Episode 34: Candid

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A transcript, lightly edited for clarity and length, follows.

Show Guests: Jacob Harold, Executive Vice President and Koob, Director Data Standards of Candid

Voices of the Community Introduction: Welcome to voices of the community which explores critical issues facing Northern California communities. We introduce you to the voices of community thought leaders and change makers who are working on solutions that face our fellow individual community members neighborhoods cities and our region. This is George Koster your host. 

Series Introduction: This episode is part of our series exploring COVID-19’s impact on nonprofits and small businesses in San Francisco. We started the series back in April 2020 during the height of the first phase of the Covid 19 pandemic and the Shelter In Place requirements. Over these past nine months, the Covid-19 pandemic and economic meltdown have wiped out millions of jobs in both the nonprofit and small business sectors as well as shuttered tens of thousands of small business operations.

The goal of the series is to shine a spotlight on the nonprofits, small businesses, and their staff who are struggling to deal with the impact of the COVID 19 pandemic on their operations, services and sustainability. The series of interviews we conducted features voices from a cross-section of organizations that make up the fabric of our community.  Each of them brings a unique perspective on how they and we are dealing with the issues facing our community during the global pandemic and economic depression.

Show Guest Jacob: I do hope that this crisis has created an opportunity for nonprofit boards to think about their structure, to think about their partner organizations, and to imagine how they might, change the way they look and operate, to create more impact in the future. The big question mark in my head is duration. It's again, this question of how long does this crisis last? 

Episode Intro - Show Host George: In this episode - our featured voices are Jacob Harold the Executive Vice President and Anna Coo-ob Koob the Director of Data Standards of Candid. Back in April 2020 when we decided to create this series on Covid-19’s impact first on nonprofits and then on small businesses in the San Francisco Bay we like you had no idea how long the pandemic would go on and what the health and economic impact would be on our community. Over these past nine months we’ve talked to over 33 nonprofits and small businesses about how Covid-19 and the subsequent economic meltdown is impacting their ability to continue to provide services and products as well as to just survive. 

We wanted to end 2020 hosting an interview with Jacob and Anna and ask them to walk us through their findings, insights and recommendations from their  published national and state analysis on how many nonprofits will shut down because of the COVID-19 pandemic 

Show Host George: I'm joined remotely via zoom by Jacob Harold, the Executive Vice president and Anna Koob the Director of Data Standards of Candid. Thanks for being here, Jacob and Anna.

So, Jacob, I want to turn to you and please provide the audience a little background on who is Candid?

Show Guest Jacob: Sure, George it's, great to be here. So candid was formed in February of 2019 by the merger of Foundation Center and GuideStar. So, in a way we're just under two years old, but in another way, we're 80 years old.

When we look at the combined history of the two-parent organization. So, we're in this odd moment of being a startup and an institution that's been around for a while. And on both of those time horizons, our goal is to get people the information they need to do good. And we do that through a variety of different mechanisms online and in person.

And we've got billions of pieces of data that are used by tens of millions of people each year ranging from information about individual non-profit organizations to, trainings about fundraising practice, to data about foundation grants, mostly in the U S but also, around the world.

And so, we are, we're trying to figure out who we're going to be when we grow up. And it's a pretty exciting moment, although obviously 2020 has been a strange year, as we continue the process of becoming a single organization, bringing together these two, histories of foundation center and GuideStar. 

George: Thank you. That was great. I think the audience would love to hear a little brief background on, both of you before we lead into the amazing study you've done on COVID impact on nonprofits. So, Anna, would you like to start?

Show Guest Anna: Certainly, I'm Anna Koob a Research Director at Candid, and in that role, my job is to make meaning of the billions of data points that we're collecting annually about nonprofit organizations and, foundation grant making.

George: And Jacob.

Jacob: Sure. So, I was the President and CEO of GuideStar at the time of the merger. And my current role is as Executive Vice President. And in that I'm leading our insights division, which is, our research division, but really trying to go beyond that as Anna says to find meaning, in all of this data and to weave that meaning into a story that makes sense to people both within and outside of, the nonprofit sector.

