Recession, Recovery and the Non-Profit Sector
Economic Recovery After Recession: Implications for Non-Profits
Introduction
The ‘Great Recession’ of the late 2000’s is the most comparable period in history to study for insight into how the economy will recover after the current COVID-19 pandemic subsides, how governments pursue recovery, and how non-profits fare during recession and recovery. In Canada, the Great Recession officially lasted from Q4-2008 until Q2-2009 (9 months). Although the effects on Canada were milder than on the United States and in Europe, the Canadian recession of 2008–09 was still severe enough to generate sharp declines in output and employment and to require significant responses by Canadian policy-makers.
The Conservative government of Stephen Harper remained in power with an increased minority after the federal election of 14 October 2008. During the campaign, the Conservatives promised to keep the federal budget in balance, and its fiscal update of 27 November outlined measures to restrain spending in order to avoid going into deficit. Subsequent economic and political developments forced the Conservatives to back away from this position. The Harper government introduced a budget on 27 January 2009 that included a two-year stimulus program, mainly on infrastructure spending.
Impact of the 2008 Recession on the Non-Profit Sector
Community Development Halton, as a member of a Social Planning Network of Ontario (SPNO) research consortium, conducted a survey to monitor the impact of the 2008 economic downturn on Ontario non-profit community social service agencies. Results were captured in Hard Hit: Impact of the Economic Downturn on Nonprofit Community Social Services in Ontario released in October 2009. The report showed that the surveyed organizations were experiencing an increased demand for services while their funding levels were falling.
A July 2010 follow-up survey by the SPNO showed that service demands continued to rise with 68% of respondents seeing a greater demand in April 2010 than prior to September 2008. Almost 80% of respondents attributed this increase in demand as primarily or in part due to economic conditions. At the same time, organizations were facing budget deficits and funding cuts. Twenty-six percent posted a deficit in 2009 compared to 21% in 2008. At the time of the 2010 survey, 37% of organizations experienced a reduction in total revenue, 34% stayed the same, while 29% reported an increase. Cuts from United Ways, foundations and self-generated revenue were most common although 20% reported reductions from federal government sources and 16% from provincial government sources.
Close to 50% of organizations reporting increased service demands stated they were not able to meet the increased need despite taking action including supporting more people with the same staff, increasing volunteer hours, expanding program staff time and hours, fundraising more and increasing overtime. “Organizations can’t keep up and the impact on local communities is beginning to show,” observed Ted Hildebrand, Director of Social Planning for Community Development Halton. “The combination of increased service demands and falling revenues is taking its toll on agencies in the form of decreased employee morale, rising stress levels, staff work reductions, and increased incidence of burnout. Almost half of respondents agree that the economic downturn will have a lasting impact on their organization. None of this serves the needs of struggling communities and may even add to the burden.”
The experience of Ontario’s non-profit community social service agencies in the wake of the 2008 recession was not unique. While the details and magnitude of the issues vary, the story was largely the same. Residents hit by the recession turned, in greater numbers and with increasingly complex issues, to service providers for help. At the same time, agencies had less funding to pay for needed programs and services. There was increased competition for available funding, and the pots of available funding were smaller.
Research conducted across Canada tells the tale of a diminished capacity within the sector to respond to growing, increasingly complex and urgent needs in communities. In a survey of 100 non-profit organizations receiving funding from the Ontario Trillium Foundation, about one-third of grantees had already been affected by the downturn by January 2009. Agencies cited declines in self-generated revenues such as ticket sales for events and increased demand for service in areas such as food banks, credit counselling, mental health counselling, and employment services. Whether social service agency, arts group, environmental organization, or sporting outfit, everyone feared things would get worse before they got better.
In a Calgary Chamber of Voluntary Organizations survey of Alberta non-profits and charities conducted in February 2009, decreases in revenues from 2007 to 2008 were common for earned income (28.2%) and corporate donations and sponsorships (28.8%), with many organizations expecting cash donations to fall in 2009. At the same time, 56% of organizations experienced an increased demand for programs and services since September 2008. This rising demand was most common among social service providers.
A follow-up to the Alberta study was conducted in October 2009 which found more than 60% of agencies reported an increase in service demands and operating costs, while the sector experienced continued erosion from all revenue streams Researchers anticipated the worst was yet to come.
