Boston Foundation report offers new data on nonprofit sector at a time of economic crisis

Boston – A white paper released today by the Boston Foundation details the impact of the ongoing economic crisis on the region’s nonprofit organizations, identifying trends toward increased strategic alliances and mergers as financial support form all sources continues to shrink. At the same time, demand for services provided by the sector continues to climb. The report, Passion & Purpose: Restructuring, Repositioning and Reinventing: Crisis in Massachusetts Nonprofit Sector , builds on the findings of the Foundation’s in-depth report on the sector published in June 2008, entitled Passion & Purpose .

“The report raises a very serious alarm, and issues a strong call to organizations that make up this exceedingly important sector to consider bold and innovative strategies to protect vital missions,” said Paul S. Grogan, President and CEO of the Boston Foundation. “It is crucial in these challenging times that nonprofit organizations and their leaders take stock of their mission and impact and determine how they can best meet their goals.”

The Commonwealth’s nonprofits collectively generate $87 billion in revenues annually and employ close to 450,000 workers. In recent years, the number of public charities has almost doubled, despite no growth in population or in funding sources. Some 40 percent of the sector loses money every year, with those having budgets between $250,000 and $1 million, in greatest distress, according to the report, which was written by Geeta Pradhan, Director of Programs, and Barbara Hindley, Director of Publications, at the Foundation.

Key findings

Recently, Management Consulting Services—itself a victim of the recession, closing April 1st after almost two decades of work with area organizations—conducted a survey of nonprofits in Massachusetts to measure the impact of the economic crisis here. The survey found two-thirds of the sector is experiencing fiscal distress. Fully 67.7 percent of respondents anticipate a decrease or delay in their funding or donations and 30 percent expect revenue to decrease more than 10 percent during the current fiscal year.

In response to conditions, 42 percent of Massachusetts nonprofits were determined to have reduced staff or staff salaries. In addition:

•  42 percent have frozen all hires and current staff salaries;
•  23 percent have reduced benefits;
•  percent have collaborated with another organization to reduce administrative costs; and
•  8 percent have merged with another organization.

These figures reflect national trends. A national survey conducted by the Nonprofit Finance Fund found that, across the country:

• Only 12 percent of nonprofits expect to break even this year; and
• Only 16 percent anticipate covering their operating expenses in 2009 and 2010; and 31 percent don’t have enough operating cash on hand to cover more than one month of expenses.

Impact of the state budget

While all resources have been curtailed, the most significant threat to the current fiscal status of the sector is prospective cuts in the state budget. Massachusetts currently faces the most severe fiscal crisis in memory, with a budget gap of more than $3.5 billion and still climbing. Meanwhile, the cost of providing a steady level of services is expected to climb $1.5 billion because of inflation and increases in case loads.

Cuts earlier this year have been concentrated in health care, human services and higher education. In addition, cuts to local aid are expected to hit hardest in low-income communities with fewer services and often greater need.

The ‘Utility of Trouble’

Leaders in the nonprofit community have urged the field to consider consolidation and a critical re-examination of organizations’ mission and impact, seizing this difficult time as an opportunity to make changes that could have a positive impact in the future. The call to action in the Boston Foundation’s white paper, and which were first broadcast with the original  Passion & Purpose  report in June 2008, has focused on the need to consider strategic mergers, alliances and the creation of economies of scale and efficiency. To address those recommendations, the Foundation held a series of workshops earlier this spring attracting some 300 participants from 190 organizations. In addition, small technical grants were made available to help support the costs of mergers and strategic re-examination.

Consolidation has been pursued by a number of high-profile organizations in the region, notably the AIDS Action Committee, a national pioneer for services to people living with HIV and AIDS, which merged with JRI Health and Cambridge Cares About AIDS. In addition, plans were recently announced of the merger by Centro Latino de Chelsea and Concilio Hispano. The new organization in that case, Centro Latino, Inc., has preserved and merged the essential services provided by both organizations with an expanded geography and greater financial strength.

A recent analysis by The Bridgespan Group, a national nonprofit consulting organization, found more than 3,300 organizations in Massachusetts, Florida, Arizona and North Carolina engaging in at least one merger of acquisition between 1996 and 2006. the survey indicates that 20 percent of nonprofits say mergers will play a role in their survival during the recession.

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The Boston Foundation, Greater Boston’s community foundation, is one of the oldest and largest community foundations in the nation, with assets of $763 million.  In Fiscal Year 2008, the Foundation and its donors made close to $79 million in grants to nonprofit organizations and received gifts of $113 million. The Foundation is made up of some 900 separate charitable funds established by donors either for the general benefit of the community or for special purposes.  The Boston Foundation also serves as a major civic leader, provider of information, convener, and sponsor of special initiatives designed to address the community’s and region’s most pressing challenges.  For more information about the Boston Foundation, visit www.tbf.org or call 617-338-1700.