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In the Time of Coronavirus: What is the risk to nonprofits nationwide?

by Jeff Williams

How many charitable, 501(c)(3) nonprofits have two or more months of cash on hand to cover normal, average monthly expenses?

In our first two posts in this five-part series, we focused on risks facing nonprofits and likely cash on hand. While that data was focused on Michigan, the lessons and findings were representative of nonprofits nationwide. We detoured briefly in the third post to look at endowments as a resource for recovery for communities from COVID-19.

Johnson Center researchers have now processed the public tax returns for 290,066 charitable nonprofits[1] in every state and the District of Columbia — and have found (as we expected) that the median results from Michigan are indeed a very common result across the nation. We use the 2017 tax year filings — the most recent complete tax year available — to get a feeling for where nonprofits likely started 2020… right before we all encountered the world of COVID-19.

For more information about the methods to download and analyze the data, please see the earlier posts, with additional information providing the national summary statistics below.[2]

At first glance, the sector looks well prepared.

Nationally, non-hospital and non-university charitable nonprofits filing the IRS 990 have on hand a median of 2.2 months of cash and 4.5 months of cash + savings (savings accounts and other short-term investments considered cash equivalents). As noted previously, we report medians, not averages, because averages can be swayed both by nonprofits with zero cash on hand, as well as nonprofits with large cash stockpiles. Therefore, a better view is to look at the median number of months of cash on hand, which identifies the midpoint where half of nonprofits have more and half have less.

However, the median analysis also means — by definition — that half of U.S. IRS 990-filing nonprofits likely started 2020 with less than 2.2 months of cash on hand.

As we observed in the Michigan-only analysis, the larger the nonprofit by revenue, the less cash (or cash + savings) on hand — sometimes falling to dangerous levels. Small nonprofits ($10,000 to $499,999 in annual revenue), for instance, have a median of 2.8 to 8.6 months of cash on hand, a figure that rises to 4.9 to 29.5 months on hand when including cash equivalents.


But for larger nonprofits with $5 million or more in annual revenue, the median falls dramatically to 3+ weeks for the $5 million to $9.9 million revenue category, and one week for the $50 million or more category. When cash equivalents are included, figures improve to 2.1 months for the $5 million to $9.9 million group, and 1.4 months for the $50 million or more group.

Most likely, the difference between smaller and larger nonprofit cash on hand is because larger nonprofits have access to investments, lines of credit, and other financial instruments that stand in for cash (or cash + savings) in a traditional deposit account.

The sector is right to worry about low-cash nonprofits. Nationwide, as in Michigan, the organizations with less than one month cash on hand employ roughly two-thirds of the sector’s employees. Those same organizations pay $251 billion each year in salaries and benefits. Until these nonprofits are operational again, national employment will be at risk.

Table 1: Employees and volunteers, by cash category, nationwide
Cash on Hand Number of Nonprofits Total Employees Total Salaries and Benefits
Less than 1 month 55,878 6,273,613 $251,005,832,311
1 to 1.9 months 28,049 1,611,253 $53,237,066,994
2 to 2.9 months 18,123 720,521 $23,354,225,358
3 months or more 67,737 1,012,000 $32,347,333,546
N/A or misc. other 13,301 646,084 $29,482,118,458
Total 183,088 10,263,471 $389,426,576,667
Differences by Region and State

National figures are helpful for an overall conversation — but averages can mask underlying variations in the data. Using the U.S. Census Bureau’s geographic definitions for U.S. regions, when we look by region, the regions are reasonably tightly grouped by both cash and cash + savings.

Color-coded map of Census regions and divisions in the United States

SOURCE: U.S. Energy Information Administration

Table 2: Months, Cash and Cash + Savings, by Region
Census Region Number of Nonprofits Median months cash on hand Median months cash + savings on hand
Middle Atlantic Division 30,058 2.0 4.4
East North Central Division 25,160 2.0 4.3
West North Central Division 14,747 2.0 4.9
New England Division 13,122 2.1 4.6
Mountain Division 12,038 2.2 4.3
South Atlantic Division 33,921 2.2 4.4
Pacific Division 29,315 2.4 4.7
East South Central Division 8,539 2.6 4.6
West South Central Division 15,898 2.8 4.9
No region identified 290 2.5 4.1
Total 183,088  

A few key findings:

  • Cash on hand ranges from 2.0 months to 2.8 months across the country, while cash + savings on hand ranges from 4.3 to 4.9 months.
  • The Middle Atlantic and East North Central regions have the lowest cash, as well as cash + savings, median balances. Conversely, the East & West South Central regions have the highest cash, and cash + savings.
  • One region stands out with two very different results. The West North Central region has cash on hand below the national median and tied for lowest value (2.0 months) — but it is also tied for highest value of cash + savings (4.9 months).

