Resilience and Vulnerability

RESILIENCE & VULNERABILITY T H E S TAT E O F T H E N O N P R O F I T S E C T O R I N L O S A N G E L E S

2009 S C H O O L O F P U B L I C A F FA I R S

CENTER FOR CIVIL SOCIETY

On the cover: Photo by Tiffany Huang Special thanks to Willem Henri Lucas

University of California, Los Angeles School of Public Affairs

RESILIENCE & VULNERABILITY T H E S TAT E O F T H E N O N P R O F I T S E C T O R I N L O S A N G E L E S

2009

UCLA Center for Civil Society Authors David B. Howard and Hyeon Jong Kil Managing Editor Jocelyn Guihama William B. Parent Interim Director

Resilience & Vulnerability: The State of the Nonprofit Sector in Los Angeles 2009

Copyright 2009 by the UCLA School of Public Affairs All rights reserved. Except for use in any review, the reproduction or utilization of this work in whole or in part in any form by electronic, mechanical, or other means, now known or hereafter invented, including a retrieval system is forbidden without the permission of the University of California, Los Angeles, School of Public Affairs, 3250 School of Public Affairs Building, Box 951656, Los Angeles, California 90095-1656.

ISBN 978-0-9802388-3-9

TA B L E O F C O N T E N T S p.ii

List of Figures, Tables, and Boxes

p.iv

Acknowledgments

p.v

Foreword

p.vi

Executive Summary

p.01

Introduction

p.02

The Economic Downturn and Nonprofit Organizations in Los Angeles

p.03

Demand

p.04

Revenue and Expenditures

p.09

Box 1. Update: Foundation Giving in Los Angeles County

p.11

Programs

p.12

Employment and Volunteers

p.13

Box 2. Update: Employment in the Nonprofit Sector

p.17

Strategies

p.18

Collaboration and Competition

p.19

Looking Forward

p.21 p.25 p.26 p.29

The Nonprofit Sector in Los Angeles County – An Update Assesment The 2009 Policy Environment for Nonprofits Box 3. “Pounds of Cure” by Peter Manzo

p.31

Conclusion

p.32

Appendix

p.36

References

L I S T O F F I G U R E S , TA B L E S & B O X E S FIGURES p . 0 3 Figure 1. Demand Change Over the Last Year

p . 1 4 F i g u re 8 . Comparison of Nonprofit/For-Profit/ Public Sector as Percentage of Total, Selected NAICS

p . 0 4 Figure 2a. Revenue Change, 2006-2007

Industries, Los Angeles County, 2008

p . 0 4 Figure 2b . Revenue Change Over the Last Year

p . 1 6 F i g u re 9 . Average Annual Wage of Nonprofit/ For-Profit/Public Sectors, Selected Industries, 2008

p . 0 6 Figure 3a. Expenditure Change, 2006-2007 p . 1 9 F i g u re 1 0 a . Expected Revenue Change Over the p . 0 6 Figure 3b . Expenditure Change Over the

Next Year

Last Year p . 1 9 F i g u re 1 0 b . Expected Expenditure Change Over p . 0 8 Figure 4a . Revenue and Expenditure Change,

the Next Year

2006-2007 p . 2 1 F i g u re 1 1 . Growth in the Number of 501(c)(3) p . 0 8 Figure 4b . Revenue and Expenditure Change

Organizations in Los Angeles County

Over the Last Year p . 2 2 F i g u re 1 2 . Nonprofit Expenditure, 5-County p . 0 9 Figure 5. Total Foundation Assets, Los Angeles

Region, 1995-2007

County, 1997-2008 p . 2 3 F i g u re 1 3 a . Nonprofit Organizations, per 10,000 p . 1 1 Figure 6a . Discontinued Programs/Services

Population, 2007

Over the Last Year p . 2 3 F i g u re 1 3 b . Nonprofit Expenditure per 10,000 p . 1 1 Figure 6b . Discontinued Programs/Services

Population, 2007

(Only NPOs with Decreased Revenue) p . 2 4 F i g u re 1 4 a . Change in the Number of p . 1 2 Figure 7a. Change of Employees/Volunteers

Nonprofits by Major Sub-field, Los Angeles County,

Over the Last Year

2001, 2004, 2007

p . 1 2 Figure 7b . Change of Volunteers Over the Last

p . 2 5 F i g u re 1 4 b . Change in Nonprofit Expenditure by

Year, by Size

Major Sub-field, Los Angeles County, 2001, 2004, 2007

p . 1 2 Figure 7c. Change of Full-time employees Over the Last Year, by Size

ii

TA B L E S p . 1 7 Ta b l e 1 . Nonprofit Organization Activities during the Economic Downturn p . 3 4 A ppe n di x Ta b l e 1 . Response Rate of 2009 Los Angeles Nonprofit Survey, Sub-fields, Size and Age p . 3 5 A ppe n di x Ta b l e 2 . Responses to: What are the specific management and organizational strategies your organization will use to remain sustainable during the economic downturn?

BOXES p.09

B o x 1 . Update: Foundation Giving in

Los Angeles County

p.13

B o x 2 . Update: Employment in the

Nonprofit Sector

p . 2 9 Box 3. “Pounds of Cure,� by Peter Manzo

iii

ACKNOWLEDGMENTS The 2009 Report would not have been possible without the contributions and assistance of many. First and foremost, we would like to thank the anonymous nonprofit leaders in Los Angeles County who so graciously participated in our survey. We would also like to thank the executive directors who shared their wisdom and humor during our focus group.

We owe tremendous thanks to a number of people who offered expertise in critical areas. For employment and wagerelated data we would like to thank John Milat and Andy Wong from the California EDD Labor Market Information Division for their help. For nonprofit data, we thank Tom Pollak and his colleagues who work on the National Center for Charitable Statistics. We deeply appreciate the written contributions of Peter Manzo. The report also benefited from the input of Torie Osborn and Sushma Raman.

We are grateful to have had the assistance of Selena Rodriguez, Cheye-Ann Corona and Nichole Hemans on data collection and Tiffany Huang with the design of this report.

The Center enjoys wonderful support from the UCLA School of Public Affairs. We are indebted to Dean Frank Gilliam, VC Powe and Waiyi Tse. For guidance on the survey and feedback on drafts, we thank Professor Zeke Hasenfeld, Dr. Eve Garrow and the Center’s Founding Director Professor Helmut Anheier.

iv

FOREWORD The Center for Civil Society in the UCLA School of Public Affairs has, since 2003, worked to identify the critical challenges facing nonprofit organizations in the Los Angeles region. At no time have those challenges been greater.

Nonprofit organizations are being asked to do more with less as needs and demands increase and revenue and resources are cut. Families with infants and children, the unemployed, and the working poor are bearing the worst of it. There is also a toll on the full range of interests and needs served by the sector from social justice and environmental advocacy to education and arts and culture.

This report by the UCLA Center for Civil Society: Resilience and Vulnerability, based on a survey conducted over the summer of 2009, captures more than just the challenges facing the nonprofit sector; it also says a lot about strength, creativity, and commitment in these times of economic and social stress. It is our goal that the Center for Civil Society will help to mobilize this creativity and commitment to articulate the essential role that nonprofits play in every community in our diverse region.

The Center for Civil Society has in the past five years advocated for stronger dialogues among nonprofit and government leaders. There is a great need to make the public and policy makers more aware of the social problems and decreasing opportunities that are emerging as a result of the current economic crisis. Indeed, as this appears to be much more than just another recessionary cycle, we need to be asking the big questions of what kind of a society we want to be; how we can pursue an agenda of social justice, opportunity and equality, access to education and health care, and continue to meet the wide range of needs served and lives enhanced through the nonprofit sector.

It is our aim that this report and the dialogue we begin at the annual conference will advance coalitions of advocacy aimed at strengthening the health and well-being of the nonprofit sector and the individuals and communities they serve.

The UCLA Center for Civil Society is entering a new chapter. We are grateful for the strong foundation built by Professor Helmut Anheier. In the coming months and years we aim to increase our service and work in Los Angeles, to build capacity and to be a resource for nonprofits with common missions and goals, and to bring the work of local civil society closer to our research and teaching in Public Policy, Social Welfare and Urban Planning.

William B. Parent

Franklin D. Gilliam

Interim Director

Dean

UCLA Center for Civil Society

UCLA School of Public Affairs

v

EXECUTIVE SUMMARY This past summer, the UCLA Center for Civil Society

high (Foster et al., 2009). The steep declines in the mar-

surveyed a representative sample of Los Angeles non-

ket decreased endowments among both private founda-

profit organizations (NPOs) to determine the impact of

tions and public charities, diminishing assets used for

the economic downturn on the sector and to find out

grantmaking and for providing financial cushions to

what local nonprofits are doing to survive and fulfill

large organizations (Foundation Center, 2009; Common-

their missions.

fund Institute, 2009).

What emerged in the data portrays a sector facing condi-

The Center for Civil Society’s 2009 Los Angeles Nonprofit

tions much more difficult than in years past—coupling

Survey asked questions about the strategies and tactics

increasing demand with decreasing revenues. More

upon which organizations will rely most heavily during

than a third of nonprofits reported decreased revenues

these times of cutbacks and increased demands. The most

over the past year, while only 14% of nonprofits re-

frequently mentioned high priorities included focusing

ported increases. Larger nonprofits appear to have been

on fundraising, controlling and cutting costs, and in-

hardest hit. Whereas nearly half of large nonprofits

creasing visibility. Most notably absent in these responses

reported decreased revenue in the previous year, about

were mention of efforts to improve evaluation and pro-

a third (33% and 31%, respectively) of medium and small

gram effectiveness, engage in meaningful advocacy roles,

organizations reported a decrease. While revenues have

and consider strategic collaborations or even mergers.

declined, fixed administrative costs, such as health care for employees, are continuing to rise. Organizations de-

In spite of some troubling findings, local nonprofit lead-

pendent on government and foundation revenue report

ers did reveal a degree of resiliency in their approach

major budget shortfalls. Human services organizations

to the downturn. While just 14% of survey respondents

are experiencing particularly difficult times meeting

experienced increased revenues, more than a third (37%)

demand; it’s hard to run job training programs when

reported increased expenditures in the past year, and

there is double-digit unemployment among experienced

more than half (52%) of the respondents have engaged

and skilled workers.

in strategic planning exercises in the same period. Nearly twice as many nonprofits reported adding new pro-

These findings are in line with a number of recent non-

grams than those that reported having to cut programs.

profit surveys conducted nationally. The Nonprofit Fi-

Most have been able to maintain their level of full- and

nance Fund (Greco, 2009) conducted a national survey

part-time employees and there has been an increase in

that showed only 11% of nonprofits expect to operate

volunteers. In terms of employment, it appears that the

above break-even this year; sixteen percent (16%) antici-

nonprofit sector is holding up better than the for-profit

pate being able to cover their operating expenses in both

and government sectors. Nonetheless, it should also be

2009 and 2010. A Johns Hopkins Listening Post Project

noted that these trends may very well indicate that non-

survey found that 37% of nonprofit leaders identified

profits are overextending themselves, outspending their

their level of fiscal stress as “severe” or “very severe”

revenue capabilities, and overworking staff and volun-

(Salamon et al., 2009). And surveys by the Bridgespan

teers. If expenditures continue to outweigh revenues, as

Group revealed that small nonprofits are hurting the worst;

is anticipated by the survey respondents, then further

a majority of nonprofits are experiencing funding cuts;

fiscal strain will exacerbate the current challenges to

demand for services are increasing; and staff anxiety is

meet growing demands.

vi

Among this year’s significant findings: The Economic Downturn and NPOs in Los Angeles

ing in numbers and expenditures, but that growth

• More than half (57%) of surveyed nonprofit organi-

has slowed in recent years. The nonprofit sector is not

zations responded that demands for their programs or

shrinking, although growth in the number of organiza-

services increased during the economic downturn.

tions continues to outweigh growth in expenditures.

