On March 18, 2020, the Standard and Poor's 500 (S&P 500) had a record low at the closing of 2,447.33. As of April 07, 2021, it had a record high of 4,079.95, which increased 6,600 basis points (66.7% increase). For organizations in the social sector, it has been a year that they have wanted to forget, with organizations having to lay off millions amid the pandemic. This NYT article looks at the YMCA as it operated on margins of less than 3% typically. Still, since the pandemic, revenue was sliced by about 50%, they were forced to furlough workers and shut some of its low-performing branches.
The above anecdotal explains the growing concern of the rich continuing to get richer while the poor continue to stay poor. That's why as stewards of society, individuals that are aiming to fight for a better tomorrow for all, we should encourage and demand more discretionary funding in all non-profits and non-governmental organizations. These organizations need our help because they face a tremendous uphill battle every year to stay within their budget. Throughout this short essay, I plan to provide several reasons why non-profits need/deserve more funding and some of the drawbacks.
There are some key differences to note between the different types of sectors. Some people refer to non-profits and non-governmental organizations as the social/voluntary sector. And this sector is the third-largest sector; here in the United States, about 12.3 million people work for non-profits. These organizations contributed about 1.047 trillion to the US economy in 2016. The private sector consists of organizations that are the market base of our economy. Companies within the private sector can sell equity and profit from their services rendered, such as Apple and General Motors. The public sector is the part of the economy where the government controls, such as many governmental agencies' Internal Revenue Service.
Non-profits deserve more funding because they are left with solving the issue that the government nor the private sector could solve; we refer to this as contract failure theory. This theory explains how non-profits are the only type of organization to fill when all else fails, and we can translate this to mean that they're the last line of defense before the chaos. For example, in the field of healthcare, according to research done by PolicyAdvice in its tracking in the number of individuals uninsured in the United States before and after the Affordable Healthcare Act (Obamacare), the number of individuals uninsured before was about 60 million individuals, however, now there are less than 27 million people in the United States. Nearly ⅔ of the hospitals operating in the United States have non-profit designation status. The point of this example was not only to see the horrific number of individuals that were/are uninsured in an industrialized country but also to demonstrate that we should be thinking of healthcare as a community concern. Having health insurance is one of the most important things that an individual can have. In the world, especially in the United States, a person without insurance can face quite an exuberant bill to receive critical healthcare. Many non-profit hospitals in the United States are required to provide free healthcare to individuals who may not have health insurance or cannot afford to pay for their hospital care. These organizations need more non-discretionary and discretionary funding, but because some of these hospitals are on the brink of insolvency, as Bloomberg reported in 2018, at least 26 hospitals are in default or distress. This issue has hurt a lot of rural, small towns. I believe both liberals and conservatives can agree that they want to see fewer uninsured individuals and see less of a profit motive in healthcare. Therefore creating more avenues where funding has fewer restrictions will allow for a more equitable standing for the voluntary sector since now we don't value them. The non-profit is dependent on financing from the public and private sectors, but both depend on the services these non-profits provide.
The work these voluntary organizations can do ranges from providing abuse prevention services to funding for endangered species. These people love the work they can be part of because some believe it's much more satisfying as many private-sector gigs are always focused on the bottom line. However, some drawbacks have forced many people to leave the sector, such as being overworked and underpaid. People who have a few years of experience at these non-profits can often receive a hefty payday if they were willing to seek it out. In a study done by the Urban Institute, it was found that non-profits are eager to devote much of their resources to their cause and were willing to allocate some resources away, such as salaries and benefits (link) (link). The executive directors of non-profit organizations are eager to force their employees to live directly below the poverty line. I believe that it is in the organization's best interest to provide an employee with a decent wage. The Urban Institute also found struggling to gather funding is still a formidable challenge (link). With most of the money given from the public sector, having strings attached to it makes it tough to hand out to employees as it has to have a direct relationship (cost conversion cycle). And these organizations are unwilling to defy or stand against the government due to fear of backlash, and it would ultimately put the organization out of business. Unfortunately, voluntary organizations have to rely on in-kind or cash donations to pay their employees.
Some counterpoints can be made for why non-profits should work with the funding they have secured. For instance, many for-profit companies have to make critical assumptions and use what they'll receive in revenue; they will also look at raising equity or debt financing. However, non-profits cannot raise equity because they operate under a non-profit status that doesn't allow them to make a profit. While sometimes debt financing may look like a unique avenue to look towards, they are often not the strongest candidates to hand out or pay back a loan because it would be tough for them to pay it back in the future, and it would be hard to get the money from a non-profit organization through legal proceedings. Some of the ways non-profits escape this idea are finding board members who can donate/loan their money, time, and talent. When seeking candidates for seats on the board member they preferably want all three characteristics, which will further the organization's mission in the short/long term. Sometimes we hear stories about non-profits paying out high overhead costs to employees when we have no idea the number of job titles fits under one person's job. For instance, in the news a few years ago, it was mentioned that about 80% (or $0.80 of each $1) of the money given to the Red Cross would be going to someone's salaries rather than to the cause directly. This forced non-profits to rethink their spending habits altogether, as they didn't want rumors to come out about how they were spending their resources. The Red Cross was the one bad apple because this isn't the case for many non-profits; many have annual budgets well less than $1 million. Many non-profits have to scrape by, as they have been unsuccessful in receiving specific streams of funding. The funding/gifts non-profits receive are helpful in several ways and should never be frowned upon, but these gifts must be used for their exact purpose.
The underfunding of many non-profits has to stop; this has become a mass epidemic; we are hurting our communities when we fail to provide adequate funding to non-profits. To tackle this issue, there needs to be cooperation between all sides: non-profit, public sector, private sector, and individuals. Non-profits need to become better at demonstrating all of their needs, and if they are facing discrepancies in funding, they need to bring this to the board's attention. The public and private sectors need to create more grants that come with fewer strings attached. These organizations are filling the gap where these sectors are unable to fulfill. We need to tell these organizations that we appreciate them and provide at least a percentage of the funding going towards non-dictionary funding. Lastly, individuals need to become more interested in giving and shouldn't be only focused on donating to benefit the tax write-off. For a community to grow, there has to be support from everyone.