Inflation in the United States is the highest it’s been in 40 years, and it doesn’t appear to be going down anytime soon. The White House points to a combination of supply chain disruptions and pent-up demand for services as cause for the historic inflation rate. Businesses and nonprofits across the country are faced with finding new ways to cope with rapidly rising prices and eroded purchasing power.
However, while for-profit companies can raise prices for customers and increase salaries to compete in the inflated economy, nonprofits are faring less-fortunately. Many are stuck in a situation where costs and demand for services are rising, while revenue is not. Here’s what that looks like, and what organizations are doing to mitigate the economic downturn.
What is the current inflation rate?
The Consumer Price Index (CPI), a key inflation measure that measures the change in prices paid by consumers for goods and services, increased 7.5% between February 2021 and February 2022. Energy prices increased by a shocking 27% while food prices were up 7.5%.
Nonprofit demand goes up as funds go down
The work of nonprofits, charitable organizations, and social assistance agencies increase in urgency during times of economic crisis. Even before inflation began to spiral to historic highs, demand for nonprofit services shot up during the COVID-19 crisis, and organizations hustled to provide food, services, and assistance to families in need.
At one Brooklyn nonprofit, for example, demand for emergency food services increased by more than 4,000 percent between April 2020 and April 2021.
Inflation has only compounded this need, and recent reports confirm that indeed, more Americans are counting on food banks to eat.
What happens when nonprofit organizations can’t raise prices to keep up with increased demand and skyrocketing supply costs? That’s a question that organizations are currently grappling with.
Mark Brewer, CEO of the Central Florida Foundation, told WMFE news that the future of nonprofits is, at this point, up in the air.
“They have an optimistic future, but it’s a tenuous point right now, as people try to decide what 2022 will look like. I think we’re all a little concerned about employment in the sector,” Brewer said.
Staff are bidding adieu as inflation soars
Employee turnover has long been a problem in the nonprofit sector, and inflation isn’t helping things. Throughout 2021 and into 2022, workers in industries across the board have been leaving their jobs in search of new opportunities, in a shift dubbed, “the Great Resignation.”
Total nonprofit employment in November 2021 was nearly 5 percent below pre-pandemic levels, compared to only a 1.5 percent decrease in the for-profit sector.
A study by Nonprofit HR found that, among other reasons, employees in the nonprofit sector are leaving their jobs because they feel overworked and underpaid. While for-profit businesses and corporations are more easily able to raise wages to attract and retain workers, many nonprofits don’t have that luxury, at least not without state budget increase or votes for higher taxes, as the New York Times reports.
“We used to compete [for workers] with hospitals and other health care entities, and now we’re competing with the convenience stores, the fast-food places, the coffee shops,” Carrie Miranda, Executive Director of Looking Upwards, a Rhode Island nonprofit that helps people with intellectual disabilities, told the Times. “I’ve heard more and more people say, ‘I’d love to stay in this job, I’m passionate about the work, but I need to feed my family, I have to pay my rent.’”
Nonprofit budgets are no match for current inflation rates
The effects of recent price increases are particularly felt by nonprofits, who already operate on thin (no) profit margins and are grappling with an increased need for services.
Nonprofit directors say their budgets are simply not able to keep up with current prices and that they’re turning to donors and slashing budgets to be able to stay afloat and keep services coming.
“Really, essentially everything that we buy, what we spend money on, almost everything has gone up. Not slightly, pretty significantly,” Jim Conklin, the director of South-Bend Indiana nonprofit Cultivate Food Rescue told ABC 57 news. “For a not-for-profit, you pass a budget and you plan for some inflation. Not this kind of inflation.”
In order to avoid scaling back services, Conklin’s organization has had to increase sponsorship costs and appeal to donors in hopes of offsetting the price increases—a task that’s not easy when spending power is decreasing.
“We have to go to our donors and say ‘will you give a little bit more?’ And that’s really hard to do too because their disposable incomes are going down because their groceries cost more money, their utility costs are higher, their gas in their car is more expensive,” Conklin said.
Considering the effect of inflation on the value of grants
Inflation’s impact on the nonprofit sector is perhaps most pronounced when looking at multi-year grants, a crucial source of funding for many organizations.
When nonprofits are awarded grant money, the award is based on a proposed budget, which may be modified during the grant negotiation process. However, grants are a fixed amount — and rarely account for adjustments in inflation, a measure known as Cost of Living Adjustment (COLA) provisions. That means that if your nonprofit were to receive a grant for $200,000 annually for five years, and if inflation increases by 5% per year, your $200,000 will be significantly less valuable by year 5.
“Because inflation has been low, most nonprofit Executive Directors and Boards have never experienced rapid inflation. Not much can be done with existing grants, but in writing future grants, it’ll be critical to propose budgets and services taking into account anticipated inflation,” writes Isaac Seliger, of Seliger Associates Grant Writing.
A good strategy, Seliger suggests, is to apply to grants that offer “walking around money,” or grants that allow funds to be used for undefined costs – like supporting staff wage increases to keep up with inflation – rather than specific services.
Weathering the storm
Many nonprofits are reckoning with an economic downturn that threatens their very existence. There’s no clear path forward for inflation, and organizations, particularly small ones, need to proactively prepare in order to ride the inflation wave.
Asset management company AllianceBernstein encourages nonprofits to examine their investments and add a diverse, balanced package of stocks with pricing power, inflation-protected bonds, and real assets like commodity futures, real estate, or infrastructure in addition to other assets. By having robust investment portfolios, nonprofits can reduce the consequences of historic inflation levels and be situated for long-term success.
For member-based nonprofits, inflation mitigation strategies include increasing annual dues for members, as well as upping the cost of galas or other fundraising events. For nonprofits, it’s clear that inflation makes life harder.
ABOUT THE AUTHOR
Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others. She writes weekly nonprofit-specific content for 501c.com.