As the Nonprofit Quarterly has watched the impact of the downturn on nonprofits, we have noted several determining factors that make the economic environment more dangerous for some nonprofits than for others. One of these factors is, quite simply, geography or, more specifically, the key economic drivers in the state in which a nonprofit is located. Two of these drivers are a state’s budget deficit and its level of unemployment. This year, however, the stimulus money—which was distributed unevenly to the states—is also part of the states’ financial equation and has temporarily relieved some pain. In some cases, American Reinvestment and Recovery Act (ARRA) funds have replaced state money and thus may have unwelcome longer term-effects in states where deficits extend well past the expenditure of that money.
“Budget deficits not only drive cuts to nonprofit service providers but also affect the availability of government-delivered services.”
In any case, what follows is a discussion of the multiplier effects of the major variables that measure nonprofit health in these states. These charts track the differences among 11 states and highlight some of the serious problems that nonprofits will face given the fiscal and financial problems of state government budgets.
The reports from the Center on Budget and Policy Priorities and the National Conference of State Legislatures tell us that almost every state faces distressing budget deficit levels. But some are significantly more distressed than others. Budget deficits not only drive cuts to nonprofit service providers but also affect the availability of government-delivered services, which can in turn create—over time or immediately—more acute levels of need among those whom nonprofits serve. A serious state budget deficit also places pressure on cities and towns and their budgets, which creates cuts at that level as well. Additionally a serious budget deficit forces state and local government to look for additional revenue, and it may be tempting to levy additional fees and taxes on nonprofits. Finally, extraordinarily stressed state budgets may cause untenable problems—short of organizations actually losing the money—in terms of nonprofit contracts. Late state payment of contracts, or delays in signing contracts for work that is ongoing in prompt-pay states, creates additional administrative burdens for nonprofits already stretched thin and forces nonprofits to act as unwilling lines of credit for the state.
The unemployment rate has a similar multiplier effect. It drives up the level of need but also increases the amount of work for nonprofits because many new service users need guidance as they make their way through the unfamiliar territory of seeking help from service providers and doing what is required to receive it. High unemployment levels also affect United Way campaigns as well as individual giving by those who are unemployed and by cautious givers in what appears to be an unstable environment. Unemployment also brings the loss of health insurance, which has lengthened the waiting lists at nonprofit providers of health services. And these unemployment-related impacts have state budget impacts, with expanding needs straining state programs at the same time that unemployment results in reduced tax revenue.
“If your state shows up relatively high in the first three dimensions of fiscal and economic distress that follow, expect stormy weather.”
These are not, of course, the only variables in the survivability of any particular nonprofit. But for many, they are major scene setters.
So, in NPQ’s typically throw-caution-to-the-wind fashion, we offer the following shorthand for measuring your state’s weather report. If your state shows up relatively high in the first three dimensions of fiscal and economic distress that follow, expect stormy weather; pull out the rain slicker and umbrella; and mobilize with your nonprofit peers to protect, strengthen, and rescue the budget elements important to the nonprofit sector and, more important, to the communities that nonprofits represent and serve. The fourth factor—the stimulus fund—may ameliorate or delay the full force of the tempest. In what follows, we explore the major indicators of fiscal and economic distress at the state level that have multiple and momentous implications for nonprofits.
High unemployment rate. It’s not hard to understand that with skyrocketing unemployment, taxpaying individuals and corporations generate less of the taxable income that states need. You could complicate this indicator by adding under-employment (those who have stopped looking for jobs, those working part time because they can’t find full-time employment, etc.), and the numbers are stunning. In October 2009, the nation’s unemployment rate hit 10.2 percent, breaking the dreaded double-digit barrier. If you add “discouraged workers,” “other marginally attached workers,” and those employed part time for reasons not of their own choosing, the composite proportion of the civilian workforce that is un- and underemployed reaches 17.5 percent.[1]
But even unemployment rates on their own are a significant distress indicator to us. In September 2009, the nation’s official seasonally adjusted unemployment rate hit 9.8 percent. It was matched or exceeded by New Jersey (9.8 per-cent), Ohio (10.1 percent), Georgia (10.1 percent), Illinois (10.5 percent), Tennessee (10.5 percent), Alabama (10.7 percent), North Carolina (10.8 percent), Kentucky (10.9 percent), Florida (11.0 percent), Oregon (11.5 percent), South Carolina (11.6 percent), California (12.2 percent), Rhode Island (13.0 percent), Nevada (13.3 percent), and Michigan (15.3 percent) [2]. Throughout the United States, unemployment levels are intolerably high, but for the states exceeding the nation’s average, the fiscal outlook is quite grim.
* The Connecticut number highlights a crisis of leadership, not just of revenue and expenditures, and is similar to the situation in Hartford, Sacramento, Albany, and Harrisburg.
Current year’s budget deficit. Many states start off with an initial built-in budget deficit that simply expands as anticipated revenue falls short. Among the states we’ve examined below, just consider California, where the FY 2010 deficit will be more than 50 percent of the state’s General Fund. The state faces an unfathomable budgetary nightmare. With legislators unwilling to raise taxes and a populace inclined toward tax caps, some of California’s likely budget cuts will target the critical social programs typically used and delivered by nonprofits. It’s one thing to have to cut billions from a state budget, but the amounts vary based on the state’s particular budget and program priorities. But how much of the deficit burden is carried by each state’s resident may indicate something more. If your state has a high per-capita deficit, regardless of the proportion of the general fund that may have to be axed, you can imagine the potential reluctance of voters to save the programs we all need. As of this past June, using data from the Center on Budget and Policy Priori-ties, the Many Eyes group in IBM’s Collaborative User Experience calculated per-capita deficit numbers by states, with the top and bottom quintiles starkly evident (see Table 1).
