As the tax year draws to a close and the holidays evoke feelings of goodwill, nonprofits count on getting the lion's share of donations during this crucial fourth quarter. While unemployment stats in recent months have been better than expected, experts predict a difficult end-of-year climate for nonprofits, especially for smaller organizations with less than three months of operating reserves.
Here's a look at the financial challenges confronting charitable organizations, followed by strategies for individual donors who want to help:
1. Increased demand for services. As layoffs and salary freezes during the recession strained budgets, more Americans sought help putting food on the table, caring for children or aging parents, or meeting housing needs. "Demand for nonprofit services has been skyrocketing for the last four years," says Tim Delaney, president and CEO of the National Council of Nonprofits in Washington, D.C. "Demand for services is going up, but the resources available have been going down. We are struggling to meet the demand, but we cannot continue to do so much more for so much less." With governments also feeling the pinch, support for social services at the federal and state level has declined. While some find ways to soldier on in the face of slashed funding, Nonprofit Quarterly reported on several organizations shutting down earlier this year.
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2. The impact of Hurricane Sandy. Organizations that provide disaster relief will likely see a huge spike in demand—and hopefully more donations—following Hurricane Sandy. But those in other problem areas may get edged out, according to Ken Berger, president and CEO of CharityNavigator.org, a charity-rating service based in Glen Rock, N.J. "That brings a whole new ripple into things," he says. "When disasters happen at other times of year, it typically doesn't encroach on year-end giving. Because Sandy has occurred in this time period, there's a real worry that some charities are going to see a decline in the general holiday giving because people—rightfully so, in many cases—will want to give to the victims of Superstorm Sandy."
3. Potential tax changes. With the government's budget crisis and the expiration of the Bush-era tax cuts, significant tax changes could be on the horizon for 2013—and that makes a number of potential donors nervous. President Obama has mentioned potentially reducing or eliminating the tax deduction for charitable giving, a change which Delaney says could have a devastating impact on nonprofits. "There's talk of limiting charitable giving in terms of the deductions, and in this time when needs are so great, Congress should not be tinkering with this very important tool," he says.
4. Anxiety over the election. Given the tax and other economic implications of the election, potential donors may have been waiting to see how the election played out before giving money. With Obama's re-election, Mike Burns, certified public accountant and leader of the CBIZ Not-For-Profit & Education Practice in Boston, predicts "high-income donors might delay charitable giving under the hope that that might shelter more income from a higher tax rate in a future period." That said, Burns adds, "We've had a little bit of a comeback in the economy, and we've had a stock market that's cooperating, so I think the conventional wisdom is that fourth-quarter giving this year will be better than last year. Election dynamics are pretty important for higher-income donors."
5. Demand for proof of impact. Donors, especially younger ones, increasingly want objective information on nonprofits that goes beyond the basics. According to Berger, "It's no longer just about overhead or the finances, but really increasingly looking for data on the question of, 'Are you providing meaningful change in the community? Can you provide evidence that goes beyond storytelling or a pie chart of your budget and operating costs?'" It's good news for donors when organizations provide this information, but can prove challenging for nonprofits with small staffs. "Their resources are constrained and at the same time, there's demand for more robust information," says Berger. "It requires resources to do that."