For nonprofits that rely primarily on philanthropic support, membership or user fees, says the Bridgespan report, overall economic recovery is a light at the end of their collective tunnel. For nonprofits primed mostly by government fees for service, the tunnel leads to a cliff they are about to fall off.
It is a drastic and dire forecast based largely on one major premise: continuance of cuts to domestic spending on the federal level.
“Given that roughly a quarter of state government funding and a third of local government funding comes from Washington, D.C., the federal budget squeeze in turn will impinge on human services budgets at those levels,” said the report, which was penned by Daniel Stid and Vishal Shah.
Federal domestic appropriations have declined for years, although funds for some major youth-related programs and services have been protected. That has not taken the toll it would have on state and local spending decisions, Bridgespan points out, because the American Recovery and Reinvestment Act infused additional stimulus funds into state budgets.
The 2012 budget cycle is the first since 2009 in which few states will have ARRA funds around to spend. And because the “Super Committee” set up by the Budget Control Act failed to approve a 10-year plan for spending, the “grinding down is about accelerate,” the report said. The lack of a plan from the committee triggered automatic cuts in 2013, and forces about $1 trillion in domestic spending cuts over the next decade.
In addition to budget research, Bridgespan surveyed leaders from 68 nonprofits that receive the majority of their funding from government sources, and also interviewed fiscal experts at the state and local level.
“Most of the nonprofits we spoke with have managed to survive the tough economic times with their government funding intact, floating in large part on a bubble created by federal stimulus funds,” the report said. “But the bubble is set to burst, and the cliff is just ahead. Nonprofits are deeply concerned about the coming government funding squeeze and appear to have only limited options available as they look ahead to tougher times.”
Bridgespan identified a number of ways that these 68 organizations were “belt-tightening” during hard times, but also pointed out that many of those measures work on the faith that funding levels will be restored one day.
One former state government financial officer told Bridgespan, “The real question nonprofit leaders should be asking themselves is, ‘how can I adjust our operating model to get to a fundamentally new cost position?’”
Some leaders interviewed for the report suggested that broad, “haircut” approaches to budget cuts in human services should give way to the less politically palatable idea of focusing resources on high-impact programs and providers.
“It’s hard to be the bad guy and say ‘we had 10 grantees and now we are going to only have eight,’” one nonprofit chief financial officer told Bridgespan. “It is comparatively easier to say ‘we had 10, will continue to have 10, but we need to give everyone a haircut.’”
Click here to read the report.