It’s time for executives of high performing organizations to begin thinking about what the new economic normal will mean for them. Too many nonprofits are operating off of business models created in the 1960’s. Those models had several components that are no longer sustainable. For starters, after non-stop growth in total donations, the nonprofit sector experienced a significant dip in 2009 (Giving USA) and I wouldn’t be surprised if we saw a further decline in 2010. At the very least, growth will be much slower in the years ahead than it has been in previous decades. At the same time, investment income has declined to historically low levels affecting foundation endowments and organizational endowments alike. Finally, there is the nonprofit sector’s traditional dependence on government grants and contracts, for nearly a third of total revenue. This is a source already in decline and likely to plummet before it stabilizes.
Here in Washington the federal budget news gets crazier every day. We are now operating the federal government in increments of several weeks at a time. Forgot about long range plans and strategy – a month is now an eternity. And the fight is about our current fiscal year, the one ending September 30! Still to come are debates over next year’s budget and all the big structural issues.
Our government budget problems are way too big for anyone or organization to think they won’t be adversely affected in some way. At least that’s the way I hope it happens -spreading the pain around to everyone -not just to those without PACS and lobbyists.
This includes nonprofits. For starters, we should expect some changes in the tax deductibility standards. Expect many government service fees to nonprofits to continue to be under stress or eliminated altogether.
Tim Delaney, President of the National Council of Nonprofits, has an excellent paper published in the Nonprofit Quarterly http://www.councilofnonprofits.org/news/national-council-news/tim-delaney-state-threats-nonprofits, detailing the pounding nonprofits are taking from government. He reports that governments are abusing contract relationships with nonprofits by not paying full cost of work, changing contracts in mid-stream, paying late or not at all, adding unnecessary complexities, and adding new fees. He’s been urging nonprofits to fight back – with lobbying, advocacy, and the tough tactics applied in the business world, and not take it any more.
But in a recent presentation at the Bradley Center, Gene Steurle, a wise veteran tax analyst, who has an excellent blog called The Government We Deserve, reminded us that currently the federal government is spending $31, 000 for every American each year and bringing in only $19,000 in revenue – not counting various tax deductions and loopholes. This is a path he suggests that will undermine our country’s security and not something we can avoid any longer. In 2009, for the first time in American history, he said, every dollar in the federal budget was committed before the fiscal year even began – thereby required elected officials to cut the budget or add to the deficit if they wanted to add any additional spending. Our only way out of this mess he suggested is to raise taxes, cut spending, and limit deductions and loop holes. Nonprofits are going to need to share in this sacrifice.
We’re about to enter a period of a “giant re-set” – a phrase first used by the National Governor’s Association.
What should leaders of high performing organization’s be doing?
- For starters, get involved. We are about to enter a period of debate about reallocating how we spend our federal and state government resources. We need to be fighting for solutions that preserve desperately needed public services and invest in our collective future. Expect those with other approaches to be fighting too.
- Take a serious look at your organization’s business model. Are you taking steps to diversify your revenue streams? And are you being honest with yourself about the long term picture for your current plan?
- Think big. You’ve probably already done the easy belt tightening over the last few years in order to respond to the Great Recession. What’s to come may be even worse for some nonprofits. A friend of mine running a state association is facing a total zeroing out of his state support – a third of his revenue – and is now exploring a regional approach to back office functions. He’s thinking big. Today’s challenge could in fact end up being liberating – freeing us to think about our organizations and resources in brand new ways.
The preceding is a guest post by Bob Ottenhoff, Chief Executive of the Center for Disaster Philanthropy. With an entrepreneurial spirit, strong technology focus, and a quest to make an impact in the world, Bob has the ability to take an organization and lead it into strong performance, sustainability, and industry leadership.