Perfect Storm

During the past two months, I’ve read several articles foretelling a second wave of the 2008-2009 recession. Remember the recession? The one we were reluctant to call when it began and enthusiastic to announce as “over” the moment the vaguest of signs were observed? That one.  

According to some economists, a second wave of devastation—or “double dip”, as it is being hailed is likely to occur.  As you might imagine, if the economy takes another dive the scenario is likely to be an exacerbated version of Dip #1 (worsening unemployment, decreased housing prices and sales, increased federal deficit, etc.) For the nonprofit sector, the effects were widespread:

  • State and Federal funding delays and reductions: Around the country, nonprofits report delays in payments to nonprofits for services, despite contractual obligations to pay, forcing nonprofit organizations to float programs from often meager reserves, unpredictable (and dwindling) cash flow, and credit lines. A recent survey by CT Association for Nonprofits indicted that a third of Connecticut’s nonprofits experienced reductions in government funding, donations, and investment income. Not surprisingly, 55% also reported reductions in workforce.
  • Decreased private fundraising. The Nonprofit Times notes that there has been an overall drop in charitable donations. Donors are worried about their own finances, and are not as easily parted from their cash. Moreover, foundation assets decreased by 22% in 2008, eliminating approximately $150 billion in potential funding in one fell swoop, according to the Foundation Center.
  • Increased demand for services:  Across the country, the demand for services has increased due to the financial climate, and outpaces available resources. CT Nonprofit’s survey reports that 82 percent of Connecticut’s nonprofits experienced a rise in demand for services DESPITE needing to reduce their workforce. (See “decreased funding” above.) In my own organization, we are also seeing people presenting with layers of needs. How engaged can a parent of a challenging preschooler be when there isn’t enough food on the table? Can a victim of rape afford to focus on her recovery when she is worried about having fuel to keep her family warm this winter?

Recession Round #1 had a devastating effect on nonprofit organizations, and more of the same is expected :  Less state and federal funding. Fewer charitable contributions. Larger numbers of people needing services. Recession Round #2 may be the Perfect Storm for the nonprofit sector.

Robyn-Jay Bage, M.P.A.
Nonprofit CEO and Assistant Professor of Management

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One thought on “Perfect Storm

  1. It would be interesting to see what condition nonprofits were in with respect to reserves prior to the recession. Right now, nonprofits in our area are asking local governments to partner with them on grant applications because they do not have the cash flow to handle projects on a reimbursement basis. While local governments may have the resources to do this, the fact that conditions have deteriorated to this level should greatly concern finance staff like myself.

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