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EXECUTIVE SUMMARY
POLICY QUESTION:
What challenges do nonprofits receiving state and other government grants and reimbursements
for services face in North Carolina? What effects has the recession had on nonprofit
organizations, and how can the North Carolina Center for Nonprofits support its members?
RECOMMENDATIONS (PAGE 19):
In the short-term, NCCNP should work with legislators to avoid any further cuts to
nonprofit funding. It should also focus its efforts on reducing late government payments
to nonprofits by working with agency leaders. Earlier payments will help nonprofits’
cash flow problems. NCCNP should continue to provide professional development opportunities
for nonprofit staff and connect organizations with resources.
In the long-term, NCCNP should also encourage state and local governments to include
indirect costs for administrative work in grants and reimbursement contracts. It should
also provide educational opportunities for nonprofits to learn how to diversify their
funding streams to decrease dependency on government funding.
ISSUES FOR NONPROFITS (PAGE 2):
Governments reduce funding for nonprofits during economic downturns
Government finances suffer during economic downturns. Governments collect less tax
revenue (income, property, and corporate taxes). Since most states have balanced budget
amendments, legislatures have to cut expenditures when revenues decrease.
In times of economic hardship, state governments cut funding for programs, expecting
nonprofits to deliver programs and services regardless of state support. Many nonprofits
provide services with the understanding that they will be reimbursed for those services
by the state through grants and reimbursements contracts. When states face revenues
shortfalls, payments to nonprofits can be delayed, hurting the organizations’ cash
flow.
North Carolina nonprofit organizations face funding cuts from all sources, including
local, state, and federal government grants and reimbursements for services. State
government cuts in 2009 affected 70 percent of North Carolina’s nonprofit organizations.
Private funders also reduce funding for nonprofits during economic downturns
Legislators can justify budget cuts for nonprofit services by arguing that private
funders will sustain nonprofits activities, but historically charitable giving declines
during economic downturns. Private foundations are not immune to economic downturns
either. In 2008, foundation endowment levels fell by 26 percent. The decreased endowment
levels of foundations reduced the required five percent annual grant payout to nonprofits
for multiple years after 2008.
Demand for nonprofit services grows during economic downturns
People demand more nonprofit services, specifically services from human welfare organizations
during economic hardships. Nonprofits have to do more with less. A 2009 survey of
members of the National Council of Nonprofits showed that during the height of the
recession, more than half of survey respondents experienced increased demand for their
services, higher operating costs and decreasing revenues to meet these higher demands
and costs.
Many organizations continue to see new clients; people who never sought social services
before find themselves in situations of need. Organizations spend more time acclimating
new clients to social service programs and educating them about available resources.
Government system is difficult to navigate and payments are often late
Nonprofits also experience problems with government payments, such as late reimbursements
and reduced or revised contracts, during economic downturns. State governments change
the terms of previously agreed upon contracts with nonprofit partners, lengthening
payment schedules or reducing funding altogether. Contract problems create cash flow
problems for nonprofit recipients. In a national survey by the Congressional Research
Service, 35 percent of nonprofits reported that they had been affected by declines
in overall government support and 33 percent experienced delayed payments from government.
POLICY OPTIONS FOR NCCNP (PAGE 5):
The eight policy options detailed below cover the main ways NCCNP can assist nonprofits
in North Carolina:
1. Continue annual survey of government-funded nonprofits and conduct interviews
2. Lobby the North Carolina General Assembly and local governments for increased financial
support for nonprofit services
3. Work with government agencies to encourage prompt payments
4. Collect more details on cash flow problems and investigate possible lines of credit
for nonprofit organizations
5. Continue to coordinate with government agencies to streamline state funding applications
and reporting processes
6. Encourage changes to funding guidelines to include indirect costs
7. Provide staff development assistance to nonprofits
8. Study differences between nonprofits receiving government funding and nonprofits
without any government funding
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