The Giving Guide 2020
A recent Council on Foundations report starts with the observation that 2020 has been “a year of multiple, compounding, and ongoing crises that are affecting millions of Americans” and urges “a rapid and strong response from our [nonprofit] institutions, including philanthropy.”
The report documents three concurrent developments: the direct and indirect effects of the Covid-19 pandemic; urgent calls for accelerated action against racial injustice across the United States; and an estimated 33 percent annual rate decrease in real GDP in the second quarter of 2020. By the end of June, 18 million Americans were unemployed, with disproportionately higher rates of job losses among people of color.
Report authors surveyed 250 philanthropy leaders midyear to understand whether and how they are responding to 2020’s challenges. They asked whether philanthropies were spending a higher percentage of their endowment than planned, whether they had shifted funding toward racial equity practices and advocacy causes, and how their internal operations had been affected by 2020’s onslaught.
What they found was that 60 percent of philanthropies were planning to increase their giving in real terms by an average of 17 percent in 2020; they were directing about a quarter of their payout to Covid-related grants; and 85 percent were adding flexibility to grants that were initially awarded for specific activities (allowing nonprofits to shift dollars toward higher priorities if needed). Perhaps surprising to some, only 11 percent said that their focus on racial equity had increased compared with spending a year ago.
While the scope of the report is national, findings can apply to Minnesota, where nonprofits and philanthropy are learning to cope with what Jon Pratt describes as “epic uncertainty.” Pratt is executive director of the Minnesota Council of Nonprofits (MCN), the service organization that works “to inform, promote, connect, and strengthen individual nonprofits and the nonprofit sector” for its 2,000-plus members.
Covid-19 is causing basic need demands to spike, especially for safety-net providers of food
and homeless services.
Uncertainty affects both nonprofits and the foundations and businesses that support them. For example, the Council on Foundations national report showed that the primary reason foundations are not increasing giving this year, despite overwhelming pressure on the sector’s institutions, is that “we want to maintain our ability to respond later.” Further, they said that “increasing [grant levels] now could decrease intergenerational equity. … With climate change, many board members don’t believe we have seen the worst yet.”
Nonprofits struggle with big increases in service demands
The uncertainty Pratt describes in Minnesota results from the same three shifts that the national report details. Covid-19 is causing demand for nonprofit programs and services to spike, especially for safety-net providers such as food shelves and homelessness services. Meanwhile some of the businesses and individuals they rely on for contributed revenue are facing their own income shortfalls. The unpredictability of revenue levels in the coming months makes it difficult for many nonprofits to deliver the service responses that are needed.
Nonprofits that rely on tuition, ticket income, and fees face a different type of revenue challenge. If they are closed or only permitted to operate at reduced levels, they must make deep staff and service cuts, and some might not survive until the pandemic eases. This category of nonprofits includes day care centers, language schools, performing arts organizations, museums, and other cultural organizations.
There can be no ticketed revenue or participation fees when audiences and the public are not permitted to convene indoors. These organizations must persuade donors to sustain their gifts until their programs can return or make cuts, or use a combination of fundraising and reductions to operate with a smaller revenue base.
To increase complexity, those facilities and programs that have been allowed to re-open have not exactly been overwhelmed by throngs of visitors. In a recent missive to donors, Katie Luber, director and president of the Minneapolis Institute of Art, reported that the museum had only just recently maxed out its daily walk-up limit for the first time. It had been open, at limited capacity, for nearly eight weeks. Reserved tickets, with specific arrival times, are required for museum entry.
This mirrors patterns documented in other data. A cluster of Twin Cities cultural institutions are taking part in a global attitudinal survey of the public’s willingness to attend concerts and visit cultural attractions. Between May and August, the Audience Outlook Monitor showed a marked decrease in survey respondents’ willingness to attend such events in person. Further, nearly half of the 150,000-plus respondents said that they lived with someone who is “vulnerable to a serious health outcome” if they were to contract Covid-19.
Cultural organizations bear the brunt of disruption
MCN has twice surveyed the state’s nonprofits this year to assess their status and outlook. Most recently, the July 2020 Minnesota Nonprofit Economy Report showed that 42 percent of 259 respondents reported that they were experiencing “significant disruption and expect recovery to be difficult.” Hardest hit were cultural organizations whose “significant disruption” rates were at 69 percent. Only 2 percent of respondents said they’d had minimal or no disruption.
