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Oct 12, 2016

Charitable Giving Not Keeping Up with Demands on Nonprofits

My favorite source of information on the health of the nonprofit sector is the annual survey conducted by the Nonprofit Finance Fund out of New York City.  This annual survey provides an excellent profile of nonprofits’ opportunities, challenges, and aspirations. The respondents are well diversified across sectors, with human services nonprofits accounting for about one-third of the 5,000 respondents..

The latest survey reports limited progress since the 2008 recession.  Over 80 percent of nonprofits continue to report increasing demand for their services while the number who report they can keep up with that demand hovers at 50 percent.

The government is partially responsible for this limited ability to meet demand for services.  Ohio respondents’ experiences are typical of the nationwide pattern.  Most nonprofits lose money on the government contracts they have.  Two-thirds of Ohio nonprofits are still paid ten percent or less for overhead by local governments, and about half are paid that amount or less on federal and state government contracts.  I doubt many successful businesses can remain efficient and innovative with under ten percent overhead, and nonprofits are no different.

Ohio nonprofits are recognizing the financial jeopardy that government contracts create.  Since 2012, 23 percent have reduced their reliance on local government contract revenue, 31 percent  have cut back on state contracts, and 43 percent have cut back on federal contracts.  Sadly, the majority do not yet have a plan to replace that revenue, leaving unmet the growing demand for their services.

The approach to addressing financial stress has traditionally been fundraising; however, charitable giving is also on a downward trend as a share of nonprofit revenues.  While Giving USA reports that Americans are giving more, that growth is not keeping pace with what nonprofits require to address demand for their services.

I believe the best data on the role of philanthropy in nonprofit finances is the IRS Statistics of Income which report what nonprofits actually received while Giving USA is based on econometric analyses and tabulations of tax data, economic indicators and demographics.

The IRS data has just been released through 2012 and the results are disappointing.  Charitable giving as a share of nonprofit revenues in the U.S. has declined each year since 2008, reaching down to just 21 percent of nonprofit revenues by 2012.

This decline has two causes: the inability of charitable giving to keep up and the decision by more nonprofits to develop new sources of earned revenue, often through social enterprise.  One indicator of increased social enterprise activity is that 2,356 more nonprofits reported unrelated business income in 2012 compared with 2008 and total annual unrelated business income was higher by $375 million.

This expanding involvement by nonprofits in social enterprise is being celebrated October 25 at the Center for Social Enterprise Development’s Nonprofit Sustainability Showcase.  That evening attendees will hear from ten local nonprofits who are using social enterprise to sustain their mission services.  And November 2 The Columbus Foundation will host an information session for nonprofits who want to start a social enterprise in 2017.  Both events are free but registration is required.

For ongoing information about nonprofits and social enterprise, follow us on Twitter, and Facebook,  check out our website, and sign up for our newsletters.

Allen Proctor, President & CEO

Center for Social Enterprise Development