Brown on Business

June 22-28, 2020

By Wesley Brown
wesley@dailydata.com

Nonprofits on frontlines of pandemic seek COVID-19 relief amid ongoing struggles

As other parts of the U.S. economy scrambles to recovery from the devastating punch in the gut from COVID-19, the nonprofit sector is feeling forgotten as over a trillion dollars in emergency aid from the Coronavirus Aid, Relief and Economic Security (CARES) Act is expected to run dry at end of June.

According to a new report released by the Johns Hopkins Center for Civil Society Studies on June 16, nonprofits across the U.S. projected to see job losses of over 1.6 million workers between March and May of 2020 — all at a time when demand for their services is growing. 

Complicating the situation further is the fact that although 98% of all nonprofits fit the criteria for access to the Small Business Administration’s Paycheck Protection and the Federal Reserve’s Main Street Lending Programs as “small businesses.” However, most data show these same organization have been left on the sidelines as millions of U.S. businesses have jockeyed for a share of funding from the two CARES Act bounty totaling nearly $1.2 trillion.

On Monday (June 15), the Federal Reserve Board said it will seek public feedback on a proposal to expand its Main Street lending program to provide access to credit for nonprofits. As with the first leg of the program that targeted small and medium-sized firms, the proposed expansion would offer loans to similarly sized nonprofits in sound financial condition before the coronavirus pandemic that could benefit from additional cash flow.

“Nonprofit organizations are critical parts of our economy, employing millions of people, providing essential services to communities, and supporting innovation and the development of a highly skilled workforce,” said Federal Reserve Chair Jerome Powell. “Nonprofits provide vital services across the country and we are working to help them through this difficult time.”

Loan terms under the proposed Main Street lending vehicle include 3% interest rates, deferral of principal and interest payments, and five-year terms. The minimum loan size for tax-exempt 501(c)(3) or 501(c)(19) organizations under the IRS code is $250,000, while the maximum loan size is $300 million.

In a statement concerning the possible expansion of the CARES Act program, the Independent Sector and the National Council of Nonprofits released the following joint statement:

“We were pleased to see that Federal Reserve Chairman Jerome Powell’s recent statement recognizing that ’nonprofits are providing vital services across the country.’ Nonprofits are on the frontlines of helping people in communities throughout the country survive this pandemic. Nonprofits are the lifeblood behind our ability to rebuild the economy,” said the nation’s top nonprofit advocates.

Despite the new development, those same organization said assistance for nonprofits still falls short because the Main Street loans are not forgivable like the more popular PPP program, which has handed out over $700 billion in two rounds of funding since early April. That fund, however, is expected to run out of money at the end of this month.

Meanwhile, a new report released by the Independent Sector concludes that nonprofits with 500 to 5,000 employees have seen a dangerous drop off in their services, operations, and number and employees during the ongoing health and financial crisis.

In general, the survey shows clear evidence of a decline in revenue and individual giving that has forced nonprofits to limit needed services and layoff, furlough, or reduce pay and benefits for their employees. 

Also, 83% of organizations reported a decline in revenues, including a decline in earned revenue from events or other activities, and a reduction in individual giving and grants received. These events have hit both the organizations’ ability to fulfill their missions and retain employees with a near 50% decline in employment by laying off or furloughing workers.

Overall, 62% of the survey respondents identified as “human or health services” organization. Altogether, these nonprofits collectively represent over 152,000 employees and nearly $9.1 billion in contributions and revenue, as calculated prior to COVID-19 and the economic shutdown. 

All those challenges come at a time when nonprofits have maintained their position as the third largest employer in the U.S. economy, overtaking manufacturing by nearly 100,000 workers nation-wide in 2017. All told, 501 © 3 organizations and other charitable related groups now exceed manufacturing jobs in 28 states and territories across the U.S. 

Not surprisingly, the only industries employing more workers than the nonprofit sector in 2017 included the retail trade, restaurants and hotels, all key service sectors that have also been hit hard by the coronavirus crisis.

Even before the pandemic blanketed Arkansas in early March, U.S. Bureau of Labor Statistics (BLS) data compiled by John Hopkins researchers showed that the state’s share of nonprofit jobs grew by nearly 92,000 in the decade post-recession decade preceding the current downturn.

In 2018, there were 3,195 nonprofits that employed 91,175 workers in Arkansas. Those charities produced total annual wages of nearly $3.9 billion, which averages out to $40,566 in annual salaries per employee, or about $780 on a weekly basis, according to John Hopkins researchers.

Here in the Natural State, the Arkansas Community Foundation (ACF) on June 5 awarded its second phase of funding from its COVID-19 Relief Fund to help nonprofits statewide adapt to new and increased demands of the pandemic. This program, which was bolstered in April by Gov. Asa Hutchinson’s plea for new donations to the fund, has handed out grants of up to $25,000 totaling nearly $1.95 million made to Arkansas nonprofits. 

When added to the 678 $1,000 Phase 1 mini-grants given to organizations in 67 counties in April and May, more than $2.6 million in grants have been made from the ACF’s COVID-19 Relief Fund in the 12 weeks it was created.

“These Phase 2 Adaptation Grants help organizations who are adapting their operations to meet the ongoing needs of Arkansans affected by the pandemic and shore up critical systems like healthcare, education and food distribution,” said ACF President and CEO Heather Larkin.

How the nonprofit sector pans out after the pandemic could largely depend on Congress appropriating another round of CARES Act funding that offers a broader package of relief for charities. Loan forgiveness, nonprofit advocates say, remains central to sustaining nonprofits on the frontlines of the pandemic because many community-based organizations have no capacity for loan and interest repayment. 

Despite ACF’s support, nonprofit supporters in Arkansas and across the U.S. have come forward in recent weeks to lobby Congress and the Trump administration not to leave such a vital part of the U.S. economy behind.

“The fact is that Congress must recognize the vital services nonprofits provide to communities and the economy and include a solution to this problem when it takes up the next round of COVID-19 relief legislation,” said the Independent Sector and the National Council of Nonprofits in their recent statement.

Only time will tell if those appeals will fall in shallow or deep soil.