Washington's non-profit safety net dilemma

Cuts to the state budget mean many Washingtonians are leaning harder on non-profits for basic services. What does that mean for the organizations they're turning to?

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A soup kitchen feeds the homeless in Detroit.

Cuts to the state budget mean many Washingtonians are leaning harder on non-profits for basic services. What does that mean for the organizations they're turning to?

The Mount Baker Community Club is one of those essential Seattle structures that has provided a roof for many private non-profit organizations striving to raise money and awareness for housing, sexual violence, human rights, legal aid, and all the other private non-profit energy in our town. 

I was there last week for the retirement — after 19 years — of New Beginnings' Lois Loontjens, who ran this respected domestic violence program. I knew how important the program is to the people it helps, if only by association; my wife served on the board for a number of years and was twice appointed board president. Listening to the program however, I began to realize how much I had taken for granted the fact that Lois, joined by many hundreds of volunteers and very young people working for less than their talents would bring elsewhere, decided to place their lives in the path of such a distressing social problem. 

The visit got me thinking about the private non-profit infrastructure in America and the role it plays in fixing up, protecting and advocating for the people and places with whom we share the country. I wondered how this human infrastructure is surviving the recession. How many more people who once looked to government now look to them? What’s the future of this sector of our society? 

New Beginnings is a relatively strong non-profit. The organization provides emergency shelter annually for nearly 400 women and children. It houses another 62 people in transitional housing — longer term placement while the clients get on their feet, get their kids back into school, find a job, and restore their dignity. It also provides legal advocacy for another 700 people, fields 4,000 calls annually from women trying to protect their children and themselves, and gives young professionals — their board members and employees — a leg up, teaching them the discipline, commitment, and communication skills that make them effective advocates.

Financially too, New Beginnings does well, raising about $3 million a year and nearly $14 million over the past five years. 

“It is doing work that matters,” said Lois in her remarks, “it is doing work that enlarges you and doesn’t grind you into the dirt.”

Still, not all non-profits have seen the world through such rose-colored glasses since the recession began in 2008. Many are struggling under the increased burden created by cuts in government social services; a burden weighted down even further by cuts to their state and federal funding. 

In the long-term, things don't seem so bad. Donations from all sources — corporations, foundations, individuals, and bequests — have remained relatively steady over the past 40 years at just a little over 1.5 percent of GDP. However, beginning in about 1995, donations grew steadily, topping out in 2005 at 2.35 percent of GDP. The recession has brought the curve back closer to earth; charitable giving as a percentage of GDP now stands at about 2 percent.  

But that's not the whole story. Individuals, by far the largest single donors to charities, total 80 percent of all donations and the recession hit them hard. Individual donations to 501c3 organizations dropped 7 percent in 2008 and an additional 6 percent in 2009. By 2010, things were looking slightly rosier: No longer declining, individual donations had inched very slightly back up.  

This trend was magnified across the entire non-profit industry. In the six years between 2002 and 2007, surveys by GuideStar — a company that provides online links to IRS tax filings by non-profits and trend analysis of their contributions and expenditures — showed that contributions to selected non-profits had been steadily and robustly increasing until 2007. Fifty-two percent of reporting non-profits that year said that their contributions had increased over the previous year, compared to just 19 percent who said their contributions had decreased.

The punishment of the financial crisis was swift. In 2008 only 38 percent of non-profits said their contributions had increased, while 35 percent reported a decrease. The next year, 2009, 51 percent of non-profits reported decreases and 23 percent increases. Finally, in 2010, things eased up. The percentage of organizations reporting decreased contributions was down to 37 percent and 36 percent reported increasing contributions. The 2011 report was much the same, though with a slight improvement. 

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One important factor in the health of the non-profit community is the effect of state budget cuts on human services non-profits, which make up about a tenth of 501c3s across the country. These organizations deal with housing and shelter, youth development, community development, employment training, health care, and nutrition, and for political and service delivery reasons, they have strong relationships with states. 

Between 2008 and 2010 they saw a loss of $425 billion in funds from state budgets. 

In Washington state alone, the state budget has been cut by $10 billion between January 2009 and January 2012. Perhaps 10-20 of those cuts affect human services non-profits directly. The state will cut another another $1.5 billion after decisions are made in Olympia this spring. The recession’s hit on state tax revenue means human services non-profits are now facing serious collateral damage, with the feeling that these reductions are not going away any time soon.

At the same time, demand for the services provided by non-profits is increasing. GuideStar reported that 65 percent of non-profits said that demands for service increased very substantially in 2011 over 2010.

Even the numbers compiled in surveys like GuideStar’s mask the circumstances of smaller non-profits who live closer to the economic margins than their larger non-profit colleagues. Ninety percent of 501c3 organizations have budgets under $3 million and 75 percent have budgets under $500,000. These smaller entities are twice as likely to see decreased income from both private and governmental sources. They are more likely to lay off staff, more likely to draw harder on their smaller fiscal reserves and more likely to rely on a narrow band of supporters for donations.

Of the group of small non-profits under $250,000, 20 percent reported to GuideStar that they were considering ceasing operations in 2012 for fiscal reasons. 

Though they are perhaps the most vulnerable of the recession's victims, users of non-profit services would not be the only victims of collapsed non-profits. The Johns Hopkins University Center for Civil Society counts the number of people employed in the non-profit sector nationally at nearly 11 million. That compares to agriculture's slightly more than a million jobs, insurance and financial services' 5.5 million, construction's 5.5 million, manufacturing's 11.5 million, and retail trade's 14.5 million. In 24 of our states, the private non-profit sector produces more jobs than manufacturing. 

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These jobs are not, as some think, a rag-tag collection of part timers thrown together in support of a cause. A German study of its private non-profit sector says that German private sector employment has a profile in which one part time worker exists for every three full time jobs. In Germany’s private non-profit sector, however, one in eight jobs is part time. Johns Hopkins also reports that in many sectors, such as in health care and education, the non-profits pay employees more than their for-profit colleague institutions.

There is some good news. The outlook for non-profits appears slightly better, taken as a whole. The uptick of individual donations, however slight,  is a sight for sore eyes after two years of plunging investment values and individual donations.

Still, the strength of the states as a partner to non-profits remains a wild card. The effect of the stimulus package, which buoyed state budgets, particularly in health funding, has all but run out. Some state governments, our own included, have a kind of third world quality to them, their social safety nets fully tattered. Their boom or bust tax systems have amply demonstrated again how quickly good times give way to bad. The $10-$12 billion in cuts will not be restored any time soon and many non-profits will have to lean a bit harder on their donors, volunteers, and stockbrokers. Many smaller non-profits remain at risk.

Back in Mount Baker, the ceremonies at the community club conclude and the mostly young audience crowds around the woman who is leaving. Despite all that has happened, New Beginnings has kept to its mission of protecting women and children from abusive relationships. 

Their budget has more exposure to state and local funds than they would like and they have little investment income. They would like to do more — the demand, especially for emergency shelter, far exceeds what they can provide — but they are realistic about getting through this hard time, focussing now on working hard to advocate for their existing clients and waiting for better times to serve more. 

What is impressive is that they are here at all, under the sheltering roof of the Mount Baker Community Club, calm and dedicated to something way beyond themselves. They file out the door into a rainy Seattle night, fumbling with their umbrellas and keys, about to meet people tomorrow or the next day who they do not know but who need them completely and for whom they will do their best.


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