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‘Something's going to snap’: Nonprofits face falling revenue and increased demand

Ben Werschkul
DC Producer

Communities First was founded 10 years ago to help boost economic development in Flint, Mich., and began this year thinking about ways to celebrate its first decade.

The coronavirus had other plans.

“I think the community was building progress” following the water crisis, says president and CEO Glenn Wilson. But the economic shutdown hit his group hard and they now face an immediate gap of about half a million dollars.

“We have to get creative,” he told Yahoo Finance. The 10-year celebration (which was to double as a key fundraiser) has been put on hold while the nonprofit faces a surge of need in the state. Michigan currently has the second-highest unemployment rate in the country at a shocking 22.7%.

The virus has scrambled plans all around the country. Tim Delaney, CEO of the National Council of Nonprofits, said he is seeing this push and pull – increased demand paired with declining revenue – across the groups they represent. “When those forces are going in polar opposite directions, something's going to snap,” he said.

The National Council of Nonprofits represent over 25,000 organizational members.

A ‘horrific spiral’

Based on a recent survey, about 90% of nonprofits report having lost revenues since the crisis began, while 40%-50% report a spike in demand for their services.

In addition to the water crisis, Flint has struggled as auto companies have removed more and more jobs from the city (JEFF KOWALSKY/AFP via Getty Images)

The nonprofit landscape includes groups that do everything from economic development (like Communities First) to chambers of commerce to food banks to museums. Even labor unions and lobbyists can be classified as a nonprofits.

Another survey found that roughly 20% of nonprofits have had layoffs or furloughs because of the economic downturn.

“It's a horrific spiral that is hurting everybody,” Delaney said.

Help available for some, but not others

Two of the key types of nonprofits are 501(c)(3) groups which cover charitable, religious, or educational groups, and 501(c)(6) groups, which cover business associations like a Chamber of Commerce.

501(c)(3) groups employ 10% of the U.S. workforce, making it the third-largest employer in the country behind retail and manufacturing.

Currently, forgivable loans from the Paycheck Protection Program are only available to the former group. The Little Village Chamber of Commerce in Chicago is an example of the latter. They “support, promote and enhance the growth and success of our local businesses,” said CEO Blanca Soto.

A clothing store in Chicago's Little Village neighborhood. (Tim Boyle/Getty Images)

They work with a range of businesses in their predominantly Latino neighborhood on Chicago’s west side. The local small businesses include quinceanera dress boutiques, jewelry and flower shops, and local bakeries. Many of them are not considered “essential” and are now closed and struggling.

A big part of their work lately has been helping local businesses, many of which are wary of the federal government, apply for PPP loans. Yet, because of their tax classification, they can’t get loans themselves.

“We're not the only chamber out there that's struggling,” Soto said.

Communities First (a 501(c)(3)) was able to get a loan during the first round of PPP funding. “The eight weeks was great,” said Wilson about what was covered by the loan, but says more resources are definitely needed.

The decline of local businesses also impacts the group. Wilson said that they operate buildings with business tenants and are planning for how “some of these businesses might not even be around anymore.”

What Washington may change in ‘Phase 4’

Washington is set to negotiate another round of economic stimulus this summer. Before the current Memorial Day recess, Senate Majority Leader Mitch McConnell said there’s a “high likelihood we will do another rescue package” during a Fox interview.

There remains deep divides about when to negotiate a deal and what will go into it. Lawmakers and activists are pushing a range of changes for the nonprofit sector.

U.S. House Speaker Nancy Pelosi (D-CA) speaks about the 'Heroes Act', a proposal for the next phase of the coronavirus disease (COVID-19) relief legislation, on Capitol Hill in Washington, U.S., May 12, 2020. Graeme Jennings/Pool via REUTERS

One effort is to allow 501(c)(6) groups (like The Little Village Chamber of Commerce) apply for PPP funds. A provision to do just that was included in the HEROES act, the bill from House Democrats laying out their priorities. Sen. Ted Cruz (R-TX) has also sent a letter to Small Business Administration head Jovita Carranza asking for her support to allow these organizations to receive loans. 

Another point of contention is nonprofits and unemployment benefits. A recent Department of Labor instruction told states to bill nonprofit employers for 100% of the costs of unemployment benefits paid to employees laid off as a result of the pandemic while they are only eligible for a 50% reimbursement. 

Delaney wants it changed, calling it a “destructive interpretation” that “is hurting real live Americans.”

A group of New York lawmakers, including Rep. Carolyn Maloney (D-NY) and Rep. Alexandria Ocasio-Cortez (D-NY), have another push on behalf of larger 501(c)(3) nonprofits. 

Currently, any organization with over 500 employees is not eligible for PPP loans. The lawmakers want to change that because some of these groups are in a position to “alleviate some of the burden on government resources” during the pandemic.

Yet, all of the ideas are likely to remain on hold for the coming weeks at least as lawmakers wait to negotiate another deal until at least June.

Courtesy of Communities First

In the meantime, groups like Communities First and Little Village are trying to "remake themselves as organizations,” Glenn Wilson said.

Essence Wilson, Chief Strategy Officer and a co-founder of Communities First, said: “We're looking at how to have our 10-year anniversary in year 11.”

Ben Werschkul is a producer for Yahoo Finance in Washington, DC.

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