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January, 2010
Economic Outlook 2010: Illinois Nonprofits and Grantmakers
Still Reeling After Rough Year
Since 2002, Donors Forum has regularly surveyed its grantmaking Members
and nonprofit Forum Partners to assess the impact of current economic
Respondent Profile
conditions on organizational operations and financial health. A survey
conducted in late fall, 2008 uncovered evidence of financial stress on the sector A total of 55 Members
caused by the then still-emerging economic crisis. The most recent survey, participated in the
conducted in November, 2009, documents the effects of the economy both on survey, the largest
grantmakers’ current and planned grantmaking activities and on nonprofits’ proportion of whom
resources, capacities, and future survival strategies. (54%) represented by
family (27%), private
independent (18%), and
Key Findings corporate (9%)
foundations. The
The survey findings affirm that the economic downturn has had a serious remaining 46%
impact on nonprofit operations. Seven in ten of the nonprofits surveyed (71%) represented a mix of
reported that they had decreased their budget in 2009, and nearly as many corporate giving
(66%) that their operating reserves had declined. Indeed, 63% had only 3 programs (16%), public
months or less of reserves, and only 11% had more than 12 months. (13%) and community
(11%) foundations, and
charitable trusts (4%) or
Alarmingly, more than four in ten (44%) nonprofits reported reductions in their
quasi-governmental
number of full-time paid staff. This is more than twice the percentage agencies (1%).
reporting staff reductions in last year’s survey (19%). At the same time, the
percentage reporting decreased ability to meet service demands nearly doubled, The number of Partner
rising from 22% to 41%. respondents was 183.
More than one-third
A key factor in these resource and capacity reductions is decreased funding were human services
from nonprofits’ major revenue sources. The most widely reported declines providers (36%), and
most of the rest were
were in foundation giving (68%), corporate sponsorships (63%), and
educational (18%),
government funding (62%). For many of those experiencing reduced cultural (15%), or social
government funding, the culprit is delayed payments from the state government change/community
(36% of all nonprofits surveyed), in virtually all cases leading to cash flow improvement-oriented
problems. organizations (12%).
Additional types of
The widespread decline reported in foundation giving is consistent with the nonprofits represented
grantmaking trends reported by Donors Forum’s Members. One-half of the included health (9%)
grantmakers surveyed (50%) had decreased their giving levels in the past 12 and environmental or
months – up from 32% in the 2008 survey. Plans for further decreases in the animal welfare (2%)
coming year were additionally reported by 37%, while 20% planned increases. organizations.
As shown in the
Almost all grantmakers (90%) agreed that the economy had had at least some Methodology section at
impact on their grantmaking activities. For many, this included changes in the end of the report, the
funding programs or priorities (43%) – most frequently, temporary changes survey respondents are
(31%), but for 12%, permanent changes. roughly representative
of Donors Forum’s
overall grantmaking
In two specific support areas, grantmakers were far likelier to plan to increase
Member and nonprofit
than decrease funding levels in the year ahead. One area is operating support, Partner constituency.
with 27% planning to increase funding levels, but only 7%, to decrease
funding. The other area is capacity building and/or strategic planning grants,
These plans reflect grantmaker’s concerns about nonprofit sustainability. More than four in ten
grantmakers (42%) reported that they had increased their focus on support for nonprofit capacity
building and sustainability in the past year, and 54% gave specific examples of strategies they were
employing. These ranged from providing technical assistance funding, pro bono consultation, and
support for training, to “facilitating and supporting collaborative efforts amongst grantees” and
increasing operating funding. Nearly one-third of grantmakers who answered the applicable survey
question (30%) also reported plans to facilitate or support nonprofit mergers – up from 17% in last
year’s survey.
For their part, nonprofits have made changes to their fundraising strategies. While the majority has
continued to increase the number of funders approached (78%), a nearly equal percentage (74%) has
expanded the number of individual donor strategies employed. This represents a significant increase
over the previous year (57%) and is in line with a growing emphasis on “diversification of revenue
streams” as a current (60%) or planned (18%) sustainability strategy. Nonprofits are not likely,
however, to have adopted (4%) or to plan to adopt (10%) a merger strategy.
