1 in 3 U.S. Non-Profits Could Close Because Of Pandemic

The non-profit sector, like many other industries, was hit hard from the effects of the coronavirus pandemic last year. According to a new report by Candid, a philanthropy research organization, and the Center for Disaster Philanthropy, more than one-third of non-profits could permanently shut down in the next few years following the pandemic.

Candid analyzed the different effects that the Covid-19 pandemic had on the non-profit sector and included advice on how funders and grantmakers can help mitigate the negative impact of the virus on nonprofits organizations.The report states, “The U.S. nonprofit sector lost nearly 930,000 jobs by December 2020, according to a conservative estimate from the Johns Hopkins Center for Civil Society Studies.” This is 7% lower than February 2020, with certain areas of the workforce being hit harder than others. “Nearly 37 percent of workers at arts and entertainment organizations lost jobs. Education nonprofits lost 15 percent of their workforce, about 300,000 jobs. The Center estimates that it could take 1.5 years (17.8 months) to return to the pre-COVID-19 level of employment.”

Last year, Candid reported on a grouping of analyses that looked at how nonprofits might be affected by the coronavirus pandemic. The U.S. nonprofit workforce was growing before the pandemic hit. “The sector’s net assets increased by more than $1 trillion from 1998 to 2017. In addition, the sector demonstrated an aggregate financial surplus every year. Even during periods of financial crisis (in 2002, 2003, and 2009), it successfully managed to increase expenses (suggesting growth in activities, programs, and services), without exceeding revenue.”

The report notes that sometimes the data of nonprofit growth is skewed, since larger corporations, such as “billion-dollar hospitals or universities” can be highlighted and overshadow smaller nonprofits that may experience financial hardships.Candid also makes the point that while nonprofits tend to be poised to handle short recessions, “a longer one could be devastating.” It details how the average nonprofit has enough money to make it through six months even if its costs remain the same but its income is depleted. However, while this might be true for the average nonprofit, it does not apply to each one across the board. “Public safety, disaster preparedness, and relief organizations have a median 17 months of cash, whereas mental health and crisis intervention organizations have a median of 3 months of cash.”

Candid emphasized that there is no certainty on how many nonprofits will be forced to permanently close due to the constraints of the pandemic, but most likely many will. The study showed that when there is no worldwide health disaster at all, “a baseline of 12,042 nonprofits (4%) could close.” However, when the numbers are played against “realistic” situations of how the current situation could continue, “a median of roughly 34,472 nonprofits (11 percent) could go out of business. This means that about 22,000 additional nonprofits (7 percent) could close due to the COVID-19 pandemic. In the worst-case scenario, the sector could lose as many as 119,517 (38 percent) organizations.”

In its state-by-state investigation, the study discovered that the District of Columbia might see the largest nonprofits loss per person due to the pandemic, with Vermont and North Dakota following after. California and New York are assumed to lose the largest number of nonprofits at 2,688 and 1,829 organizations, respectively.

The Center for Disaster Philanthropy shared some insight as to what funders and grantmakers can do in order to help nonprofits during this time. The main takeaway was simply to give more — “support operational and administrative support,” increase giving, and also push funds toward “communities that are systemically marginalized ad disproportionately affected by COVID-19.