Nonprofits Aim to Recover After Shutdown Disaster

Communities across the country breathe a collective sigh of relief this week as the federal government re-opens. What should nonprofits take away from the historic 35-day partial federal government shutdown that National Council of Nonprofits called “an unnatural disaster created by the President and Congress”?

Damage Assessment and Response

As the government shutdown unfolded, policymakers, media, and local citizens looked to nonprofits to help assess the damage caused by the shutdown and offer solutions. However, in fulfilling their role as first responders, nonprofits did not get many opportunities to describe their own challenges.

The shutdown dramatically increased need for services nonprofits already struggled to deliver. In fall of 2018, a survey conducted by Nonprofit Finance Fund found 86 percent of nonprofits reporting a rising demand for services, but 57 percent said they would not be able to meet that demand. At the end of the year, federal employees joined those lines for services and assistance.

In response, many nonprofits quickly formed partnerships, like the United for U.S. Coalition, to help federal workers and address emerging needs at local, state, and national levels. Countless individual organizations also opened services specifically for federal employees and others experiencing new hardships due to the federal shutdown.

Alan Abramson, George Mason University professor and Independent Sector Visiting Scholar, observed that not all nonprofits were able to expand services, because the shutdown impacted their bottom line as well.

“The federal shutdown has pulled back the curtain on the complicated way we fund critical services in this country,” Abramson said. “Many Americans believe that the nonprofit service providers in our communities rely mainly on charitable contributions for their funding. The truth is that government – especially federal funding that flows through state and local governments – often makes up a larger share of nonprofit revenue than contributions from all philanthropic sources combined. Many nonprofits were financially squeezed because the federal shutdown closed off an important source of their income.”

For some organizations, even when they are able to step in and provide services typically covered by government, they are not guaranteed to be reimbursed for their expenses.  The Nonprofit Quarterly recently reported on how communities were faring. In one of their examples, they found that an organization had to spend about 10 percent of their 2017 net assets to cover the expenses of the shutdown – a significant expense that essentially pays for the same service twice.

Even when funding isn’t at stake, nonprofit missions hit major roadblocks without key federal resources. A survey by CalNonprofits found that organizations seeking to help low-income households file their taxes could not access needed software from the Department of Treasury during the shutdown. Other organizations couldn’t obtain critical information about the status of applications submitted to federal agencies, significantly slowing their work.

Long-term Recovery

Understanding the full impact of this political crisis will take time and recovery will be slow. Even as they return to work this week, nonprofits remind us it will take time for many federal employees to regain their financial footing. National parks are beginning efforts to repair damaged caused during the shutdown, such as a tree cut down in Joshua Tree National Park.

Nonprofits desire to step in to alleviate immediate need meant diverting critical resources from other aspects of their mission. Some may have had to spend down any small amount of reserves they might have, which is problematic considering 62 percent of nonprofits report financial stability as a top challenge. Like federal workers, it is unclear how long it will take for many nonprofits to recover financially.

Unfortunately, for some organizations, charitable giving may not be the answer to their financial woes. Historically, charitable giving tracks the country’s economic performance. The nonpartisan Congressional Budget Office estimates that the shutdown will create a net economic loss of $3 billion. What will this drop mean for giving to nonprofits already strapped for resources?

CalNonprofits’ survey found some nonprofits are lowering their fundraising goals for 2019. “We participate in the Combined Federal Campaign, where federal employees can donate to charities through payroll,” one survey responded reported. “[The shutdown occurred] in the middle of the campaign which runs from the fall until January 11 for the year. So if they are not working they are not pledging to donate.”

This decline in giving may be in addition to any drops nonprofits see as a result of 21 million fewer Americans claiming the charitable deduction this year.

Preparing for the Next Disaster

Like many disasters, it is difficult to predict when they may strike again. Currently, policymakers and pundits disagree as to the likelihood of another shutdown occurring in three weeks. However, this last disaster visibly damaged so many communities, both parties may be wary of allowing it to occur again in such a short time span.

Whether three weeks or three years, the critical takeaway is for nonprofits to be prepared for the next government shutdown. Eric Fraint, founder and president of Your Part-Time Controller, told the Philadelphia Business Journal recently, “the time [for nonprofits] to start planning for the next one is now.”

Here are some ways nonprofits can prepare for the next ‘unnatural disaster’:

  1. Save for the Next Storm: When managing your organization’s finances, try to retain a small amount of funds in reserve for when government reimbursements are delayed or there is an unexpected spike in need.
  2. Do Not Expect Reimbursement: As you plan for potential expenses during a government shutdown, do not expect that those expenses will be reimbursed once the shutdown ends. Just to be safe, consider making decisions on how to allocate limited resources during a shutdown assuming that your costs will not be recouped.
  3. Join Response Coalitions: Your organization does not need to shoulder the burden of responding to a political crisis alone. Connect with other nonprofits in your area to determine how to best respond to “unmet needs,” whether through a community committee or using the 2-1-1 service in your area.
  4. Document and Report Damage: Nonprofits are on the front lines during these crises and are often the first to know emerging needs. In addition to serving people, please document stories of how government shutdowns impact your community and share them with media and policymakers. State and national associations are often ready to help (for example CalNonprofits, NH Center for Nonprofits, and National Council of Nonprofits).
  5. Assess Opportunity Costs: Government shutdowns, like disasters, quickly divert resources away from other mission-related work. Carefully assess how responding to needs during a shutdown may create trade-offs that impact your long-term organization goals. What are the circumstances in which the trade-offs are worth it?

The 35-day shutdown illustrates how the nonprofit sector is not a substitute for the whole government. Nevertheless, policymakers and communities need to make on-going, long-term investments in nonprofits to ensure our organizations are healthy and ready to respond when the next disaster – natural or unnatural – strikes.

Types: Blog, Policy Update
Global Topics: Administration, Congress, Public Policy, Voices for Good
Policy Issues: Charitable Giving, Nonprofit Operations, Tax & Fiscal Policy