Socializing Failure – Privatizing Greed

Part 2 - Doing More With Less (or the Perilous State of Nonprofits)

In Part One I discussed the cost of the government bailout of failed financial giants that faced bankruptcy as a result of their own greed, and how these very same companies were now poised to pay out billions of dollars in bonuses to the executives who helped bring them to the brink of disaster. Part one also focused on the billions of dollars of tax money used to bail out GM and Chrysler to save them from bankruptcy due to their failure to produce reliable cars that the American public wanted.

While our tax dollars were used to bail out these failing private corporations that overpaid their executives even as they led them blindly over the cliff toward bankruptcy, we continue to ignore the economic disaster that is enveloping nonprofit organizations all across America. Thousands of these organizations that provide the supports that millions of Americans need to help them meet their basic needs or to achieve their goals, while stabilizing communities and providing millions of jobs, are facing economic ruin just as there is increased demand for their services.

According to the Urban Institute, in 2004 nonprofits accounted for 5.2% of total GDP, 8.3% of all wages and salaries paid in the US and almost 10% of all jobs. Despite its large role in the US economy, the government has turned a blind eye to the impact of the current economic slowdown on these nonprofits, forcing thousands of layoffs and huge service cutbacks impacting every community in all fifty states.

A recent report by the Mercadien Group of Princeton New Jersey, a private financial services company, titled 2009 Nonprofit Outlook Survey , paints a dim picture of the condition of the nonprofit community as the impact of decreased charitable and government support begins to be felt across this sector. Their survey of New Jersey nonprofits found that “nearly 67% of the respondents projected their revenues to decline or stay the same… more than a quarter of the respondents projected a decline in revenue between 3%-20%

They found that declining revenues had an immediate impact on employment rates, with one-quarter of these surveyed expecting a decline in staffing. For the most part, nonprofit employees come from the communities that they serve and they typically work for lower wages than equally skilled workers in private industry. Often, when workers are laid off in nonprofits, this reduction does not result in a proportionate reduction of the workload, rather the workload is redistributed among the remaining staff. To this end, the study found that “many organizations anticipate to reduce staff levels to cope with the current economic events and manage financial results, often at the expense of maintaining quality work/life balance for those staff that remain after the rebalancing.”

Respondents in the Mercadien study were asked to rate the most important issues for 2009 for their organizations, and the results are very telling abut the current state of nonprofits. A not so amazing 84% rated “downward pressure on contributions, grants and similar revenue streams” as their number one concern. The second highest rated concern highlighted by 67% of respondents was “costs rising faster than revenues.” Coming in a not too distant third was “lower quality of client services than desired,” and the fourth most stated concern was “unstable, insufficient or outdated technology.” While this increasingly dire picture is coming into focus, bankers who ran to Washington with their hands out are preparing to pay out record bonuses to their executives projected to be in excess of $144 billion. What does this say about the current state of our priorities in this country?

An article in the September 2009 edition of the Illinois Business Law Journal, by Zina Kiryakos reported on several recent studies including a report by the Nonprofit Finance Fund (NFF). Of the 1,100 nonprofits it surveyed, the NFF found that 93% of those providing essential services expected an increase in demand for these services, while 31% of those organizations did not have more than one month’s operating cash on hand. Kiryakos further reports on a survey of 2279 nonprofits by the National Council on Nonprofits that found while demand for services is increasing, these nonprofits are faced with higher costs and declining revenues.

According to Kiryakos the Johns Hopkins University “Listening Post Project,” found that 40% of the nonprofits it surveyed “as well as a third or more of child-serving and elderly serving nonprofits indicated their fiscal stress to be ‘severe or very severe.’” The author goes on to state that “overall, the statistics indicate that the ever growing requests for service from their patronage are weighing heavily on nonprofit resources, which are further exacerbated by the reduction in donations and government spending.”

In other words, just as more and more people are thrown out of work, or lose their homes to foreclosure, the very nonprofit organizations that they turn to for help are being forced to reduce their staff and their services due to decreasing revenues. But where is the government bailout for this sector of the economy? The answer, “you’ll just have to learn to do more with less.” Just across town, or on the other side of the tracks, government bails out the big spenders, guaranteeing record bonuses. We are told there is nothing that can be done to prevent these huge bonuses while the taxpayers subsidize these wildly extravagant lifestyles for bankers who continue feeding at the public trough. Just wait for the economy to pick up again. After all, better days are just around the corner. Better days for whom? Could it be that the financial industry contributes hundreds of millions of dollars to support political races, while nonprofits are barred by federal law from doing this? Why would a politician bite the hand that feeds it?

Perhaps the backlash is coming. Earlier this month the former CEO of Goldman Sachs, Jon Corzine, was voted out of office in New Jersey. And it seems that if the majority party in Washington does not begin to take heed of the needs of ordinary Americans, instead of rewarding their campaign contributors, they may be hanging out at the unemployment office with their constituents come next election.