Detailed Findings
Declines in Nonprofit
Resources and Capacities FIGURE 1 - Percent of Nonprofits Experiencing Increases or
Decreases in Resources/Capacities Over the Past 12 Months
The survey findings show that
Budget 71%
67% of nonprofits have 15%
experienced increased demand
Operating reserves 66%
for services in the past 12 11%
months, yet 41% had decreased
Number of paid full-time staff 44%
ability to meet that demand. 11%
This represents a nearly twofold
Number of volunteers 6%
increase over the percentage 43%
reporting such a decrease in the
2008 survey (22%).
Among the cutbacks most likely to affect nonprofit service delivery is in the number of paid staff.
More than four in ten (44%) nonprofits reported reductions in this area – more than double the
percentage reporting staff cutbacks in 2008 (19%). Responses elsewhere in the survey indicate that the
cutbacks ranged from layoffs to reduced hours, changes from full-time to hourly contract status, and
delays in hiring for vacant positions.
Donors Forum’s Economic Outlook 2010 Page 3
Specific Spending Cuts:
Also reflected in nonprofits’ FIGURE 2 - Percent of Nonprofits Reporting Spending Cuts in the Past
reduced capacities are 12 Months
cutbacks in expenditures on Office supplies 52% 20%
direct program costs. The
findings displayed in Figure Printing and design 46% 24%
2 show this to be one of Professional development 35% 29%
nonprofits’ most frequently
targeted areas for spending Direct program costs 39% 24%
cuts (reported by 63%). Fundraising event-related costs 37% 23%
Where nonprofits tended to have made the deepest cuts were in spending on professional development
and staff travel. Nearly one-quarter (23%) had reduced their professional development expenditures by
more than 20%, while 6% had cut out these expenditures completely; staff travel, meanwhile, was cut
more than 20% by nearly two in ten NPOs (18%), with 5% eliminating it completely.
While salaries and benefits were among nonprofits’ least reduced expenditures, cuts were nevertheless
made by, respectively, 41% and 31% of all the nonprofits surveyed. For the most part, the cuts made
were in the 1%-10% range. However, 14% of nonprofits cut salaries by more than 10%. This includes
9% who cut salaries by 11% - 20%, and 5% who made cuts of more than 20%.
Nonprofits’ resource and capacity declines reflect declines in revenue. In all, 68% of nonprofits
experienced revenue declines over the past year, while only 14% experienced increases.
The funding sources from which nonprofits were most likely to report declines were foundation giving
(68%), followed by corporate sponsorships (63%), and government funding (62%). Around half also
reported decreases in revenue from corporate grants (54%), individual giving and annual campaign
contributions (both 53%), major gifts from individuals (48%), and special events (48%).1
1
The percentages reported for each funding source represent the percentage of all nonprofits indicating that they rely on
this source. The percentages are, respectively, 91% for foundation giving, 73% for corporate sponsorships, 72% for
government funding, 68% for annual campaign contributions, 76% for corporate grants, 92% for individual small gifts,
83% for major gifts, and 87% for special events revenue.
Impact of Delayed State Payments: Of the 62% of nonprofits who experienced reductions in
government funding, more than half specified the source of these reductions as delayed state
government payments (36% of all the nonprofits surveyed). In virtually all cases, the delays had led to
cash flow problems.
When asked to indicate the average length of the delays, most reported periods of 2 - 5 months (40%) or
6 - 12 months (36%), with only 7% indicating that they had waited a month or less. A full 75% also
reported waiting longer this year than last.
The severity of the impact of the delays is underscored by the actions many nonprofits have taken as a
result. A number reported having increased their lines of credit or taken out short-term loans to deal
with cash flow problems; others have delayed payment of bills or made spending or service cuts.2 To
cite specific examples:
“We amended our bylaws to allow for borrowing. We now run a line of credit to help with cash
flow. We've reduced spending everywhere possible because of the uncertainty of when cash will be
available.”
“We asked staff to go on furlough one day per pay period. We also took out a short-term loan
offered by [a Donors Forum Member].”
“Used line of credit; delayed payment of bills.”
“Cut staff salaries, delayed hiring, and delayed building improvements.”
2
In response to another survey question, 41% of nonprofits reported either taking out a loan or line of credit (16%) or
using an existing credit line (25%) to pay for budget shortfalls, while 33% indicated they had delayed vendor payments.
Where nonprofits were nearly as likely also to have made increases was in the number of individual
donor strategies pursued (74%). This represents a sizable increase over the comparable percentage in
the 2008 survey (57%) and, for many nonprofits, signals a change in overall fundraising strategy. In the
words of one: “Events are not a good investment for our time. We don't have enough volunteers, and
sponsorships are down. [Our] strategy is on individual donors.” Agreed another: “[Our] focus [for next
year is] on better organized major gifts and planned giving programs, as we believe that is where we
have the most opportunity in both the short- and long-term.”
