What's the impact of the economic downturn on the nonprofit sector?

Guest blogger John Bridgeland is President & CEO of Civic Enterprises, a policy firm that helps corporations, nonprofits, foundations, universities and governments develop and spearhead innovative public policies to strengthen our communities and country.

As Americans struggle through this current economic crisis, the non-profit sector faces its own challenges. The evaporation of wealth has decimated charitable donations; the state and local budget crunch is costing nonprofits their foremost paying clients; and the need for nonprofit services is skyrocketing as nonprofit resources shrink.

In a recent report, The Quiet Crisis: The Impact of the Economic Downturn on the Nonprofit Sector, Bruce Reed and I survey the plight of America’s nonprofits, and offer a road to recovery. Among our findings:

• Nonprofits are a linchpin of the American job market: More than 14 million Americans – 11 percent of American workers – are employed by or volunteer full-time in the nonprofit sector. That’s more than the financial industry and the auto industry combined;
• Churches, many of which deliver social services to the poor and needy, raised $3 billion to $5 billion less than expected in the last quarter of 2008;
• United Way saw a 68 percent increase during the past year in the number of calls for basic needs such as securing food, shelter, and warm clothing;
• Chicago’s Meals on Wheels is trimming its budget by 35 percent; and
• The State of Arizona reports an increase of more than 100 percent in the number of people who sought social services from 2007 to 2008.

We suggest a series of post-partisan solutions designed to spur nonprofit recovery and give more Americans the opportunity to serve, including:

• Pass the Serve America Act. In his address to Congress last week, President Obama called on legislators to send him the Serve America Act, authored by Sen. Orrin Hatch (R-UT) and Sen. Edward Kennedy (D-MA), which will triple to 250,000 the opportunities for Americans to perform national and community service to meet compelling needs (such as increasing high school graduation rates), establish a tax incentive for employers who allow employees to take paid leave for full-time service, create “Encore Fellowships” to help retirees serve long-term, establish a “Volunteer Generation Fund” to help nonprofits organize more volunteers to meet demand, and provide support to social entrepreneurs – the innovative designers of the nonprofits that solve our nation’s toughest challenges;
• Adopt tax incentives to expand private giving and volunteering. Making the tax code nonprofit-friendly would help to keep up contributions from ordinary Americans. Some of the targeted incentives highlighted in the paper include: extending the IRA rollover so that those over 70 years of age can make tax-free withdrawals to contribute to charity; creating a broadbased nonprofit investment tax credit; and allowing taxpayers who do not itemize to claim a deduction for charitable contributions;
• Create a “Social Innovation and Compassion Capital Fund.” A fund established to give capital to social entrepreneurs, invest in new ideas and approaches, and improve existing systems could give innovation in the nonprofit community a much-needed boost; and
• Utilize nonprofit housing and financial institutions in solving the nation’s massive mortgage and foreclosure problems. The federal government should make full use of community development financial institutions and nonprofit housing organizations that already oversee billions of dollars in mortgages and loans to low-income communities and individuals, but are driven by results – not bonuses. In fact, at many of these institutions, the entire payroll is smaller than the executive bonuses at the major financial firms on Wall Street.

So far, the economic debate has almost completely overlooked nonprofits. That is a mistake, because no sector offers more bang for the buck. National service organizations, such as Teach for America and Habitat for Humanity, can create hundreds of thousands of jobs at a lower cost than the private sector. The new jobs have no added bureaucracy, since individuals work through existing nonprofits and at a low cost to government. Furthermore these full time service positions will leverage millions of Americans eager to serve and address our country's most pressing challenges. We need more opportunities for Americans to do good works in hard times.