Protecting Nonprofits That Protect Us During Crises—and Beyond

When schools and daycares shuttered, when food and other supply chains broke, who delivered baby supplies to parents juggling virtual work and young children? Who opened emergency childcare centers for the frontline workers who didn’t have the luxury of working from home? Who brought food to housebound elders?

It wasn’t for-profit companies. The nonprofit sector, along with community-based mutual aid networks, stepped up to meet immediate needs. If we want nonprofits to support us in the next crisis, they must have sufficient resources. And to know what nonprofits need to do their jobs effectively, we must ask them directly.

To that end, the Nonprofit Finance Fund conducted its ninth national State of the Nonprofit Sector Survey in the first quarter of 2022 to ask nonprofits about how they were faring and their resource needs during this once-in-a-generation moment.¹ We sought to understand the financial situation of nonprofits writ large during the pandemic and racial reckonings, focusing on organizations led by people of color. We gathered a sizable national sampling of 374 BIPOC-led organizations, 719 white-led organizations, and 75 organizations whose leaders’ racial or ethnic identities spanned multiple categories, none of the presented categories, or was unknown.

Disaggregating by race allowed us to do a meaningful comparison when answering questions like, “Did organizations have the resources to meet changed community needs? Were they able to keep up with service demand? Did all organizations have equitable access to funding?” Some of the results surprised us in a positive way; others did not.

Strong communities need strong nonprofits

Government, philanthropy, and community members all relied on nonprofits during the COVID pandemic. Among survey respondents, 71 percent saw an increase in service demand during the pandemic. Nonprofits organized food drives and distributed other necessities to people who were sick or at risk or had lost jobs due to the pandemic.

Nonprofits pivoted nimbly when needed during the past two years, adapting to rapidly changing client needs. As a result of the pandemic, 88 percent of survey respondents developed new or different ways of working that led to positive outcomes. Just over half (51 percent) of respondents think these changes could be permanent. For example, a Boys and Girls Club chapter in upstate New York opened its doors to students who could not attend school virtually because they couldn’t afford internet access or there was no adult to stay home with them. The organization also instituted mobile school supply delivery.

Another infant development organization typically conducted home visits for new mothers and babies. When the pandemic hit, they used newly unrestricted funding to purchase sturdy strollers for participating mothers so that the organization could continue its programs outdoors, with the added benefit of fresh air and exercise. These adaptations opened the organizations to new ways of engaging with the community and conducting their work that continue today.

What factors facilitated nonprofit responsiveness?

Funding restrictions often limit nonprofits’ flexibility. As such, we were pleased to see many funders release restrictions and fund quickly and generously during the crises of the last two years. While we recognize the potential for survivor bias in who was able to respond to our survey, it was gratifying to see that 70 percent of survey respondents saw their funding increase during the pandemic from 2019 levels. Nonprofits were given more freedom to choose how to spend money and were less burdened by application and reporting requirements: 57 percent of nonprofit respondents reported that since March 2020, foundation funders have been more flexible with how they distribute funds. Indeed, in fiscal year 2021, 36 percent of survey respondents received more than half of their funding in unrestricted funds, including general operating support.

In addition to increased foundation giving, community development financial institutions (CDFIs), including Nonprofit Finance Fund, also stepped in, partnering with government and philanthropy to quickly make low- or no-interest loans to nonprofits through special set-aside funds, such as the New York Forward Loan Fund and the NYC COVID-19 Response & Impact Fund. Additionally, the Paycheck Protection Program offered forgivable loans (de facto grants) that helped nonprofits shore up finances damaged by the pandemic. In a sector that often must fight for a 10 to 15 percent indirect cost rate reimbursement from government, this was a wonderful change.

Racial injustice persists in nonprofits

Thanks to such infusions of cash, many nonprofits not only survived the pandemic, but emerged in a relative position of financial strength. That said, not all nonprofits have benefitted equally from this unexpected gain in financial stability, and racial disparities remain significant.

In 2020, the murder of George Floyd (and Breonna Taylor, among countless others) and the mass uprisings that resulted sparked widespread calls for justice. Anti-Asian attacks in places like Atlanta and San Francisco ignited the Stop Asian Hate movement. Many nonprofits were on the frontlines of these movements for racial justice and equity. While their presence drew promises of support from corporations and corporate philanthropy, many of those promises have yet to be delivered on.

