The global economic downturn has resulted in a substantial increase in demand for community services contributing to resourcing pressures for the not-for-profit (NFP) sector.
At the same time, many not-for-profit organisations face budget constraints from lower returns on investment funds, tightening corporate budgets and less funding from philanthropic trusts and foundations, major donors and community giving.
With forecasts of slower growth in Australia over 2009 and 2010, the immediate concern for the sector is the impact on unemployment.
As unemployment rises, not-for-profit organisations report an increase in Australians who are under financial stress and seeking support in areas such as emergency relief, employment services, housing assistance, financial counselling and other counselling services. This places further demands on the not-for-profit sector and the services and support it provides - a sector that was facing significant constraints on its ability to deliver services required by the community even before the global financial crisis.
There are some exceptions to this, as it is typically NFP organisations that operate in areas such as health, community support and welfare that are reporting significant demand for services.
However, most NFP organisations report that competition for available funding has increased due to the economic downturn. This has put significant pressure on resourcing in order to continue to deliver services and programs.
This report examines the impact of the economic downturn on NFP operations in Australia. It captures the current impact on funding, services, management of operations, staff and volunteers, as well as the impact on relationships with major donors, philanthropic trusts and foundations, business partners and government. It also looks at expectations for the year ahead and the uncertainty facing many not-for-profit organisations.
This report also includes analysis of quantitative survey research and qualitative focus groups with not-for-profit organisations in Sydney, Melbourne and Perth.
Impact of the downturn on funding for NFP organisations
As a result of the economic downturn, not-for-profit organisations report that funding has declined, and as noted above, competition for available funding has increased.
To make up for funding shortfalls, NFP organisations are cutting costs, expanding their fundraising efforts and looking for innovative ways to increase fundraising. They are also utilising reserve funds to cover any shortfalls.
There have been announcements of staff cutbacks in the sector. However, many of the NFP organisations that we consulted say they are looking for ways to manage without significant employee reductions.
Our survey results indicate that the biggest falls in funding have been from investment income, corporate funding and funding from major donors, philanthropic trusts and foundations. Three-quarters of those surveyed report a decrease in investment income in the 2008/09 financial year.
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The extent of decline in corporate funding depends on the nature of the NFP-business relationship. Multi-year partnerships appear to be stable and mostly rolled over, whereas one-off funding support in response to ad hoc requests or in areas such as sponsorship of arts or sports, appear to be most at risk. These issues are discussed further in a complementary report undertaken by the Centre for Corporate Public Affairs (2009) entitled,
Impact of the Economic Downturn on Corporate Community Investment.
Some NFP organisations also report that funding for diaster relief efforts, such as the Summer 2009 Victorian bushfires, has diverted funding away from their activities.
On the other hand, some NFP organisations have reported stronger-than-expected financial results in the last year. For these organisations, the economic downturn has resulted in a surge in demand for services and support associated with the global financial crisis, favourable publicity, and increased awareness, that has resulted in an overall increase in financial support. However, these are the exception rather than the norm.
There appears to be appreciation within the sector of the role of governments in assisting NFP organisations provide funding to meet demand for important services, as well as more broadly in terms of stimulus package payments to assist Australians during the economic downturn.
Some not-for-profit organisations report that they have applied for Temporary Financial Assistance Funding, while our survey indicates that some 32 per cent of NFP organisations have seen an increase in funding from government grants in the 2008/09 financial year.
2010 is expected to continue to be a challenging one for NFP organisations. They anticipate further decreases in investment income and funding from companies, major donors, philanthropic trusts and foundations. Nearly 40 per cent of NFP organisations surveyed expect an increase in government funding. A third expect fundraising to increase in areas such as regular giving, online donations and event fundraising.
Increased demand for community services
As noted earlier, our consultations and survey research illustrate the significant increase in demand for many services provided by NFP organisations. Sixty-five percent of not-for-profits surveyed report an increase in demand for services as a result of the economic downturn, and 83 per cent expect an increase in demand for services in the next financial year (2009-2010).
For example, organisations such as The Salvation Army, which each year assists over one million Australians in crisis, say they expect to continue to see an increase in demand for their services in 2009 and 2010.
In particular, not-for-profit organisations that provide services in areas such as financial assistance and counselling, employment services, food and emergency relief, housing support, counselling and relationship support are reporting a significant increase in demand for services as a result of the economic downturn. This puts greater strain on many NFP organisations, particularly those in the welfare area. Over one third of these organisations surveyed as research for this report indicate that they have had to reduce services as a result of the economic downturn.
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Management of not-for-profit operations
Despite the challenges facing the sector, the majority of not-for-profit organisations are maintaining their focus on core mission and priorities. Eighty-three per cent of NFP organisations surveyed say they are focusing on core business aligned with their mission.
