The Impact of the Great Recession on the Number of Charities by Subsector and Revenue Range

Center on Nonprofits and Philanthropy June 2014 The Great Recession’s Impact on the Nonprofit Sector URBAN INSTITUTE http://www.urban.org/ http://cnp.urban.org http://nccs.urban.org Summary  This brief extends the analysis of the first brief in the series, “The Impact of the Great Recession on the Number of Chari-ties,” which compared closures among nonprofit organiza-tions over two periods: the “baseline period” of 2004–08, which includes the years immediately before the recession’s full impact, and the “recession period” of 2008–12, which includes the worst of the recession and its immediate after-math.1  The brief takes a closer look at nonprofit organizations that ceased operations during the baseline and recession periods by revenue range and subsector (arts and culture, education, environment, health, human services, international affairs, public and societal benefit, and other).  In both time periods and across all subsectors, smaller organ-izations with revenues between $50,000 and $99,999 were most vulnerable to closure.  In all subsectors, organizational closure was more prevalent during the recession period (2008–12) than during the base-line period (2004–08).  However, organizations with revenues of $1 million and above were no more likely to cease operations during the re-cession period than during the baseline period.  The largest increase in closure rates occurred among interna-tional organizations, while human services experienced the smallest increase.  In addition to higher closure rates, the recession is also asso-ciated with loss of revenue among smaller nonprofits. Twenty-two percent of all organizations with $50,000 to $99,999 in revenue in 2004 had revenue fall below $50,000 in 2008. That share jumped to 30.1 percent for the 2008–12 period. Introduction What effect did the Great Recession of 2007–10 have on the non-profit sector, and which types of organizations were especially affected by the economic downturn? The National Center for Charitable Statistics is investigating this question in a series of briefs. The first brief in the series showed that between 2004 and 2008, before the recession had its largest effect, 4.3 percent of charities with $50,000 or more in total revenue ceased opera-tions. In contrast, during and after the recession (2008 to 2012), 5.0 percent of charities closed—a statistically significant increase, but nowhere near the effect that the recession was predicted to have by some observers. In this brief, we continue our comparison of changes in the nonprofit sector during 2004–08, which we label the “baseline period,” and 2008–12, which we call the “recession period.” Dur-ing the recession period, a larger percentage of nonprofits closed than in the baseline period and a larger percentage of organiza-tions fell below $50,000 in total revenues. Though during any time period some organizations slip below the $50,000 thresh-old, a much larger percentage of nonprofits than average dropped below $50,000 in revenues during the recession years. Between 2004 and 2008, 8.4 percent of nonprofits fell below $50,000 total revenue; in the recession-driven period of 2008 to 2012, that share jumped to 11.3 percent—an increase of 34 per-cent. This brief focuses specifically on differences in the percent-ages of organizations that closed or fell below $50,000 in reve-nue, looking at revenue range and nonprofit subsector. In both time periods, smaller organizations were most vulnerable to clo-sure, a finding that is consistent with previous studies.2 During the baseline period, closure rates varied from 1.9 percent for those with $10 million or more in total revenues to 5.3 percent for those with $50,000 to $99,999. The same general pattern was observed during the recession period; the smallest organiza-tions were most likely to shut down, and the largest organizations least likely. However, closure rates only increased for organiza-tions with revenues less than $1 million; organizations with reve-nues of $1 million or more were no more likely to cease opera-tions during the recession period than during the baseline period. Though a small percentage of organizations actually closed during either time period, charitable organizations were much more likely to experience a decline in revenues than to close. The organizations most likely to fall below $50,000 in total revenue were the smallest ones in the sample: organizations with $50,000 to $99,999 in total revenue. During the baseline period, 21.9 percent of these small organizations in 2004 had revenues fall below $50,000 in 2008, but that percentage jumped to 30.1 percent for the recession period—an increase of 37 percent. However, not all subsectors were affected by the recession equally. During the recession period, the closure rate increased most for international organizations, while both environment The Impact of the Great Recession on the Number of Charities by Subsector and Revenue Range Nathan Dietz, Bric