Economic Crisis. Third Sector, Social Economy and Solidarity Economy im United States

AutorJohn Casey
Cargo del AutorProfessor in Public Affairs in Baruch College of New York. Ph D in Political. Universidad Autónoma de Barcelona
Páginas139-157

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1 Introduction

The 2008 collapse of the U.S. financial markets and the subsequent global fiscal crisis have had a profound effect on nonprofits in the U.S. Given the wide ranging service delivery and advocacy role of nonprofits -they represent some 10% of the GDP and full-time employment and play key roles in the delivery of health, education, social and cultural services- the new financial conditions have caused considerable organizational strains at the same time as demand for services has increased. Some nonprofits that were directly funded by now failed financial entities have simply shut up shop. The New York-based Justice, Equality, Human Dignity, and Tolerance Foundation (know as JEHT) learned in late 2008 that its major sponsor, who had invested most of her wealth in Bernard Madoff ’s ponzi schemes, could no longer support the organization. Although JEHT had been disbursing some $US 24 million in grants annually until 2007, in January 2009 it ceased all operations. In the year before its September 2008 bankruptcy, the financial services firm Lehman Brothers had distributed through its Foundation some $39 million to 200 nonprofit organizations. When Lehman folded, those funded organizations had to scramble to close substantial holes in their budgets.

The general one-line script for nonprofits in the U.S. has been that they are now being asked to do a whole lot more with a whole lot less. But, not surprisingly, the picture is a lot more complex, and the impact of the fiscal crisis has varied significantly between different states and loca-

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tions in the U.S., between different subsectors and between organizations within any subsector. Moreover, the situation continues to unfold as nonprofits are begin to feel the full impact of the trailing off of the American Reinvestment and Recovery Act (the Obama administration’s economic stimulus package).

At the time of the writing of this article in late 2010, the general trends in economic indicators appear to signal that the worst is over in the U.S.1This however, has yet to translate financially for many organizations as they recover from the considerable declines in income experienced at the depth of the recession. Looking back, we can speculatively break down the recession into three periods: the onset (December 2007-February), the depth (February 2009-February 2010) and the recovery (February 2010 onward). The exact date spans of these periods are a matter of dispute and even now there are those who cast doubts on the viability of the recovery, particularly for nonprofits who depend on the shrinking fortunes of government. Even as nonprofits recover, organizations will find themselves fundamentally changed and will need to find ways to expand their fund-raising efforts and maximize their output to maintain financial health.2This chapter summarizes the survey research that has been done to study the impact of the crisis on nonprofits and looks at the literature that emerged during this period to advise organizations how best to cope with the downturn conditions. It is important to note that the surveys quoted in the following sections generally have considerable sampling errors. The surveys most often use self-reporting through online or telephone questionnaires and so by definition gather information only from those organizations that continue to exist, and those that have the time, resources and interest in responding. Moreover, many organizations surveyed, as well as the organizations doing the surveys, may have an interest in misrepresenting the financial situation and organizational health of nonprofits in order to either elicit the sympathy of donors, or conversely to demonstrate how resilient they are. A definitive analysis of how the crisis has impacted on nonprofits in the U.S. will have to wait for future research based on more objective indicators.

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2 Trends in Giving

After years of steady growth in private giving to nonprofits throughout the 1990s and early 2000s, various surveys reported considerable declines in 2008 and 2009. According to the Center on Wealth and Philanthropy at Boston College there was an estimated decrease in giving of 6% in 2008 and a further 4.9% drop in 2009 in donations from individuals to the sector in general3, and the Chronicle of Philanthropy reported an 18% decline in cash contribution to large charities in 2009.4 A survey conducted by the Alliance of Arizona Nonprofits in February of 2009 showed declines in revenue by "an average of 18%" with many Arizona nonprofits expecting further declines.5However, the most recent surveys appear to signal a turnaround. The Chronicle of Philanthropy reported that in the second quarter of 2010, cash giving to big charities grew by a median of 3.1% compared with 2009.6

This seems to be the general trend for larger nonprofits, such as the Fidelity Charitable Gift Fund, a fund that focus on large private donors, which in August 2010 reported that it raised 67% more in the first six months of the year than it did in 2009 (Fidelity is a relatively new fund and part of the increase represent the success of their business model).7According to the Blackbaud Index of Charitable Giving, large organizations saw big increases in revenue in February of 2010, but this was largely attributed to a spike in donations that resulted from the January earthquake in Haiti.8Other surveys indicate an upward trend in revenue throughout 2010, although with

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fluctuations throughout the year, and there has been a considerable increase in online giving (which is partly due to the growing acceptance of online, social media and other electronic portals for donations).9However, not all segments of the nonprofit sector appear to be benefitting equally from the recovery in giving, with the Blackbuad Index indicating that while large organizations are seeing significant increases in 2010, revenue for small organizations has remained steadily positive but more modest, and medium-sized organizations still have reduced revenue10.

The private giving trends can be broken down according to the following categories: individuals, corporations and foundations.

Individuals

A 2010 poll by Harris Interactive indicates that individuals gave in smaller amounts and to fewer organizations and that the percentage of people who said they were not making any charitable donations increased throughout 2009, from 6% to 12%. But people were volunteering slightly more than they were in previous years.11

In contrast, according to the Cygnus Donor Survey released in June 2010, the impact of the economic recession on philanthropy appears to be moderating with only 8% of typical donors planning to give less, compared to 2009 where 17.5% responded the same. However, a higher percentage of affluent donors (17%) indicated that they would give less this year, which may continue to pose a problem for many nonprofits that depend more on donors who make large cash donations.12Corporations

Corporate giving is slowly bouncing back but a majority of big businesses say it will be awhile before they return to their pre-

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recession levels. In a survey of 162 of the country’s largest companies, "54% of businesses say they gave less cash, 30% gave more, and 16% gave roughly the same." However, in-kind donations have increased as well as volunteering. Corporations have also indicated a more narrowed focus on organizations that "align with their business goals and expertise" and can provide measurable results.13Foundations

Yearly trend studies conducted by the Foundation Center of the 75,500 grantmaking foundations in the U.S. indicate that awards increased from 2007 to 2008 but then fell 8.4% in 2009 (independent and family foundations reduced their giving by 8.9%, corporate foundations by 3.3% and community foundations by 9.6%.). The Foundation Center anticipated that the grant levels would remain flat in 2010 and then there would be modest growth in 2011.14Although there are conflicting findings with current assessments ranging from bleak to optimistic, the majority of recent reports show that private giving is slightly up from 2009, signaling what may be a hopeful road to recovery. The following trends in giving during the crisis can be observed:

  1. Corporations, foundations and individuals have narrowed their focus towards causes that matter to them most and that provide measurable results.

  2. Corporations and individuals have increased volunteering efforts as a way to mitigate the financial impact of the recession on organizations.

  3. Giving to international aid organizations has had a notable increase in 2010, though this may be due to the tremendous surge of donations that were given to relief organizations following Haiti’s devastating earthquake.

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2. 1 Public Funding

Public funding has been hit hard due to steep budget cuts at all levels of government and delayed payments. The economic stimulus money of 2010 helped save state budgets temporarily but with a projected national budget gap of about $84 billion in 2011, organizations are bracing themselves for even bigger financial challenges in the near future.15Fundraising consultants worry that too many of the organizations that worked hard to obtain stimulus funds wound up receiving nothing at all.16State budget deficits have resulted in funding cuts to vital programs and services and the imposition of new fees and taxes. Furthermore, delays in payments and government contract abuses have caused cash flow problems for many organizations that rely heavily on government grants to operate.17

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