Nonprofits' Outlook After A Year Of Living Dangerously

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Nearly a year after the global financial crisis brought Wall Street to its knees, a banking comeback may be underway, with several major U.S. banks reporting sizable profits for the second quarter of 2009. Though economic news remains rather gloomy in the main, other fragile signs of recovery can be found here and there.

But for New York City’s nonprofit sector—the city’s largest private employer —there is no recovery in sight. Last fall, as the stock market crashed, charitable giving declined for the first time since 1987, when another major stock market crash occurred. Meanwhile, New Yorkers hurt by the deepening recession pushed demand for social services provided by nonprofits to new highs.

A survey of nearly 250 executive directors of New York City human services nonprofits, conducted in June by the Human Services Council of New York City and Baruch College’s Center for Nonprofit Strategy and Management, found that 80 percent of the organizations surveyed had lost at least some private funding in the last year. That survey, to be released in full on September 9, also found that two-thirds of respondents had seen decreases in their public funding.

It's a follow-up to an earlier report, conducted in January 2009 as part of Baruch and the Human Services Council’s annual survey of the city’s nonprofit executives, in which 85 percent of respondents reported seeing increased numbers of clients in 2008.

But if 2009 has been rough, the outlook for nonprofits in 2010 and beyond is even worse. Foundations are expected to reduce grantmaking even further, and drastic cuts to city- and state-funded human services programs are widely expected.

“We have a perfect storm,” said Michael Clark, executive director of the Nonprofit Coordinating Committee of New York. “We have shrinking revenues and then we have rising demand, so it’s about as bad a bind as you can be in.”

The new normal, part one: Lower funding

When the markets crashed in the fall of 2008, U.S. foundations lost about one-quarter of their assets, on average. In response, roughly two-thirds of all foundations nationwide cut their charitable giving in 2009. According to the Foundation Center – a New York City-based philanthropy hub with international reach – overall foundation grantmaking will decline by as much as 13 percent this year.

Reliable data on New York City-based foundations is hard to come by, but Steven Lawrence, senior director of research at the Foundation Center, suspects that the city’s foundations are struggling more than others across the country. “Given the fact that the financial services sector was at the heart of the crisis and is at the heart of wealth generation for New Yorkers, we expect that there will be a disproportionate effect on New York City area foundations,” said Lawrence. “It’s going to be a more challenging time for New York City area nonprofits than for other cities.”

As the recession deepened, corporations feeling the pinch were forced to cut costs – and donations. Some Wall Street firms, major donors in the past, closed their doors or were acquired by other firms, leading to sudden shortfalls in charitable giving. Individual investors with diminished stock portfolios also reduced their donations.

“A lot of people said, ‘under other circumstances we would’ve given twice or three times as much, but we’re not we’re not certain where things are going to be, and we have a lot more people asking,’” said Harvey Lawrence, president and CEO of the Brownsville Multi-Service Family Health Center. “These are folks who, if they gave $5,000 this time, would’ve originally given $25,000. That’s the kind of difference the economy has made.”

So far, city nonprofits have not seen significant cuts to state and city government contracts. But a variety of other problems, such as longer payment delays from government for publicly-funded programs, reduced or withdrawn bank credit lines, and increasing operating expenses – especially employee healthcare costs – have taxed nonprofits’ cash flow at time when many can least afford it. “They have thinner cash flow and less reserves than they’ve had before—less reserves than are healthy for an organization,” said Jack Krauskopf, director of the Baruch College nonprofit center that co-sponsored the study to be released next week.

A Nonprofit Finance Fund survey released in March found that more than one-third of respondents in New York state had only enough operating cash to cover one month of expenses. Another 30 percent of New York respondents had under three months’ worth of cash on hand. “The liquidity and funding environment is so much more dire than usual,” said Kristin Giantris, the NYC-based vice president of the northeast region of the Nonprofit Finance Fund. “Organizations’ valleys are longer and deeper.”

The new normal, part two: Spiking demand

As unemployment in New York City continued to increase into the first half of 2009, nonprofits throughout the city – especially those providing emergency food assistance, foreclosure and eviction counseling, and workforce development – saw demand for their services grow by leaps and bounds. Despite receiving increased funding from the federal stimulus program, the Food Bank For New York City has struggled over the past year to stay ahead of the growing demand for food. “Our member organizations are still turning people away,” said

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