New Report Finds DC Area’s Nonprofits Lack Funds to Weather Economic Crisis

June 24, 2009

Washington, DC – Most nonprofits don’t have the financial reserves needed to weather the current economic crisis, according to a new report released by the Urban Institute and funded by the Eugene and Agnes E. Meyer Foundation in Washington, DC. The study, the first of its kind, examined the operating reserves of more than 2,500 nonprofits in the Greater Washington area, ranging in mission from soup kitchens and job training centers to schools and local arts groups.

Operating reserves—cash and other liquid assets without donor restrictions that can be tapped when income falls short of expenses—are an important indicator of an organization’s financial health and its ability to survive challenging times. The study reviewed financial data for Greater Washington’s locally-focused nonprofits over a six-year period from 2000 to 2006.

Among the report’s key findings:

  • In 2006, a time of relative economic stability, nonprofits in the Greater Washington area had a median operating reserve of 2.1 months of expenses. Most nonprofit financial management experts recommend a minimum of three.
  • 57% had operating reserves of less than three months of operating expenses; 28% of those had no reserves at all.
  • The percentage of organizations with less than three months in operating reserves increases with size, making large organizations (those with annual budgets of $5 million or more) especially vulnerable to the economic downturn.
  • Arts, culture, and humanities organizations had the highest percentage of groups with less than the minimum reserve (62%); environment and animal organizations had the lowest with 46% falling below recommended levels.
  • Nearly one in six nonprofit organizations that filed tax returns in 2000 appeared to have gone out of business or had shrunk below the IRS reporting threshold ($25,000 in revenue) by 2006; these groups had lower operating reserves and were more dependent on private contributions than the organizations that survived.

The Meyer Foundation provided funding for the report as part of its longstanding commitment to helping grantees strengthen their financial management. Since 1995, the Foundation’s loan program has assisted grantees experiencing short-term cash flow problems. “Meyer regularly works with grantees to help stabilize their finances,” says Rick Moyers, the foundation’s director of programs. “Adequate operating reserves are essential for any nonprofit organization even in good economic times, but are crucial in the current economic environment.”

For a copy of the Washington Area Nonprofit Operating Reserves report, visit www.meyerfoundation.org/reserves. To speak with Thomas Pollak, one of the authors of the report, contact Stu Kantor at the Urban Institute at 202-261-5283; to interview Rick Moyers about nonprofit operating reserves, contact Amy Harbison at the Meyer Foundation at 202-552-7470.