George: And so, the reason I brought you both together today, I've been doing this whole series on COVID-19's impact on, nonprofits in the San Francisco Bay Area. And I read your recent blog post on Candid's weekly newsletter, highly recommended to everybody who's interested in nonprofits and foundations. And you've done an amazing job of providing, the kind of insights into the actual impact of COVID-19 on the nonprofit sector. So, Jacob I’m going to start with you, and have you provided some context and criteria of the study itself?

Jacob: Absolutely. So, you know, we were. Around late March, early April, we started getting a pretty scary question, which is how many non-profits are going to go out of business because of this crisis. And you know, that's the kind of question that you don't want to hear, but we were hearing a lot and we knew that it was on the minds of a lot of folks across the social sector.

And we also knew we couldn't predict the future, but we, took a moment and we said, how could our data help people at least begin to answer that question and plan in this time of uncertainty what some of the potential scenarios might look like. Now, you know, it's worth highlighting that things have gotten even more complicated since March or April with the racial equity uprising, with the election change around the world. It's not just about COVID-19 and the economic crisis that it brought on.

But when we look at the drivers of potential nonprofit closures, I think the economic crisis brought on by the pandemic is the most important one. And so we were lucky that lots of other, partner organizations were doing surveys and beginning to ask this question, providing some data points that could feed into an analysis and so we thought, you know, we think we could come up with something that will be, useful. And Anna and her team led that process.

George: Thank you, and I'm going to turn to you, Anna and kind of walk us through, the research, your analysis you know is really based on the financial future of the nonprofits. Very in-depth I think you did, but 10 million computations.

Anna: Right. So as Jacob says, we can't predict the future. So, I think there's kind of a dose of humility that is pretty central to what we tried to undertake here but given the vast quantities of data that we are sitting on as Candid, we're in a position to make some projections.

So, for this projection-based analysis. we looked at the most recent IRS filings for about 315,000 US based public charities. And we really focused on some kind of key fiscal figures. So, we looked at, cash on hand annual revenue and different revenue streams for organizations. So, distinguishing between, you know, contributed revenue in the form of donations, foundation grants distinct from, revenue earned from program services or sales.

And then we also considered the annual expenses for each of these 300,000 plus organizations. So, we then introduced a number of scenarios 20 to be exact by which expenses and revenue might change over a specific timeframe, which we call months of disruption. And these 20 scenarios represent a, pretty wide range, I'd say from the dire scenario of a, sort of a long time horizon for economic instability, economic recession with, you know, associated large hits to organizational revenue. And then, the other end of the spectrum from these more dire scenarios are, a bit more optimistic, a shorter timeline, you know, nine months or so, along with sort of organizational ability to adjust their expenses to respond to the hits in revenue.

So, under each of these scenarios, we calculated the number of organizations that would go out of business, sort of exhaust their cash reserves go beyond the revenue that they were able to, collect. And we found that, in the median scenario among these 20 estimated that about 7% of nonprofits would close as a result of, the pandemic.

George: Right. I think your worst case was something like 38%.

Anna: That's right. So that used I think a three-year time horizon with pretty significant hits to, revenue, I think as much as 40% in some cases with kind of a concurrent reduction in expenses sort of assuming that nonprofits might be able to, also cut their expenses by about 25% I think in that most dire case.

George: Thank you. So, Jacob, I'm going to have you, share with us how the scenario planning worked. What were the 20 possible scenarios based on? One of my favorite scenarios was the miracle scenario as well which, you know, so much of this time period is based on that one.

 Jacob: It's true, Yeah, so, you know, as Anna said, we wanted to offer a range of different possibilities and, you know, a key metric in all, this is how long is this going to last? And our scenarios range from nine months in the miracle scenario, which is basically about where we're at right now. You know, it's December and it started in March all the way up to 36 months of disruption, and I'll just say that, you know, now six months after we did this analysis, it looks like we're probably looking at a total disruption period of between 18 and 24 months.

