September 23, 2019
Lesson from Federal Shutdown: Nonprofits Need to Be Prepared

March 9, 2019 — Massachusetts nonprofits that depend on federal funding were especially hard pressed during the recent partial federal government shutdown—with funding in limbo while demand soared for some critical front-line services—highlighting the need for those organizations to prepare for the next shutdown, the state's nonprofit trade association advises.

The 35-day shutdown, which ended Jan. 25, "wreaked havoc on nonprofits and the people they serve,” said Jim Klocke, CEO of the Massachusetts Nonprofit Network (MNN), in connection with a report MNN issued Thursday on the impact of the shutdown on nonprofits.

Emily Abbott, director of communications for Project Bread, an East Boston-based nonprofit that battles hunger across Massachusetts, said responding to the shutdown "was definitely at the expense of the work we do year-round to prevent and end hunger. Our 35-person staff were all working long hours dealing exclusively with this man-made crisis," which included serving furloughed federal government employees through its Food Source Hotline.

The Falmouth Service Center, a Falmouth-based nonprofit that provides services to ease stress, reduce hunger, and improve the quality of life for area residents in need, in January more than tripled the $14,000 in financial assistance to local households that it provided at the same time last year.

According to the Urban Institute, 56% of human services nonprofits in Massachusetts receive federal funding, as do 35% of housing-focused, 7% of community economic development, and 5% of employment organizations.

Even without shutdowns, unpredictability in the federal budget process, such as the use of short-term continuing resolutions that keep funds flowing at current spending levels, creates uncertainty, requiring nonprofits "to be nimble, flexible, and resilient, forecasting as best they can for the coming year while possibly not having the full picture of government spending levels and support," according to MNN.

To better prepare for what could be continued government funding uncertainty, at both the federal and state levels, MNN suggests that nonprofits which depend on government funding take the following steps:
  • Track government budget processes and develop forecasts. Nonprofits will benefit by closely tracking state and federal budget processes and understanding the impact of budget and policy priorities on their operations.

    Government grant recipients should carefully choose budgeting techniques used to spend down grants. A reimbursement-based model, for example, means that the organization has to cover expenses before drawing down funds to reimburse themselves. During a disruption in the availability of funding, this practice may put an organization at greater risk as opposed to drawing down funds proactively to cover the upcoming period’s grant-related expenses.

  • Maintain healthy reserves. Nonprofits should set their own reserve goals based on a variety of factors, but a common rule of thumb is to maintain at least three to six months of expenses in reserve. This allows an organization to maintain continuity of both business and program expenses during times of unexpected financial shortfalls, including disruption in government funding streams.

    Making strong reserves a strategic priority is always a best practice, and the shutdown serves as a fresh reminder of the importance of safeguarding against budget shortfalls.

  • Communicate impact through advocacy. By communicating both successes and challenges, nonprofits can work to inform the policy and decision-making processes that impact them as grantees and service providers.

    The shutdown’s impact on nonprofit organizations and the people they serve helped spur a budget resolution at the national level, and planted the seeds for a more thoughtful state plan to handle similar events in the future. Nonprofits can lay the groundwork for advocacy by educating decision-makers and the public at large about their firsthand experience.

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