Financial crisis will kill nonprofits

Published December 01, 2008 @ 03:25AM PST

Cuts in government spending and dwindling donations provide a double whammy for many agencies.

At least 100,000 nonprofits nationwide will be forced to close their doors in the next two years as a result of the financial crisis, according to Paul Light, professor of public service at New York University.

The dire prediction was made Wednesday at a forum on the impact of the crisis on nonprofits and social service delivery in New York City.

The financial crisis is already resulting in a steep drop in funding for these organizations, forcing them to cut their budgets, and eliminate staff and programs.
 
Mr. Light called on foundations to liquidate their assets to create a safety net for social services groups, or at the very least increase their annual pay-out rates from the current 5%, as one step toward solving the sector’s problems.

However, other experts at the forum said increased dollars from foundations wouldn’t be enough to help these organizations make up for cuts in government funding and individual fundraising at a time when demand for their services was rapidly increasing.
 
“Our biggest buyer, the government, has gone from reimbursing us 80 cents to 50 cents,” said Clara Miller, chief executive of the Nonprofit Finance Fund. “We need to get the equity into these organizations. We’re facing a war.”

Ms. Miller said the sector has to completely change the way it operates, most importantly reducing the amount of money it spends on fundraising. Executives on the panel acknowledged that nonprofits are reluctant to merge, but suggested they collaborate on back office support and health care plans to save money.
 
“We have a responsibility to coach each other,” said New York State Secretary of State Lorraine Cortes-Vazquez. “And we may have to pull the plug on certain nonprofits that aren’t (meeting expectations).”
 
The forum was hosted by the Foundation Center, the New York Regional Association of Grantmakers, United Way of New York City, and Citigroup.