GuideStar’s Data Paint Clear Picture: Many Charities Face Big Challenges

To the Editor:

In a letter to the editor (“The Nonprofit World’s Finances Are Not as Bleak as a New Study Suggests,” September 23), Lester Salamon commented on GuideStar’s 2010 Economic Survey, taking us to task for what he felt was an overly grim picture of the effects of the economic downturn on the charitable sector.

We at GuideStar stand by our interpretation of the data resulting from our economic survey. While we are pleased for each nonprofit that has moments of good news, the data is clear in its conclusion that many continue to face great challenges, and most have a long way to go to achieve the success they experienced before the recession.

One important aspect of our findings with which Mr. Salamon disagrees is the impact of the decline in charitable giving. Although it may be statistically correct that “such giving accounts overall for only about 12 percent of nonprofit revenues,” when you start to actually look at individual organizations, you see a different picture.

Charitable revenues, when viewed in the aggregate, are dominated by a relatively small number of very large health-care providers, universities, employee-benefit trusts, and the like that derive most of their revenue from program services. For the 4,102 respondents to the GuideStar survey that gave us sufficient information to track back to their Form 990 filings, the median dependence on charitable contributions was 44 percent; for those with annual revenues under $5-million, about a third of respondents depended on charitable giving for 75 percent or more of their revenues.

There is another aspect of the GuideStar survey, however, that is difficult to convey in numbers. There were 7,014 usable responses, and nearly 3,000 of the respondents made comments about how their organizations were doing.

Although 69 percent of survey respondents reported that their 2010 budgets had increased or stayed about the same, this is not necessarily an unalloyed sign of good health. Consider these typical comments from organizations that didn’t cut their budgets in 2010:

“It was better than 2009, but not as good as 2008. We do feel that we’re no longer in free-fall.”

“Cash flow continues to be the problem. We will survive but we may have to cut programs and positions.”

“We have increased revenues by about 50 percent but most is one-time stimulus funding and will not likely continue.”

“Due to decrease in donations, we had to rely on credit to continue operating and now we are in debt.”

“We are struggling financially due to the decrease in contributions.”

“We are operating out of our reserves. We have about six months left and we will fold if no money comes in.”

To be sure, not all the comments are negative, and many of them show resilience as old organizations learn new strategies for raising funds. But the overall tenor of the comments from organizations we are in direct contact with suggests a sector that is nervous and uncertain about what the future holds.

If we report that things are better than they are, the individuals and institutions that are in a position to help may not step up to the plate.

Chuck McLean
Vice President of Research
GuideStar USA
Williamsburg, Va.