When much of the Michigan economy came to a halt in March as a measure for slowing the spread of coronavirus, it effected nonprofits. How have Michigan’s nonprofit organizations been financially impacted? WGVU spoke with Jeff Williams,director of the Johnson Center’s Community Data and Research Lab at Grand Valley State University.
Jeff Williams: "I worked with IRS data on charities before in my prior roles and so when I arrived at the Johnson Center in February this year, I went to the executive director and said I'd like to take a look specifically at Michigan nonprofits and then about 3 weeks later Corona virus hit so that kind of sped up some of our analysis we really wanted to start looking at kind of where did nonprofits or what did they look like? Maybe in January right before all of this hit, so we really want to look at the resilience of nonprofits in Michigan from the financial side. Again if we can remember a time when kind of the economy closed for a multiple week period and we wanted to see what effect that might have on profits."
Patrick Center: "Now of course with the IRS data it goes back a few years so you have to extrapolate where we are today. So, take our listeners through that and how the research worked out."
Jeff Williams: "Yes so what we did is the 2017 tax filings are the most current year full-year available and since the economy from 2017 to January of 2020 was pretty consistent we’re using this data to kinda get a picture a proxy of where we think nonprofits may have started this year and then yes, we're looking for data to see how they kind of survived through the crisis but, this picture is showing nonprofits and their full year 2017, but we also learned that the results we got Michigan we have some very good national data that says Michigan is exactly the national average. Meaning what we saw in Michigan was replicated across the nation from other people doing similar studies. So we’re pretty confident in the number."
Patrick Center: "And specifically you're looking at cash in hand. Explain or paint a picture of what a typical year would look like and we're looking at that window 2017 to 2020 and then where we are today. "
Jeff Williams: "If you think of a company or a nonprofit or even your household budget, you know, there's a checking account, then maybe you have a savings account secondarily and maybe have some investments or something to take some effort to turn in the money, but they still have value so that was what our study did is we look at those first 2 buckets meaning just that cash on hand really cash in saving and checking accounts held by nonprofits compared to their average monthly expense and we found that typical the median nonprofit in Michigan had about two months cash on hand so we expect that the start of this year we then looked at the next bucket and said OK what about cash plus savings account or short term investment. These things are very liquid, meaning you can walk up to a teller window and say I'd like my money and they give it to you right then. If you add cash plus savings we're expecting that Michigans nonprofits had roughly 5 months cash on hand. Meaning if the world stopped they could pay all of their bills, the median nonprofit Michigan for about 5 months. Beyond that time some have investments or land or buildings that they own- that would be kind of this 3rd source of money but, we were looking at kind of the most liquid cash and seeing where that median profit in Michigan lands. That's the scary part though, median by definition means half has more and half have less. So our study also showed that half of Michigans nonprofits have less than 2 months cash on hand."
Patrick Center: "We have these nonprofits now facing a financial crisis here. Factor in recession, factor in some of the stay at home orders take me through the scenario here that was unfolding that has driven much of what you're seeing in your research or at least the most recent short term research."
Jeff Williams: "Yeah, this is a story that literally changes month by month and we call it kind of the Corona timeline we all have Corona amnesia of forgetting kind of how things unfolded you know in March is when we all shut down. Many factories shut down and in March, we're all thinking OK we we all stay at home for 2 weeks and then like a light switch it’ll flip back on and we’ll come back in April. Well, when we get to April we saw it's not going to be a two week shutdown it's probably more like 6 weeks and that's when you start to see more layoffs, thats when we started to see the federal government stepping in and by May we realized wow, this is going to be a really is crazy crazy year one of the phrases we use is: things in 2020, will get weird before they get better or worse and I think we saw that play out certainly from April onward so if you're running a nonprofit, you know kind of your first decisions were made on okay, maybe our clients will go away or will have to close and not have some symphony concerts but, for other nonprofits was quite the reverse if you're a nonprofit food bank for social service agency you may have had an increase in demand for your services so this is a very interesting time for nonprofits."
Patrick Center: "There's also the employment component here as well as volunteers, what are the impacts?
Jeff Williams: "Yes, as we look at the data and again its half of the nonprofit of 2 months or less we can look at OK, what share has less than a month cash on hand? We suspect if started this year that answer was basically one in 3 Michigan nonprofits had less than a month of cash on hand, those nonprofits also employ 2 thirds of the sector's workforce. I want to be careful here too that we exclude hospitals and private colleges and universities for analysis because those are just so big in terms of employment and assets and revenue so kind of a what a typical person on the street pictures as a nonprofit that's what we look at. Those nonprofits are a key source of employment in the state. Overall in Michigan nonprofits represent about one in 10 Michigan workers so out of that kind of said 10% half of those workers work in nonprofits that are cash starved the same story that we're seeing in businesses until your doors are open, it's really hard to run a business it's really hard to run a nonprofit."
