Inflation hits nonprofits' services, ability to fundraise

Nonprofits of all kinds are getting hit hard by inflation, experts say

Philanthropy-Inflation

Last Mile Food Rescue in Cincinnati started shopping in November for a refrigerated box truck to move perishable donations from food retailers to distribution sites. The purchase would take some of the pressure off overstretched volunteers, who would have to make three or more runs in their cars to haul as much food as a single truckload.

But Last Mile is experiencing sticker shock. Prices for the kind of truck its leaders have in mind have soared thousands of dollars in recent months, to as much as $80,000. For an organization with an annual budget of $650,000, that’s too big a hit to absorb.

Frustrated, the charity started looking for used trucks, but the prices of used vehicles have shot up as well.

“We look every day,” says Julie Shifman, Last Mile’s executive director. “We hope that we will be able to afford it, or a major donor might be able to come in to help us.”

Last Mile is far from alone. Nonprofits of all kinds are getting hit hard by inflation, experts say. Price and wage increases are hurting nonprofits in multiple ways, making it harder to keep up with their own basic operational expenses while also forcing them to curtail the services they provide.

At the same time, there are early signs that the burst of generosity donors showed in the first year of the pandemic may be slowing considerably.

“It’s not a pretty equation,” says Shannon McCracken, chief executive of the Nonprofit Alliance, an advocacy group.

Nonprofits that provide annual cost-of-living increases for their workers, as many do, are getting hit with higher payroll costs of about 6% even without any increase based on merit or seniority, McCracken says.

David Lipsetz, CEO at the Housing Assistance Council, says inflation has eaten into the number of affordable-housing units his organization can provide.

The council underwrites loans for housing developments at below-market rates in some of the poorest regions of the country, and it strives to maximize the amount of housing it can build with limited resources. “We’re operating on extraordinarily thin margins,” says Lipsetz. “We are putting those loans out the door as cheaply as we can.”

When the price of building materials goes up 10%, says Lipsetz, there’s usually no room in the loan to accommodate that increase. Lipsetz says that sometimes his nonprofit can rework the terms of the loan or find additional sources of financing, but it doesn’t always work out.

“It’s stalled countless projects for us, right in the middle of a period of time when housing and shelter are the most important things needed to weather the storm of a pandemic,” says Lipsetz. “For us, a modest increase in costs can shut down a project in an area of the country where it’s needed the most.”

Jesse Tree, a nonprofit in Boise, Idaho, that pays rent for people who are on the verge of being evicted, has seen sharp increases in demand for assistance in recent years. Ali Rabe, the organization’s executive director, says research shows housing prices in her region shot up 75% from 2015 to 2020 at a time when local wages increased 18%.

The situation has only gotten worse since 2020, says Rabe. Work-at-home policies spurred by the pandemic allowed highly paid urban dwellers to relocate to rural areas, she says, and housing prices shot up another 40% or so last year.

Local courts in the Treasury Valley region of southwestern Idaho, which Jesse Tree serves, hold about 20 eviction hearings a week, says Rabe.

“We can only help about a quarter of people who apply for assistance,” she says.

A government grant provided through federal Covid assistance helped the nonprofit maintain operations, but that grant expires in September, says Rabe. The nonprofit is hoping donors will fill the gap, she says.

Nonprofits by their nature are in a poor position to adapt to rising costs, experts say. While McDonald's can offset higher beef costs by raising the cost of a Big Mac, for many nonprofits the only options are to cut services or hope donors will come to the rescue.

Kelley Kuhn, CEO of the Michigan Nonprofit Association, says nonprofits that provide basic goods and services, like food and housing, are being hit the hardest. At the same time, nonprofits are struggling to retain workers who are being lured away by businesses that are able to offer higher salaries, says Kuhn.

“That’s something any nonprofit is experiencing now, trying to keep up with the requests for higher salaries and wages,” Kuhn says. She added that a passion for the mission won’t keep nonprofit workers from seeking higher wages elsewhere if they can’t meet basic living expenses.

“That’s a lot of strain on human capital happening for nonprofits,” she says.

Billionaire philanthropist MacKenzie Scott recently took the sting of inflation away for some nonprofits with another round of major gifts. The Housing Assistance Council, for example, got $7 million. And Habitat for Humanity, which has had to scale back the number of houses it builds due to increased costs of lumber and land, got $439 million, which will allow it to reverse course and ramp up operations.

Corinne O’Connell, CEO of Habitat for Humanity Philadelphia, says the cost of replacing a roof on a row house shot up from $5,000 to $8,500 in a single year. And while her local affiliate of Habitat for Humanity received $5 million of Scott’s gift, she notes that most nonprofits can’t count on getting bailed out by a generous billionaire. “The screws just keep tightening on nonprofits who are working on the front lines,” O’Connell says.

Like Shifman at Last Mile, Diana Lara leads a charity that collects and distributes food that was otherwise headed for the garbage. Lara’s Southern California nonprofit Food Finders has three trucks and a van, all refrigerated, and the fuel costs are gobbling up a bigger share of its budget.

At the same time, grocery stores are hanging onto perishable food longer, she says. Food that previously would have been donated is getting marked down for a quick sale instead.

The group purchases some nonperishable food to supplement donated goods, and those costs are rising, says Lara. Meanwhile new hires are demanding higher starting pay.

In short, a wide array of expenses are over budget.

“So we’re starting to feel that in our pockets,” she says. “It’s just insane.”

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This article was provided to The Associated Press by the Chronicle of Philanthropy. Dan Parks is a senior editor at the Chronicle. Email: dan.parks@philanthropy.com. The AP and the Chronicle receive support from the Lilly Endowment for coverage of philanthropy and nonprofits. The AP and the Chronicle are solely responsible for all content. For all of AP’s philanthropy coverage, visit https://apnews.com/hub/philanthropy.