Specific examples of strategies cited also reveal a willingness to try new/non-traditional or more
personalized cultivation methods, such as “small gatherings” hosted by board members, “segmenting the
donor file and asking board members to select names for personal solicitation,” and use of “social
media.”
In addition to the above two activity increases, a majority of nonprofits reported increasing their efforts
to seek collaborative funding opportunities (68%) and reach out to government agencies and lawmakers
who authorize funding (63%).
• Among the reasons given for increasing government/legislative outreach were “to diversify our
revenues [through increasing awareness of our programs/services] and… get help to move funds that
were stuck at the state level,” as well as “to look for Stimulus funding opportunities.”
• As for the types of collaborative funding opportunities sought, these included working with other
organizations on joint grant or government funding proposals, engaging in resource sharing and
cross-marketing relationships, e.g., “sharing mailing lists, opening [our] programs to [other
organizations’] members, and sharing online resources rather than developing our own” – and, on
the part of statewide nonprofits, forming local partnerships.
A majority of the applicable survey respondents (76%) reported that they planned to increase their focus
on strengthening their organization’s capacities/sustainability in the coming year. However, for the
numerous nonprofits struggling with simply staying in operation, the primary focus is, necessarily, on
making necessary budget adjustments and striving to increase revenues. As one respondent put it:
“We plan to stay the course as much as possible. Some programs. . .were eliminated last year. The
demand for our services continues to grow even as our funding continues to shrink. We are looking
for creative fundraising ideas, and ways to do the most we possibly can with the revenues we do
have and only two people on staff.”
The strategy of least interest to nonprofits, meanwhile, was exploration of merger opportunities: 4%
had already initiated such a process, while only 10% planned to so in the future.
Impact of Economy on Current and Planned Grantmaking Activities: A full 90% of grantmaker
respondents indicated that the economy had had at least some impact on their grantmaking activities,
and for 42%, the impact has been “significant” rather than “moderate” (27%) or “slight” (21%). This
impact is reflected in the decline in grantmakers’ assets, in turn reducing the amount of funds available
for grantmaking. In all, 65% of grantmakers experienced a decline in asset value in 2009, with one-
quarter (26%) reporting declines of more than 20%.
For substantial numbers (43%), the economy has also led to changes in program and funding priorities –
most frequently, temporary changes (31%), but, for 12%, permanent changes. These are in line with
their perceptions of nonprofit need. A full 59% of grantmakers reported seeing an increase in overall
volume of funding requests, up from 47% in 2008. In addition, 44% saw an increase in demand for
operating support, compared to only 28% the previous year.
A key component of many funders’ grantmaking strategies is a concern about long-term nonprofits
sustainability. More than four in ten grantmakers (42%) indicated that they had increased their efforts to
support nonprofits capacity building and sustainability in the past year, and more than half (54%)
reported specific strategies they had used.
While none volunteered facilitation of/support for mergers as a currently used strategy, the percentage
reporting plans to do so in the coming year represented a significant increase over the comparable
percentage the previous year: 30% vs. 17%.
There was also a substantial increase in the percentage of grantmakers reporting plans to streamline their
grant review and reporting process. Indeed, a majority reported such plans in the 2009 survey (60%),
compared to only 33% in 2008. That this is viewed as a strategy for enhancing nonprofit sustainability
is suggested by some of the “specific strategies” volunteered by grantmakers, among them:
“Changing [our] guidelines to allow for more flexibility in use of funds across budget categories”
Offering “more operating support, bonus grants when available to long time arts grantees hurt by the
economy” at the same time as “relaxing some [grants] requirements. . . to make things easier for
grantees.”
Specific Threats to
Nonprofit Sustainability: FIGURE 7 - Percent of Grantmakers Concerned about Issues
Grantmakers were asked Potentially Affecting Health of Nonprofit Sector
to rate their level of
concern about eight Decreases in private funding due to the
52% 34%
specific issues affecting economy
the nonprofit sector. Increased demand for services 50% 32%
They expressed the
greatest overall concern Delayed government payments 62% 16%
about decreased private
sector funding (of Reduced government funding 64% 14%
concern to 87%) and
increased demand for Reduced access to credit 28% 32%
services (82%). They
were most likely to be Increased operating costs 24% 32%
very concerned, however,
about government State tax legislation 29% 22%
funding issues (Figure 7).
