Nonprofits face uncertain future due to COVID-19

A “Wild West” kind of climate has affected many businesses since the Coronavirus descended in March, but perhaps no other group has been as heavily impacted as Jacksonville’s nonprofit sector.

Many of Jacksonville’s charitable organizations were holding their own until COVID-19 hit, leaving the Nonprofit Center of Northeast Florida, Jacksonville’s vital support system for the region’s not-for-profit entities, scrambling to figure out what is needed to assist its clientele as it works to safely re-open and re-enter the economy.

In a State of the Sector talk given on the Zoom video conference platform May 14, Rena Coughlin, CEO of the Nonprofit Center, discussed the state of the nonprofit sector pre- and post-virus with members of the Planned Giving Council of Northeast Florida.

“We need to understand what indicators we should be measuring to determine how well a nonprofit will emerge from this recessionary economy,” said Coughlin, noting the Nonprofit Center has been hosting weekly COVID-19 resource calls, flash polls, and has set up four subcommittees to create and collect resources for the sector. It also has been asking nonprofits to fill out a “changes in the sector” survey so it can “better get a handle on everything as we move into a summer with lots of unknowns.”

“It’s important to take the survey because it’s important that we benchmark what the sector is doing. I’ve been approached by funders and by those in local government who have been basically accusing the sector of not taking advantage of the relief that has been offered,” she said.

Pre-COVID State of the Sector

Coughlin began her talk by giving analysis and an overview of the nonprofit sector in Northeast Florida, which has been done in partnership with research funding from the Jessie Ball duPont Fund. Using information gathered from 990 and 990EZ forms from the Internal Revenue Service, Coughlin said there are 8,027 nonprofit organizations on the First Coast, but that 6,336 do not file a 990 form, so their data has not been used in the analysis. Instead data is derived from the 1,320 organizations that filed in 2016. 

There has been substantial growth in the 18-year span from 1998 until 2016, when the sector grew from 427 organizations to 1,320. She attributed the growth to better IRS enforcement, and noted Duval County is the “900-pound gorilla” with 902 nonprofits, including several that serve multiple counties. Nassau County has 68, Baker County, 11, Clay County, 102 and St. Johns County, 237, signifying it is a particularly high growth area with many new sports and recreation organizations.

One project the Nonprofit Center is working on is assisting the U.S. Census in numbering hard-to-count populations, she said. “Having a vital nonprofit community in these counties makes our ability to reach out to hard-to-count populations much easier. I think that is another way to think about the impact of the nonprofits. We know we are the most trusted to work in a community, so when it comes to a project like completing the census, having a strong nonprofit community is truly helpful,” she said.

Since 2012, the First Coast has added 51 education nonprofits serving clients from birth to grade 12. Second was religious organizations with 44, followed by human services general with 38, general health with 33, sports & recreation with 30, and arts and culture with 28. Currently, the First Coast has 3.99 nonprofits per 1,000 people, she said, noting that the average in the United States is 3.98. “The numbers may sound large. What I hear from my peers is ‘Wow, there are so many nonprofits, how are we all going to survive?’ But when you look at the number per capita compared to other states and the U.S., we aren’t any different, so it seems to be consistent,” she said.

Nearly 50% of the nonprofits in Northeast Florida fall within five groups by mission: Religion, 9.8%, health general 9.7%, human services general 9.4% and arts and culture 8.9%.  One of the smaller groups is international with 5.6%, which Coughlin said she expects to shrink down even further in the future due to the federal government’s recent crackdown on immigration. “We lost two affiliates that did refugee resettlement in our community, and I don’t think that will be easier in the future with the Coronavirus. That will be a number we want to watch,” she said.

Viewing aggregate revenue and aggregate assets among the 501 (c) 3s there seems like a strong balance sheet, she said, especially if you look at employment. Altogether the nonprofit sector boasts $8.56 billion in revenue, $7.33 billion in assets, and 72,188 nonprofit employees, making the sector the third largest civilian employer in Northeast Florida. However, most organizations are small, with 72% pulling in less than $500,000 in revenue. Only 5.2% have more than $10 million in revenue, followed by 14.7% with revenue between $1 million and $10 million, and 8.1% with revenue between $500,000 and $1 million.

