Study: Small not-for-profits hit harder by COVID than larger ones

Small arts organizations were among those hit the hardest by shrinking donations last year, according to a study by the Urban Institute.

Small charities nationwide have faced significant losses in charitable giving as donors cut back during the COVID-19 health and economic crisis: Four in 10 have suffered a decline in donations, according to a study released Thursday. That’s compared to the 29% of large charities that saw contributions dip.

Not-for-profits were also hurt badly by the decline in ticket sales for things like artistic performances youth sporting events, and reductions in other fees for services, according to the new report from the Urban Institute. Organizations with annual budgets of less than $100,000 saw a median decline of 33% in their fee for service revenue, compared with 20% for organizations with budgets of $1 million to $10 million.

Overall, arts organizations, were hit particularly hard, with 54% reporting revenue losses in 2020.

The sweeping examination of not-for-profits also looked at diversity among organizational leadership, as well as how geography affected donations.

While several previous studies have found that overall giving to not-for-profits held up strongly amid the pandemic, the report from the Urban Institute presents a more troubling picture for small charities—those with budgets of $500,000 or less — that provide direct services to vulnerable people and groups that do community building and advocacy.

Laura Pierce, executive director of the statewide organization Washington Nonprofits, said the data was consistent with what she’s seen in her state. Small not-for-profits often lack the full-time fundraising staff and expertise needed to shift gears when conditions change, Pierce said. They face other barriers to growth as well, such as being located in neighborhoods with a large share of low-income people.

Pierce said she hopes donors will do more to help small not-for-profits handle a deluge in demand prompted by crises like COVID.

“Small organizations are often particularly effective because they’re very connected to the communities they serve,” she said. “They are really in touch with what’s most needed by the community.”

Donna Murray-Brown, CEO of the Michigan Nonprofit Association, said early data suggests 2021 will end up being a brighter year for not-for-profits of all sizes in her state. “It’s a better year because nonprofits better understand what it means to work in a pandemic,” she said. For example, many nonprofits that were skeptical of the ability to raise money through virtual events have learned that it can be done, and they’re getting better at it, she said.

A survey of not-for-profits in Michigan that concluded at the end of September found that most have at least six months of operating cash on hand, she said, and about 95% said they expect to be able to continue operating through the end of the year.

Unlike other research, the Urban Institute study excluded hospitals, colleges, and private schools, which are often the recipients of very large gifts from wealthy individuals that can skew the data on overall giving trends. The Urban Institute study also excluded religious institutions and organizations that fund charities rather than offering services or doing advocacy.

Elizabeth Boris, one of authors of the report, said the study will be repeated annually to present a detailed picture of the health of service-providing charities.

Much of the study compares data from 2015 through 2019 with results from 2020 to highlight the impact of the COVID pandemic on not-for-profits. The study found that 58% of organizations saw donations increase from 2015 through 2019, and 32% saw them stay the same. Only 11% saw donations decline. In 2020, only 46% of not-for-profits saw their gifts increase.

From 2015 through 2019, organizations led by people of color were less likely to see donations increase and more likely to see them decline than organizations led by non-Hispanic white people. However, that gap narrowed in 2020.

Organizations in regions populated mostly by people of color saw similar trends in donations than those in majority white areas in 2020 and in the five years before that.

The study also examined diversity in leadership at the staff and board level. Among the key findings:

● 70% of boards have at least one board member who identifies as a person of color.

● 34% of not-for-profits have at least one board member with a disability.

● 44% have at least one board member who identifies as LGBTQ.

● 16% of not-for-profits that primarily focus on serving people of color have all-white boards.

● 21% of executive directors are people of color, and 62% are female.

Perhaps surprising to many not-for-profits will be a finding about changes in how foundations, companies and big donors give. Unrestricted gifts were on the rise starting in 2015. That continued in 2020, as organizations demanded that they needed flexibility to respond to the health and economic crisis and the Council on Foundations persuaded more than 800 organizations to sign a pledge that included a commitment to providing more unrestricted grants.

Among other findings on finances, volunteering, and donations:

● 62% of urban organizations saw donations increase from 2015 through 2019, compared with 52% of rural organizations. In 2020, that dynamic changed, with 49% of rural organizations reporting increased donations compared with 42% of urban organizations. Researchers say the reasons for the disparities are unclear and they will be examining them in future work. The study notes that urban not-for-profits tended to perform better during good economic times but were hit relatively harder during the pandemic.

● Not-for-profits in rural areas saw the biggest declines in staff and volunteers in 2020.

● Fewer small organizations received distributions from donor-advised funds than larger not-for-profits. For example, among groups that receive donations from individuals, 35% of those with annual expenses under $100,000 got money from donor-advised funds in the past two years, compared with 65% for organizations with expenses of $1 million or more. Donor-advised funds function like charitable savings accounts; people who make deposits in those accounts get the same tax benefit they would get from a gift to a food bank or homeless shelter, but they can distribute the money to working charities when they choose.

The results of the study were drawn from 2,306 responses to an online, self-administered survey sent to a representative sample of charities with at least $50,000 in annual revenue. The surveys were fully completed by 6.5% of the groups that received a request to provide information.