According to a June 2009 study of Calgary area service users and human service providers, 80% of organizations experienced an increase in demand for services during the six month period leading up to the study, with 66% indicating that they had increased their waiting lists and 60% that had referred community members to other service providers (United Way of Calgary and Area, 2009). Increased complexity of issues was another common theme.
Non-Profits in Post-Recession
The level of charitable giving in Canada remained steady through the uneven economic recovery, with about 84 per cent of the population donating to a charity or non-profit organization. According to Statistics Canada, almost 24 million Canadians made a financial donation in 2010, for a total of $10.6 billion. Both the percentage of the population donating and the total amount of donations were little changed from 2007, before the recession. The average annual donation was $446 per donor in 2010, similar to three years earlier. Charitable donors from Alberta, Saskatchewan, and British Columbia donated about $550 on average to a charity in 2010, among the highest in the country.
While giving dipped during the depths of the recession, it rebounded relatively quickly — or at least on par with recoveries from previous downturns — but it also came back differently, with larger donors taking up more space. In an investigation of the 2008 recession, Non-Profit Quarterly made the following observations:
Some nonprofit organizational types never fully recovered, while others ended up in better shape after the recovery (and even immediately post-recession). For most categories of non-profits, dips in overall revenue were felt most acutely in 2009; but the depths of the dips and the trajectories of recovery, defined here as occurring between 2010 and 2015, varied widely.
Overall, larger non-profits ended up gaining ground while smaller non-profits lost ground during and after the recession. This assumption is based on the finding that “eds and meds”— institutions of higher education and hospitals and healthcare organizations — gained 27.6 percent in assets over the recession and recovery period (fiscal years 2007 through 2015, controlling for inflation), while other non-profits —taken as a whole — gained only 12.3 percent. Eds and meds — which, speaking in terms of assets, made up 55.9 percent of the sector in 2015 — saw only a 1.2 percent loss of assets during the recession; meanwhile, other types of organizations saw a 3.7 percent loss of assets during the recession.
Eds and meds continued to grow their revenues through the recession, but not through contributions. Overall, contributions to non-eds-and-meds public charities increased by 1.4 percent during the recession years, while contributions to eds and meds decreased by 11.8 percent during the same period. In fact, program service revenues for the eds and meds — which constituted 88.8 percent of total revenues in fiscal 2015 — increased by 9.5 percent between 2007 and 2010, enabling eds and meds to realize a gain of 2.8 percent in total revenues during the recession. This suggests that the availability of capital in larger and more monied organizations helped build those revenue streams.
Closure rates during the recession were highest for: international, public, societal benefit; religious; and mutual/membership benefit organizations — and lowest for human services and environmental public charities.
Closures, unsurprisingly, were higher in fields that also showed the heaviest loss of assets. The same four public-charity types with the highest closure rates: international; public, societal benefit; religious; and mutual/membership benefit organizations — along with arts organizations, were the most likely to lose a significant portion of their assets during the recession. These organizational types head the “biggest losers” group of public charities, defined as the proportion of organizations that lost 20 percent or more of their assets between 2007 and 2010. While 23.4 percent of non-eds-and-meds public charities earned the “big loser” designation, 39.8 percent qualified as “big winners” during the post-recession period, realizing an increase of 20 percent or more in total assets between 2010 and 2015.
Over the entire period, the asset totals for human services organizations, the largest single organizational type, remained remarkably stable. Human services organizations had the lowest closure rates, the smallest percentage of “big losers,” and the smallest percentage of “big winners” among all organizational types, excluding eds and meds. In contrast, arts organizations were less likely to close, more likely to be “big losers” in terms of assets during the recession, and less likely to be “big winners” during the recovery.
Canada’s 2009 Economic Action Plan
The federal budget in January 2009, titled Canada’s Economic Action Plan (CEAP), was designed to respond to the economic downturn by stimulating the economy, in part by increasing government spending for sectors of the economy and regions of the country in need. The Economic Action Plan sought to stimulate spending by Canadians, stimulate housing construction, build infrastructure, and support businesses and communities. Together, these initiatives amounted to about $40 billion, with an additional $12 billion funded by the provinces and territories. These amounts were subsequently increased to about $47 billion in federal stimulus and $14 billion from provinces and territories. Budget 2009 also contained measures to add stability to the financial sector, which sought to improve access to financing for consumers and business by providing up to $200 billion in credit.