So, if we are looking for differences, they are simply not meaningful at a regional level… but they do appear at a statewide level. State medians run from 1.6 months at the low side (Vermont) to 2.9 months at the high side (South Carolina, Louisiana, and Texas).

Knowing readers might be curious how some of these statistics look for their individual state, we have provided a one-page summary for each state and the District of Columbia[3] that lists:

  • Total non-hospital, non-private university 501(c)(3) organizations in the 2017 IRS 990 data set
  • Median months, cash on hand
  • Median months, cash + savings on hand
  • Median cash, cash + savings, and monthly expenses
  • The number of nonprofits, and median revenue, for selected NTEE classifications
  • The cash on hand summary table for the state
  • The total employees and volunteers, by cash on hand category

We’ve compiled all of the state-by-state statistics into one document that you can download, browse, and use in your work:

Download Here

Since our second blog provided data for Michigan, we’ll go to the other end of I-75 and show the Florida summary below as an example of the state-by-state breakdown:

Statewide Summary for the State of Florida

(N.B. Careful readers will note that the Michigan median cash and cash + savings figures in the state-by-state summary here differ slightly from the analysis in the second blog post. The reason lies in the data cleaning rules applied to individual nonprofit tax returns. Since Johnson Center researchers are very familiar with a number of Michigan nonprofits, we quickly identified some oddities in the data for blog 2 and removed those nonprofits from the analysis. However, we do not have the same level of knowledge for every state at the national level. So for this blog, we applied uniform data cleaning rules to every state to ensure common treatment—and to make cross-state comparisons as meaningful as possible.)

Conclusion

While we hope this overview encourages the philanthropic sector to continue discussions about the financial stability of the sector, we recognize two important caveats.

First, there is more to financial health than cash (or cash + savings) alone. Liquid investments such as publicly traded stocks, bonds, ETF, and mutual funds, as well as lines of credit are additional financial instruments. Non-financial instruments—like a special campaign for donations and gifts, or raising the price of fee-for-service engagements — can also be key sources of cash and liquidity for nonprofits. For a more comprehensive view of organizational finances, we are fans of both the Johnson Center’s Financial Analysis in Grantmaking course from The Grantmaking School, as well as the work of leading nonprofit voices like the Nonprofit Finance Fund (NFF). NFF has a very good online worksheet that can help organizations conduct a financial self-assessment to gain a broad view of financial health to start conversations and decisions.

Second, there is no substitute for coupling any discussion about nonprofit finances with a review of the organization’s mission.

  • The answer to any question about, “Do we have enough cash?” or “Should we dip into savings, investments, or endowments to provide services during a time of crisis?” lies in the scope and implementation of the organization’s mission. See especially the third post in this series for more on this point — mission matters, now more than ever.
  • Any review of money can only tell an organization’s leaders how they are constrained in fulfilling that mission. The amount of money cannot by itself tell a board whether or not to move forward because organizations have multiple ways to raise additional funds with enough time, will, purpose, and effort.

Finally, as a nation and as a sector, we continue to be in a time of uncertainty. Uncertainty creates fluid — and highly variable — situations, so organizations need to adapt. We have seen examples in the COVID-19 crisis of flexibility of personnel (some nonprofit staff figuring out how to deliver services in the absence of volunteers… while others deal with a flood of volunteers depending on the subsector) and of requirements (such as the quick response of many foundations to provide additional flexibility with active grants). See especially the first post in this series for more on this point — things will continue to be weird before they get better or worse… and the process of returning to “normal” will not be linear.

[1] For this analysis, as with the prior papers, we have intentionally excluded hospitals and private higher education — which often have comparatively large, and sometimes massive, revenues, assets, and employee counts — so we could focus on a “typical” nonprofit as understood by the general public.

[2] As of May 11, 2020, there are 1,757,420 nonprofits in the United States. Of these, 1,399,615 are certified as 501(c)(3) (charitable) organizations. Of those charitable organizations, roughly half reported revenue under $25,000/year (669,351 organizations, or 48% of the total), which means they file the 990-N “postcard” return. Only 340,189 of the remaining charitable organizations file the full 990 or the 990-EZ form — and of these, 290,066 were active in 2017, filed a return available in the IRS public data set, and were not a hospital or institution of higher education. Of these, nearly two-thirds filed the full 990, and the remaining third filed the 990-EZ.

[3] We are not able to include data for U.S. territories, or for all of the top 12 NTEE classifications, because some of the breakdowns would individually identify the nonprofit organization.


Photo: Jeff Williams
Jeff Williams, M.A., M.B.A., is the director of the Community Data and Research Lab (CDRL) at the Johnson Center for Philanthropy, where he manages CDRL’s annual research agenda and oversees a staff of researchers, database experts, and web developers who promote access to data and provide insights into nonprofit and philanthropic organizations and activities. Learn more about Jeff.

 

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