The nation's nonprofit sector is a leading indicator of economic collapse and recovery. It tightens first as anxious donors hold onto their dollars, and rebounds last as anxieties finally fade.
In between the starts and stops, the sector bears the brunt of increasing demand, budget cuts and delayed payments. Reserves begin to disappear, credit lines evaporate and volunteers become clients. Asked to do much more with far less, many nonprofits end up trying to do almost everything with nothing.
The nonprofit sector is not about to disappear, of course. It's a major industry in its own right with 11 million employees, 63 million volunteers and $1.5 trillion in annual income.
Nevertheless, there is growing evidence that many nonprofits closed their doors over the past three years, while others are about to do so. In 2008, I estimated that 100,000 of the nation's 1 million tax-exempt nonprofits could go under during the recession. Those exits may or may not be offset by the creation of new nonprofits, but there seems to be little doubt that much of the deforestation is now occurring in low-income communities where service deserts are swallowing up thousands of relatively small community-based organizations. If we could map decimation by census tracks, we'd see the deserts popping up in all the familiar neighborhoods--the ones where the most vulnerable Americans live.
These deserts would be easy to spot if the Internal Revenue Service more closely monitored the state of the sector it regulates. But the IRS doesn't care much whether nonprofits live or die as long as they follow the law and file their annual reports. The IRS knows exactly how many organizations have been given tax-exempt status over the years, but readily admits it doesn't have a clue how many have gone under. Nonprofits are under no obligation to tell anyone when they close, and Congress and the president don't seem to care. If thousands of nonprofits have failed these past three years, as House Speaker John Boehner might say, 'so be it.'
The brutal reality is that the nonprofit sector is nobody's business in federal, state or local government. Other industries have their own promoters in government, but not the nonprofit sector. Other industries also have their own committees in Congress and tireless, well-funded lobbyists, but not the nonprofit sector. Other industries have their White House czars, carefully crafted logos and dutiful political champions, but not the nonprofit sector.
Although well-known charities such as the Red Cross, Salvation Army, Girl Scouts, American Cancer Society and Care have all taken hits over the past three years, it's the small community-based organizations that appear to be most at risk. They often operate at the margins, neither too large too fail nor too small to eek it out with a little help from the United Way. They are the go-to agencies for everything from early-childhood education to HIV/AIDs prevention, but are on the chopping block in every state.
Many of these nonprofits are still hoping for a miracle, even as they continue to hollow out their organizations with job cuts. But even if there is a miracle, it will not come soon enough to save them. The federal stimulus is gone, donors are still assessing the damage as they set their payout targets, angels are few and far to be found, and volunteering is still flat.
Moreover, there's strong pressure to reduce the number of community-based nonprofits. Between 1999 and 2009, the number of nonprofits soared from 600,000 to 1 million, driven in part by a desire to help the needy and in part by government contracting. Some of these nonprofits started in a niche and remained there, while others continue to duplicate services available around the corner. Even the sector's strongest advocates have come to believe that there are just too many nonprofits.
The question is not whether it is time for a winnowing, however. It is already underway and will likely accelerate as the economy continues to waffle between recovery and reversal. Nor is the question whether the nonprofit sector could benefit from its own round of consolidation, administrative streamlining and performance measurement. Even the nonprofit sector can use an overhaul.
Rather, the question is whether the nonprofit winnowing will come through a deliberative process or the kind of scrum that prevailed as the House attacked the discretionary budget two weeks ago.
The prevailing wisdom these days is that survival of the fittest should take its course, the only problem being that the fittest may not be the most valuable. There are some nonprofits that are extremely strong but no longer relevant, and others that are very weak but intensely important for strengthening communities, delivering services where no other resources exist and serving as harbingers of the social trust that Robert Putnam wrote about in Bowling Alone. Strengthening weak but important nonprofits is an imminently better investment for the sector than allowing moribund, perpetuity-seeking nonprofits to survive.
Picking the right nonprofits to sustain while easing out the nonprofits that long ago forgot why they exist is both difficult and painful. But it is the only way to assure that the sector retains its longstanding commitment to fill the gaps created by market failures, antiquated government programs and needless delays.
That means engaging the sector's leaders in a courageous conversation about how to prevent service deserts as the budget cutting continues. It is what the Obama administration has tried to do in sorting its cuts in the federal budget, and what the House ignored. Once the deserts have taken hold, they will be painfully hard to reverse.