June 7, 2011 | Read Time: 3 minutes
The grim economic news of the past week underscores why life in the nonprofit world isn’t going to get better anytime soon. Economists agree that this will be another “jobless recovery” where the gross domestic product will continue to improve but employment figures will stagnate.
At the same time, we seem to be ready as a society to tighten our belts and go down the path of “all cuts, no new taxes” to balance state budgets as well as to trim the burgeoning federal budget deficit. It sounds good to those who believe that government is rife with waste and inefficiency.
But in neighborhood after neighborhood, we will see the devastating impact of budget cuts on social services that will disproportionately punish the most vulnerable in our communities.
Nonprofits won’t be able to make up for the government reductions with money from private donors. Giving from individuals continues to be sluggish, foundation giving has not yet returned to pre-recession levels, and grant makers are closing programs they started during the recession to respond to the financial needs of nonprofits and the people they serve.
As if these massive cuts to our social safety net weren’t enough, we now see a number of nonprofits sinking below the weight of debts taken on when times were good and the future was bright and seemingly limitless.
If we want these nonprofits to continue to serve our communities, we must help them find solutions to these financial challenges, especially their debt burden. Every day the news reports show more and more nonprofits crumbling under the weight of debts.
Among the recent headlines:
Philadelphia Orchestra Goes to Bankruptcy Court
Deal Could Help Asian Art Museum in San Francisco Fend Off Bankruptcy
So what to do?
We can do nothing and blindly hope that already weak organizations somehow manage to scrape by until revenues eventually return. We can sit back and lament the “bad decisions” made by some nonprofit groups. Or we can start thinking creatively and aggressively about how to help organizations lessen or restructure their debt burden.
While bankruptcy is a real option for nonprofits, it is not a very good one. Few organizations have the capacity and ability to survive the long, difficult, and expensive process that a bankruptcy represents.
So how can we facilitate a reorganization process that doesn’t damage the local community (the ultimate “shareholders” of any nonprofit), doesn’t destroy relationships with grant makers and other supporters, and isn’t cost-prohibitive?
We must explore the role foundations can play in helping to set up guarantee programs or refinancing debt. And we should see whether the federal government can put pressure on banks to be more thoughtful about how they can help nonprofits avoid shutting their doors. There are no immediate answers to the daunting challenges. But the need is imminent and this is more than just a conversation. The stakes are incredibly high.
The real risk is not just that one, or several, nonprofits may close their doors and lay off employees, although that is the next shock wave that will reverberate in community after community as the number of nonprofits shrinks.
The real risk is that a battered woman or at-risk child will have no safe haven, that homeless veterans will lose access to mental-health services, and that the hungry will be turned away from food pantries and driven to more desperate measures. These are the risks we face–on a potentially massive scale–if we choose simply to ignore this challenge.
