COVID deaths decline, but nonprofits need help to survive

Amid the euphoric hopes of the COVID fading, a quiet obituary is in the works for the region’s nonprofit sector whose finances have been devastated by the demands of the pandemic.

“This predicted increase in nonprofit morbidity and mortality rates associated with the COVID-19 pandemic will not receive media attention commensurate with that of individual lives lost, nor likely to the coverage that will be given to large companies that are also at risk. “

This is the most recent report on the financial situation of the non-profit community in the region Greater Philadelphia Repositioning Fund, a common fund of philanthropic partners – including HealthSpark Foundation, the Philadelphia Foundation and the United Way of Greater Philadelphia and Southern New Jersey – which encourages and supports restructuring opportunities among regional non-profit organizations.

But first, a flashback.

Russell johnson, Chairman and CEO of HealthSpark Foundation, told the story of the 2015 bankruptcy of the largest nonprofit social service organization in New York City – FEGS. She shocked the non-profit sector and raised questions about the financial stability of organizations whose mission was to help the less financially stable. What was ultimately uncovered didn’t make anyone comfortable, Johnson recalls. Up to 40% of New York City nonprofits had no cash reserves, which meant organizations lived paycheck to paycheck, and around 10% were insolvent – their liabilities exceeded their active.

In response, Johnson helped create the Greater Philadelphia Repositioning Fund and led a team to undertake a similar study on local nonprofits – The Financial Health of Philadelphia Area Nonprofits – and got essentially the same results in 2017 as those discovered in New York two years earlier: “almost half of the nonprofits in the region are operating at a loss or at least producing no surplus.”

They also found a sector unable to withstand shocks. For example, it was predicted that a 5% decrease in government funding would result in 20% of nonprofits currently reporting surplus to deficits and 4% to insolvency within five years.

The Greater Philadelphia Repositioning Fund undertook an update of the 2017 report using 2018 data from the IRS 990 which was Posted in November 2020. On the upside, there had been improvements including a 21% increase in total revenue, a 31% increase in net philanthropy and a nearly doubling of operating reserve months from 1.6 months to three months.

However, the report continues, net income fell by 8% and the combined deficit of nonprofits in the region more than doubled from $ 38 million in 2014 to $ 100 million in 2018. “[B]But what is even more concerning, the percentage of all health and social service organizations that are insolvent has also remained constant at 13%, ”the report warned.

The report also used pre-COVID-19 data, asking the question: Could such a fragile sector survive the challenges of a pandemic?

While statistics to answer this question are still being collected, nonprofit obituaries are being prepared.

“Yet despite the fundamental role that nonprofits play in our communities, our report shows that the nonprofit sector is in imminent danger.”

– Report of the Greater Philadelphia Repositioning Fund

“When COVID hit, nobody knew what it would be like,” Johnson said, adding that early predictions had the problem throughout the summer of 2020 before it ended, and life returned to its old normalcy.

However, the days of COVID have been long and the pandemic heroism of the nonprofit sector has been well documented. Needs have skyrocketed and nonprofits have pivoted to provide basic necessities to families, many of whom have recently been impoverished by the collapsing economy.

There has also been a surge in response funding from the philanthropic community, businesses and individual donors.

According to High impact philanthropy center $ 40 million in COVID funding has been distributed across the region by 13 response funds. Johnson said the HealthSpark Foundation led efforts to raise $ 1 million, which was distributed mostly in installments of $ 5,000 to frontline nonprofits in Montgomery County that focused on basic needs. and “desperate for money”.

Yet the lesson COVID-19 has clearly shown is that the nonprofit sector, while necessary, is under-resourced and as financially fragile as some of its own customers.

Returning to a new normal will mean returning to an old reality of financial pressures, including government contracts that underpay for services, shifting priorities of donors and the philanthropic community, living on less than a month of cash. , delaying payments to suppliers, spending restricted funds and not investing money for emergencies.

“At best, 20 to 40 percent of organizations appear to be financially sound, defined as having more than six months of unrestricted net assets,” according to the report.

One month earlier, in October 2020, the Impacts of COVID-19 on Pennsylvania Nonprofits report showed lost revenue of $ 612 million and new operating expenses of $ 95.3 million. Eight in 10 of the state’s nonprofits had experienced a loss of revenue. Most of the lost revenue was reported by smaller nonprofits, those with operating budgets of less than $ 100,000.

Of New Jersey, 70% expect demand for their services to increase in the coming year and almost 60% expect spending to increase, while less than 40% believe their funding will increase.

Anne L. Gingerich, executive director of the Pennsylvania Association of Nonprofits (PANO) said one solution was increased flexibility in funding nonprofits.

“Define funding streams broadly so that nonprofits can use dollars for everything from salary incentives to PPE equipment and more. In addition, additional flexibility in reporting (eg putting in place certain criteria so that grants, say less than $ 10,000, do not require three, six and 12 month reporting). These are understandable but time-consuming requirements that prevent workers from providing services, ”she explained in an email.

The other concern is employment. In 2010, the Philadelphia Foundation reported that there were 242,000 nonprofit employees in the region working for more than 15,000 nonprofit organizations, earning $ 11 billion in annual salaries.

In September, the total national nonprofit workforce was almost 8% lower than pre-COVID figures and 49% of nonprofit employees said they anticipated more staff cuts and layoffs in 2021.

Johnson said that in the future, if nonprofits are to survive, they will need to take the time to have difficult conversations, such as asking introspective questions about the relevance of their mission after the pandemic. Agencies should also assess their effectiveness and use the responses to chart a future direction. “You ask yourself not only what you can do best, but who is it that you do ‘best’ for and how do you know it? Johnson said.

Other nonprofit experts argue that nonprofits will need to recruit financial risk managers to their boards to help them muster the expertise needed to deal with the uncertainty they face. are faced.

Additional funding is also becoming available.

A second round of applications has opened for the COVID-19 Prevention and Intervention Fund , a community effort to invest in neighborhood solutions to urgent needs related to COVID-19. The Fund supports COVID-19 education, access to vaccines, health resources and outreach activities in priority communities in the Greater Philadelphia area. Grants primarily target community organizations with budgets of less than $ 2.5 million. Details on the Fund’s second cycle application process can be found at Philanthropy networkthe website of . The deadline to apply is Friday June 11, 2021 at 5 p.m.

Ultimately, the goal is to keep the nonprofit sector from dying of desperation, especially given the safety net role its organizations play.

“Nonetheless, the disappearance of many non-profit organizations from the landscape will be felt hard by individuals seeking their services, whether of a social, educational, cultural or spiritual nature. And, again, it will likely be some of the most disenfranchised of their civil rights who will bear the brunt of these organizational failures, thus perpetuating the injustices of social, economic and racial inequality.

– Report of the Greater Philadelphia Repositioning Fund


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