The Real Cost of Nonprofit Budget Cuts? — Employees

Many people don’t realize the size of the nonprofit workforce in the U.S. According to the Bureau of Labor Statistics, the sector accounts for 9.9% of the workforce. However, if you're reading the tea leaves, nonprofits are in choppy waters. 

For one, we know the presidential administration is working to make significant cuts, and the philanthropic sector is no exception, as we saw with the elimination of USAID and thousands of the agency’s jobs. For generations, too many nonprofits relied almost exclusively on government aid — big mistake.

The second challenge for nonprofit leaders is that the ever-revolving door of employees in organizations will continue to spin more quickly. Nonprofit workers are concerned — and they should be — that if nonprofit leaders don't realign their fundraising, they will lose their jobs.

Overreliance on Federal Funding

There are more than 1.8 million nonprofits in the United States, according to the latest IRS figures, and many have relied on government funding to keep their doors open. However, federal or state funding is no longer a given, and nonprofits need to realign and protect themselves. The first step on the journey is for board members, senior management and fundraising leaders to assess their funding streams. For those that receive more than 50% of aid from the government, that may be too much. 

I’ve been in several conversations recently with organizations seeking to reduce government funding reliance. One organization is shifting from 80% in government funding to 50%. It is not an easy journey, but it's an essential one. Moreover, its team sees what's happening, and that motivates the team to do whatever it can to rally around the organization. In other words, instead of looking for the exit, the team feels empowered with an economic lifeline.

The Unseen Toll on Employees

Nonprofit teams are concerned and unnerved — even if they don’t mention their feelings to nonprofit leaders. In a candid conversation that, frankly, I wasn't expecting, a development director shared her personal situation as she saw it within her organization.

“I don't know what they are going to do, so I am pooling my resources, cutting personal spending and looking for a job outside the sector,” she told me “... I'm afraid that if this [funding cut] happens, I will lose my job, as it depends on [federal] funding.” 

Related story: How to Support Nonprofit Employees’ Mental Health and Wellness

In other words, nonprofit employees bear the brunt of the funding uncertainty. The fear of job loss is causing employees to consider their options and potentially leave the sector altogether. Nonprofit leaders need to keep this in mind, as employees would not report their intentions to secure their economic survival. Still, if they see organizations pivoting to do something strategic, like moving away from government funding and expanding their revenue streams, it could be a galvanizing moment. The worst is to stay in place with blinders. 

A Call to Action: It’s Time to Ditch Federal Funding

Many people have experienced the worry of the unknown about job security. The threat for the sector now is constant, and, as usual with these matters, it leads to employee stress, burnout and, for the sector, an exodus of talented and passionate do-gooders. The irony is that the philanthropic and social good sector — intended to uplift people and communities — needs to turn to support their employees. It starts by ensuring funding and shifting from government funds if there's an overreliance on it. The question then is how to do it as a matter of survival. 

So, what’s the path forward?

1. Make a Low or No Government Funding Policy a Strategic Priority

I advise nonprofits cap government funding at no more than 20%. If an organization could eliminate government funding, that's even better. However, it takes leaders to make a strategic decision and then a concerted effort to pivot. 

2. Invest in Individual Giving Programs

There's a realignment in the corporate sector. Consumers are spending on brands that align with their values. The same is something that nonprofit leaders should expect. Nonprofit fundraisers should expect great stratification and lean into donors who genuinely support the mission and work regardless of politics.

3. Re-evaluate Corporate Partnerships 

The same holds for corporations as for individual donors. While it's true that there has been a walkback, for instance, of corporations supporting diversity equity and inclusion (DEI) efforts, it doesn't mean that 100% of corporations will stop working with nonprofits that focus on those efforts. Again, a realignment is occurring, and fundraisers must know where to seek funding.

4. Prioritize Employee Stability and Well-Being

As nonprofits reorient themselves, it's essential to communicate with employees about the fundraising redirection and expansion work of new income streams. The less volatility in uncertain times, the better. Foster transparent communications and ensure trust to maintain or improve retention. 

5. Educate Donors and Boards About the Shift

Further, it is essential to educate and inform board members and donors about what's happening. If an organization seeks to shift significantly from government funding, it must update donors and champions. In other words, take them on the journey with you and ask for their support.

For years, many of us in the nonprofit sector have believed too many small nonprofits are doing the same thing across American communities. Due to technological and social disruption, those times might be coming to an end. The hard truth is that for organizations that don’t see the writing on the wall, it may be necessary for them to close. For nonprofits with foresight and courageous and bold leaders, donors should support them because they're on the frontlines of a very transformative time in the social good sector. The choice is simple. Diversify and stabilize. Protect the mission and its people — including your employees. 

The preceding post was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.