This equates to a reduction in the median and average

• More nonprofit organizations have experienced de-

size of LA nonprofits.

clines in revenues and expenditures than before the downturn. But at the same time, many have managed to

• The nonprofit sector employs close to 238,000 in LA

maintain or increase expenditures, presumably to keep

County (or about 6% of the county’s workforce) and ac-

up with demand for services.

counts for about 6% of the county’s total wages.

• The majority of nonprofit organizations respond-

• Nonprofits experienced a 1.3% decline in total employ-

ed that their staffing and volunteer levels stayed the

ment between October 2007 and September 2008 (fairing

same during the downturn. Twenty-five percent (25%)

slightly better than for-profit firms’ 1.8% decline), while

reported a decrease in full-time employees, while 26%

public sector employment experienced a 4.6% decline.

reported an increase in the number of volunteers.

Recommendations • Respondents appear to be slightly more optimistic about

The severity of this economic downturn, which has deeply

the year ahead. Fewer respondents anticipate decreased

affected the ability of government and foundations to

revenue compared to the percentage of respondents who

support human services, arts, the environment, health,

reported decreased revenues in the previous year.

and education programs, has nevertheless put the spotlight on the nonprofit sector and civil society more

The LA Nonprofit Sector: A Statistical Update

generally as vital and necessary resources in helping

• About 41,500 registered nonprofit organizations exist

to provide opportunity, social justice, environmental

in Los Angeles County - the highest number among all

protection, and public health. This report demonstrates

U.S. counties. Of these, 84% are 501(c)(3) public charities

that civil society in Los Angeles faces severe challenges

and 16% are various kinds of member-serving organiza-

under the strain, albeit not without evidence of resilience

tions registered under sections 501(c)(4-26).

and a sense of ‘cautious optimism.’

• Twenty-nine percent (29%) of all registered 501(c)(3)s

In light of what we have learned in the past, the Center

– 9,641 organizations – filed an IRS Form 990 in 2007. Of

posits the following recommendations to members of

the filers, 42% (4,031) had revenues under $100,000, 39%

the nonprofit, private and public sectors. These three

(3,796) had revenues between $100,000 and $1 million,

recommendations—inter-related in many ways—stem

15% (1,430) had revenues between $1 million and $10 mil-

from what we heard from local nonprofits and also gen-

lion, and 4% (384) had revenues in excess of $10 million.

eral observations of the sector. We offer these recommendations knowing that many organizations are already

• In general, both the nonprofit major sub-fields and

revisiting their strategic and fundraising plans and cal-

nonprofit sector overall in Los Angeles have been grow-

culating ways to curb and control costs. We are calling for:

vii

• Renewed focus on program evaluation. It is not

• New modes of strategic collaboration and con-

enough for organizations to revisit their missions and

solidation. Efficiency should play a more prominent

engage in planning activities around core competen-

role in collaborative activities. This is to say that many

cies and initiatives without an evaluation framework.

collaborative efforts do not address the issues of

Nonprofits need to develop capacity to measure their

duplication of services and administrative inefficiencies.

progress toward stated outcomes and measure the

Collaborative efforts should decrease costs and increase

effectiveness of their programs and activities. Quality

efficiencies for involved parties—not the other way

program evaluation matters more than ever—for non-

around. Collaborative models can also address the urgent

profits, funders and those who receive services. Diffi-

need for knowledge-sharing and empirically-based

cult decisions about scarce resource allocation should

research on how nonprofit organizations are coping

be made based on sound data and results that can be

with the crisis; how they are responding to rising service

reported clearly to staff, funders, and other stakehold-

demands; what alternative funding options they are

ers and shared with similar nonprofits and govern-

pursuing; what changes they are making internally and

ment agencies. Program evaluation does not have to be

externally, as well as the social, health, environmental,

a costly third-party option. With adequate support from

educational, and cultural costs flowing from decreased

the public and private funding community, including

nonprofit capacity and budget cuts. Nearly half of

capacity building to improve evaluation methodologies,

survey respondents reported engaging in some type of

nonprofits can become better equipped to measure the

collaborative effort in the past year, but the quality and

quality of their respective programs and services.

effectiveness of these efforts remain unknown. And with respect to the most extreme examples of collaboration—

• More widespread advocacy efforts among non-

consolidation and mergers—it appears as if these

profits. Nonprofits must move beyond the mispercep-

strategies are extremely rare among local nonprofits.

tions around advocacy and the legal rules that limit

This economic downturn may very well require more

lobbying activities. All nonprofits can engage in

widespread consolidation—voluntary and otherwise—

advocacy without penalty, although the scope and extent

of local nonprofits, and the sector needs informa-

of activities vary according to the tax exempt status

tion and guidance on how to most effectively pursue

of the organization. In recent years, many nonprofit

such avenues.

organizations report they have become more effective in joining forces with other nonprofits for specific purposes, e.g. serving foster children, pushing for environmental regulations, etc., but what is also needed is a wider shared commitment to higher visibility and understanding of civil society and the nonprofit sector as a whole toward increasing civic engagement for the common good. Depleted public coffers should not dissuade

nonprofits

from

engaging

with

elected

officials and other lawmakers. Nonprofit voices need to infiltrate the debates around health care reform, economic recovery and other social issues.

viii

INTRODUCTION For each of the past six years, the UCLA Center for Civil Society has released its State of the Nonprofit Sector in Los Angeles report, offering an annual statistical update on the scale and scope of nonprofit and philanthropic activities in the region. To readers of the Center’s previous reports, this year’s installment may look different. Rather than immediately introduce the traditional sector updates (e.g., total number of nonprofits, total expenditures, etc.), this year’s report starts with the results of a survey the Center conducted this past summer to gauge how local nonprofits are experiencing and attempting to weather the economic downturn. The report still includes updates on the scale and scope of the sector, but the survey responses provide the crux of this year’s focus.

01

THE ECONOMIC DOWNTURN AND N O N P R O F I T O R G A N I Z AT I O N S I N L A Nonprofit organizations across the country have felt the

In the summer of 2009, the Center conducted a brief tele-

effects of the recession and LA County organizations

phone survey with nonprofit executives throughout LA

are no exception. Economic crises present a two-fold di-

County (see Appendix for detailed methodology). The

lemma to nonprofit organizations: increased demands

purpose of the survey was to gauge how local nonprof-

for services coupled with reduced resources. As is the

its are faring during the economic downturn and learn

case in LA County, preexisting conditions of steady an-

about the ways in which organizations are facing the

nual growth in the numbers of nonprofits coupled with

challenges and looking toward strategies that will help

stagnant expenditure growth means that, on the whole,

them remain sustainable. The survey was administered

local nonprofits must ‘do more with less.’ This contention

to a representative sample of LA nonprofits in the follow-

may in fact understate the severity of the current situa-

ing sub-fields: human services, health, arts and culture,

tion. For some organizations, ‘doing more’ may not be

education and environment. Furthermore, the sample in-

a feasible option. For organizations that lost large portions

cluded organizations with annual revenues greater than

of their annual revenue due to budget cuts at all levels of

$50,000 and less than $10 million. Survey results were

government and reduced private giving, just staying

shared with a focus group made up of eight nonprofit

afloat might take precedence over maintaining programs

executives from a cross-section of sub-fields.

and services.

Throughout the recent economic downturn, numerous For these reasons and more, this year’s report explores

national and regional studies and surveys have been

the impact of the economic crisis on nonprofit organiza-

conducted across the country to explore the economy’s

tions in LA County, examining changes in the following:

impact on the nonprofit sector. This report will reference

demand for services, revenues and expenditures, staffing

these findings to make relevant comparisons between

and volunteers, organizational activities, and competi-

nonprofits in LA and their counterparts in other parts of

tion and collaboration.

the country.

02

DEMAND Figure 1. Demand Change Over the Last Year

A l l O rg a n i z a t i on s

22%

S ub- f i el d s

A r t s , Cult u re , a n d H u m a n i t i e s

12%

E d u ca t i on

12%

H u m a n S e r vi ce s

38%

0%

20%

33%

I n c rea sed Mo d er a t e l y

40%

S t a ye d t h e S a m e

6%

26%

60%

D e cre a s e d M o de r a t e l y

2%

10% 0%

34%

29%

7%

12%

40%

36%

3%

12%

33%

15%

9%

27%

37%

24%

Health

31%

41%

E n vi ron m e n t

I ncreased S u bsta n tia lly

35%

80%

4%

8%

1%

100%

D e cre a s e d S ubst ant i al l y

Source: 2009 Los Angeles Nonprofit Survey

In order to explore one half of the dual dilemma de-

When comparing the five sub-fields, human service or-

scribed above, the survey included a question about

ganizations reported the highest proportion of demand

how demands for programs and services have changed

increases (65%) and the lowest proportion (9%) of organi-

during this economic downturn. As Figure 1 shows, the

zations that experienced decreases in demand. This find-

majority of nonprofit organizations (57%) responded that

ing seems intuitive as job loss, foreclosures, cuts in public

demands for their programs and services increased over

benefits and other effects of the economic downturn have

the last year. In contrast, only 12% of respondents re-

increased demands for basic needs and other human

ported a decrease in demand over the past year. A 2009

services (e.g., workforce development, counseling, etc.).

Bridgespan survey of U.S. nonprofit leaders yielded very

Our analysis also showed that changes in demand were

similar results, with 56% of respondents reporting an

experienced similarly across different organizational age

increase in demands (Foster et al., 2009). A 2009 Guidestar

groups and budget sizes.

survey found that 58% of U.S. nonprofits experienced demand increases in the past year (Mclean & Brouwer, 2009).

03

REVENUE AND EXPENDITURES Figure 2a. Revenue Change, 2006-2007

A ll Organiza t i on s

41%

S ub- f i el d s

Ar ts, Cult u re , and H uma n i t i e s

38%

45%

Edu ca t i on

31%

44%

En v iro n m e n t

20%

25%

38%

38%

0%

22%

24%

38%

H uman S e r vi ce s

23%

34%

51%

Health

22%

23%

42%

40%

In cre a s e d

60%

S t a ye d t h e S a m e

20%

80%

100%

D e cre a s e d

Source: NCCS IRS CORE Files, 2006, 2007.

N o t e : To m i r r o r t h e 2 0 0 9 s a m p l e f o r t h i s c o m p a r a t i v e a n a l y s i s , w e e x t r a c t e d a l l 5 s u b - f i e l d s o f n o n p r o f i t o rg a n i z a t i o n s w h i c h h a v e b o t h 2 0 0 6 a n d 2 0 0 7 r e v e n u e r e c o r d s f r o m 2 0 0 6 a n d 2 0 0 7 C O R E f i l e s . A f t e r d r o p p i n g v e r y l a rg e a n d v e r y s m a l l n o n p r o f i t o rg a n i z a t i o n s , w e c a l c u l a t e d t h e i n c r e a s e a n d d e c r e a s e i n r e v e n u e . W e d e f i n e 1 0 percent increase/decrease as “stayed the same.”