“When we take out nonprofit health institutions from the statistics, we see a huge drop in all of those numbers – 72,188 employees goes to 28,483, while the $8.56 billion in revenue goes to $2.72 billion, she said, adding that of the 15 largest First Coast nonprofits, only three – Step Up for Students, Wounded Warrior Project, and Jacksonville University – are not health related. “There’s the sector, and there’s the sector with health institutions,” she said.

Of the three ways nonprofits are funded – earned income, government funds and contributions – locally 69% of all funding for First Coast nonprofits comes from earned income with 5% from government funds and 22% from contributions. Meanwhile, if one excludes the health nonprofits from the equation, the picture changes dramatically. Only 27% of those nonprofits survive on earned income, while government funds make up 14% and contributions play a much bigger role of 55%. “This is important to think about as you assess the long-term impact of the Coronavirus pandemic on nonprofits,” she said.

In 1998, approximately 31% of all nonprofits operated in the red, and the number in 2017 – pre-COVID — is slightly higher – 35%. In the recession of 2002, the number soared to 42% only to be outdone by the Great Recession of 2008 when the number rose to 44%. Since its height in 2009, the numbers have fluctuated slightly downward hovering around 37% and 38% most years, until its lowest in a decade came to 34% in 2016, with 2017, ticking slightly upward before COVID-19 hit. “What this doesn’t tell you is that although they closed the year in the red, it could be by $3.58, $3 million or $580,000. We have no idea. However, this is an important trend line for us because you can see it follows almost exactly the economic trend line. In 2001, after 9/11, we had a recession, and the number spiked to nearly 42% of organizations closing the year in the red. We’ve had a gradual trend line down to 33% just in time for the Great Recession, when we had a peak of nearly 45% of nonprofits in the red. We also saw a steep decline in their asset base, which means they were digging into their assets to survive the recession. I believe this has left them weaker as they enter this next difficult period. This trend line has never come back to pre-recession levels, which is worrisome, Coughlin said.

Aggregate Giving Adjusted for Inflation
Aggregate Giving Adjusted for Inflation

Contributions paint a similar picture, indicating that individual wealth has not fully recovered from the Great Recession. Considering data based on polling IRS forms of individuals with itemized deductions, contributions were just under $1 billion in the pre-recession year of 2007, and by 2016, they are at $1,014,379, just slightly above the 2007 level. What’s really concerning is that when viewing the average gross income of those donors, its slightly down when you consider all donors but is considerably less for upper income donors, dropping from an average of $679,067 in 2007 to $493,838 in 2016, she said. “There’s a 30,000 drop in the number of persons who itemized on their tax form as donors from 2007 to 2016,” she said. “That’s a tremendous decrease. What we don’t know is if those donors are contributing in some other way or have established a donor advised fund, or are giving online and not recording it, but I think to some extent it is a true decrease.”

It is also important to note that the bulk of giving to nonprofits has shifted dramatically to upper-income donors in the decade from 2007 to 2016. With the numbers adjusted for inflation, in 2007, lower-income donors gave approximately $388 million, which was just slightly above gifts from upper-income donors of $376 million. This changes dramatically in 2016, with lower-income donors falling to $320 million, while upper-income donors climbed to $443 million. “Upper-income donors, even though their average gross income has not rebounded, are making up the difference,” she said, noting lower-income donors have an adjusted gross income (AGI) of less than $100,000, while upper income donors have an AGI of more than $200,000.

COVID-19 impact

Although it may seem like nonprofits may be in for a bloodbath as the COVID-19 economy marches on, it may not all be bad news, Coughlin said.

In recent polling done by the Nonprofit Center, 74% of the nonprofits said donors had reached out to check on them, while 20% were providing advocacy for the sector and 30% offered to provide nonfinancial support, and 23% said they had received some kind of help or assistance from their donor partners. Of note is that 39% of donors have offered to convert program funding to operations funding. “I think this is a critical and bold move for many funders,” Coughlin said.

Much of this has to do with “trust philanthropy,” a new concept which promotes a higher level of trust between nonprofits and donors, especially when it comes to trusting the organizations they have invested in will make the right decision when using their funds during extraordinary circumstances in a different way than specified. Trust philanthropy is currently being pushed by the Council on Foundations, which is offering a pledge to be signed by both donors and organizations, said Coughlin, adding the Community Foundation of Northeast Florida has signed the pledge. 

