About the author: Stanley Leto She is the Accenture Professor of Practice at Duke University and a member of the Board of Trustees at the State University of New York. He previously served as President of the IBM Corporation and is a co-author of a book Breaking Barriers: How P-Tech Schools Create a Path from High School to College to a Job.
As 2023 begins, philanthropy appears to be relatively unaffected by the uncertain economic outlook.
While final numbers are not available for 2022, we know that despite Covid, overall bidding in 2021 compared to 2020 was up 4% at about $485 billion, with enterprise waiving 3.4% and corporate waiving 23.8%. In late 2022, according to Fidelity Charitable, six out of 10 donors, when surveyed, indicated that they plan to increase their giving at the end of the year.
But this does not mean that the non-profit sector is economically stable. According to a report by the consulting firm Oliver Wyman, 30% of non-profit organizations working in the field of social and human services are experiencing liquidity problems; 30% have lost money in the past three years; And about 50% had just one month of revenue as a pillow. These are signs that the sector is suffering from serious economic stability problems. Like retail and microchips, nonprofits aren’t the first sector to hit hard times. But unlike those other industries, very few people understand the importance of the non-profit sector to a nation’s economy.
About 1.5 million nonprofit organizations in the United States represent 10% of the workforce and 5.7% of the United States’ GDP. They have a collective revenue of $2.62 trillion. This is an industry that is directly linked to the economic success of the United States based not only on its size, but also on its mission. The social safety net simply would not exist without the non-profit sector.
While contributions from individuals are key to a nonprofit’s bottom line, these funds account for 8.7% of its revenue on average. Similarly, institutional funding accounts for less than 3% of nonprofit revenue. So where does the majority of nonprofit funding come from? They are not billionaire donors like Bill Gates, Jeff Bezos, or Warren Buffett. The largest donor category, with about a third of all revenue going to US nonprofits, is the US government.
At the federal, state, and local levels, government contracts essentially keep this sector alive. This is especially true of the nonprofit organizations that make up the social safety net, which provide vital services such as child care, job training, emergency food and housing, mental health, and services for the elderly and disabled. Organizations serving the most vulnerable rely heavily on government contracts. Many of these organizations have seen demand for their services skyrocket significantly during Covid. They responded by increasing their service levels, even as their government revenues remained constant.
The government contract process that enables these critical organizations to provide vital services is stalled. In New York, the nation’s largest city, 70% of organizations providing these vital services have experienced significant delays in contract payments for services already provided. Nearly half of these organizations in the city report that they have to take out loans at escalating interest rates to survive. Serious delays in receiving payments for their contracts often approached or exceeded six months after the invoices were delivered.
It’s time to fix the broken contracts process. It will take some work, but once implemented it will save time and money and allow for increased levels of services for those who need it most. High on the list of what government can do is treat nonprofit service providers as collaborators and partners, not just vendors. These organizations and their employees are on the front lines of providing services. Their experience and knowledge in the subject must be valued and acted upon.
The first step is to ensure that once contracts are approved and signed, they are quickly and quickly registered by the government. This is a highly technical, bureaucratic process, until contracts are registered, payments cannot be properly recorded and made. In a recent analysis, 75% of all contracts in New York City were not registered until after the service start date. This leads to a serious funding gap that is assumed, funded, and closed by the agencies providing the services, not by the government. This needs to end.
The second step is to ensure that all payments for services under these contracts are made within 30 days of delivery of the approved invoice. Anything after 30 days should have a penalty. The third step is to ensure that service providers operating under contracts that provide quality services over a specified period of time, for example, several years, should be able to automatically renew their contracts with minimal time, effort and bureaucracy.
If legislation is needed, service providers should have a seat at the table. A bipartisan concern for the economic stability of this sector is essential, as it is critical to our economic future. We need to move forward so that nonprofits can not only survive, but also thrive.
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