Figure 2b. Revenue Change Over the Last Year

A ll Organiza t i on s

14%

S ub- fie ld s

Ar ts, Cult u re , and H uma n i t i e s

50%

14%

Edu ca t i on

43%

43%

12%

En v iro n m e n t

64%

14%

Health

29%

45%

20%

In cre a s e d

Source: 2009 Los Angeles Nonprofit Survey

57%

62%

17%

0%

24%

29%

9%

H uman S e r vi ce s

04

36%

38%

40%

60%

S t a ye d t h e S a m e

D e cre a s e d

80%

100%

The survey also included questions about changes in

Our analysis looked at revenue changes in relation to

revenues and expenditures over the past year. Figures 2a

organizational reliance on various forms of revenue (e.g.,

and 2b compare county-level aggregate revenue chang-

government, donative, fees, etc.)1 and the survey results

es across two different periods: before the economic

showed that those organizations that receive 50% or more

downturn (2006-2007) and during the economic down-

of their revenue from government sources were the most

turn (2008-2009). Before the economic crisis (Figure 2a),

likely to report decreased revenue (46%). This trend is

almost twice as many nonprofit organizations experi-

likely due in large part to continued State-level fiscal un-

enced increased revenue (41%) than those organizations

certainty, a byproduct of the economic downturn, hous-

that experienced decreased revenue (22%). In contrast,

ing market declines and subsequent decreases in tax rev-

during the economic downturn (Figure 2b), 36% of non-

enues. The uncertainty not only leads to cuts in services

profit organizations experienced decreased revenue—

but also costly delays in payment. Indeed, the Nonprofit

more than twice as many organizations that experienced

Finance Fund (2009) found that California nonprofits

increased revenue (14%—compared to 22% in 2006-2007).

experience significantly longer delays in government

This distinct difference suggests more nonprofit organi-

funding than organizations nationally. These results are

zations struggled to secure sufficient resources during the

consistent with the findings from other recent studies.

economic downturn as compared to the previous period.

The Bridgespan survey also found that funding cuts were As one focus group participant pointed out, those organi-

most severe among organizations that rely on the govern-

zations that reported that revenues stayed the same – 50%

ment as their primary funder (Foster et al., 2009).

of the sample – might very well have been forced to make cuts (e.g., staff, programs, etc.) if they had budgeted for

Organizations that received 50% or more of their reve-

more than they ended up raising. In addition, organiza-

nue from fees, dues, sales and other income reported the

tions for which revenues stayed the same in the previous

lowest instances of reduced revenues (26%). These orga-

year are likely to have fixed costs (e.g., health care costs

nizations also reported the highest percentage (22%) of

for employees) that continually rise on an annual basis.

increased revenue in the past year.

Larger nonprofits appear to have been harder hit by the

Examining differences in sub-fields, a higher percentage

downturn in terms of declines in revenue. Whereas 46%

of environment nonprofits (57%), arts, culture and hu-

of large nonprofits reported decreased revenue in the

manities (43%), and human services (38%) experienced

previous year, about a third (33% and 31%, respectively)

revenue decreases than the other sub-fields and non-

of medium and small organizations reported a decrease.

profit sector overall in Los Angeles County2. Only 24%

This trend might be explained in part by the heavier reli-

of educational groups reported decreased revenue in the

ance on government income among large organizations.

past year.

1. Government revenue includes grants, contracts and/or reimbursements. Donative revenue includes gifts from individuals, private and community foundations, United Way, corporate donors, and special events. Fees include charges, sales, dues and other earned income.

2. As seen in Appendix Table 1, only 21 Environment nonprofit organizations responded to the survey. The small number of responses may indicate biased results.

05

Figure 3a. Expenditure Change, 2006-2007

A ll Organiza t i on s

42%

S ub- f i el d s

Ar ts, Cult u re , and H uma n i t i e s

41%

45%

Edu ca t i on

34%

47%

En v iro n m e n t

20%

44%

39%

0%

18%

30%

38%

H uman S e r vi ce s

21%

35%

50%

Health

17%

20%

18%

45%

In cre a s e d

40%

60%

S t a ye d t h e S a m e

16%

80%

100%

D e cre a s e d

Source: NCCS IRS CORE Files, 2006, 2007.

N o t e : W e e x t r a c t e d a l l 5 s u b - f i e l d s ‘ n o n p r o f i t o rg a n i z a t i o n s w h i c h h a v e b o t h 2 0 0 6 a n d 2 0 0 7 e x p e n d i t u r e r e c o r d s f r o m 2 0 0 6 a n d 2 0 0 7 C O R E f i l e s . A f t e r d r o p p i n g v e r y l a rg e a n d v e r y s m a l l n o n p r o f i t o rg a n i z a t i o n s , w e c a l c u l a t e d t h e i n c r e a s e / d e c r e a s e o f t h e e x p e n d i t u r e . W e d e f i n e 1 0 p e r c e n t i n c r e a s e / d e c r e a s e a s “ s t a y e d t h e s a m e . ”

Figure 3b. Expenditure Change Over the Last Year

A ll Organiza t i on s

37%

S ub- fie ld s

Ar ts, Cult u re , and H uma n i t i e s

33%

26%

31%

Edu ca t i on

43%

45%

En v iro n m e n t

35%

29%

Health

20%

34%

34%

In cre a s e d

Source: 2009 Los Angeles Nonprofit Survey

29%

28%

39%

0%

20%

43%

38%

H uman S e r vi ce s

06

30%

40%

27%

60%

S t a ye d t h e S a m e

D e cre a s e d

80%

100%

The survey included questions on how the economy has impacted the total expenditures of LA County nonprofits.

Figures 3a and 3b compare expenditures before and after the economic downturn. In 2006-2007 (Figure 3a), data reveal that 42% of nonprofit organizations experienced an increase in expenditures while only 17% experienced a decrease.

Our survey results show that during the economic downturn (Figure 3b), even though 37% of nonprofit organizations’ expenditures increased, a comparable number of nonprofit organizations’ expenditures (30%) decreased.

That is, as compared to the previous period, more nonprofit organizations decreased expenditures during this economic downturn. Of the organizations that reported decreased expenditures over the past year, 38% reported a decrease in full-time staff, 21% reported a decrease in part-time employees, and 32% reported having discontinued an existing program or service.

Arts, Culture and Humanities organizations reported the highest percentage (43%) of expenditure decreases and the lowest percentage of expenditure increases (26%).

Education nonprofit organizations reported the lowest percentage (20%) of decreased expenditures and the highest percentage of increased expenditures (45%).

07

Figure 4a.

Figure 4b.

Revenue and Expenditure Change, 2006-2007

Revenue and Expenditure Change Over the Last Year

60% 50%

50%

40%

41%

42%

41% 38%

37% 33%

36% 30%

30% 22%

20%

17% 14%

10%

0%

I n c re a s e d

Stayed the Same

D e c re a s e d

C h a n ge in R ev e n u e

Increased

Stayed the Same

Decreased

C h a n g e i n E x pe n di t u re

Source: NCCS IRS CORE Files, 2006, 2007; 2009 Los Angeles Nonprofit Survey

Despite the challenges many nonprofit organizations

decreased their expenditures when their revenue either

faced over the last year, our survey results suggest that

stayed the same or decreased (‘doing less with less.’)

nonprofits made an effort to continue their activities and meet demands for their programs and services. As seen

Survey respondents also answered questions about

in Figure 4a, changes in revenue and expenditure from

how various revenue types shifted in the past year.

2006-2007 largely mirrored each other. In contrast, Figure

Thirty-eight percent (38%) of respondents indicated that

4b shows more drastic differences in the changes in rev-

revenue from donations decreased in the past year—

enue and expenditure during the economic downturn.

a higher percentage than all other revenue sources. Arts

In fact, the survey reveals that during this period, 37%

organizations reported the sharpest decrease in donations

of nonprofit organizations increased expenditures while

(48%). At the same time, 14% of respondents reported an

only 14% had increases in revenue.

increase in donations over the past year—tied with fees, sales and dues for the highest percentage. These results

Furthermore, 28% of nonprofit organizations reported

indicate that donative income experienced the most

increased expenditures when their revenue either stayed

fluctuation among grantees over the past year. Indeed,

the same or decreased over the last year (‘doing more with

less than half (49%) reported that donative income stayed

less’). In addition, 8% of organizations responded that

the same. Government income appears to have been the

their expenditures stayed the same despite a decrease in

most stagnant source of revenue in the past year. Only 8%

revenue. Hence, over a third of nonprofit organizations

of respondents indicated that revenue from government

increased or maintained their expenditures with less

sources increased in the past year – the lowest percentage

funding. In contrast, only 13% of nonprofit organizations

of all other revenue sources – and 72% of respondents reported no change in government income.

08

B OX 1. U P D AT E: FO U N D AT I O N G I V I N G I N L A C O U N T Y Despite the beginnings of a recession, foundation giving

compared to foundation income, survey data show

in the United States rose an estimated 2.8% to a record

that government, earned income and other sources

$45 billion between 2007 and 2008 (Foundation Center,

decreased among fewer organizations. And organiza-

2009). At the same time, however, the Foundation Cen-

tions do not appear to be very optimistic about prospects

ter estimates that foundation assets dropped 21.9% in

for foundation funding in the next year. One-quarter

2008 and that foundation giving in 2009 will decrease

of respondents stated that they expected foundation

by 8 to 13%.

funding to decrease.

Survey respondents indicated that revenue from foun-

In terms of the scope of institutional philanthropy in

dations (including private foundations, community

LA, the number of private foundations in the County

foundations, and United Ways) was an unstable rev-

has grown fairly consistently. This constant increase is

enue source. Thirty-one percent (31%) of respondents

similar to the growth of private foundations in Cali-

stated that revenue from foundations decreased in the

fornia and the U.S. as a whole. Between 1995 and 2009,

past year. And while individual donations were re-

the number of private foundations more than doubled,

ported to have decreased among more respondents

growing from 2,214 to 4,546.

Figure 5. Total Foundation Assets, Los Angeles County, 1997-2008

$40

$34.9

$35

$35.2

B il li ons (A dj ust ed t o 20 07 D o l l a r s )

$32.1 $29.5

$30

$30.7 $27.5 (est.)

$28.6

$25.6

$25.3

$26.6

$25

$20

$18.8

$20.3

$15

$10

$5

$0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: NCCS IRS CORE files, 1997-2008.

N o t e : E s t i m a t e d d r o p i n a s s e t s b e t w e e n 2 0 0 7 a n d 2 0 0 8 i s d e r i v e d f r o m F o u n d a t i o n C e n t e r ’s p r e d i c t i o n s f o r t h e 2 0 0 9 s u r v e y.

09

In terms of foundation assets in LA County, local foun-

In 2006, LA County-based foundations distributed nearly

dations grew their assets by a modest 0.72% between

$637 million and almost the same amount of grants were

2006 and 2007—considerably slower growth than Cali-

awarded to Los Angeles recipients and non-Los Angeles

fornia (7.53%) and the U.S. (10.55%). Despite the small

recipients (50% in each). When comparing sub-fields,

growth however, total assets reached an all time high for

Los Angeles recipients were awarded more grants than

LA County—$35.2 billion. Figure 5 shows total founda-

non-LA recipients in Art and Culture (77%), Human Ser-

tion assets for LA County foundations from 1997 to 2007.

vices (64%) and Religion (70%) sub-fields while non-Los

This chart is particularly relevant because one notices

Angeles recipients received more grants in Environment

a sizeable reduction in assets following the recession of

and Animals (63%), Science and Technology (86%) and

2001. Between 2000 and 2002, foundation assets in LA

Social Science (81%) in 20063.

