By Anjali Deshmukh
Abbreviated version; originally appeared on Social Currency Blog (Nonprofit Finance Fund)
March 25, 2013

Since the end of the 2008 financial crisis, the US has seen faltering signs of economic recovery. But underneath these glimmers of improvement are the 46.2 million poverty-stricken Americans that have seen little change. With poverty at record levels, our nonprofit safety net and the 10.7 million workers who sustain it are shouldering an unprecedented responsibility. Nonprofit Finance Fund’s 5th annual survey captures this economic reality through the voices of 5,983 nonprofit leaders. Here’s an overview of our national results.

High Community Need

While organizations show slight signs of financial improvement, this is also the 5th straight year in which the majority of respondents reported increases in service demand. 78% reported an increase in demand this year, and about half of respondents weren’t able to meet that demand. Organizations that work on the front lines saw even greater need, with 85% of respondents that served low income communities reporting demand increases and 63% unable to meet that need.

While we at NFF strongly encourage nonprofits to always balance money and mission, the reality is that coping with demand can choosing not to serve people in need. Says one respondent: “Homelessness is on the rise and youth homelessness is increasing daily. In order to maintain the integrity of our program, we must turn students away once we reach our maximum capacity. It is a challenge daily to know that you may be leaving a teen on the street due to funding limitations.”

Uncertain Government Funding

Meanwhile, government support continues to falter. Of the 47% of respondents with state/local funding or contracts, 86% said that funding failed to pay the full cost of services. On top of that, payments were delayed for more than half of respondents. “The social safety net has been gradually chipped away for decades,” one respondent noted. “Non-profits, private donors and volunteers simply cannot fill the yawning chasm between services needed and government support currently provided. We… are strained beyond capacity. The neediest families continue to need more, while further cuts in government support are inevitable.”

To fill the revenue gap caused by payment delays, organizations tap into reserves, draw on lines of credit, cut staff costs, reduces services, and more.

“Non-profits, private donors and volunteers simply cannot fill the yawning chasm between services needed and government support currently provided. We… are strained beyond capacity. The neediest families continue to need more, while further cuts in government support are inevitable.” –Survey Respondent

Chronic Financial Stress

Under these shadows, nonprofits continue to carry out their missions, making difficult decisions to keep their heads above the water line. While more organizations are breaking even, fewer organizations are reporting surpluses: 44% reported surpluses in 2010, compared with 40% in 2012.

This slight trend towards a state of break-even can seem like things are better than expected. But constantly teetering on the edge of financial safety has implications: sudden costs or unexpected losses—like a broken boiler, delayed payments, or an economic downturn—can send organizations into a tailspin.

Short-Term Thinking

Chronic financial stress doesn’t just cause problems when an emergency strikes. It can fundamentally change the way leaders think, contributing to a reactive mindset that makes long-term planning impossible. “It’s a rush to open the mail every day to get payments to the bank,” says one survey respondent.

This kind of reactive thinking is also mirrored in mission: nonprofits are forced to address immediate suffering—providing a bed for the night or a meal for a hungry child—instead of putting resources towards long-term solutions, such as preventing homelessness or tackling the root causes of hunger.

Says one survey respondent: “Our community cannot afford even one more homeless family; it is more proactive and cost-effective to focus on prevention than to deal with the trauma and social consequences once a family becomes homeless. The cost of homelessness for one person can exceed $37,000 per year with ER visits, public assistance programs, law enforcement and more… Comparatively, the preventative services provided through our agency cost far less; on average, $400 resolves a family’s rent and/or utility crisis.”

“The cost of homelessness for one person can exceed $37,000 per year with ER visits, public assistance programs, law enforcement and more… Comparatively, the preventative services provided through our agency cost far less; on average, $400 resolves a family’s rent and/or utility crisis.” –Survey Respondent

So how do we make space for both the short term and long-term thinking?  Nonprofit leaders are taking a hard look at how their organizations do business, recognizing that systemic change is critical to fully meet demand and achieve sustainability. They are innovating to increase efficiency, access new kinds of funding, evaluate impact, and work collectively to tackle social problems. In the next posts, we’ll look at how organizations are getting closer to sustainability AND take the sector to the next level of social impact.