April 9, 2009 | Read Time: 2 minutes
Trying to divine what the nonprofit world will look like when the economy finally stabilizes is a challenge. Even today, experts don’t have a good estimate of how many charities are operating as opposed to existing merely in the files of the Internal Revenue Service.
The IRS reported in March that nearly 1.2 million charities and foundations are registered in the United States, but more than two-thirds of those have less than $25,000 in revenue. Many of those charities — perhaps tens or even hundreds of thousands — are probably no longer alive.
Back From the Dead
But some charities go dormant during difficult times only to reappear later. Mark A. Hager, an associate professor and director of research in the Lodestar Center for Philanthropy & Nonprofit Innovation, at Arizona State University, is studying how a national sample of charities weathered the recession that ended in 2003.
“A substantial number of nonprofit organizations that we thought were dead in 2003 turned back up filing Forms 990 in subsequent years,” Mr. Hager says.
Jerry Hirsch, founder and chairman of the Lodestar Foundation, based in Phoenix, which makes grants to encourage mergers, says that predictions that 100,000 or more charities may fail during this recession need to be kept in perspective.
The United States has added roughly 500,000 charities in just the past decade, he notes.
“If the number goes down by 100,000, that shouldn’t be a catastrophe,” Mr. Hirsch says.
On the Margins
It is clear that many charities entered this downturn with little margin for error. One-third of the nonprofit organizations that filed an informational tax form in 2006 had set aside reserves that would cover less than three months of expenses, according to the Urban Institute’s National Center for Charitable Statistics.
Many types of charities — including arts organizations and providers of after-school and job-training programs — are struggling.
Meanwhile, some of the best-positioned charities to ride out the downturn may be food pantries and homeless shelters, which are gaining greater donor interest as the economy takes its toll on the country’s poorest citizens.
And charities that serve a so-called protected population — like foster-care providers — should continue to see ample state support.
“Kids can’t be dumped on the street,” says Steven Rathgeb Smith, a professor of public affairs at the University of Washington who studies nonprofit groups. “Most of those organizations should survive.”