Patrick Center: "And what nonprofits services are most challenged or most at risk that impact society because as you and I both know the nonprofit sector fills in the gap where government doesn't do its best and also where the capitalist system says well I can't make money there and that's the niche for nonprofits so what are some of the services at risk out there?"
Jeff Williams: "And this is where we found two kind of of counter intuitive things we didn't expect and one is smaller nonprofits actually had more cash on hand than bigger and the second that we found is if you think one of the nonprofits of the sectors, the most threatened right now is the art, theater, museums kind of that that arts and entertainment side of nonprofits they actually had more cash on hand for the typical nonprofit and as we dug into the data what we realized is small nonprofit and kind of arts organizations frequently have more cash on hand because they're always worried about not being in business. Arts organizations have had bad seasons very conscious that people didn't attend. Its kind of in their DNA to stockpile cash in case there’s a bad year. The sectors that we're most worried about are on the Health and Human Services side meaning the traditional Health and Human Services nonprofits, basically middle size and larger those non-profits employ maybe 20 or more people kind of our stalwarts for the community. We’re also concerned about the younger organizations the kind of new energetic nonprofits, especially in health and Human Services and kind of mid-size and larger. That’s the area that we're most concerned about in terms of as a class because we have less cash on hand than the typical Michigan nonprofit."
Patrick Center: "So where can some cash flow be found?"
Jeff Williams: "Cash flow can be found in nonprofits really in 3 primary areas, one is obviously contributions/donations. Second is what we call program service revenue. If it were business it would be called being in business it's the things that nonprofits sell, the services that they deliver that they charge a fee for and 3rd is some nonprofits especially in the Health and Human Services sector have government contracts meaning they have large grants and contracts from government, state and federal to provide that social safety net. So depending on which sector of nonprofits, arts organizations for example get most of their revenue from donations or contributions, Health and Human Services organizations for example get most of their revenue from program services or government contracts. So depending on your sector you kind of have to figure out how to get more money in quickly or respond to that demand. *inaudible* extra government payroll and grants those also are very helpful for nonprofits."
Jeff Williams: "Where do endowments fit in and how can that alleviate some of the financial stress. >> Yeah, if we leave foundations, the side for a moment and talk about kind of investment income or endowments for the typical foundation that’s less than about $0.8 per dollar meaning it's a tiny tiny piece of work, typical nonprofit earns revenue, obviously we switched the foundations, the endowment is where foundations primarily earn their revenue so here we have a case where in the foundation community their watching Wall Street, they're watching their investment returns very carefully and the story there is basically we’re effectively almost back today where we were on January one so the investments have performed very very well to this chaotic time. It’s on kind of that donation side nonprofits are very worried about what 2 nations will look like in the year continues, many people are out of work- that will affect contributions to nonprofits, they're also worried about the program service revenue, it's really hard to operate a nonprofit if your volunteers are scared or concerned about coming to volunteer and if your clients are also very concerned about coming to get services."
Patrick Center: "There is a huge community of volunteers. "
Jeff Williams: "There is and that's the piece that we're really watching carefully too in the IRS filings midsize and larger nonprofits actually report their volunteers and that same group mean that one 3rd of nonprofits that had less than a month cash on hand that employ 2 thirds of the sector's workforce that’s also where half of the volunteers in Michigan spend their time. So again if you think of those nonprofits at risk if you don't have a lot of cash or cash in savings on hand as a nonprofit and your employees until recently weren't allowed to work. Maybe I could open today and maybe my employees come back but if my volunteers dont feel safe and again a lot of volunteers by age category they tend to trend older- if the volunteers don't feel safe returning that's a huge problem in the face of volunteering could also look different. Think if I was a draw passion from teaching people to read a literacy volunteer. Well part of that what I get out of that engagement is the sitting next to someone very close and helping them learn to read. Literacy volunteering will look very different if I'm 6 feet away or behind the plexiglass barrier. So if you can think of some of the acts and duties of a volunteer, those will also look very different in a personal protection environment scenario."
Patrick Center: "If you had a crystal ball now and knowing what you know how do you see things playing out in the next year to 18 months?"
Jeff Williams: "I think in the next year to 18 months we’ll see the same thing in nonprofits that we're going to see in business and that is that some will choose sadly not to reopen ever, some will choose to keep their doors closed maybe into 2021 before they reopen, some will you know figure out a way with baling wire and duct tape and string and hopes and prayers to keep things rolling and some will go figure it out they're going to be OK meaning it's going to be a wide wide range of experiences for nonprofits and for small businesses and just as you said this story will not be done by fall with everything we see now this story might be wrapped up kind of a year from now meaning we probably have another 12 to 18 months for this recovery to play out."
Patrick Center: Jeff Williams, you're the director of the Johnson centers community data and research lab at Grand Valley State University. Thank you so much."
Jeff Williams: "Thank you."