The Nonprofit World’s Finances Are Not as Bleak as a New Study Suggests

To the Editor:

In its new report on the effect of the economic recession, GuideStar paints a bleak and unrelieved picture of “bleeding” and widespread “pain” among the nation’s nonprofit organizations. (The Chronicle noted the study in its article “In Second Quarter of 2010, Big Charities Struggle to Build on Recovery,” September 9.)

While there is no question that nonprofits are feeling pressure as a result of the economic downturn, there is also evidence that they are resolutely finding ways to cope, and even to expand their offerings in response to expanded need. One such piece of evidence is the stunning record of continued, if slower, nonprofit job growth through at least 2009 at a time when for-profit payrolls were plummeting.

Which of these pictures comes closest to reality? Much of the answer can be found in the GuideStar data, though only part of the picture surfaced in the GuideStar narrative.

First, the report focuses mainly on charitable giving, the one part of the nonprofit revenue stream most responsive to economic pressures. This is understandable since GuideStar largely serves philanthropic giving. But such giving accounts overall for only about 12 percent of nonprofit revenues.

Even a 10-percent decline in such giving would thus translate into just over a 1-percent decline in nonprofit revenue. Focusing on giving can thus produce a misleading picture of what the impact of the recession is on nonprofits, though obviously it is more important to some organizations than to others.

Second, though, it is far from clear from the GuideStar report how severe the drop even in private giving was. Although the report trumpets the 40 percent of groups that suffered declines in giving, 14 of this 40 percent reported that giving declined “modestly.” And although 26 percent said that their giving decreased “greatly,” it is unclear how “greatly” was defined.

Third, compared to the 40 percent of organizations reporting any declines in giving, nearly 60 percent—or half again as many—reported that charitable contributions actually increased or “stayed about the same” in 2010. Given the state of the economy, this is a remarkably positive finding, yet the GuideStar narrative neglects even to mention it.

Finally, and consistent with the above alternative reading of the GuideStar evidence, when asked how their 2010 overall budget compared to their 2009 budget, a striking 69 percent of the respondents to the GuideStar survey reported that their 2010 budget actually increased (41 percent) or stayed about the same (28 percent)—again, a striking achievement in this era of economic decline. To be sure, 29 percent reported that their 2010 budget decreased, but the overwhelming majority (20 out of 29 percent) of those reported that it decreased “modestly.”

Certainly, no one can deny the significant pressures that have been placed on nonprofit groups as a result of economic stringency and escalating demands.

Everyone knows, moreover, that dire news plays better than good news. Nevertheless, there is some risk in overstating the negatives and understating the extraordinary resilience nonprofit organizations are displaying in the face of this economic crisis and the important role that the Economic Recovery and Reconstruction Act likely played in shielding them from some of the harshest impacts of the recession.

Lester Salamon
Director
Center for Civil Society Studies
The Johns Hopkins University
Baltimore