The data from our survey confirm notable disparities in the financial health of organizations along racial lines. For example:

Unrestricted funding: While 41 percent of white-led survey respondents received half or more of their 2021 funding as unrestricted funds (including general operating support), only 26 percent of BIPOC-led organizations did.
Nonprofit financial health: Nearly two thirds (66 percent) of white-led organizations in our survey ended fiscal year 2021 with a surplus, as did 64 percent of AAPI- and Latinx-led organizations. But only 49 percent of Black-led organizations ended FY2021 with a surplus.
Corporate donations: Despite corporate pronouncements, only 58 percent of BIPOC-led nonprofits received corporate donations, compared to 71 percent of white-led nonprofits.

Resource inequalities run deeper. White-led nonprofits were more likely to receive revenue than BIPOC-led nonprofits in each of the following: sales income (23 versus 11 percent); federal contract income (46 versus 32 percent); and investment income (33 compared to 16 percent).  Such data is symptomatic of systemic racism in the nonprofit funding system that must end—immediately.

Moving from equity commitments to action

In our years working in the nonprofit sector, we have never seen more awareness of and commitment to social justice and racial equity. Now is the moment to replace the old funding system with a better one that eliminates racism and power imbalances between those who hold the money and those who spend it in service of social good.

A few things that funders and government can do to lead us on that positive path are:

Direct funding to leaders with lived experience. Funders should seek out organizations whose leaders have deep knowledge about the communities they serve, for people closest to a community are most knowledgeable about what is needed to help that community reach its aspirations and address its challenges. In our survey, 57 percent of BIPOC CEOs/EDs have lived experience that is representative of one or more of the communities their organization serves, compared to 18 percent of white CEOs/EDs.
Increase funding duration and flexibility. Funding is a constant stress for most nonprofit leaders. Eighty-two percent of BIPOC-led organizations reported long-term sustainability as a top challenge, as did 69 percent of white-led organizations.

If a funder believes in an organization’s work and impact, trust the organization. Let them make decisions about how to use their funds to achieve impact. This means providing multi-year funding so that community organizations can spend more time delivering services and less time chasing funding.

Pay for the full cost of doing the work you want done. If you walked into a restaurant and said, “I’ll only pay for the portion of my meal that covers the meal ingredients,” staff would tell you to take your business elsewhere. Nonprofits rarely have that luxury. They pay rent and salaries, just like a restaurant does. And when they don’t get paid full cost for the services they provide, nonprofit workers suffer. Paying full cost translates to frontline workers receiving a living wage and contributes to nonprofits’ overall impact.
Listen to nonprofits—and the communities that they serve. For funders, this means bringing nonprofits and/or community members into the grantmaking process. And funders should not be extractive; this means paying nonprofits and community members for their time. This is the best way to reach newer, community-centered nonprofits—especially BIPOC-led ones that have often been excluded from traditional funding networks—and to structure funding in ways that support community needs and desires.

For government officials, it is imperative to listen to nonprofits’ experiences of the government contracting process. Is it working well, or not?

Some specific questions that officials can ask themselves include: Is the government agency making payments to nonprofits to cover costs up front, or does it require cash-strapped nonprofits to front all the costs? Are nonprofit contracts paid on time? How many administrative hoops do nonprofits have to jump through, and how much paperwork do they have to fill out, to be government contractors?

When governments fail to listen to nonprofits and address such concerns, they leave out smaller, grassroots nonprofits that can’t afford to surmount resource/financial obstacles. This, of course, reinforces racial and economic injustice.

Moving forward

The COVID pandemic laid bare inequities in the nonprofit funding system. As a result, the field saw some changes to these inequitable practices. But there is still much work to do.

One important step is to consolidate and make permanent these recent changes, rather than reverting to the old ways of doing business. It is also important to accelerate efforts within the nonprofit sector toward racial equity.

In a system defined by racial injustice and imbalances of power, failure is certain. However, with strong, equitable nonprofits supporting vibrant communities, gains in social well-being become possible.

Notes