Increased scrutiny of nonprofits by
10% 33%
These concerns are best government
summarized by one
0% 20% 40% 60% 80% 100%
grantmaker’s comment:
“Given the combination Very Concerned Moderately Concerned
of increased demand for
services and reduced funding, particularly public resources, I am most concerned about the possible
shutdown/failure of even the most capable, responsible organizations.”
The far larger increase in Support for renewal grants (82%) 67%
14%
planned support for capacity
building/ strategic planning Support for capital campaigns (55%) 68%
than other types of funding is 0%
in line with grantmakers’
above-reported strategies for 0% 20% 40% 60% 80%
enhancing NPO % of Applicable Grantmakers
(% of total that each % represents shown in parentheses)
sustainability. Similarly,
grantmakers were less likely to No Change Increase
plan decreases for operating
support (7%) than for other types, including capital campaign support, for which 32% planned
decreases, renewal grants (19%), multi-year grants (17%) and program support (13%).
A full 85% of nonprofits reported that they anticipated needing increased operating support in 2010, and
74%, an increase in program/project support. While grantmakers are more likely to plan increases than
decreases in these types of support, the percentages planning increases are still considerably lower than
the percentages of nonprofits indicating increased need.
Conversely, only 37% of nonprofits anticipated needing increased capacity building/strategic planning
support, while 49% of grantmakers planned to make increases in this area. As previously noted,
nonprofits are also considerably less likely to currently or plan to use a merger strategy (14%) than
grantmakers are to be interested in supporting or facilitating mergers (30%).
Grantmakers’ interest in supporting capacity building and strategic planning initiatives reflects their
concerns about both nonprofits’ long-term survival and ensuring the most effective use of their own
resources. For some grantmakers, this means being more selective in their grantmaking approach. To
cite illustrative examples of grantmakers’ self-described practices and priorities:
“We are focusing more support on the strongest, most effective programs and targeting support for
growth and capacity building to those groups. We are phasing out the programs which are not as
strong and which are not demonstrating that they are likely to improve significantly in the next few
years.”
For their part, nonprofits have responded to reduced funding levels with spending cuts, new fundraising
strategies, and, in at least some cases, use of the capacity building/strategic planning approaches favored
by grantmakers.
“We will engage in a strategic planning process to determine how best to maintain and grow our
current financial position. It might be required that we just maintain the current programs until we
see the economy grow. . .”
“We have already added a director of operations who will focus on fund raising and other revenue
generation. The website is being upgraded and credit card contributions capability is being
inaugurated. Board driven funding initiatives are being launched.”
“Focus on alternative fundraising methods must be employed. This will be achieved with new
Board members who have had prior sales/fundraising experience stepping up.”
“In anticipation of lower revenue, we might have to reduce some of our programs in order to break
even.”
“[Plans are to] identify opportunities for collaborative partnerships to bolster sustainability.”
Survey Methodology
The survey was conducted online during the month of November, 2009. Of Donors Forum’s total
constituency, 186 grantmaking Members and 829 nonprofit Forum Partners were eligible to participate.
Response rates were, respectively, 30% and 22%. As shown in Figures 9 and 10, the survey respondents
were roughly representative of the types of organizations that make up Donors Forum’s two main
constituencies.
40%
32%
30% 27%
18% 19% 16% 14%
20% 13%
9% 9% 11% 9%
8% 8%
10% 5%
0%
Private Private Family Private Corporate Community Public Other
Independent Foundation Corporate Giving Foundation Foundation
Foundation Foundation Program (501c3)
Survey Sample (n=55) Donors Forum Members
40% 36%
33%
30%
18% 19%
20% 15% 13%
11% 12% 11%
9% 8% 10%
10%
2% 3%
0%
Arts/Culture Education Nature/Animal Health Human Society Other
Services Improvement
Survey Sample (n=183) Donors Forum Partners
Related Work
In January 2010, Donors Forum also published Fair and Accountable: Partnership
Principles for a Sustainable Human Services System. This seminal document
recommends practices that should be followed when the City of Chicago or State of
Illinois contract with nonprofits to provide human services. The practices, which
include mutual accountability and the provision of adequate funding, are designed
to help ensure that Illinois residents have access to high-quality human services
that meet their needs. To read or download Partnership Principles, visit
http://www.donorsforum.org/goodpartners/.