‘Colliding Crises’ Are Straining Nonprofit Finances

Nonprofits are being strained by rising costs, government funding cuts and delays, and growing demand for services. These urgent “colliding crises” are compounding longstanding financial challenges for charities, and wide swaths of the sector are “close to reaching a breaking point,” a new survey finds.

“It’s a bit of a perfect storm,” said Jen Talansky, a coauthor of the Nonprofit Finance Fund report, which draws on responses that 2,206 organizations provided from January 30 to March 14.

More than a third of respondents reported they ended last year with an operating deficit, the highest percentage in the last 10 years of NFF’s survey data. More than half said they have three months’ worth or less of cash on hand. Eighteen percent said they had a month’s worth or less.

Among respondents whose organizations receive government support, 84 percent expect funding cuts under the Trump administration. In some cases, those cuts have already resulted in paused programs, hiring freezes, service reduction, and challenges in paying bills.

At the same time, more than 80 percent of respondents said demand for their programs has increased in the most recent fiscal year as nonprofits step in to provide essential services like affordable housing and mental health support. Charities and their clients are feeling the pinch of rising costs. Eighty-six percent of respondents said increased costs due to inflation have affected their organizations and clients in the past year.

“The dollar isn’t going as far, and it’s not keeping up with funding,” said Annie Chang, a Nonprofit Finance Fund vice president who contributed to the report. “It’s a very precarious moment.”

‘A Retrenchment’

The report echoes other recent surveys, which reveal widespread pessimism among nonprofit leaders, regarding their organizations’ financial stability.

Financial strain has been a consistent theme since the Nonprofit Finance Fund first conducted its national “state of the nonprofit sector” survey. As nonprofits weathered the Great Recession, many described a reality in which funding arrived late or didn’t fully cover costs, grants were heavily restricted, and groups faced pressure to do more with less.

In the early 2020s, as the pandemic and calls for racial justice spurred new and more flexible funding commitments, nonprofits began to report stronger financial footing.

But those gains are now disappearing, Talansky said. “We’re seeing a retrenchment,” she said. “Nonprofits are going back to the patterns that we had seen previously of not being in great financial shape.”

Respondents represent a wide cross-section of the nonprofit field by age, size, mission, and leadership, though the survey relied on a convenience sample, which may not be fully representative of the sector.

Financial Strain

Children’s Village, a Philadelphia early-childhood nonprofit that also provides an after-school program for older children, will end its fiscal year with a small deficit for the first time in decades.

Rising costs of providing care and meals, as well as escalating insurance premiums, have led the $8 million organization to make tough financial decisions like reducing the number of staff in classrooms.

Children’s Village serves 425 kids each year with about 75 full-time and 25 part-time staff. About $5.7 million, two-thirds of its annual budget, comes from the federal and state governments. While the group hasn’t experienced cuts in its government support this year, it has experienced delays in reimbursement through Head Start and other programs.

“We have enough reserves to operate for a couple months,” Mary Graham, the longtime executive director, said. “It’s taken us 49 years to get to that point, but we’re going to have to dip into that to pay the rest of our bills for this year.”

Rising Demand

Eighty-five percent of survey respondents anticipate that demand for their services will increase in 2025. More than half of them don’t think they’ll be able to meet demand.

Movin’ Out, a Madison, Wisc., nonprofit that helps people with disabilities secure affordable housing in the state, helped 38 families become first-time home buyers last year. But increased housing costs and cuts to government programs that provide down-payment assistance mean the group will likely help fewer families this year, said CEO Kathryne Auerback.

About 30 percent of her group’s $3.5 million in revenue comes from federal sources. “If you start pulling out that thread, the whole thing pretty much unravels,” she said.

So far, her group hasn’t seen an increase in philanthropic support. “We’re all competing for the same insufficient sources of funding,” she said. In addition, the rising cost of construction materials and insurance is adding uncertainty to Movin’ Up’s ability to plan new rental housing. Buildings planned just a few years ago now cost more to complete.

Though residents are under increasing economic strain, the charity won’t be able to provide additional services for its clients, Auerback said.

The group is also understaffed, with nine full-time staff and three open positions open.

In this challenging environment, many organizations are struggling to provide livable compensation for their work force. Only 41 percent of survey respondents said they were able to pay all of their full-time staff a living wage that could support their basic needs. Smaller organizations were even more strained, with fewer offering livable compensation or benefits like health insurance.

Chang, with Nonprofit Finance Fund, hopes the new data provides a call to action for more philanthropies to increase their grant making to support nonprofits on the front lines. “It’s really a moment for outstanding actions,” she said.