Nonprofit organizations provide a crucial societal role by filling the gap between government programs/services and the private sector. However, during challenging economic periods (such as the current COVID-19 pandemic and, previously, during the 2008 recession), nonprofit organizations can be severely impacted financially. This limits their ability to serve constituents and accomplish missions in a time of tremendous need. It would be beneficial to consider a mechanism that enables nonprofits to operate in a countercyclical manner — during current and future crises — with enhanced financial sustainability, enabling missions to endure. Ensuring nonprofits’ ongoing economic viability not only assures the provision of services to constituents at a critical time, it also presents an opportunity to invest in nonprofits in a manner that can spur the overall economy.
A stark imbalance between supply and demand
Candidates and political parties have not always recognized the importance of nonprofits, which comprise over 10% of the U.S. private workforce, making nonprofits the third largest workforce
in the U.S. An opportunity to conceive bold ideas exists today to aid in addressing societal challenges while also benefiting the economy.
There is a burgeoning sentiment within the country that nonprofits need to do more to help — to fill gaps when federal, state and local funding and programs are insufficient, and when the level of donor philanthropy is adversely impacted due to economic downturns.
The current pandemic has significantly constrained nonprofits, and there is a stark imbalance between demand for their services and what they can supply. This creates a paradox. More is needed and wanted, but nonprofits are not adequately enabled or resourced to deliver when their missions are most critical and their impact could be greatest. As a result, many nonprofits have been forced to close, with others making headcount reductions and dramatic expenditure reductions. These pronounced operating strains significantly affect nonprofits’ ability to deliver on their missions and similarly hamper their ability to keep up with demand.
Meet the opportunity that COVID-19 presents
Dennis Morrone, Grant Thornton’s national managing partner of the Not-for-Profit and Higher Education practice, stated: “The pandemic has given us an opportunity to rethink how we can leverage and resource nonprofits to broaden their programmatic offerings and impact, while also benefiting the economy.”
Morrone added: “Let’s take this as an opportunity to address social needs by developing a more stable economic model for nonprofits and their mission delivery systems.”
"The pandemic has given us an opportunity to rethink how we can leverage and resource nonprofits to broaden their programmatic offerings and impact while also benefiting the economy."
– Dennis Morrone
National Managing Partner
Not-for-Profit and Higher Education
What might this new model look like? There are many alternatives to consider in order to build a stronger and more resilient operating model for nonprofits, including traditional approaches such as expanding tax incentives/credits to increase greater charitable donations from individuals.
Alternatively, there are new and bold options that would marshal nonmonetary resources to nonprofits, including the creation of a federal policy whereby participating for-profit companies could contribute a de minimis percentage of their annual production levels and direct those outputs to support nonprofits. The nonprofits would benefit by leveraging this access to mission-essential materials to provide crucial key pandemic-related services like healthcare, food, shelter, equipment and other support for those impacted, as well as critical infrastructure and technology improvements to enhance service delivery and overall efficiency. In return, for-profit entities would receive more valuable tax incentives, above the cost to produce the contributed goods/services, in order to encourage this flow of goods to the nonprofit sector.
Such resources could also support needs where traditional nonprofit program offerings and service capacity have not been able to fully deliver or achieve the desired level of program outcomes, leading to a broader and more sustainable model after the pandemic has abated.
To help combat the challenges COVID-19 has presented, the federal Defense Production Act has been utilized, but demand across many sectors and constituent bases remains high. In addition, there are continued doubts about meeting future demand spikes until a vaccine is fully deployed and the economy recovers. Nonprofits could provide increased support during this challenging time. However, the value of economic stimulus goes beyond “war times”; through sustained support, nonprofits could increase mission provision and assistance on a more regular basis.
Given the current proposal, some may ask, “How is this different from existing tax-based incentives such as those received from contributing gifts in kind, or the brand halo that commercial organizations experience from cause marketing?” First, it is clear that the upside experienced by for-profit companies would need to be greater than is offered today — either with elevated financial incentives/benefits or improved brand positioning in the market. Second, to encourage participation beyond simply profit-related motives and to maximize tax saving strategies, this could be a voluntary “program” that companies would choose to participate in, and their very participation would be received positively by the public.
This strategy would be a bold policy that could resource and equip nonprofits — many of which already have established channels and platforms for program delivery — while also broadening their outreach and service capacities significantly. Moreover, with current levels of increased demand, nonprofits could hire-up to manage the receipt and delivery of the influx of resources.
Enabled nonprofits benefit the country
Implementing such a policy change would allow “at-risk” citizens broader access to assistance and enable nonprofits to collaborate and benefit through a supportive partnership with the private sector by establishing durable resource supply lines. Positioning nonprofits to thrive amid a national health and economic crisis helps everyone. Much like the federal stimulus that has assisted millions of Americans, this type of policy change could aid in the recovery from COVID-19 and future crises, using nonprofits as the propellant.
"Investing in nonprofits and their sustainability can make a real difference to the entire economy and for those who up until now have been left behind."
– Matt Unterman
Principal and Leader
Not-for-Profit and Higher Education
Matt Unterman, Grant Thornton Advisory Services principal and Not-for-Profit and Higher Education Advisory Services leader, stated: “Nonprofits have a tremendous wealth of knowledge and ability to help our economy thrive. Investing in them and their sustainability can make a real difference to the entire economy and for those who up until now have been left behind.”
A new way to help the country thrive
This idea should be attractive to leaders regardless of party affiliation. While this concept requires exploration and modeling to ensure efficacy and to arrive at a fully rendered, macroeconomic policy, it is designed to not only assist program recipients but also the country as a whole. Further, it is not COVID-19 specific. Rather, it is a concept intended to be timeless, generating capacity and sustainability for nonprofits on a go-forward basis.
A new, nonpartisan policy would focus on establishing systems for helping others in pronounced times of need. What would be a seemingly inconsequential contribution from the perspective of each participating for-profit entity could, when aggregated on a national scale, enable an enormous impact.
Nonprofits currently meet critical societal needs and could be of an even greater benefit to the country if appropriately resourced. Creative solutions like this proposal can stimulate nonprofits, for-profits and our nation’s economy.
National Managing Partner, Not-for-Profit and Higher Education Practice
+1 732 516 5582
Principal and Leader, Not-for-Profit and Higher Education Advisory Services
+1 212 542 9834