The Nonprofit Recession is still here - A Window for Social Finance?
As a consultant to the non-profit sector in Toronto, I have seen an increasing number of financial challenges faced by non-profit organizations over the past year. I believe these challenges will encourage more organizations to rethink their financing models and encourage them to look for new options.
Of course, the recent recession has had an impact on many charities and nonprofits. But while the Bank of Canada declared the recession over last summer when the economy stopped retracting and jobs have begun to return in some parts of the economy, is the recession really over for the nonprofit sector?
Probably not, according to a recent survey that I conducted on behalf of the Ontario Trillium Foundation. Even tougher financial times may be ahead in 2010 and 2011 for many nonprofit organizations, especially larger organizations that rely heavily on government grants and contracts. The challenge ahead could be viewed with fear and trepidation. It could also be seen as a window of opportunity for the Canadian social finance movement to engage new allies that have not been involved in the past.
The Ontario Trillium Foundation survey looked at how nonprofits in Ontario were being impacted by the recession and how they were planning for the future. As a researcher on the project, twice in the past year, I spoke to a hundred CEOs and Board members across Ontario in all sectors including the arts, the environment, health and social services. Even last fall, many of the effects of the recession were only just beginning to be felt on organizational budgets and operations. The survey revealed that many organizations would face difficult decisions in the coming year. If a financial crunch is ahead for many organizations, the social finance movement has an opportunity to raise the awareness of policy makers, funders and government.
Even though the recession is technically over, there are many challenging financial issues facing nonprofits and charities in the year or two ahead. While overall charitable donations began to decline in 2008, it is not clear yet that donation levels will recover to pre-recession levels very quickly. Many organizations surveyed in the fall noted that donations had not bounced back to pre-recession levels and in, fact, were lower. About 65% of organizations had reported a decline in overall funding in 2009 compared to the year before, and 30% reported a decline in corporate sponsorship dollars. Smaller organizations, more reliant on donations from individuals or local corporate sponsors, were particularly vulnerable in 2009. The largest non-governmental funder of nonprofit agencies in Canada, the United Ways, are still announcing campaign results and allocation levels, and it appears that while most United Ways will reach their goals this year, these levels were often flat lined from 2008.
In the social sector in particular, the demand for services continues to rise.
- 77% of human and social service organizations surveyed said that the recession was having an impact on their programs and services;
- Youth shelters, services for the homeless, seniors organizations, family counseling centres, and food security organizations face growing pressures in many communities in Ontario;
- Food banks reported an average 25% increase in demand across Ontario. With unemployment remaining high.
Pressures on social support systems could continue in the coming year, especially in centres hit hard by the recession.
Balancing the budget has become a complicated juggling act for many nonprofits. Unionized nonprofits are facing additional salary pressures. Rising fuel costs in 2010 are a potential challenge for many nonprofits that have significant transportation costs. Competition for foundation and corporate sponsorship dollars continues to be intense, as we did not see many closures or mergers of nonprofits during the recession. Some nonprofits have had to increasingly dip into reserves or lines of credit to cover costs.
Since the last big recession and subsequent government cuts of the 1990s, the sector has changed. It’s become larger and far more competitive (there are simply more organizations competing for funding dollars and donor attention), and many day-to-day costs have risen. With municipal, provincial and federal budget deficits ahead, the large number of nonprofits that rely on government grants and contracts must begin to think about how they will be impacted.
Considering the challenges ahead, I think an openness to new models of financing may appear from sectors that have to date, been unaware of the social finance movement or its potential to change the sector. At the social policy level and among Boards of Directors of organizations there will be new allies seeking out ways to sustain and grow their organizations. Many of the nonprofit leaders in Canada have a very vague idea of what social finance is or how the work of the social finance movement could revolutionize the way that social change work is conducted in Canada. A window may be opening, and the coming year may be the time to educate and engage.
Now is the time for the social finance movement to put forth its value proposition to established sector leaders and some of the largest and most influential nonprofits in Canada - the YMCAs, Community Living organizations, United Ways, as well as community foundations and government funders. Many of these organizations are not as involved in the dialogue on future of innovative financing models as they could be.
Sometimes change only happens when there is difficulty or challenge involved. The costs of not changing begin to outweigh the fear of change. The coming year ahead has the opportunity to bring organizations together to create systemic change in the way nonprofits think of funding in Canada.
