generally the better and more extensive the publicity, the more donations will be forthcoming from one’s donor base and the community-at-large. Stretched-thin charities that lack the resources to publicize their successes will get the short-end of the funding stick when it comes to donations from individuals.
The same patterns, by and large, will take place with regard to the securing of many corporate, foundation and government grants and non-repayable bank loans. Charities with highly professional staff will be able to prepare high-quality proposals and necessary application forms needed to secure grants and loans. Charities lacking staff or those that had to furlough staff, because of lack of operating reserves, will really be behind the eight ball when it comes to securing these funds.
It should be pointed out that some of these funding sources have program staff onboard and utilize volunteer panels to assist in the assessment of grant proposals, which allows them to much better evaluate the agency’s capacity to deliver the services for which they are seeking funding and to ascertain whether salient community needs are being addressed.
While some charities, such as soup kitchens, at-home providers of meals and food pantries are seeing a dramatic increase in the number of clients seeking food, many are seeing a significant decrease in the number of clients using their services because of sheltering in place. Charities that get reimbursed from the government based on the number of clients served, so-called fee-for-service payments, could be facing severe financial hardships unless they are able to get government to temporarily waive regulations and make accommodations in levels of service.
According to a recent March study of 465 nonprofits conducted by NFF, 60% were experiencing “destabilizing conditions that threatened long-term financial stability” and 70% said they had less earned income, i.e., sales of goods and services, ticket revenue or other fees.
The most troubling finding was that 50% of charities polled indicated that they were receiving fewer donations. The majority of the nation’s 1.5 million charities, which are key linchpins of our nation’s social safety net, just like many of America’s small businesses, do not have sufficient operating reserves to weather a multi-month interruption in their revenue flow. For many charities, the choice will be between continuing to pay their frontline staff and on-going operating expenses and spending money on communications with the donors. Those forced to reduce communications could see a further reduction in donations.
It is incumbent upon those who are confident that they can weather the coronavirus financial storm to step to the plate and help charities they know are doing outstanding work and could fold without support. This should include those who recently received an economic stimulus check, and have a job and want to do something meaningful in America’s fight against coronavirus.
There is no doubt that society will be very different after the coronavirus than before. There will be a major shake-up in the nonprofit sector—with a plethora of charities having to shut-down because they could not weather the financial tsunami the pandemic triggered. I really hope that some outstanding charities that quietly do their job in a cost-effective manner are not among those that have to close their doors because they were not well-known.
If you know of a charity like that, now is the right time to send them as generous a contribution as you can.
Irwin Stoolmacher is president of the Stoolmacher Consulting Group, which has worked with 100 charities in fundraising and strategic planning.