The CEAP’s Infrastructure Stimulus Fund supported numerous projects including temporary housing shelters, community centres and community services infrastructure, and cultural infrastructure.
The Knowledge Infrastructure Program (KIP) was a two-year, $2 billion economic stimulus measure to support infrastructure enhancement at post-secondary institutions across Canada. In addition to federal investments, provinces/territories and other sources contributed over $3 billion to KIP projects. In total, the program supported 520 projects with a total investment of over $5 billion.
An evaluation of the program’s effectiveness in 2012 found that, despite the significant challenges in designing and delivering a new contribution program in a very short period of time, KIP was implemented in a timely manner. Contribution funds were allocated as planned, with almost all Contribution Agreements approved during the first four months of the program. The delivery of KIP was also found to be effective and cost-efficient. The use of a federal- provincial/ territorial delivery model responded to university and college infrastructure needs in a timely and effective manner.
The intended benefits of the new, expanded, and renovated facilities were shortly realized. The use of the completed facilities by faculty members, staff, and students is improving the R&D capacities of post-secondary institutions as well as strengthening their ability to deliver advanced knowledge and skills training.
Investments in post-secondary infrastructure responded to the need to provide economic stimulus to communities throughout Canada while at the same time responding to the need for improved facilities to support the research, development, and training capacity of universities and colleges. A significant proportion of facilities were in need of renovation and revitalization. Urgent maintenance issues existed and modern features needed to be incorporated to enhance learning and research capacity. In addition, universities and colleges have experienced increased enrolment along with a growth in programs and research. This has created a significant need for capital expansion.
The objectives of KIP were consistent with federal priorities to provide timely economic stimulus and align with departmental priorities to invest in science and technology. In the context of the global economic recession, the delivery of KIP by Industry Canada was an appropriate federal role and responsibility.
Although tight timelines were a significant challenge, nearly all KIP projects were completed, or were close to being completed, within the intended timeframe. KIP funding also provided timely economic stimulus to over 190 communities across Canada. Construction activities maintained or created jobs during project implementation and the additional capacity created at post-secondary institutions led to an increase in administrative, technical, and faculty positions.
Other CEAP Projects
As noted in The Stimulus Phase of Canada’s Economic Action Plan: A Final Report to Canadians, over 30,000 projects were completed with support from Canada’s Economic Action Plan since January 2009. These included:
Roughly 7,500 provincial, territorial, and municipal infrastructure projects, including almost 4,000 Infrastructure Stimulus Fund projects and over 1,900 Recreational Infrastructure Canada projects.
Over 500 projects to improve infrastructure at colleges and universities across the country.
258 projects to improve small craft harbours.
Over 1,850 projects to assist communities hardest hit by the recession through the Community Adjustment Fund.
147 cultural infrastructure projects.
Over 200 projects to upgrade facilities at National Parks and National Historic Sites.
249 projects to modernize federal laboratories.
Roughly 1,800 projects to renovate and repair federal buildings.
Over 300 projects to enhance the accessibility of Crown-owned buildings for persons with disabilities.
97 First Nations infrastructure projects.
An estimated 16,500 social housing and First Nations housing projects
The CEAP represented one of the largest stimulus packages in the G7 and was successful in helping Canada outperform other major advanced economies during the recession and subsequent recovery.
Post-Recession Government Policies
Interestingly, information on post-recession government policies and approaches to investment is difficult to find. Most discussions of economic health post-recession deal with the strength of the economy pre-recession and what stimulus measures were taken during the recession.
In 2012, the Harper government’s budget included a series of pro-growth and market competition measures. The limit on how much Canadians could buy duty-free on a one-day US trip was quadrupled from C$50 to C$200; small businesses were granted a one-year credit extension for hiring; and the approval process of major resource projects was eased. Moreover, the government committed about C$500 million in direct grants to spur business innovation which was to be funded with the savings generated by phasing out R&D tax credits. Lastly, Canada would seek to diversify its trade relations, focusing especially on deepening commercial ties with the European Union and Indian markets.
Conclusion
Conservative and liberal policy makers have very differing views on the efficacy of infrastructure investments as an economic stimulus post-recession. It is difficult to predict just what economic measures different levels of government may implement once the brunt of the COVID-19 crisis is passed. Future government budgets will provide the details on social and capital investments going forward.