This is important considering the dramatic changes many nonprofits have been forced to make due to COVID-19. In a recent survey, 34% of nonprofits said they have converted to all virtual operations, while 28% have formed a hybrid way of operating by using both in-person and virtual methods. Meanwhile, 14% of the nonprofits have closed operations except for essential services, and 14% have stayed fully in-person operationally by occupying their physical office space. Only 4% reported that they have entirely ceased operating.

COVID-19 has also taken a toll on staffing. Nearly 30% of the nonprofits polled said they have laid off or cut staff, which is an increase from the Nonprofit Center’s first flash poll done just after the crisis started when that number was below 15%. “We are seeing this number inch up every time we ask,” said Coughlin.

Percent of First Coast Nonprofits Operating in the Red
Percent of First Coast Nonprofits Operating in the Red

And 50% of the nonprofits said revenue has been lost during the pandemic due to the forced cancellation of fundraising events, while 30% said they had lost revenue due to their inability to deliver services.

But most impactful is the loss of volunteers, many of whom were fulfilling staffing rolls. Nearly 40% of the nonprofits are suffering due to a loss of volunteers, while 28% said there has been an increased demand for their services, and 33% said converting to a virtual world has been significantly difficult.

Contrary to what many funders and governmental officials believe, First Coast nonprofits – the majority of which earn $500,000 or less – have been applying for the lifelines that have been offered by the local and federal government. Of the nonprofits recently polled by the center, 67% have applied for the Paycheck Protection Program (PPP) while 3% were planning to apply. Of the organizations that applied, 91% were successful in getting a grant, while 9% were still waiting to hear. “I had to say I’m blown away by this statistic,” Coughlin said. “The absolute angst and terror we were all confronted with to meet the PPP deadline, and it seems now there was a significant amount of success in the sector,” she said, also noting that 33% also applied for help from the City’s VyStar small business loans, the First Coast Relief Fund, or Eidl (Economic Injury Disaster Loan).

Also, of interest will be how stimulus checks from the federal government will impact the nonprofit sector. “It’s almost as if we have a micro laboratory to see how universal basic income could influence the demand for services,” Coughlin said. “I know the First Coast Relief Fund had a significant drop in their requests for assistance immediately after stimulus checks went out. Perhaps there is a way for us to think about the future with direct service, direct income support that allows the nonprofit sector to respond to the community need.”

Coughlin also said that Mari Kuraishi, president of the Jessie Ball duPont Fund, reported during a recent webinar that many nonprofits have assumed donations would decrease during the pandemic, but a poll indicates most donors have no intention of decreasing their giving. “Where the truth lies, we will have to stay tuned to find out,” she said.

“Depending on your revenue streams, ability to work remotely, the services you provided, and whether you were forcibly able to connect with the community or not – all of that has made a huge difference and has pointed out how complicated the nonprofit sector is,” said Coughlin. “It’s clear to me that it has taken longer for us to come back from the 2008 recession, so what will happen and how long will it take to come back from the Coronavirus recession? No one knows.”

Connecting-by-Caring is how you can help

COVID-19 has forced many nonprofits to dramatically change the way they do business, with many converting from in-person organizations with many volunteers to virtual operations. Although it is too early to determine what long-term affect the pandemic’s seismic change will have on the health of the nonprofit sector, it is obvious that nonprofits need extra support as they navigate through unsettled economic waters. And there is a way you can help. By supporting The Resident’s Connecting-by-Caring Campaign, it is possible to support nonprofits that care for the most vulnerable in our community while also supporting the community newspapers that cover the sector closely and provide the best that fiercely local journalism has to offer. A creative look at the paying-it-forward principle, the Connecting-by-Caring Campaign allows you to both assist your favorite charitable organization while also supporting the neighborhood newspaper you love. Instead of simply giving a monetary donation directly to a nonprofit, we ask that you entrust that money to our publication so we can design, write, edit, and complete a marketing campaign of your choosing. This kicks into action the “multiplier” effect by doubling or tripling your impact as your message is delivered directly into 30,000 households in Jacksonville’s historic neighborhoods. For more information about the campaign and your role in it, please contact Debra McGregor at 904-885-6031 or Seth Williams at 904-885-6849.

By Marcia Hodgson
Resident Community News

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