County dropped 14% before steadily rebounding between 2002 and 2006.

Grants to nonprofits in the field of health (totaling over $248 million) made up the largest share (39%) of grant

Figure 5 also includes an estimated drop in total assets

dollars from LA County private foundations. Education

based on Foundation Center’s nationwide 2008 predic-

(23%), Human Services (14%), and Arts and Culture

tion. If LA foundations experienced a similar drop in

(13%) had the next highest grant dollar shares.

assets, total dollars would be approximately $27.5 billion (or slightly above the 2003 totals). Actual local foun-

When foundation giving dipped following the 2001 re-

dation data is not yet available for 2008, so questions

cession, recovery took close to four years. Because the

remain about the extent to which LA foundations will

severity of the most recent drop in foundation assets, the

experience reduced assets and possible subsequent re-

recovery time may be longer, forcing nonprofits to pur-

ductions in giving as well.

sue other forms of revenue to make up for the potential decreases in giving.

3. Source: The Foundation Center. The flow of the foundation grants changes every year by various factors such as an extremely large special grant in a year.

Therefore, the result in the analysis is a snapshot of a year and cannot be generalized as a trend across years.

10

PROGRAMS Figure 6a. Discontinued Programs/Services

Our survey also looked at whether nonprofit organiza-

Over the Last Year

tions have discontinued programs or services. We see that slightly over 20% of nonprofit organizations discon-

Al l O rg a n i z a t i on s

S ub- f i el d s

A r t s , Cu lt u re , a n d H u m a n i t i e s E d u ca t i on

tinued programs (Figure 6a). If we focus on only those 79%

21%

79%

8%

29%

When we analyze organizations by the type of revenue rely most heavily on government revenue reported having discontinued programs in the past year. In contrast,

79%

26%

0%

they are most reliant upon, 40% of those groups that

71%

21%

H u m a n S e r vi ce s

40% discontinued programs or services (Figure 6b).

92%

E n vi ron m e n t Health

organizations experiencing decreased revenue, nearly

21%

20%

Yes

only 16% of organizations that rely most heavily on fees,

74%

40%

60%

80%

100%

dues, sales and other earned income and 17% of groups that rely most on donations discontinued programs.

No

It should be noted, however, that 80% of all respondents and over 60% of nonprofit organizations whose revenue decreased did not discontinue any programs or services at all over the last year. Taken with the fact that expendiFigure 6b. Discontinued Programs/Services (Only NPOs

ture growth appears to be outpacing revenue increases,

with Decreased Revenue)

a majority of nonprofit organizations appear to be putting forth a concerted effort to maintain program levels despite funding cuts.

Al l O rg a n i z a t i on s

38%

S ub- fi e lds

A r t s , Cu lt u re , a n d H u m a n i t i e s E d u ca t i on

62%

33%

17%

E n vi ron m e n t

play. For one, the practice of overspending is highly un-

Yes

20%

not reveal the extent to which programs may have been pared down, even if not discontinued all together. In sum,

54%

44%

0%

sustainable in the long-term. Furthermore, the data does

58%

46%

H u m a n S e r vi ce s

among nonprofits, more problematic factors may be at

83%

42%

Health

Although this trend illustrates a degree of resilience

67%

there are important questions left unanswered by these

56%

40%

60%

80%

100%

data about the health of these nonprofits.

No

Source: 2009 Los Angeles Nonprofit Survey

11

EMPLOYMENT AND VOLUNTEERS Figure 7a. Change of Employees/Volunteers

Figures 7a-c show the percent change in the number of

Over the Last Year

employees and volunteers of the nonprofit organizations in LA County during the economic downturn. As seen

Full- T ime Empl oy e e s P ar t - T ime Empl oy e e s

in Figure 7a, the majority of nonprofit organizations 9%

65%

11%

Vo lu n t e e r

72%

17%

26%

0%

20%

responded that the number of full- and part-time employ-

25%

68%

40%

60%

80%

ees and volunteers stayed the same during the economic downturn. Sixty-five percent (65%) of nonprofit organi-

6%

zations answered that they did not change their number

100%

of full-time employees; 72% of nonprofit organizations answered that they did not change their number of part-time employees; and 68% of nonprofit organizations

Figure 7b. Change of Volunteers

answered that they did not change the number of volun-

Over the Last Year, by Size

teers. However, 25% of nonprofit organizations reported

Org a n i z a t i o n S i z e

a decrease in full-time employees, while 26% of nonprofit Small

31%

Medium L a rg e

56%

28%

67%

16%

0%

13%

40%

60%

the economic downturn.

5%

81%

20%

organizations indicated an increase of volunteers during

3%

80%

100%

In a comparison of organizational size, a higher percentage of large nonprofit organizations experienced changes in full-time employees than either medium or small nonprofit organizations. What is more, a higher percentage

Figure 7c. Change of Full-time Employees

of small nonprofit organizations experienced changes

Over the Last Year, by Size

in volunteers. Specifically, 41% of large nonprofit orga-

O rgan iz a tio n S i z e

nizations reported a decrease in the number of full-time Small Medium L a rg e

2%

80%

8%

70%

17%

0%

18%

21%

42%

20%

40%

80%

tions reported an increase in the number of volunteers4.

As one focus group participant pointed out, however, an increased volunteer pool may not fully compensate

41%

60%

employees, while 31% of small size nonprofit organiza-

100%

for lost employees. Although volunteers appear to be increasing, volunteer labor may not be suitable for some types of services (e.g, clinical positions in mental health

Increased

Sta y ed th e Sa me

D ec rea sed

and substance abuse).

Source: 2009 Los Angeles Nonprofit Survey

4. The size of nonprofit organization is defined as follows: Small ($50,000- $100,000 in expenditure), Medium ($100,000 - $1,000,000 in expenditure), and Large ($1,000,000 – 10,000,000 in expenditure).

12

Of organizations that reported decreased revenues over

When comparing organizations by reliance on various

the past year, 44% reported a decrease in full-time employ-

revenue streams, we found that 38% of organizations

ees and 21% reported a decrease in part-time employees.

that rely most heavily on government sources decreased

Of organizations that reported increased revenues over

full-time employment in the last year. In contrast, 23% of

the past year, still 18% and 12% reported decreases in full-

organizations that rely mostly on donations and 26%

time and part-time employees, respectively.

of groups that rely most heavily on fees, sales, dues and other earned income reported decreases in fulltime employees.

B OX 2 . U P D AT E: E M P LOY M E N T I N T H E N O N P RO F I T S EC TO R The economic downturn has had severe impacts on the

organizations made up just 4% of employment and 3%

LA County labor force. In March 2009, the county un-

of total wages. Organizations with staff sizes larger than

employment rate surpassed 11% for the first time since

1,000 employees made up less than 1% of reporting non-

1983. This update examines the state of nonprofit sector

profits, but 43% of employment and over half (54%) of

employment in LA County. The nonprofit sector employs

total wages.

approximately 238,000 workers in the county, nearly 6% of the county’s overall workforce. Forprofit employment

Figure 8 compares the percentage of establishments,

makes up 81% of LA County employment and govern-

wages, and employment for the nonprofit, forprofit, and

ment employees make up the remaining 14%. In terms

public sectors for the second quarter of 2008 for selected

of wages, nonprofit employment represents 6% of the

industries5. Nonprofit sector employment is most domi-

county’s total wages ($2.84 billion in the third quarter of

nant in the fields of emergency and other relief services

2008), with forprofit firms making up 79% and govern-

(67%) and social advocacy (62%). Nonprofits also hold

ment 16%. The LA nonprofit workforce represents 28% of

a strong share of individual and family service organiza-

the state’s nonprofit employment and 28% of the state’s

tions (53%) and vocational rehabilitation services (44%).

total nonprofit wages. Hospitals represent the largest share of the nonprofit sector workforce (33%) and total

In terms of total wages, nonprofits account for more than

wages (42%). Educational services ranks second in both

half in six of the selected industries, with Emergency

categories (25% and 23%, respectively).

Relief (71%), Social Advocacy (65%) and Vocational Rehabilitation Services (65%) having the highest shares. In

Data provided by the California Employment Develop-

terms of total employment, emergency relief (74%), social

ment Department reveal that, of the LA-based nonprofits

advocacy (72%) and vocational rehabilitation (66%) pos-

covered by California’s unemployment insurance (UI)

sess the dominant shares of their respective sub-fields.

laws, 58% employed staffs of less than 10 people. These

5. The industries selected for this analysis contain at least a minimal presence of nonprofit organizations.

13

Figure 8. Comparison of Nonprofit/For-Profit/Public Sectors as Percentage of Total, Selected NAICS Industries, Los Angeles County, 2008

N

FP

E s t a bl i s hm ent s

P

Ar t s, E n t e r t a i n m e n t , a n d R e crea tio n 2.4%

97.4%

C h i l d D a y C a re S e r v ices 26.4%

73.6%

C i vi c a n d S oci a l O rg a n i z a tio n s 29.6%

70.4%

E d u ca t i on a l S e r v ices 13.0%

40.1%

46.9%

E m e rg e n cy a n d O t h e r R e l i e f S e r v ices 67.2%

32.8%

H os p ita ls 24.9%

33.4%

41.6%

I n d i vi d u a l a n d F a m i l y S e r v ices 53.4%

46.6%

Nu r si n g a n d R e si d e n t i a l C a re F a cilities 20.5%

79.5%

S ci e n t i f i c R e se a rch a n d D e ve l op m e nt S v c 15.7%

84.3%

S oci a l Ad voca cy O rg a n i z a tio n s 62.4%

37.6%

Voca t i on a l R e h a b i l i t a t i on S e r v ices 44.2%

14

55.8%

N

FP

Wa g e s

P

5.8%

N

88.6%

5.6%

45.5%

6.6%

8.5%

79.4%

39.3%

71.0%

21.3%

20.7%

64.6%

8.9%

76.6%

51.2%

40.4%

54.7%

26.0%

45.3%

81.1%

34.2%

35.4%

26.3%

22.8%

18.9%

34.5%

33.4%

73.7%

24.5%

69.3%

65.5%

66.6%

14.5%

78.7%

30.7%

57.5%

29.0%

59.6%

12.2%

42.5%

79.8%

54.8%

E m pl o y m ent

P

54.5%

60.7%

13.6%

FP

65.8%

72.1%

66.4%

27.9%

33.6%

S o u r c e : C a l i f o r n i a E m p l o y m e n t D e v e l o p m e n t D e p a r t m e n t , 2 n d Q u a r t e r, 2 0 0 8

Figure 9 compares average annual salaries for nonprofit

particularly vexing considering the increased demand for

organizations across select industries. Scientific Research

services. How do you retain a skilled and motivated work-

and Development ($87,649), Hospitals ($63,012), Edu-

force when salaries are shrinking in these subsectors?

cational Services ($44,320) have the highest average annual salaries among nonprofits, while Civic and Social

When comparing salaries among the three sectors, one

Organizations ($18,241), Child Day Care ($25,890), and

notices that nonprofit average annual salaries are higher

Vocational Rehabilitation ($27,765) have the lowest aver-

than their forprofit and public counterparts in Hospitals,

age annual salaries.

Individual and Family Services, Nursing Care and Residential Services, Child Day Care Centers and Civic and

In terms of annual salary growth among nonprofits, the

Social Organizations. The biggest gaps between forprofit

top five industries experienced modest growth (between

and nonprofit annual salaries exist in Arts and Culture

1%—5%) between 2007 and 2008. Five of the seven indus-

groups, Social Advocacy Organizations, and Civic and

tries with the lowest annual salaries experienced a decline

Social Organizations. In Educational Services, nonprofit

in average salaries. Most notably, average salaries for

annual salaries are approximately 21% higher than for-

Child Day Care and Vocational Rehabilitation dropped by

profit salaries, although government salaries are 11%

15% and 9%, respectively. These reductions in salary seem

higher than nonprofits.

