From Nonprofit Financial Calamity to Recovery

The 2008 Recession

From Nonprofit Financial Calamity to Recovery - The 2008 Recession
  • Benevolent Business
Matthew Dubins

Matthew Dubins

Founder of Donor Science and friend of Generate_Impact

As many of you probably know, this story starts in the United States of America.

In response to the recession of 2001, the US Federal Reserve had lowered interest rates in the hopes of stimulating a recovery of the economy. The decision makers certainly earned their keep, as the move motivated many to carry larger amounts of mortgage debt, increased demand for housing, boosted employment, and made the US economy bustling once again.

Regrettably, this would all come crashing down after more and more sub-prime mortgages (considered a risky loan by today’s standards) went into default and lenders were unable to recoup money owed. This had catastrophic consequences for a multitude of spheres of economic activity in the US, and around the world. One of these spheres, the topic of this post, was the non-profit industry.

My intent in this post is to examine the impact that this financial calamity had on the non-profit industry in my home country, Canada. I wanted to know what kinds of non-profits were hit the hardest, and also who was the best at recovering. A key advantage of this focus is the extensive breadth and depth of data we keep on our ~85,000 registered non-profits and charities through the T3010 Registered Charity Information Return. In past years, I’ve found that all an interested party has to do to get well over a decade of charity tax data is to ask for it and they send you a DVD with the information in the mail.

After showing you the data, both through the ensuing graphs and dashboard, I also have some experiences to share with you from a colleague who was working at a national scale organization that provides resources, advocacy, and awareness work surrounding blindness.

Let’s first have a look at one of the saddest graphs I’ve ever created in my line of work.

To make the above graph, I took a cohort of 72,610 charities who were active in 2006, and compiled a dataset of describing not only who these organizations were, but how much they fundraised (if at all) each year up until the 2017 tax year. Then, for each year, I summarized the percentage of charities who had reported any fundraising revenue and graphed according to year and overall charity type. You’ll notice the trend lines for each charity type are generally trending downward. That’s normal. Charities close their doors eventually. They either do this voluntarily, or have it done for them because of some detected mismanagement. What should be apparent here is that in 2008, charities across the board were even less likely to report any fundraising revenue than you’d expect from the general trend. This may be hard to see in this particular graph, so it makes sense to draw trend lines in this graph and then present the same data, except detrended.

Now that you can see what the data looks like when you factor out the overall trend, you start to see a very emotionally difficult story emerging about the Canadian Non-profit sector. Organizations in the “Benefits to Community” and “Welfare” categories were less likely to report any fundraising revenue compared to others, followed by “Religion” and “Education”. Thankfully, despite a heart-wrenching across the board impact on the Canadian Non-profit sector, you’ll notice that there was a pretty big recovery already as of the next tax year. This recovery was especially prevalent in the “Welfare” and “Benefits to Community”, but also in “Education” as well. In all of these cases of recovery, not only can you see better results the year after, but better long term results.

Let’s see this data from a yearly fundraising revenue perspective now.

Here’s where things really get illuminated. Even though it looks like the “Benefits to Community” category suffered the largest dip in the percentage of charities with any fundraising revenue, that dip is invisible when looking at it from a fundraising revenue perspective. What that indicates is two things:

  1. Charities that stopped fundraising due to the 2008 recession were most likely small and thus not much fundraising revenue was lost from this subsector
  2. Charities that successfully continued fundraising during the 2008 recession raised even more money than was the case in the 2007 tax year

Looking at the different charity types, you do see a noticeable dip in the fundraising revenue trend for “Health”, “Welfare” and “Religion”, indicating that the charities who stopped fundraising in 2008 were more likely to be the larger ones compared to those in the “Benefits..” category.

I guess these graphs really strike me as sad because they strike home with the fact that so much of the social good sector ran a risk of not even being able to provide that good for much longer thanks to the recession. In fact, as the graph below shows, charities that stopped bringing in fundraising revenue in 2008 were 8 to 15 times more likely to report no more fundraising revenue in the next 8 tax years, compared with those who continued. That’s really sad when you think of all the services and good works that were likely impacted by this calamity!

But when looking the above graph, you might ask “Well, did non-profits who stopped receiving fundraising revenue in 2008 also stop fundraising as much, or did they try just as hard?”. That was the motivation behind the next graph, which looks at the same metric of % of charities not reporting any FR revenue in 2009-2017, but this time instead of grouping it by charity type, I used a different grouping factor. This one groups charities based on whether they reduced their raw fundraising expenses from 2007 to 2008, or whether they kept them at the same or an increased level.

As you can see on the right side of the graph, amongst those charities who stopped receiving fundraising revenue in 2008, for them to reduce their fundraising expenses vs. 2007 made them 5 times more likely to never receive any more fundraising revenue again. 5 times!!! On the flip side, future fundraising prospects were much better for those charities who kept their fundraising expenses the same or at an increased level vs. 2007.

For those charities who continued receiving fundraising revenue in 2008, future fundraising prospects were simply better overall, regardless of fundraising expenditures in 2008 vs. 2007. We’re looking at the left side of the graph now. In spite of prospects being better overall, charities who reduced their fundraising expenses in 2008 were 49% more likely to never receiving any more fundraising revenue again.

The takeaway from the above two plots is this: regardless of whether or not you’re successful at bringing in fundraising revenue during a recession, it is extremely important to continue putting in as much time, energy, and staff resources into fundraising as possible given your circumstances. If not, please expect not to last much longer as a non-profit.

Matthew Dubins is the brilliant Founder of Donor Science Consulting and a friend of Generate_Impact. His original expanded article is available here. We encourage you to reach out to Matthew for your predictive modeling-based donor targeting needs.