Funding Woes Push Nonprofits to Consider Mergers, Closing

Hit by a drop in donations and cuts in government funding, nonprofits of all types and sizes are being forced to make painful choices, including cuts in services, restructuring, mergers, collaborations, and/or closing, the Wall Street Journal reports.

After more than doubling between 1987 and 2007, private giving declined by 6 percent in 2008, the largest drop since Giving USA began tracking the data more than fifty years ago. At the same time, state and local government funding, which in some cases can represent more than two-thirds of an organization's budget, has also been falling. States paid out 5 percent less in 2009 and 4 percent less in 2010 for education, health care, and human services, according to the Center on Budget and Policy Priorities — yet state governments still owe nonprofits more than $15 billion in back payments, according to Independent Sector.

While one-time events such as the earthquake in Haiti can result in a surge of donations, nonprofit leaders are planning for a future in which securing long-term support for their organization is even more challenging than it is today. And with growing demand for a relatively flat supply of donor dollars, more and more organizations are arguing that there is too much duplication and overlap in the sector. At the same time, many nonprofit leaders are concerned that essential services would be lost should the number of nonprofits shrink, while others question the savings and efficiencies to be gained by combining different organizational cultures and forms of governance through mergers and alliances.

Those concerns aside, donors have begun to provide incentives to encourage nonprofits to collaborate or merge with other organizations when it makes sense. In 2008, for example, the Arizona-based Lodestar Foundation launched a $250,000 annual collaboration prize, and when world leaders and philanthropists gather for former eBay president Jeff Skoll's annual forum on social entrepreneurship in April, the theme of the conference will be catalyzing collaboration for large-scale change.

"This is a wave of the future, not just a result of these times," said Lodestar Foundation president Lois Savage. "The sector is realizing that running a nonprofit isn't a God-given right. It's a privilege. Leaders need to look beyond their organization and focus on the mission they're trying to accomplish."

Shelly Banjo. "Once-Robust Charity Sector Hit With Mergers, Closings." Wall Street Journal 02/01/2010.