15

Figure 9. Average Annual Wage of Nonprofit/For-Profit/Public Sectors, Selected Industries, 2008

P

$63,012

H osp i t a l s

$44,320

Edu ca t i on a l S e r vi ce s

$40,725

A mbulat o r y H e a l t h C a re S e r vi ce s

$39,848

Ar t s , Ent e r t ain me n t , a n d R e cre a t i on

$36,625

S o c ial A dv o ca cy O rg a n i z a t i on s

Eme rge nc y and Ot h e r R e l i e f S e r vi ce s

$33,567

I n div idual an d F a m i l y S e r vi ce s

$32,634

$31,375

N urs in g an d Re s ide n t i a l C a re F a ci l i t i e s

Child Da y C a re S e r vi ce s

FP

$87,649

Sci ent if ic Re s e arc h an d D e ve l op m e n t S vc

Vo c at io n al Re h ab i l i t a t i on S e r vi ce s

N

$27,765

$25,890

$ 1 8,241

S o u r c e : C a l i f o r n i a E m p l o y m e n t D e v e l o p m e n t D e p a r t m e n t , 2 n d Q u a r t e r, 2 0 0 8

From October 2007 to September 2008, the nonprofit sec-

In terms of fluctuations in nonprofit employment from

tor workforce decreased by 1.3% (or approximately 3,100

October 2007 to September 2008, certain sub-fields fared

jobs), compared to a 1.8% decline in forprofit employment.

better than others. Employment in Ambulatory Health

Public sector jobs decreased during that time by 4.6%. If

Care Services rose 8.9%, Nursing and Residential Care

we examine forprofit and public employment only with-

Facilities rose 7.3%, and Social Advocacy Organizations

in select industries populated by nonprofit organizations,

rose 4.9%. Nonprofit sub-fields that experienced the

the former experienced a decline of 0.79% in total em-

sharpest employment declines were Religious Organiza-

ployment (fairing slightly better than the nonprofit firms)

tions (-8.2%), Educational Services (-6.2%), and Vocational

while the latter experienced a precipitous 9% decline.

Rehabilitation Services (-5.0%). Hospitals, which account

The dramatic drop in government employment is largely

for a third of nonprofit employment in the County, expe-

explained by severe cuts in educational services employ-

rienced a 1.5% drop in employment.

Civ ic an d S o c i a l O rg a n i z a t i on s

ment at the county level during the summer of 2008. Local government jobs in educational services experienced a 13% decline between October 2007 and September 2008.

16

S T R AT E G I E S Table 1. Nonprofit Organization Activities During The Economic Downturn

Yes

No

D ev eloped a st r a te gi c p l a n ?

52%

48%

R eorg a nized y o u r a d m i n i s tr a ti v e o r m a n a ge m e n t s tr u ct ure ?

44%

56%

I m plem ent ed a n e w f i s c a l o r c o s t c o n tro l s y s te m ?

37%

63%

A dded new prog r a m s ?

37%

63%

I m plem ent ed a p ro gr a m e v a l u a ti o n s y s te m ?

35%

65%

Cont ra c t ed out i n te r n a l o p e r a ti o n s ?

19%

81%

S t a r t ed a joint re v e n u e ge n e r a ti n g a c ti v i ty w i th o th e r org ani zat i ons?

18%

82%

E xpa nded or sta r te d a p ro f i t-m a k i n g v e n tu re ?

16%

84%

M erg ed wit h a no th e r o rga n i z a ti o n ?

2%

98%

So u rce: 2009 Los Angel es Nonprofi t Surv ey

We also asked a variety of questions about management

The low percentage of organizations that reported having

activities and strategies undertaken over the last year.

merged with another agency is consistent with national

The top three activities were development of a strategic

studies that show that just 5% of organizations nation-

plan (52%), reorganization of administrative or manage-

ally had merged or intended to merge in 2008 (Nonprofit

ment structure (44%) and implementation of a new fis-

Finance Fund, 2009). These results appear to suggest that

cal or cost control system (37%). Interestingly, during this

the sector has not in fact entered a new era of consoli-

period 37% of nonprofit organizations continued to add

dation and mergers. One explanation for this might be

new programs. Thirty-five percent (35%) of organizations

the high cost of mergers (up to $250,000 depending on

reported having implemented a program evaluation sys-

the size of the nonprofit and what’s involved) (Le Beau,

tem in the past year. Only a small percentage of nonprofit

2009). Despite these data, there is some evidence that

organizations contracted out internal operations (19%),

nonprofits are still intrigued by the merger option. Ac-

participated in a profit-making venture (16%) or merged

cording to Bridgespan, about 20% of nonprofit leaders

with another organization (2%).

were considering mergers or acquisitions to weather the recession (Foster et al., 2009).

17

C O L L A B O R AT I O N A N D C O M P E T I T I O N The survey also asked a series of questions about the

culture nonprofits were the most likely to report competi-

extent to which organizations have engaged in collabo-

tion, Furthermore, organizations that rely most heavily

ration or experienced competition over the past year.

on government funding reported the highest frequen-

Nearly 50% or more of respondents reported having been

cies of competition for financial resources (73%), while

involved with a collaborative effort to develop programs

organizations relying most heavily on fees, sales, dues

or services (49%), coordinate services for clients (55%)

and other earned income reported the lowest competition

and advocate on behalf of clients (51%). A lower percent-

frequency (43%).

age (35%) reported collaborative efforts to obtain funding for programs More than half of respondents also reported

So while collaborative efforts appear to be increasing dur-

that the level of collaboration in these areas increased

ing the downturn, competitive forces—especially with

over the past year.

regards to obtaining financial resources—remain at play.

6

Questions remain, however, about the extent to which With respect to competition, nearly 60% of respondents

levels of collaboration and competition will change as the

reported having experienced competition with other or-

down economy continues to impact the sector. As resourc-

ganizations (mostly nonprofits, but also including for-

es become more scarce or remain stagnant, competition

profit and government entities) for obtaining financial

figures to increase. But the current economic conditions

resources. Less than 40% of respondents reported compe-

punctuate the need for collaboration as funders—both

tition around attracting clients/members (37%), recruit-

public and private—increasingly call upon nonprofits to

ing staff/volunteers (24%), delivering programs/services

demonstrate efficient partnerships.

(24%), and recruiting board members (19%). Arts and

6. The report does not include comparable data about reported increases in competition among survey respondents due to a considerable amount of missing data (about half of respondents did not indicate whether their level of competition over the past year reflected an increase or a decrease). The low response rate to these questions may indicate poor survey methodology or a lack of awareness around respondents’ respective competitive arenas.

18

LOOKING FORWARD Figure 10a. Expected Revenue Change Over the Next Year

A l l O rg a n i z a t i on s

20%

S ub- f i el d s

A r t s , Cult u re , a n d H u m a n i t i e s

53%

27%

33%

E d u ca t i on

41%

20%

E n vi ron m e n t

62%

20%

Health

40%

71%

19%

0%

18%

40%

9%

H u m a n S e r vi ce s

26%

20%

48%

20%

40%

In cre a s e

33%

60%

Stay the Same

80%

100%

D e cre a s e

Source: 2009 Los Angeles Nonprofit Survey

Figure 10b. Expected Expenditure Change Over the Next Year

A l l O rg a n i z a t i on s

28%

S ub- fie ld s

A r t s , Cult u re , a n d H u m a n i t i e s

50%

29%

E d u ca t i on

46%

29%

E n vi ron m e n t

45%

68%

36%

0%

18%

35%

17%

H u m a n S e r vi ce s

24%

53%

20%

Health

22%

20%

15%

44%

In cre a s e

40%

Stay the Same

60%

21%

80%

100%

D e cre a s e

Source: 2009 Los Angeles Nonprofit Survey

19

We were also interested in learning about the types of

When we revisited our comparison across organizations

changes in revenues and expenditures that nonprofit or-

by revenue stream reliance, we found that only 6% of

ganizations are anticipating in the next year. When asked

organizations that rely mostly on government funding

about the coming year’s revenue and expenditures, sur-

expected an increase in revenue (from all sources) in the

vey respondents relayed a slightly positive outlook or—

coming year. This was in stark contrast to the percent-

as one focus group participant described it—’cautious

age of organizations that rely most heavily on fees, dues,

optimism’. Whereas only 14% of respondents reported an

sales and other earned income (30%) and donations (21%)

increase in revenues in the previous year, 20% of organi-

that expect revenue increases.

zations anticipate an increase in revenue in the coming year. And where 36% of respondents reported revenue

So while optimism was not consistent across all organi-

decreases in the previous year, only 27% predict revenue

zations, many survey respondents suggested a slightly

decreases in the coming year.

better outlook for the coming year. When asked about the specific management and organizational strategies

One third of Arts and Culture organizations expect an

that organizations will use to remain sustainable during

increase in revenue in the next year, while just 18% of

the economic downturn, the most common response was

Education groups expect a decrease in revenue. These two

fundraising. Other common responses included cutting

sub-fields rely more heavily on fees, dues, sales and other

costs (e.g., laying off staff, discontinuing programs, etc.),

earned income as compared to Human Services, Health,

general cost control strategies (e.g., tighter fiscal monitor-

and the Environment. This reliance on earned income might

ing), expanding services, and increasing visibility (e.g.,

help explain disproportionate optimism, however slight.

marketing, improving/building a website, etc.) Respondents were less likely to mention collaboration, program

In terms of expenditures, 37% of organizations reported

evaluation and advocacy – key strategies identified in this

increased expenditures in the previous year, and only 28%

report as needing more development in the local nonprof-

expect expenditures to increase in the coming year. And

it sector (see Recommendations in Executive Summary).

while 29% of organizations reported decreased expenditures in the previous year, only 22% expect to decrease

The fact that nonprofits anticipate another year of over-

expenditures in the coming year. Health nonprofits,

spending—expenditures that outweigh revenues—is

which reported relatively high fluctuation in expendi-

troubling. On one hand, the apparent willingness among

ture change over the past year, expect the least fluctua-

nonprofits to maintain expenditures in spite of continued

tion going forward. Because health organizations tend to

fiscal uncertainty displays a commendable degree of re-

be larger groups, this may account for better cost control

silience. However, another year of overspending will only

functioning and fiscal management.

add more financial strain to nonprofits and in turn add to the collective vulnerability of the sector.

7. The figure 41,486 we estimate is based on the NCCS IRS Business Master File (BMF) for July 2009. (See Appendix 1 for more information on the data used.)

20

THE NONPROFIT SECTOR IN L O S A N G E L E S C O U N T Y — A N U P D AT E Los Angeles County contains the largest nonprofit sec-

In 2007, the latest year for which data on nonprofit or-

tor in the country, both in terms of the total number of

ganizations that are required to file an annual IRS Form

organizations and total nonprofit expenditures. In July

990 is available, 9,641 nonprofits filed the annual returns.

of 2009, there were 41,486 registered nonprofit organiza-

This number represents about 29% of all registered 501(c)

tions in LA County . Of these, nearly 84% (or 34,674) are

(3) organizations in LA County. Furthermore, this num-

registered as 501(c)(3) public charities, including 7,162

ber represents those organizations with annual revenues

religious congregations and 4,546 private foundations.

that exceed $25,000 (and are therefore required by the

In addition to these public-serving organizations, vari-

IRS to file a Form 990). Of the 9,641 filers in 2007, 42%

ous kinds of member-serving nonprofit organizations

(4,031) had revenues under $100,000, 39% (3,796) had

registered as 501(c)(4-26) make up the remaining 16%

revenues between $100,000 and $1 million, 15% (1,430)

(or 6,812) of the total number of nonprofit organizations.

had revenues between $1 million and $10 million, and

As in previous reports, the primary focus of this edition

4% (384) had revenues in excess of $10 million.