“It’s also worth noting that ARRA-funded solutions to state fiscal problems are temporary. When the ARRA money runs out, the states will face budget cliffs in
FY 2011 and 2012.”
Stimulus monies per capita. According to the Center on Budget and Policy Priorities, funding from the American Recovery and Reinvestment Act has been incredibly important. Fiscal assistance has helped states reduce their budget deficits in this fiscal year by a cumulative 30 percent to 40 percent. In FY 2010, ARRA assistance allowed states to reduce their total deficit by $68 billion, though leaving a “paltry” $122 billion in deficit remaining [3]. Just imagine what the impact on nonprofits and their constituents would have been without the stimulus dollars. If your state is in the bottom rung of stimulus dollars per capita, you might guess that your state is lacking the access to the stimulus funds it needs to fill its budget holes.
According to the October 30, 2009, Track the Money database at Recovery.gov, the average per-capita stimulus take of the states was $595 (not counting ARRA flows to the District of Columbia, Puerto Rico, Guam, and the Virgin Islands). Obviously, how the states applied for and deployed stimulus money is important, but the per-capita averages are thrown off by the $1,089 per capita that went to North Dakota and the amazing $1,808 that went to Alaska (see Table 2).
These imbalances may reflect political reasons rather than true need. Before she resigned from the governorship earlier this year, was Sarah Palin all that persuasive on behalf of Alaska? Was Kent Conrad’s role in saving President Barack Obama’s health-care reform package one of the linchpins of North Dakota’s ARRA number? Does it matter that Max Baucus of Montana chairs the Senate Finance Committee? How could South Carolina’s number be so high and Texas’s be so low when both states’ governors considered rejecting parts of the stimulus program? The reasons for the numbers may be political or simply serendipitous, but they mean something to state economies and budgets. It’s also worth noting that ARRA-funded solutions to state fiscal problems are temporary. When the ARRA money runs out, the states will face budget cliffs in FY 2011 and 2012.
Several organizations have tried to boil down various economic indicators into formulas for ranking and forecasting state fiscal and economic problems. The Associated Press recently released the AP Economic Stress Index to measure the economy’s impact on counties by a formula that simply adds unemployment, foreclosure, and bankruptcy percent-ages (Imperial County, California, with an unemployment rate of more than 30 percent, tops the AP list, even surpass-ing Wayne County, Michigan, where Detroit suffers) [4]. The Pew Center on the States generated a top 10 of states in fiscal peril. In rank order, starting with the worst, they are California; Rhode Island; Michigan; Arizona, Nevada, and Oregon in a three-way tie; Florida; New Jersey; and Wisconsin and Illinois in a two-way tie. This list is based on six factors: high foreclosure rates; increasing joblessness; loss of state revenue; the relative size of budget gaps; legal obstacles to balanced budgets—specifically, a supermajority requirement for some or all tax increases or budget bills—and poor money-management practices. [5]
In the W.C. Fields movie The Fatal Glass of Beer, Fields plays a man stuck in a blizzard in a tiny cabin. Every time he opens the door, another blast of snow and wind enters. He laments, “Ain’t a fit night out for man nor beast.” Some nonprofits may feel similarly impossibly buffeted by the blasts from the environment. But some groups are more protected from the unpredictable and sometimes cruel elements because their state has been less affected by the down-turn or because their field has received a reprieve, possibly through stimulus dollars.
In this issue of NPQ, we have explored the weather conditions of nonprofits in several states as a result of a combination of state budget deficits and unemployment. To flesh out the picture further, nine-state nonprofit association members of the National Council of Nonprofits have described the budget conditions in their states, and we have in-cluded a few stories from the front lines that highlight the state of their state environments. In our estimation, the various indicators compiled in the charts and graphs interspersed throughout this special section, plus the stories from the state associations, paint a difficult picture of what most nonprofits face in their state capitols. Together, they signal the need for increased nonprofit advocacy so that social–safety net programs, K–12 education, and other program areas don’t become budget-balancing fatalities.
ENDNOTES
1. According to the Bureau of Labor Statistics (BLS), “Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job market-related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.” BLS makes available a four-quarter rolling average of this “labor underutilization” measure. As of the third quarter of 2009, the four-quarter average for the United States was 15.2 percent, which was exceeded by the following states: Idaho (15.7 percent), Illinois (15.7 percent), Alabama (15.8 percent), Georgia (16.0 percent), Ohio (16.1 percent), Kentucky (16.4 percent), North Carolina (16.5 percent), Indiana (16.6 percent), Arizona (17.2 percent), Florida (17.2 percent), Tennessee (17.4 percent), Nevada (17.5 per-cent), Rhode Island (18.3 percent), South Carolina (18.4 percent), California (19.6 percent), Oregon (20.1 percent), and Michigan (20.9 percent).
2. Puerto Rico (with 16.2 percent unemployment) and the District of Columbia (with 11.4 percent unemployment) also fit this category.
3. Iris J. Lav, Nicholas Johnson, and Elizabeth McNichol, Additional Federal Fiscal Relief Needed to Help States Address Recession’s Impact, Center on Budget and Policy Priorities, November 19, 2009, 5.
4. AP Economic Stress Index, November 2, 2009.
5. Beyond California: States in Fiscal Peril, Pew Center for the States, November 2009.
Copyright 2009. All rights reserved by the Nonprofit Information Networking Association, Boston, MA. Volume 16, Issue 4. Subscribe | buy issue | reprints.