NFP organisations also report that they are concerned about managing the financial impact of the downturn on their operations. Seventy-seven per cent state they are reducing costs. Some of this is taking place in staffing levels, with reduction of staff hours, redundancies, not replacing staff when they leave, or a move to rely more on part-time or volunteer staff. In other areas, administrative costs, outsourcing (NFPs are looking to do more in-house) and travel are all under review. Some NFP practitioners note that they already operate lean budgets, therefore a cost review has been difficult.
While there have been some changes to staffing levels, for the most part NFP organisations report no major changes to levels of full-time, part-time or volunteering employees.
Where there have been changes to staff numbers, this appears to be a result of changes to fundraising approaches, or due to a review of fundraising.
Anecdotal evidence suggests that the number of people who are volunteering is increasing, due to redundancies and unemployment. Our survey shows that 28 per cent of NFP organisations report an increase in volunteers in the 2008/09 year.
Thirty-five per cent expect an increase in volunteers in the 2009/10 financial year. This suggests there may be a lag effect from actual redundancies to the pick up in availability of volunteers. Volunteer organisations report strong demand for volunteer opportunities as a result of the economic downturn.
Not-for-profit employees are spending more time managing relationships with major donors and partners, and working closely with their Boards to manage uncertainties. NFP employees are also spending more time on marketing to increase awareness of the issues their organisation addresses, as well as to differentiate them from peer organisations.
There is greater appetite for collaboration within the not-for-profit sector as a result of the downturn.
In order to meet growing demand for services, NFP organisations are collaborating or rationalising services with other peer organisations. Our survey concludes that nearly half of NFP organisations are considering some means of collaboration.
Some NFP organisations are also considering mergers (15 per cent of those surveyed), however, it is difficult to ascertain whether this trend is due to the economic downturn or was occurring regardless of the downturn. Traditionally, there have not been many mergers in the sector so this may be an area to watch over the next year.
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Relationships with major donors, corporate partners and government
NFP organisations report that they are spending more time managing relationships with their partners. NFP practitioners we spoke to during consultations say they are having 'open and honest' conversations with their partners about the impact of the downturn on each others' businesses.
NFP organisations with long-term partnerships or sophisticated relationships with business, major donors and trusts and foundations, report that most of these agreements and contracts are being renewed. However, NFP organisations are concerned about whether these will be renewed over the next few years.
NFP organisations agree that the priorities of companies, major donors and philanthropic trusts and foundations are changing. Many of their partners are evaluating relationships and revisiting long-term understandings and agreements.
There appear to be more issues to manage within partnerships or major relationships. NFP organisations say that their partners are placing more demands on them, particularly on requirements for measuring outcomes, and more information on the benefits of the relationships.
Not-for-profit organisations describe some changes in the nature of corporate support, from less untied cash to more support in community activities, marketing related sponsorship and corporate volunteers. NFP organisations understand that many companies cannot be seen to support events such as a charity ball, when they may be making tough business decisions such as redundancies in their own organisations.
While the changes in nature of support have been exacerbated by the economic downturn, they also reinforce the trend that was already occurring, of companies reducing their untied support and focusing on fewer, deeper partnerships supported by a range of measures including in-kind support, volunteer activities, as well as funding for programs.
Some philanthropic foundations are scaling back commitments and reducing discretionary or one-off grants. In particular, NFP organisations report that US-based foundations are reviewing commitments more so than Australian foundations.
The capacity of some major donors, philanthropic foundations and trusts to provide funding support has also been reduced as a result of declines in their own investment income. Despite this, we understand that some individual philanthropists have increased support as they recognise that needs are greater during an economic downturn.
As already noted, NFP organisations are appreciative of government funding to support them during the economic downturn. They report that they are spending more time communicating with government, including through meetings and increased reporting.
There are a number of characteristics of sustainable relationships, which will assist in weathering this economic downturn and any future downturns. NFP organisations that have relationships that are sustainable typically communicate more frequently with their partners; build deeper and broader links with contacts; have formal longer-term contracts that cover mutually agreed goals, governance, decision making and other issues of importance; have more diverse relationships across various sectors; have deep connections to communities and are willing to collaborate with other organisations to deliver services.
Opportunities arising as a result of the economic downturn
Not-for-profit organisations identify a number of positive impacts of the economic downturn, including an increased focus on good governance and management of risks and reserves, as well as opportunities for increased engagement with Boards on financial management and strategy planning.
There are also opportunities to raise awareness of issues such as homelessness, and as one NFP practitioner explained, 'to leverage and maximise the real value of the sector to the community'.
A small number of not-for-profit organisations are looking at expansion possibilities as the result of increased demand for services. The downturn also creates opportunities to strengthen relationships with current partners as well as refocus activities and programs. In recent years, the NFP sector has found it difficult to recruit skilled staff. The economic downturn has provided some opportunity to access skilled employees. These opportunities are discussed later in this report.