7

is the public-serving nonprofit organizations registered as 501(c)(3) public charities.

Figure 11. Growth in the Number of 501(c)(3) Organizations in Los Angeles County

40,000

20. 0%

32,911

30,000

27,761 24,730

25,000 20,000

19,640 20,071

21,009 21,661

22,892

29,865 29,888

15. 0% 12. 5% 10. 0% 7. 5%

6.7%

6.5% 5.3%

4.7%

4.9% 3.7%

3.1%

2.6%

1.4%

2.2%

17. 5%

26,030

10.1%

5.7%

5,000

34,674

23,213

15,000 10,000

29,114

33,435

1.6%

% Growth

N um ber of O rg an iz a t i o n s

35,000

5. 0% 2. 5%

0.1%

0

0. 0% 1995

1996

1997

1998

501(c )(3) O rga n iz a tio n s

1 9 99

2000

2001

2002

2003

2004

2005

2006

2007

2008

% A n n u a l G ro w t h

Source: NCCS IRS Business Master Files, August 1995 - July 2009.

Note : The growth between years is not an exact 12-month period. Data for each year was extracted from the following NCCS IRS BMF files: August 1995; June 1996; October 1997; September 1998; December 1999; May 2000; July 2001; July 2002; July 2003; April 2004; July 2005; May 2006; September 2007; June 2008; July 2009.

21

As seen in Figure 11, the number of registered nonprofit organizations in LA County has grown steadily between

profit organizations increased 3.7%, which is also lower than the average annual rate of growth8.

1995 and 2009. As a result, the number of nonprofit organizations has increased nearly 77% during that time.

Similarly, nonprofit expenditures in LA County have

However, in general, the growth rate has slowed in re-

also grown continuously since 1995 with total expendi-

cent years. With the exception of a steep increase from

tures increasing 58% between 1995 and 2007. But while

2006 to 2007, annual growth rates since 2003 have been

the growth trend overall since 1995 has been positive,

lower than the annual growth average (4.2%) between

growth rates for nonprofit expenditures have slowed in

1995 and 2009. From 2008 to 2009, the number of non-

recent years. As Figure 12 illustrates, nonprofit expen-

Figure 12. Nonprofit Expenditure, 5-County Region, 1995-2007

$3 6 , 0 0 0 $34,216 $33,841

$3 4 , 0 0 0 $3 2 , 0 0 0

$32,182

$32,294

2003

2004

$32,777

$30,525

$3 0 , 0 0 0 $28,664

$2 8 , 0 0 0

$27,291 $26,365

$2 6 , 0 0 0

Mi ll ions (A dj u s t e d t o 2 0 0 7 D o l l a r s )

$24,458 $23,809

$2 4 , 0 0 0 $2 2 , 0 0 0

$21,594

$21,918

$2 0 , 0 0 0

$6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1995

1996

1997

LA C o u n ty

S o u rc e: NCCS IRS Co re F ile s, 1 9 9 5 - 2 0 0 7

22

1998

1999

O r a n ge C o u n ty

2000

2001

S a n B e r n a rdi n o

2002

R i v e r s i de

Ve n t u r a

2005

2006

2007

Figure 13a. Nonprofit Organizations

ditures have experienced flat growth since 2003, follow-

per 10,000 Population, 2007

ing a period of persistent increases between 1995 and 2003. Between 2006 and 2007, nonprofit expenditures

US

34

C a l i f or n i a

32

5- Co u n t y R e g i on

30

Lo s A n ge les C ou n t y

33

Ve n t ur a C ou n t y

increased just 1.1% in LA County, which is lower than the average annual growth rate (3.9%) between 1995 and 2007. Compared to neighboring counties, total nonprofit expenditures in LA County is by far the largest. But the expenditure growth rate from 2006 to 2007 was the lowest of all counties in the 5-county region9.

29

Or ang e C ou n t y

30

S an B e r nardin o C ou n t y

6.71% of the Gross Metropolitan Product (GMP) in 2007.

This percentage represents the lowest share of GMP

22

Riv e r s id e C ou n t y

Nonprofit expenditures in LA County accounted for

since 2003, but is just 0.16% lower than the 2003 share.

20

Nonprofit share of GMP is also 0.84% higher than the

Source: NCCS IRS Business Master Files, June 2007; U.S. C e n s u s P o p u l a t i o n E s t im at es (h t t p: / / www.census.gov / popest/ datasets.html )

1998 share (5.87%) The relative capacity of the nonprofit sector in LA County in terms of organizations per 10,000 population,

Figure 13b. Nonprofit Expenditure

outpaces the four surrounding counties, but lags behind

per 10,000 Population, 2007

the state and the country. As Figures 13a and 13b indicate,

US

$42,824,477

C a l i f or n i a

$39,151,245

5- Co u n t y R e g i on

$ 2 6 ,2 25,325

Lo s A n ge les C ou n t y Ve n t ur a C ou n t y Or ang e C ou n t y S an B e r nardin o C ou n t y Riv e r s id e C ou n t y

$ 34,888.642 $ 1 2 ,4 8 3 ,1 0 5 $ 1 9 ,8 7 7 ,928 $ 1 7 ,6 3 4 ,7 51

the number of nonprofit organizations per 10,000 population (33) as well as the nonprofit expenditure per capita ($3,489 or approximately $34,890,000 per 10,000 people) in LA County are higher than the other four counties in the 5-county region but lower than the U.S. in both number and expenditure. Compared to California, Los Angeles nonprofit capacity is higher in number but lower in expenditure, suggesting that on average a Los Angeles County nonprofit organization spends less than the average California nonprofit organization.

$ 7 ,8 2 5 ,5 3 0

So u rce: NCCS IRS COR E Fi l es, 2 0 0 7 ; U.S. Census Popul ati on Es t i ma t e s (h t t p: //w w w. cen sus.gov / popest/ datasets.html )

8. The criteria month measuring annual growth was changed from January to June in this year ’s report. Therefore, to derive more precise 12-month growth rates each year, we used different months’ BMF data for five years (2002, 2003, 2006, 2007 and 2008) from the previous reports. This modification results in figures for these five years that do not match data from previous reports.

9. The four counties’ annual growth rates in expenditure during 2006-2007 are as follows: 7.9% for Orange County, 5.4% for San Bernardino County, 3.5% for Ventura County and 4.3% for Riverside County.

23

Figure 14a. Change in the Number of Nonprofits by Major Sub-field, Los Angeles County, 2001, 2004, 2007 7,072

7,000 6,167

N um ber o f O rg ani z at i o ns

6,000

4,940

5,000 4,566 4,081

4,000 3,608

3,632

3,131

3,000

2,652

2,493 2,206

2,000

1,942

1,000

0 A r ts , C u l tu re , a n d H u m a n i ti e s

Ed ucat i on

H e al t h

H uman Se rvi ce s

2001-2 0 0 4 Growt h

18%

12%

14%

25%

2004-2 0 0 7 Growt h

15%

12%

13%

15%

2001

2004

2007

S ourc e : N CCS I RS Bus i ne s s Ma s t e r F i l e s , Jul y 2001; A p r i l 2004; S e p t e mbe r 2007

The size of the four major nonprofit sub-fields in LA

experienced the largest growth in expenditures (29%) be-

County—Human Services, Education, Arts and Cul-

tween 2001 and 2007, and Health organizations showed

ture, and Health—also increased both in the number

the smallest growth during the same period (8%), most-

of organizations and in expenditures between 2001 and

ly because of the expenditure decrease between 2004

2007. Figure 14a shows that the number of nonprofit or-

and 2007.

ganizations in all major sub-fields experienced steady growth in 2001, 2004 and 2007. Human Services orga-

In general, when comparing the growth rates between

nizations demonstrated the largest growth (43%) in

the two different 3-year periods (2001 to 2004 and 2004

number while education organizations experienced the

to 2007), the 2001-2004 growth rates are higher than

smallest growth (26%) between 2001 and 2007. Simi-

2004-2007 rates (see tables in Figures 14a and 14b). That

larly, in Figure 14b, the total nonprofit expenditures in

is, except for the expenditure growth trend among Arts,

all the major sub-fields increased in 2001, 2004 and 2007

Culture and Humanities organizations, growth rates

except for a decrease between 2004 and 2007 among health

have slowed in terms of both numbers and expenditures

nonprofit organizations. Human services organizations

in recent years.

24

Figure 14b. Change in Nonprofit Expenditure by Major Sub-field, Los Angeles County, 2001, 2004, 2007 $13,928 $13,533

$14,000

$12,518

M i l i o ns ( A d j ust ed t o 2 0 0 7 Do l l ars)

$12,000

$10,000 $8,936 $8,250

$8,000

$7,565

$6,000

$5,226 $5,396 $4,182

$4,000

$2,000 $1,010 $934

$1,182

0 A r ts , C u l tu re , a n d H u m a n i ti e s

Ed ucat i on

H e al t h

H uman Se rvi ce s

2 0 0 1 - 2 0 0 4 Gro w th

8 %

9%

11%

25%

2 0 0 4 - 2 0 0 7 Gro w th

17%

8%

−3%

3%

2001

2004

2007

S ourc e : N CCS I RS Core F i l e s , 2001, 2004, 2007.

ASSESMENT The above show that all major nonprofit sub-fields (with

zation expenditures between 2004 and 2007 predict par-

the exception of health) and the nonprofit sector over-

ticular challenges for the types of agencies that would

all in LA County experienced consistent, albeit slow,

presumably try to meet the basic and healthcare needs

growth in terms of both numbers and expenditures.

of a population with growing needs. Furthermore, as

Considering the recent economic downturn and the

the growth in number of organizations continues to out-

state’s continuing state fiscal crisis, this slowdown is not

pace growth in aggregate total expenditures, the median

expected to reverse in the short-term. The slow growth

and average size of LA County nonprofits continues to

trend could also prove problematic for a sector that is

erode. This begs the question as to whether more organi-

experiencing increased demands for services. Consider-

zations, smaller in size and continuing to further ‘divide

ably slow growth among human service organizations

up the pie,’ will be able to adequately address growing

in terms of expenditures and a decline in health organi-

social problems at the local level.

25

THE 2009 POLICY ENVIRONMENT FOR NONPROFITS The policy environment at all levels of government

Budget Project, 2009):

weighs heavily on the work of nonprofit organizations and the communities that rely on nonprofit services. For

• Supplemental Security Income/State Supplementary

this reason, the State of the Nonprofit Sector report each

Payment (SSI/SSP) monthly grants for individuals and

year examines the relevant policy updates that could po-

couples were reduced by 7% and 11%, respectively.

tentially impact nonprofit organizations.

• CalWORKs grants were cut by 4%—the maximum The economic downturn is likely to exacerbate preexisting

monthly grant for a family of three now stands at $694,

fiscal pressures on the nonprofit sector by way of budget

the same amount as in 1989.

shortfalls at the State and local levels. The state’s budget crisis looms large over the dual challenges faced by local

• Reduced funding to counties for employment services

nonprofits: increased demands and decreased resources.

and child care.

