By Nate Hoekstra
Grand Valley State University
A large percentage of Michigan nonprofit organizations face risks of a break in operational continuity due to a lack of cash on hand, according to an analysis of tax return data by the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University.
Researchers used data from 2015 and 2017 IRS 990 tax forms to set a baseline for where Michigan’s nonprofits began 2020 financially, before the COVID-19 pandemic. Using that data, they determined the median number of months of cash on hand for Michigan charitable nonprofits (excluding hospitals and college/universities) is two months. That number increases to five-and-a-half months counting cash and cash equivalents. Both figures are identical to the national average for U.S. charitable nonprofits.
According to the analysis, one-third of Michigan’s charitable nonprofits have less than one month of cash on hand. These organizations employ two-thirds of the sector’s employees: more than 163,000 people work for nonprofits with less than one month’s cash on hand. Those organizations pay $4.8 billion each year in salaries and benefits. Researchers say until nonprofits are operational again, Michigan’s return to “normal” employment will be at risk.
These same low-cash nonprofits reported engaging 431,622 volunteers, which is nearly half of the 1 million volunteers reported on all Michigan 990 tax returns. The report indicates that until volunteers feel safe returning to nonprofits, these nonprofits are facing multiple perils: low cash along with a large decline in labor force in the form of employees and volunteers.
“There are still many uncertainties about how COVID-19 will affect nonprofits in Michigan and elsewhere,” said Jeff Williams, director of the Johnson Center’s Community Data and Research Lab. “What we do know is that, in nearly all cases, recovery is not a single event. It will be messy, iterative, and it will likely take years to reach.”
With nonprofits at risk due to a lack of cash, some nonprofit experts are calling for private foundations, which are required by law to pay out 5 percent of their endowment value each year, to distribute more than that amount this year.
Williams and the Johnson Center data team ran a simulation to determine what might happen to endowments in different market and payout scenarios.
Their findings suggest that payouts from private foundations can double or triple in 2020, while still maintaining at least 80 percent of their current value by the end of 2024, unless the country faces a long recovery. Williams said if COVID-19 economic shocks pass through the financial markets even by the end of next year, increased payouts will have very little effect on a five-year outlook, and will largely be erased after 10 to 20 years of compounding earnings.
More details on the Johnson Center’s findings are available at JohnsonCenter.org.
