Nonprofits roiled by funding cuts and threats of more cuts, surveys find

As government funding priorities shift and economic uncertainty rises, money has become top of mind for nonprofit groups across Montana, North Dakota, and South Dakota.

That’s according to surveys the Minneapolis Fed conducted this past spring with nonprofit partners in the three states.

At one Montana organization, a survey respondent said, federal funding for rural health care clinics was frozen indefinitely earlier this year.

The respondent said the clinics will need to reduce hours of service, causing employees to quit and forcing patients to travel farther for health care. “Rural healthcare isn’t a switch you get to flip on and off. Once that care is gone from a community, it is gone indefinitely,”

Many nonprofits are also nervous about funding from private sources, such as foundations, corporations, and individuals, according to the surveys. Economic uncertainty has rattled these donors, resulting in fewer donations.

More than 250 nonprofit officials in Montana, South Dakota, and North Dakota participated in the surveys from mid-April to early May. The organizations surveyed range from small all-volunteer groups to agencies employing more than 100 statewide. Their activities varied from providing public concerts to running shelters for victims of domestic violence.

To conduct the surveys, the Minneapolis Fed partnered with the Montana Nonprofit Association, South Dakota Nonprofit Network, and North Dakota Association of Nonprofit Organizations.

Funding woes

The most common response from survey respondents when asked about their Top 3 challenges had to do with money (Figure 1).

Federal funding and other policies topped the list given the abrupt funding cuts many organizations experienced earlier in the year.

Among sources of revenue for nonprofits, federal funding had decreased for nearly half of respondents that usually receive such funding (Figure 2). Roughly a third said funding decreased from state and local governments, foundations and corporations, and individuals.

Survey respondents who have already experienced funding cuts from a particular funding source were more likely to say they expect additional cuts from the same source later in the year. This is especially common among those who experienced cuts to their federal funding.

“These are very scary times. Every day we hear of another program or agency that was cut, and we never know when it may hit a program we have,” said a respondent at a South Dakota health and human services agency. “Our clients depend on some of these programs, from Head Start to food stamps to school lunches, and as inflation causes food prices to increase, we see more and more people with food insecurity.”

About half of survey respondents said federal funding is moderately to extremely important for their operations. About two-thirds said the private sector—foundations, corporations, and individuals—are important sources.

But economic uncertainty is causing a growing number of private donors to decrease donations or indicate that they will soon.

“We expect donations of stocks to go down significantly with the uncertainty of the stock market,” said a respondent at a North Dakota arts organization. “This will offset the gains we were otherwise seeing in individual giving. We also expect consumer spending to be down, so therefore program income will be down.”

A respondent at a South Dakota human services agency said individuals are putting their family first and have less left over for donations. “People are putting the proverbial oxygen masks on themselves first, so nonprofits suffer. We can all understand why. It’s still deeply sad we’re in this [situation].”

Higher expenses

Inflation and growing client demand were among the Top 3 challenges for a quarter of nonprofits. Many were also worried about paying for wage increases needed to compete with other employers or at least keep pace with inflation.

Nearly half of nonprofits reported that vendors increased prices by 5 percent or more over the past year, which is about double the officially measured rate of inflation. Nonprofits that provide food to clients, such as food banks, said food costs have increased along with demand for food as more households struggle to pay for groceries.

“Our biggest line item in our budget is food costs to the tune of $1.6 million, which means any amount of inflation in food impacts our budget significantly,” said a respondent at a Montana food bank. “In addition, increase in prices impacts our customers’ ability to afford their basic needs and food, which cause them to need to rely on the food bank.”

The respondent noted that food donations from federal programs and from grocery stores have also gone down. “It seems grocery stores are managing their inventories much more closely as a result of the economic uncertainty.”

Many nonprofits delayed passing on their full costs to clients and patrons. Survey respondents said they wanted to keep their services affordable, especially those who serve low- to moderate-income households.

“We are raising participant fees for housing on May 1 to alleviate some of the financial strain, but didn’t want to increase too much and make it hard on our participants,” said a respondent at a North Dakota organization that runs transition homes. “Tough decisions being made in the nonprofit world right now!”

With their budgets stressed, many nonprofits struggled to pay employees competitive wages, especially in areas with tight labor markets. In some cases, this affected employee retention. Funding cuts and economic uncertainty caused some to delay cost of living adjustments for employees.

“Nonprofits in western North Dakota cannot compete with oil field wages,” said a respondent at an economic development agency.

A respondent at a western North Dakota nonprofit involved in health care said, “We have been constantly hiring and rehiring for almost five years with no end in sight. … We struggle to keep wages competitive.”

Balanced between optimism and pessimism

The challenges faced by nonprofits leave as many respondents feeling pessimistic as optimistic (Figure 3).

It may be that their outlook is connected to whether they expect to ride out the storm. Optimists were more likely to report deep financial reserves that will allow them to operate for many months even without external funding. Pessimists were more likely to report they would have to close their doors in less than half a year.

Among optimists, some say their organizations are resilient or that their communities will step in to help.

“We are in the business of helping people. It’s always a challenge and we cannot succeed without the many individuals, churches, businesses and organizations that support our ministry,” said a respondent at a South Dakota addiction treatment center. “This is my 30th year leading and serving here … and we’ve had some hard times and big challenges, and somehow, we continue to march on.”

Among pessimists, many are mulling layoffs, cuts in services, or both.

A respondent at a new veterans services group in Montana said they had expected most of their operating revenue to come from federal grants, but not anymore. “Frankly, we feel as if we were literally taken out at the knees.”