But unlike in recent years, there are new commitments at the Federal level to increase social spending and pro-

• Drastic reductions in funding for child welfare services,

mote new service and volunteer initiatives. The Obama

the Healthy Families Program, In-home Supportive Ser-

Administration has introduced new strategies to invest

vices (IHSS), community clinics, adult dental services,

in nonprofit infrastructure and provide opportunities for

Developmental Centers and Regional Centers, AIDS/

local organizations to access new funding streams and

HIV programs, and domestic violence shelter programs.

volunteer pools. Similar initiatives at the state and local level have also created opportunities, at least with respect

In addition, the state’s budget calls for borrowing $2 bil-

to service and volunteerism. But first the challenges:

lion from cities and counties, and takes another $1.7 billion from local redevelopment agencies this fiscal year.

CHALLENGES

For LA County, this could equate to nearly $450 million of borrowed or taken dollars from the county, City of Los Angeles and Community Redevelopment Agency of Los

When the final revisions were signed for the state’s 2009-

Angeles (CRA/LA) (Reese, 2009). This reduction in local

2010 budget by Governor Arnold Schwarzenegger, over

funding may also reduce services to low-income popula-

$16 billion in cuts were proposed in order to address

tions and other groups in need. At the time of this report,

a $23 billion shortfall that severely hampered legislation

the city is facing a $405 million budget shortfall. Negotia-

for months. These budget cuts came on the heels of $14

tions among the mayor’s office, city council and other key

billion in cuts enacted in February to address what was

stakeholders are ongoing and the strategies to help make

then a $36 billion budget shortfall. Many of the cuts were

up the deficit are still being formulated.

made to safety net programs that aim to protect vulnerable populations like low-income children and older adults. Here are some examples of cuts that will create more service demands in local communities (California

26

OPPORTUNITIES

service a way of life for all Americans.” The initiative also created www.serve.gov as a resource to help people find

The new presidential administration has brought new-

local volunteer opportunities.

found focus on the work of nonprofit organizations and financial resources are starting to move through the pipe-

The volunteer Generation Fund was created to help non-

line to help local organizations. President Barack Obama

profits recruit, manage, and train volunteers. The Fund

created the Office of Social Innovation to help support in-

will require grantees to submit annual reports on the

novative nonprofits and encourage social entrepreneurs

size and performance of their volunteer programs to the

to tackle pressing problems. The nonprofit sector has al-

CNCS which will distribute the funds.

ready responded to these opportunities by engaging in unprecedented advocacy activities in Washington. The

The Nonprofit Capacity Building Program is a public-

implications for the LA nonprofit sector have yet to be

private matching grant program (the limited federal

determined, but the following highlights opportunities at

dollars would be matched dollar-for-dollar by other

each level of government.

sources) that will help small and midsize nonprofits access nonprofit capacity building services, starting with

FEDERAL

the $5 million that Congress previously reserved as part of the FY 2010 budget of the Corporation for National & Community Service.

When President Obama signed the Edward M. Kennedy Serve America Act in April 2009, he authorized the cre-

In July, the Senate Appropriations Committee approved

ation of a Social Innovation Fund (SIF), which is housed

a FY 2010 appropriations bill that includes $1.157 bil-

within the Corporation for National and Community Ser-

lion for the CNCS, which is a $267 million increase from

vice (CNCS). The SIF proposes to work with local funding

FY 2009. The legislation includes $50 million for the

partners to support nonprofits that have proven to be ef-

Social Innovation Fund, $8 million for the Volunteer

fective. The fund is designed to channel most (85%) of the

Generation Fund, and $2 million for the Nonprofit Ca-

support dollars through local grant-making institutions,

pacity Building program.

leaving another 10% that would go directly to community groups and 5% to support research and evaluation.

In addition, the American Recovery and Reinvestment Act (ARRA)—commonly known as the stimulus pack-

The CNCS will provide grants to local funders between

age – also provides support for nonprofits and volun-

$1 million and $10 million and will require the local foun-

teerism. Through the Strengthening Communities Fund

dations to provide a 100% match. In addition, nonprofits

(SCF) and the Nonprofit Capacity Building Program,

who receive ‘subgrants’ from the foundations will be re-

the Administration of Children and Families (ACF) will

quired to match grants dollar-for-dollar.

award approximately $34 million this fall to organizations across the country to provide trainings, technical

The Serve America Act also officially recognizes Septem-

assistance, and financial support to small and midsized

ber 11 as a National Day of Service and Remembrance,

organizations working in underserved communities.

with the goal of promoting the new administration’s United We Serve initiative. Launched by President Obama

While new initiatives are being proposed at the Federal

and the First Lady, and in partnership with the CNCS,

level, nonprofit organizations are taking unprecedented

this initiative seeks “to create a sustained, collaborative,

steps to have their voices heard in Washington. In July

and focused effort to meet community needs and make

2009, a delegation of 80 members of the National Coun-

27

cil of Nonprofits met at the White House and on Capitol Hill. Meetings were held with a senior adviser in the new

California ranks 42nd in the nation in volunteer rate (23.8%) and 35th in volunteer hours per resident (32.7)10.

Office of Social Innovation and with over 100 U.S. representatives and senators. The delegation focused on two main issues: (1) protecting funding for the Nonprofit Ca-

LOCAL

pacity Building Program and (2) ensuring that nonprofits are not forgotten in health care reforms (National Council

At the local level, too, there are initiatives to increase vol-

on Nonprofits, 2009).

unteerism and support service-related activities. In 2009, Los Angeles Mayor Antonio Villaraigosa along with 16

S TAT E

other U.S. mayors announced a new coalition to promote volunteerism as a way to help cities combat their most pressing problems. As part of this effort, and with sup-

In 2008, Governor Arnold Schwarzenegger established

port of the Rockefeller Foundation, the Cities of Service

a new Cabinet-level position of Secretary of Service

coalition will support full-time chief Service officers in

and Volunteering—the first such position in the nation.

select cities to support mayoral initiatives. The Entertain-

According to CaliforniaVolunteers (2009)—the state office

ment Industry Foundation announced a separate multi-

that manages volunteer programs and initiatives—this

year campaign to enlist television networks and the

move intends to raise the profile of service in the state,

wider entertainment industry in an effort to promote vol-

improve state and local volunteer coordination, and en-

unteerism (Cities of Service, 2009). Since being elected in

courage more volunteerism across the state.

2005, Mayor Villaraigosa has also organized 13 Mayor’s Days of Service, involving thousands of local volunteers

CaliforniaVolunteers administers the AmeriCorps port-

in projects around the city.

folio in California, Citizen Corps, Green Jobs Corps (in partnership with the Labor and Workforce Development

Despite these new measures to encourage service, LA

Agency), and the Cesar Chavez Day of Service and Learn-

appears to lag behind other major cities with respect to

ing. It also developed and maintains the California Vol-

volunteerism. According to CNCS (2009), 2.1 million LA

unteer Matching Network on CaliforniaVolunteers.org,

residents volunteered in 2008 – the same number as in

is developing the nation’s first statewide Disaster Corps

2004. The CNCS report shows that Los Angeles ranks 45th

to fully integrate volunteers into the state’s emergency

among the 51 largest U.S. cities in volunteer rate (20.5%;

management system, and guides policy development

rankings based on three-year averages). Compared to

to support the nonprofit and service fields (Office of the

other California cities, LA ranks behind San Francisco

Governor, 2008).

(15th; 29.5%), San Jose (23rd; 27.8%), San Diego (28th; 26.1%) and Sacramento (33rd; 25.3%). The 2008 volunteer

According to data compiled by the CNCS (2009), Califor-

rate was 21%, 5.4% lower than the state average and 0.6%

nia had the largest number of volunteers of any U.S. state

lower than the city rate in 2004. LA ranks slightly higher

in 2008 (nearly 7.1 million – almost 12% of all the vol-

(38%) among the 51 largest U.S. cities in volunteer hours

unteers in the U.S.) However, according to CNCS (2009),

per resident (28.9).

10. Volunteer rate is the percentage of individuals who responded on the Current Population Survey’s Volunteer Supplement that they had performed unpaid volunteer activities at any point during the 12-month period that preceded the survey for or through an organization (numbers are based on three-year moving averages). Volunteer hours per resident are calculated as the total volunteer hours served divided by the population aged 16 and over, as estimated from the CPS, for that specific area.

28

BOX 3. “ P O U N DS O F CU RE” BY PET ER M A NZO

PRESIDENT & CEO U N I T E D WAYS O F C A L I FO R N I A

For those who follow philanthropy, it’s hard to miss

next year, and we can only watch to see how quickly $100

a $100 million initiative. Here’s one, however, that you’re

million in private philanthropic achievements—in ex-

unlikely to read about in the Chronicle of Philanthropy or

panding enrollment, pushing for reauthorization of the

in the legion of blogs and Web sites devoted to giving.

federal Children’s Health Insurance Program, promoting county-level insurance programs to cover kids not eligi-

First 5 California, an independent foundation dedicated

ble for Medi-Cal or Healthy Families, and more – disap-

to the needs of children from birth to five-years-old, re-

pears as more foundation money is needed to bail out the

cently approved a contribution of up to $81.4 million to

state yet.

the state-run Healthy Families Program to cover health care costs for more than 200,000 infants and children at

This situation dramatically makes a point we’ve known

risk of losing coverage due to California’s budget deficit.

about philanthropy all along – that there is no way private philanthropy can pick up the slack when govern-

The Healthy Families Program, administered by the

ment, which was designed to be our common commit-

state’s Managed Risk Medical Insurance Board (MRMIB),

ment, retreats. And we are only left to ask, where were we

provides low-cost medical insurance to more than 1.1 mil-

when the state fiscal crisis began? And what are we doing

lion low-income children. Budget cuts have left it with

now that there is no end in sight?

a $190 million shortfall. Since voters passed Proposition 10 in 1998, First 5 California has spent millions on chil-

This is not at all to diminish the leadership and commit-

dren’s health insurance – placing it among the largest

ment shown by First 5 California. It should, however,

and most stable funding sources of health coverage for

drive home for all foundations and nonprofits the need to

children up to age 5 in California.

pay close attention to what state governments are doing, and try to influence it where possible.

The First 5 California contribution will now cover health care costs for more than 200,000 infants and children at

Declining to participate in the scrum may be the cautious

risk of losing coverage, through 2010. This was First 5

approach legally, and it even may be the right one for

California’s second round of emergency funding for the

a particular foundation or nonprofit philosophically, but

program in nine months. In December they put up an-

there should be no doubt about the risks that we run by

other $17 million.

staying on the sidelines.

Now here’s the kicker: this extraordinary grant still

Indeed, foundations and nonprofits should carefully con-

might not have prevented up to 800,000 more children

sider the merits of pushing for longer term change in the

from low-income working families from being kicked off

policy environment in which programs like health insur-

health coverage. The legislature, however, followed First

ance for children get the first and deepest cuts in a reces-

5’s lead and passed AB 1422, a bill to provide approxi-

sion. When a foundation thinks about how to advance

mately $97 million in fee revenue to fill the gap, which

a particular issue, such as health for infants and children,

the governor signed in September.

for example, concerns about governance reform—such as the two-thirds requirement in the legislature for a tax in-

This is a one-time fix, however, and it’s very likely pro-

crease—can seem far afield from that strategic focus. The

grams like Healthy Families will face another big gap

current California budget debacle shows how closely the

29

fates of low-income children are tied to the messy world

two years to try to address the larger governance reform

of state politics.

questions, through California Forward (in my view, the best hope for lasting solutions to these problems).

