Inflation is killing nonprofits. Funders, you need to supplement your grants immediately.

[Image a green frog with an inflated vocal sac, standing on a leaf. Image by David Cole on Unsplash]

Hi everyone. We are rapidly approaching the summer, which means it’s time for the annual Party to Enhance Equity in Philanthropy (PEEP), a series of events across the sector where funders and nonprofit folks get together, virtually or in-person (ideally outdoors), to break down the weird power dynamics we have, and just learn to see one another as human beings. It should be fun and informal, and usually taking place on the week of Summer Solstice (June 21st this year). If you are planning to host an event, please fill out this form by June 10th so I can help spread the word.

While we are on the topic of the relationship between funders and nonprofit leaders, we need to talk about inflation, how it’s been affecting nonprofits, and what we need from funders. It’s really bad, the highest inflation rate in 40 years, and will likely stay bad or even get worse for a while. There are people more knowledgeable than I am who have written about this topic. This article (“Nonprofits and Foundations Need to Be Prepared for the Effects of Inflation on Services, Operations, and Endowments”), brings up several good points:

“the philanthropic world, along with everyone else, will have to learn to live with higher prices. Nonprofits, for example, may be forced to raise salaries to attract or retain workers whose own living costs have gone up. Paying more for groceries or gasoline could take a toll on charities that need to make these purchases to serve clients. Hospitals or schools that need to buy new equipment or improve their facilities may have to accept higher interest rates on loans. And if, like the Girl Scouts, an organization earns a large share of its revenues by selling products or services, it may face greater buyer resistance to increased prices.”

This article (Donors Don’t Understand Inflation’s Impact on Charities. That’s Why Fundraisers Must Tell Them) meanwhile, points out that “2022 may bring a double whammy. Donors will feel less wealthy because their stocks have lost so much value and may cut back on their giving, as they have done in the past. What donors won’t be thinking about is the fact that as they cut back, their donations are [also] worth less. Nonprofit organizations will be left feeling the squeeze.”

Here’s one testimony from a colleague of how it’s affecting their organization:

“We are building our budget for our FY23, which starts on July 1. Much of our funding comes from grants that extend past the fiscal year. That means the budgets were built based on salaries from the beginning of the current fiscal year or earlier. In the very low inflation period now in the rear view mirror, it wasn’t such a big deal if we added an unfunded COLA at the rate of inflation, since it was in the neighborhood of 2%. But in a world of 8% inflation, if we give our staff a COLA that matches the rate of inflation, we bust our budget. So we are forced to choose between the fiscal sustainability of the organization and the wellbeing of our staff.”

Overall, inflation is going to be a serious problem in our sector this year and probably for several years to come. Unfortunately, during times of increased economic challenges, many funders cut down on their giving in order to protect their endowments for the future, saving for a rainy day while ignoring the current monsoon. As wealth and investment advisors start encouraging foundations and donors to do just that, I am imploring foundations to not listen to these voices.

In fact, even maintaining the same level of giving is not enough. With inflation, the value of money decreases, so you’re actually giving less than you committed. If your foundation committed to giving a grant of $100,000, for example, you’re really only giving about $92,000 when inflation is factored in. To counter for this, you need to give an additional 8% or more to whatever you’re currently giving. A grant of $100,000 should be $108,000. These additional funds will make a significant difference for many nonprofits, their staff, and the people they serve.

Funders also need to consider equity implications. Inflation doesn’t affect everyone equally. It most severely hurts lower-income families. In our sector, it will be organizations led by Black, Indigenous, AAPI, Latinx, women, disabled people, LGBTQIA+ people, rural communities, and the their staff and the people they serve who will be most affected. These are organizations that have already been struggling through decades of lack of investment from philanthropy. They now face additional and disproportional challenges that come with inflation.

If you just made your grant selections, increase the amount by 8 or 10% (or more). If you already distributed funding, cut some supplemental checks. Do not ask for additional application materials or reports.

During these times of financial hardships is when nonprofits really need funders to step in and provide some stability. That is one of the most important roles you play. Over the past two years of the pandemic, we’ve seen many funders playing that role, increasing their funding and support and removing burdens and bureaucracy. This thoughtful approach has been critical for many nonprofits’ being able to survive when their communities need them most.

We need funders to have the same thoughtful approach to address inflation.

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