Further, the survey asked about demand for programs and services. Here, nearly half expected to see or had already seen an increase in demand. About a third were experiencing a decrease, and 14 percent saw no change. A mere 15 percent said that their organization could continue without significant financial distress for 12 months or more. Most saw their financial crunch hitting much sooner. In better news, 78 percent of respondents had received some level of support from the federal Paycheck Protection Program, for which nonprofits and businesses were both eligible.
With foundations holding steady or only modestly increasing their grantmaking and earned revenue sources at risk, nonprofits will need to look elsewhere to fill 2020’s revenue gaps. Fortunately, leaders are showing nimbleness and creativity in addressing 2020’s shifting context.
Organizations with endowment assets have had some safe harbor in the stock market’s relatively strong year, considering other economic indicators. Endowment spending is usually based on a three-year trailing average or other long-term measurement, so it is less subject to the ups and downs of the economy than other revenue sources are.
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Some organizations can draw on reserves or other rainy-day funds they’ve built up to protect themselves against revenue ebbs and flows. They’re both spending these funds and in some cases, making plans to replenish them.
Individual giving to many nonprofits has remained relatively strong. In its midyear report, Give MN, sponsor of Give to the Max Day and other fundraising support activities, shared data that showed that giving through its portal had increased tenfold when compared to the same date in 2019. It reached more than $19 million. (Give to the Max Day this year is Nov. 19.)
State government funding for social service programs is often awarded on a biennial basis, so nonprofits have been able to count on stable funding levels, for now. With the expected decrease in tax revenues, state spending may well decrease in the next biennium, something nonprofit leaders already are considering as they look to the future and build multiyear budgets.
Also noteworthy are the special funds the Legislature has approved during the Covid-19 shutdown, including additional funding for food shelves, day programs for people with disabilities, and for other special needs.
Nonprofit leaders and boards are also gobbling up resources to help them with options for decision-making. The number and variety of scenario-planning workshops, toolkits, and journal articles has increased exponentially, with myriad players leaping in to help leaders navigate an uncertain future.
Some, like the scenario planning guide from the Institute for the Future (IFTF), are built around researched alternatives constructed with the help of economists or other experts. IFTF offers a participatory approach through a workbook and set of playing cards that encourage organizations to gather and discuss possible scenarios and ways to make progress.
Path to a Sound Financial Footing
Others, like Propel Nonprofits’ budget template tool, offer practical resources for building out interactive financial scenarios, allowing boards and leaders to model single or multiple income shifts and how they might play out in terms of real expense projections. Propel, a Minneapolis-based nonprofit financial training and support organization, has been particularly active locally in offering resources, ideas, and encouragement to help nonprofits maintain their footing.
Pratt and his collaborator, Kari Aanestad, have analyzed nonprofit revenue sources nationally by organization type. The resulting infographic is a much-anticipated feature of Nonprofit Quarterly, a journal of ideas, policy analysis, and news. The most recent version was published pre-Covid, built from 2019 data. Nonetheless, a look at the chart showing budget-source percentages by organizational type points to the nonprofits that may well face the longest climb once digging out of 2020’s crises begins to seem possible.
The chart shows that program fees, at $1 trillion annually, are the largest source of aggregate nonprofit revenue in the United States, followed by the federal government, at $491 billion. Sectors that rely most heavily on these sources are hospitals and nursing homes, education, and health and human services.
Nonprofits that rely on tuition, ticket income, and fees face a different type of revenue challenge. If they are closed or only permitted to operate at reduced levels, they must make deep staff and service cuts, and some might not survive until the pandemic eases.
By toggling between the sources of funds and the sectors most reliant on them, it’s possible to see how seismic shifts in any single revenue source can lead to cascading effects on particular nonprofits. Deep cuts in government funding will be disproportionately felt by hospitals and higher education, while drops in individual giving will be felt most quickly by churches and religious institutions, cultural-sector nonprofits, and international efforts.
Revenue is destiny. What nonprofits are experiencing today are rocky revenue projections across every source, and very uncertain prospects for rebuilding public participation in the community’s civic and cultural organizations. This is the “epic uncertainty” that creative nonprofit leaders are facing. They are doubling down not only on their pivot tables, but as Propel’s president and CEO Kate Barr said in April: “We don’t say pivot anymore, we say pirouette.” Creativity is the opportunity.
Minnesota nonprofits need new revenue as they work to overhaul their business models, so they can serve the people who are counting on them in these new and challenging times.
Sarah Lutman is a St. Paul-based independent consultant and writer for clients in the cultural, media, and philanthropic sectors.