To their credit, funders like The James Irvine Foundation,

The change is coming—I’m an optimist—but we all need

The California Endowment, The David and Lucile Pack-

to get in into the scrum with them to the extent that we

ard Foundation and others have been working the past

are able.

30

CONCLUSION The Los Angeles nonprofit sector faces formidable challenges in light of increased demands and concurrent re-ductions in resources. The survey results in this report help us to better understand the nature and extent of the economy’s impact on local nonprofits. What is less clear, however, is how the sector will continue to cope during what could be a very slow economic recovery. Although survey respondents seemed somewhat optimistic about how they would fare in the coming year, time will dictate how well these organizations will make out in an extended fiscal crisis. Economic trends can take one to two years before peak impacts take their toll on the sector. The ‘cautious optimism’ expressed by some respondents may not be reflected in the next year.

Where we find some encouragement in the sector’s willingness to maintain or sometimes even increase expenditures in the face of depleted revenue (‘doing more with less’), we also recognize that this is not a sustainable practice for organizations. If economic conditions remain stagnant and organizations continue to struggle to generate sufficient income, at some point doing ‘less with less’ becomes status quo. This then begs the question: Who will pick up the slack? Private donations from individuals or households increase only incrementally even in a good economy. Foundations have lost considerable sums of their endowments due to the market downturn and giving levels could be affected into the coming years. Corporate donors may very well deemphasize social responsibility and grant making in the face of thinning profit margins and shortfalls. Local and state budget cuts have depleted resources for public agencies and funders.

So what strategies does this scenario then leave for nonprofits to increase their survivability? Will nonprofits be forced to generate new forms of earned income in order to keep their doors open? Indeed, according to our survey results, organizations that rely most heavily on fees, dues, sales and other earned income fared better than organizations that rely more on government or donative revenue. What implications does this trend have on a sector that is already becoming more professional and, in some ways, commercial?

Although large nonprofits appear to be hardest hit among survey respondents, this may be a case of larger organizations having the capacity to ‘shed’ more assets and resources in order to cut costs as compared to smaller organizations. Larger, well-established organizations may indeed be better suited to survive in the longer-term.

Traditional management strategies in times of crisis, strategic and contingency planning, engaging and mobilizing stakeholders and staff to focus on mission, and increased focus on efficiency – may not be enough to keep some organizations afloat. The recommendations in the Executive Summary attempt to address more pressing strategies that will require a collective effort – on the part of nonprofits, funders and the private sector – in order to be successful.

Although this report leaves many questions about the fate of local nonprofits unanswered, it provides insight into the current state of the sector and what can be done to promote resiliency in the face of widespread vulnerability among both nonprofits and communities in need.

31

APPENDIX 1.IRS Business Master Files and CORE Files from the National Center

In terms of nonprofit employment, the exclusion of religious organiza-

for Charitable Statistics. For information on nonprofit organizations in

tions is the most significant. In the data in this report, religious orga-

the region, we used the Internal Revenue Service (IRS) Business Master

nizations were mostly excluded, since most religious organizations do

Files (BMFs) and CORE files, available through the Urban Institute’s

not report to the EDD or the IRS. Only those religious organizations that

National Center for Charitable Statistics (http://nccsdataweb.urban.

choose to be UI-covered are included in the data in the report.

org). The BMFs are cumulative and contain descriptive information on all active tax-exempt organizations derived mostly from IRS Forms 1023

Employment is the number of filled jobs as reported by the employ-

and 1024. To estimate the number of member-serving nonprofit organi-

er and it includes full- and part-time workers. If a person holds two

zations, we used the “BMF Other” data set. For the remaining figures,

jobs, that person would be counted twice in these data. Wages include

we used the “BMF 501(c)(3)” data set. The CORE files, produced annu-

bonuses, stock options, the cash value of meals and lodging, tips and

ally, combine descriptive information from charities’ initial registration

other gratuities.

with annually updated financial variables from the Form 990, 990-EZ, or 990-PF. Only organizations required to file these forms are included

To identify nonprofit organizations in EDD’s database, we provided

in the files. The CORE files used for this report include only 501(c)(3)

the EDD with Federal Employer Identification Numbers (FEINs) for all

public charities and private foundations filing Forms 990, 990-EZ or

LA County nonprofits in the IRS Nonprofit Business Master Files from

990-PF and reporting gross receipts of at least $25,000. The numbers

1995-2008. The FEINs from the BMF Files were then used to “flag” re-

of religious organizations and foundations are based on IRS FNDNCD

cords in the California ES-202 system.

codes (reason for and type of 501(c)(3) exempt status including codes for operating and grant-making foundations, and other types of

Two methods are generally used to “flag” nonprofit organizations:

public charities).

California state employer flag (Category 2) and the national Exempt Organization Master File (EOMF) flag (Category 1). The Category 1 method is based strictly on a match between the IRS files and the ES-

2. California Employment Development Dept., Labor Market In-

202 files, while the Category 2 match is based on an internal match of

formation Division. Data on employment and wages were provided

the ES-202 and another EDD database. This Category 2 match occurs

by the Labor Market Information Division of the California Employ-

because organizations that are listed as nonprofits by the IRS are not

ment Development Department (EDD). The figures are for Los Angeles

always classified as nonprofits in EDD’s databases.

County by sector for the 2001-2008 period, and for the second quarter (April-June) of each year. They constitute a “snapshot” of wage and

Moreover, there are some organizations that EDD classifies as a non-

employment data for the specific quarter presented (for these data, the

profit that did not match to the IRS files, probably because of different

June 12th pay period). The employment data are derived from private

or missing FEINs. Categories 1 and 2 provide differing sets of employ-

and public sector employers covered by California’s unemployment in-

ment numbers. Previously, EDD provided two other sets of employment

surance (UI) laws. They are a product of a Federal-State cooperative

numbers, one based on nonprofit organizations that matched in both

program known as the Quarterly Census of Employment and Wages

Categories 1 and 2, and a second based on nonprofits that matched in

(or ES-202) program. The ES-202 program accounts for approximately

either Categories 1 or 2. This last matching method, which can be called

97% of all wage and salary civilian employment (the program does not

Category 3, produces the most comprehensive list of nonprofit organi-

cover self-employed and family workers). The principal exclusions

zations; but due to time and resource limitations, the EDD was not able

from ES-202 are railroad workers, employees of religious organizations,

to provide us with a Category 4 match this year. Data on employment

and students.

and wages for this report was based on the Category 1 method.

32

Sometimes, employers with multiple locations pose a problem when us-

tions were selected only for the environment field. In the end, a total of

ing EDD data. For this report we were able to break out most multiple

548 nonprofit organizations in Los Angeles County were selected.

sites’ employment by their county locations. We would like to thank John Milat and Andy Wong from the EDD Labor Market Information

A phone survey was used as the primary method of data collection with

Division for their help.

faxed or e-mailed surveys made available upon respondents’ request.

The survey was conducted over a period of seven weeks (June 23, 2009

3. Foundation Center. Information on foundation giving patterns is

- Aug 12, 2009).

provided by the Foundation Center, a national clearinghouse of data on institutional giving. The Center ’s research database includes indi-

The total response rate was 46% (252 out of 548). As seen in the below

vidual grant records of $10,000 or more awarded by a diverse set of

tables, the responses are well distributed by sub-field, size and age indi-

large independent, corporate, and community foundations. Information

cating that the responses are representative of the sample frame.

for foundations in Los Angeles County are based on the Foundation Center ’s grants sample database: The 2006 database includes all grants of $10,000 or more awarded to organizations by a sample of 1,263 larger foundations. For community foundations, only discretionary and donor-advised grants are included. Grants to individuals are not included in the file.

4. Los Angeles Nonprofit Survey, 2009. Conducted by the UCLA Center for Civil Society, the 2009 Los Angeles Nonprofit Survey was designed to gather information about the general operations of nonprofit organizations in Los Angeles County during the 2008-2009 economic downturn.

The 2007 NCCS CORE file was modified to construct a sample frame.

First, because the target region for the survey is Los Angeles County, all nonprofit organizations outside the county were deleted from the file. Second, because the survey only focused on the following five subfields, a) Art, Culture and Humanities, b) Education, c) Health, d) Environment and e) Human Services, all nonprofit organizations in the other sub-fields were deleted from the file. Finally, considering the difficulty in contacting key personnel for very small and very large nonprofit organizations, those whose 2007 expenditures were less than $50,000 or more than $10,000,000 were also deleted from the file.

After this modification, the sample frame was categorized by a) subfields, b) size, and c) age. Except for the Environment field, 10% of nonprofit organizations of each categorized group were randomly selected from the sample frame. Because of the small number of Environment nonprofit organizations in the sample frame, 25% of nonprofit organiza-

33

Appendix Table 1. Response Rate of 2009 Los Angeles Nonprofit Survey, Sub-fields, Size and Age

S u b - f i e l d

S a m p l e

Resp o n se

Percen t

A r ts , C u l tu re , a n d H u m a n i ti e s

8 2

42

51%

Ed u c a ti o n

1 1 5

52

45%

En v i ro n m e n t

5 3

21

40%

H e a l th

8 0

47

59%

H u m a n S e r v i c e s

2 1 8

90

41%

To ta l

5 4 8

252

46%

La rge ( $ 1 m i l l i o n o r m o re )

1 1 9

64

54%

Medium ($100k - $1 million)

2 9 4

132

45%

Small ($50k - $100 k)

1 3 5

56

41%

To ta l

5 4 8

252

46%

O l d ( 3 0 o r m o re )

1 2 5

64

51%

M e d i u m ( 1 0 -3 0 )

2 4 8

106

43%

Yo u n g ( 0 -1 0 )

1 7 5

82

47%

To ta l

5 4 8

252

46%

S i z e ( e x p e n d i t u re s)

Ag e ( y e a r s)

34

Appendix Table 2. Responses to: What are the specific management and organizational strategies your organization will use to remain sustainable during the economic downturn?

R a n k

S t r a t e g y

Number of Responses

1

Fund r a i s i n g

94

Gra n tw r i ti n g ( 1 1 )

2

C ut t i n g C o s ts

C ut t i n g C o s ts - S ta f f / P ro gr a m s ( 2 5 )

3

C ost C o n tro l

45

4

No C h a n ge s

26

5

E xpa n d S e r v i c e s

29

6

I nc re a s e V i s i b i l i ty

23

7

C olla b o r a ti o n

19

8

S t ra te gi c P l a n n i n g

15

9

I nc re a s e Ea r n e d I n c o m e

14

10

Out re a c h

14

11

I nv es tm e n t S tr a te gy

13

12

B oa rd o f D i re c to r s

12

13

Volun te e r s

12

14

A c c o u n ta b i l i ty a n d Ev a l u a ti o n

11

15

I nc re a s e C o m m u n i ty P a r ti c i p a ti o n

9

16

Hire N e w S ta f f

7

17

C a pa c i ty Bu i l d i n g

6

18

D on’t K n o w

3

19

R eorga n i z a ti o n o f S ta f f

3

20

C ont I n ge n c y P l a n s

2

21

A dv o c a c y

1

22

C ont r a c ti n g O u t

1

23

I nc re a s e T h e H o u r s O f Ma n a ge m e n t

1

53

So u rce: 2009 Los Angel es Nonprofi t Surv ey

35

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Contact us at: The Center for Civil Society 3250 School of Public Affairs Building Box 951656 Los Angeles, CA 90095-1656 www.spa.ucla.edu/ccs

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