Last year I made ten predictions as we looked out at the nonprofit sector. Let’s review them and see how things played out:
1. Increased Funding by the Federal Government– This prediction certainly has proven true and the recent passage of the national health insurance package only continues the trend. The federal government is now estimated to have some modicum of oversight and control of as much as half of the US economy. Therefore, as long as it continues to expand its role, it will continue to farm out responsibilities to the nonprofit sector to accomplish these new duties. The US has the largest nonprofit sector in world history, in part because of the long standing tradition of using voluntary associations to address problems that in other societies are within the purview of government. Even as our government expands its role, the “hollow state” phenomena, in which services are delivered through third party nonprofits, will continue apace.
2. Decreased Funding from Other Sources – Sadly, I was spot on here. The data for 2008 (which came out months after last year’s predictions) showed the largest drop in private contributions in the 53 years it has been tracked. State governments are also cutting back substantially. Surveys conducted by Bridgespan of the leaders of 100 nonprofits and a recent Nonprofit Finance Fund (NFF) survey show that this trend is continuing. The NFF notes that “Cutbacks in government spending are particularly hard on ‘lifeline organizations’ and 59% expect to get even less government money in 2010.” The nonprofit sector is going through a hellish period in terms of its ability to garner adequate revenue to provide even the same level of service as in the past, while the demand for services continues to rise.
3. Rising Demand for Charities to Provide Information on Their Impact – Evidence of this rising demand for evidence of effectiveness and results includes the formation of the Alliance for Effective Social Investing (now just over a year old) that brings together many of the leaders in the NP sector with the goal of driving more funding to high performing NPs. There is a proliferation of new models of evaluating charities to measure their results and effectiveness. The Independent Sector effort to develop standard reporting tools to measure NP effectiveness is another significant indicator of this trend.
4. Mergers, Program Closures and Layoffs – There is clear evidence that this phenomenon (especially closures and layoffs) is becoming commonplace. The NFF survey for example indicates that “35% had cut jobs or salaries” and “36% reduced or ended programs”. Furthermore, they note that “nearly 90% expect 2010 to be as difficult as or more difficult than 2009”.
5. Scandals As Always, Only More So – We have not been able to get quantifiable date on this prediction one way or the other. However, since we get calls all the time on this, we can tell you that it sure doesn’t seem like the problem has eased up one bit!
6. Charities Having Problems Filing the New IRS Form 990 – A recent survey sampling of the 990 submissions by an expert colleague indicated that less than 10% of charities had completed the new form correctly. We have also encountered a number of agencies that are continuing to use the old form! This is a problem that will probably take a number of years to rectify. As one accountant told me after a recent meeting, “We are all petrified by the complexity and time consuming nature of the new forms.”
7. A Greater Divide in Opinion Over the Role of Government in the Charitable Sector – The Tea Party movement has exploded on the scene over the past year with a general protest against anticipated higher taxes and government involvement in a wider range of sectors of the economy. The charitable sector has been far from exempt! For example, an opinion piece in the March 25, 2010 issue of The Chronicle of Philanthropy is titled, “Foundations Risk Losing Their Independence in the Obama Era”. The author writes, “More and more, in the Obama era [there] seems to signal a reduction in the independence of nonprofit world … and a concerted push to align the use of philanthropic resources and energies with those of the government…” Traditionally, creative and innovative new charitable endeavors have germinated independent of government involvement. With the creation of the White House Office of Social Innovation there appears to be a desire for government to “push” innovation rather than simply contracting out for services. The debate over this new role has been heated and will continue to be so.
8. Arts, Humanities and Cultural Charities Take A Beating – This has proven true, but I am modifying this prediction going forward to broaden it to include Human Services Charities that often rely on local and state government for the majority of their funding.
9. Health Care Charities Remain King of the Hill – What can I say? Spot on or what? Did you hear about the new national health insurance plan passing?
10. Religious Charities Remain Strong – Boy was this proven true. Even though there was the largest drop in private giving in 2008, religious charities saw an increase (!) of almost 2%! More than any other part of the NP sector! I anticipate 2009 and 2010 will provide us with similar results. Too bad the data takes so long to compile!
I have a one more predictions to add for 2010:
The Battle for the Soul of the Nonprofit Sector Will Intensify – The debate over measuring impact will increase in intensity as Charity Navigator and some of our colleagues put an increasing emphasis on measuring effectiveness and results (as noted earlier). We have begun to get critical reactions to our plans (two examples here and here), while others are stepping in support of us (two examples here and here). Why is this a battle for the very soul of the sector? Within a few weeks I hope to be publishing an article on this. That is a prediction you can count on!
We see 2010 as a major year of change for Charity Navigator in the transformation of our rating system from one dimensional – looking at the financial health of charities, to a three dimensional system – that will also look at accountability/transparency and effectiveness/results. We have formed an Advisory Panel to assist in this effort and anticipate adding the second dimension (accountability and transparency) by the end of the spring of 2010 and revisions to our financial measures by the fall of 2010. We also hope to showcase some prototypes of information on effectiveness/results by the 2010 holiday season with the complete three dimensional system in place by the spring of 2011.
Looking Toward You
Last year we noted that for the first time we were asking our prior donors to give again and got a great response. That story has continued unabated and we have added another 10,000+ donors since this time last year! As a result, we are well on the way of meeting our goal to become a fully approved public charity by 2012 (we filed in 2007 and are currently in a 5 year advance ruling period). We have already moved from receiving 15% funding to 30% funding from sources other than the Board. Our goal is to increase that percent to at least 50% over the next two years. That additional funding will also help us in our effort to transition to our new rating system (which we are now calling Charity Navigator 2.0).
We thank you all for your tremendous generosity and support over this last year in spite of the down economy. We consider it an honor and privilege to serve you, while we continue to improve on our ability to be “Your guide to intelligent giving”.
 Frederickson, David G. and Frederickson, H. George. 2006. Measuring the Performance of the Hollow State. Washington D.C. Georgetown University Press.
 Finn, Jr., Chester E. March 25, 2010. “Foundations Risk Losing Their Independence in the Obama Era”. The Chronicle of Philanthropy. P. 25-26