This report examines the financial vital signs of the nonprofit sector and the role of government and private funders.

Relevant to all donor levels.

Nonprofits play a critical social role in improving education, alleviating poverty, providing economic opportunities, supporting the health care system, and sustaining the arts. Their health is vital to our nation. So, when they face financial distress, it creates hardship for some of the most vulnerable and fragile segments of society. It also means that hardworking staff may lose paychecks or pensions and that trustees may be exposed to personal liability.

The scale of the problem is vast. In fact, just restoring currently insolvent nonprofits to solvency would require an injection of $40 to $50 billion dollars. Changes to the federal tax code may exacerbate the issue, by changing charitable donations and/or by increasing the likelihood of future pressure on federal budgets for human services.

If you are a private funder, recognize that nonprofits simply cannot build necessary reserves when substantially all revenue comes in the form of restrictive grant and government contracts. Begin to explore more sustainable funding models – more flexible and less restrictive terms, provision of general operating support to vital nonprofit partners, the addition of specific overhead funding vehicles, or creation of “rescue” funds to shore up distressed nonprofits.