December 9, 2004 | Read Time: 2 minutes
The financial outlook for nonprofit organizations has improved, says one of the nation’s major credit-rating services.
Moody’s Investors Service said the outlook was “cautiously stable” and better than the “mixed” picture it had previously used to describe the situation. In a report issued last month, Moody’s cited “prudent budgetary management” by nonprofit groups, a rebound in financial markets, and what it called “a currently brighter outlook for private philanthropy” as the key factors.
However, Moody’s also noted several potential challenges to the financial outlook for nonprofit groups, including growing capital needs and their vulnerability to any downturn in the stock market.
“Although some institutions in the diverse not-for-profit sector will continue to face financial and market-driven challenges based on their individual circumstances, we believe the major credit factors affecting the sector overall have largely stabilized,” wrote Elizabeth Veasey, a Moody’s analyst and one of the report’s authors.
The company said that many organizations have taken steps to reduce the impact of financial problems that had arisen in the past three years. For example, it said many groups have become more cautious about increasing their annual budgets and more conservative in their income projections. Those actions, the report added, allowed many groups to keep good credit ratings despite a downturn in the stock market and reductions in giving that resulted from the slowdown in the economy.
Over the past year, it said, a rebounding stock market has provided nonprofit organizations with increased investment income, helping to both rebuild their endowments and pay for programs.
Recent improvements in the economy also will probably lead to increased giving, the report said, particularly among major donors.
One source of income — government funds — is not likely to grow, however, the report concluded. Many state and local governments have cut money to nonprofit groups in recent years. While funds for nonprofit organizations are unlikely to be cut further, the report predicted, neither are they likely to be increased because state and local governments “continue to face structural deficits.”
Copies of the report, “Not-for-Profit Outlook and Medians,” are available free to most Moody’s subscribers, and can be obtained by calling (212) 553-1653.
