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Mar 14, 2011

Underpaid and Overworked: Nonprofits Are Willing, but Are They Able?

I just finished my Business First column for March and I am getting ready to be interviewed on WOSU’s All Sides with Ann Fisher at 10am tomorrow and participating on a panel at the Columbus Metropolitan Club on March 16. State budget cuts and how nonprofits can respond was on my mind for all three.

What Nonprofits Provide

Services

Some important numbers frame the situation. In Ohio, 1,862 nonprofits have contracts to provide services for the government, and 80 percent of those nonprofits have multiple contracts. Human services account for the majority of those contracts, while employment services and housing and shelter services each account for one-sixth. That tells me that nonprofits are a major delivery mechanism; without them, many state services would not be provided.

Employment

These nonprofits are uniformly spread out across Ohio: nonprofit employment is a significant share of employment in every Census Region in Ohio, ranging from a low of 7.5% in central Ohio to a high of 11 percent around Cleveland and Cincinnati. That tells me that anything that causes harm to nonprofits will harm employment throughout the stat

How Nonprofits are Financed

Some kid themselves that whatever the state budget cuts, philanthropy will step into the breach. Alas, philanthropy has never been able to step into a gaping hole. The IRS releases its latest Statistics of Income report on where nonprofits get their revenue. The latest year reported, 2007, showed contributions were 22 percent of total nonprofit revenues. The highest share contributions have ever been since data were collected in 1985 was 23 percent. Any thought that philanthropy can or will step into the breach to replace sizable government cuts is a pipe dream. These cuts will directly hit nonprofit finances.

Difficulties with Government Contracts

It’s not that the government has not been squeezing the nonprofit lemon already. The Urban Institute recently surveyed two thousand nonprofits to see what problems they already have with government contracts. 77 percent reported that government payments did not cover the full cost of providing the contracted services. Ohio ranked #8 in the proportion of nonprofits being underpaid. 56 percent reported problems with governments not paying on time. Ohio ranked #18 in the proportion of nonprofits facing this problem. And 82 percent reported problems with the complexity and the time required to respond to state contract RFPs. Ohio ranked #11 in this problem. This tells me that contracting with the government is a loser’s game.  We should be mighty grateful nonprofits are willing to put up with this.

How Ohio Nonprofits Have Coped with Government Budget Cuts

The big question is whether they remain ABLE to put up with this. In that same survey, the Urban Institute asked how nonprofits coped with the 2009 government budget cuts. Ohio nonprofits were more likely than their brethren nationally to have frozen or reduced employee salaries, laid-off employees, and reduced employee benefits. A significant share of Ohio nonprofits also drew on reserve funds and borrowed on lines of credit. Only 17 percent of the Ohio nonprofits actually reduced services to cope with government reductions. My read is that those efforts in 2009, combined with whatever they also had to do in 2010 has about emptied their ability to once again absorb the reductions without impacting services.

What This Means for the Future of Ohio Nonprofits

The other shoe will drop when the federal, state, and local governments make their next round of cuts. One question that gnaws in the back of my head is whether the nonprofits have done a service by masking the impact of government cuts on actual services the citizenry demands. Have their well-intentioned efforts allowed the call for deficit reduction to be overly abstract, without a sound understanding that deficit reduction means eliminating services they are now receiving?

In any case, the ability to buffer the impact of cuts is less. Nonprofits will face some choices they have tried hard to avoid: telling the government they cannot sign those contracts on the terms the government is offering, and then turning around and telling their clients that their services are ending. A hard reality will soon be confronting the nonprofit world and those who believe deficit reduction will not affect them and their neighbors.