NonProfit Organizations Economic Outlook 2006 December 2, 2005

1
Non-Profit OrganizationsEconomic Outlook
2006December 2, 2005

• Robert Eyler, Ph.D.
• Department of Economics
• Sonoma State University
• eyler_at_sonoma.edu

2
Introduction

• Nonprofits should think like for-profits
• Compete for the same resources (labor, buildings,
  office supplies)
• Depend on revenue generation from economy
• Need to have revenue greater than expenses to
  survive
• Need to keep 501c(3) status, of course
• Susceptible to economic cycles and lags
• Like any other business
• Somewhat dependent on wealth accumulation
• Lag behind other parts of the economy

3
General Challenges

• Non-Profits face similar economic challenges
• Donations/Endowments Search
• Two-sided challenge income versus wealth
• Need good development personnel
• Need local philanthropists willing to give
  regularly and/or big
• Staff Turnover
• The private sectors growth acts as a natural
  lure.
• Staff must derive benefit from being in
  organization.
• Management must reinforce that benefit.

4
Challenges (cont.)

• Net Income Anomalies
• Donations shocks, cyclic or episodic
• The natural disaster conundrum (Katrina)
• Changing services
• When new need identified, have both costs and
  revenues
• Competition
• Many local nonprofits (800? 1000?)
• Fighting for the same dollars
• Competition beyond county borders

5
Opportunities

• The economics of nonprofits focus on finding
  opportunities
• Must identify challenges and turn them into
  opportunities
• Must be creative in using current and finding new
  resources
• Budgets must be maintained and analyzed,
  especially in soft economic times
• Market major needs
• Cannot assume citizens and firms will pick your
  organization specifically

6
The Economic Outlook

• Economic Cycles lead nonprofits
• Currently in a strange economic cycle
• Incomes slow moving, productivity strong.
• Gas prices rising, then falling
• Local housing market softer, still relatively
  high
• Especially for wages offered by most non-profits
• Should non-profits care about economic cycles?
• They affect budget and reality.
• Can also help target certain firms, individuals
  and industries.

7
Outlook (cont.)

• Outlook for nonprofit revolves around expected
  revenue
• Will revenue increase in the coming year?
• 2006 looks like another tough year for
  non-profits.
• Federal and State deficits still exist
• Higher interest rates mean higher rates of return
  on endowments.
• Local economic growth unlikely without national
  trend upward
• Most costs are predictable.
• Gas prices are both a cost to workers and the
  organization.
• Higher interest rates also mean higher credit
  costs.

8
Outlook (cont.)

• National economy looks to be headed in right
  direction
• Gas prices have fallen from episodic surge
• Still relatively high
• Will remain there for some time
• Has effect on labor decision to work and stay at
  nonprofit
• Interest rate increases look to continue
• May hurt line of credit costs for seasonal low
  points in donations
• This also depends on endowments
• Should, at least, be looked at in the budgets of
  non-profits
• Economic Growth in place
• Local employment somewhat up, non-profit
  employment is up.

9
(No Transcript)
10
Outlook (cont.)

• State economy still somewhat suspect
• Driven by national trends
• State budget a hybrid of federal payments and
  state taxes
• Grants generally a hybrid also.
• Assume state funding worse over next year.
• Local economy driven by a couple of major factors

11
Outlook (cont.)

• Local Economy (cont.)
• Perception of overall economy (consumers)
• Belt tightening means less donations,
  volunteerism
• Very volatile
• Stock Market a good gauge of consumer reactions,
  mixed as a gauge of overall economy.
• Local Job Market
• Job creation means more donations
• Need income creation also.
• Does locally housing market matter?

12
Conclusions

• 2006 looks like a tough year for non-profits
• Emphasize marketing to private entities.
• Find strategic partners, not just stop-gap grants
  and one-time donations.
• Seize opportunities where they exist
• Be creative concerning what your organization
  does best.
• Prepare to cut staff and programs if necessary
  for long-term.