On the assumption that the vaccine really comes into play early next year and that we're back to normal quote unquote you know, third quarter or so of next year. So, in a way that is a bit of an affirmation that our analysis, because that's right about it in the middle of the different durations that we looked at, but we also wanted to look at how this would affect different types of non-profit business models. As Anna said, we were looking at you know, a range of different, revenue, impacts. And we also needed to have a baseline because nonprofits go out of business each year and no matter what's happening.

So, six of the scenarios are actually baseline scenarios where we're trying to estimate what might've happened in the absence of the pandemic. And the median of the set of baseline scenarios we looked at was about 12,000 of these 315,000. I think it's important to keep in mind that some nonprofits going on business is a natural part of the dynamism of the social sector.

But the scary news is that, as we modeled scenarios where there really was a drop in revenue and this lasted you know, a long time we did see, you know, up to 119,000 of these 315,000 nonprofits just run out of money. And, you know, those extremes are probably less relevant than what we see in the middle. And there were nine of the scenarios that felt particularly, feasible to us. In part, because they were based directly on some of the survey research that our partner organizations had done, who had actually gone out and asked hundreds of nonprofits.

Hey, what sort of hit are you seeing to your donations? What sort of drop are you seeing in your earned revenue? Are you adjusting your expenses? Now every one of those surveys we collected, at least we collected dozens of them was aimed at a particular sector or subset part of the sector in particular type of nonprofit, a particular country, a particular size.

So, none of them gave us a perfect answer as to what was actually happening to nonprofits. But they did show us a range of different possibilities and help to inform the estimates that we put into place. Where, you know, I'll just pick one at random scenario number nine assumes that this last 36 months, that service revenue goes down by an average of 15%, that contributed revenue actually stays flat because people continue to be generous.

Investment revenue down 10% sales revenue down 20% and that non-profits cut their expenses by 15%. In that scenario, we're looking at 23,000 nonprofits going out of business which would be 11,000 more than we would have expected. So that's just an example of one of the potential scenarios that we looked at.

And you know, it will be a really interesting exercise in a couple of years. To go back and really see where things actually landed. But I will say, you know, my hunch is that we may end up somewhere around the median, which was 34,000 non-profits going out of business, which would be 22,000 more than one would expect.

One of the things I'll just highlight here is that the 315,000 nonprofits we did this analysis on were the ones where we have really good data. And they, represent the vast majority of activity and employment in the nonprofit sector, but they don't represent every nonprofit. There are tiny, tiny nonprofits out there that are mostly volunteer lead, where we don't have a lot of data. And so, you know, those are harder to speak to. But you know, we also know that, you know, they are feeling the impacts of, this crisis as well.

George: What I also found interesting about the study was you, broken into, essentially issues. And so, some of the issues that seem to be hit harder health, for example, arts and culture and housing, could you Jacob speak a little bit about this, as to why you think a specific issue might be hit harder than another?

Jacob: Absolutely. And you know, it all comes down to business model. And that different non-profit categories lend themselves to different kinds of business models. So, for example, arts organizations naturally lend themselves to a mixture of earned and contributed revenue because they have the opportunity of ticket sales, whether that's to a museum or to the opera or to hip hop performance.

So there, is an opportunity for some earned income, which has really been wiped out in this strange year that we've been in. But most of these organizations also rely on contributed income. That's going to be different than a nonprofit that maybe is a hundred percent reliant on contributed income.

Especially if that comes from say foundations that are more likely to maintain operations and maintain a similar level of, giving. So, we wanted to capture at least partially, the varying impacts that you might see across these issue areas. Now, even within arts organizations or health organizations, there's a wide variety of different potential business models, but they do tend to cluster around a particular model.

And at one thing that I should highlight is that, you know, with the tens of millions of, calculations, we did to come up with this analysis, we actually were looking individually at each of those 315,000 non-profits. So, we weren't looking on average, we were looking at each one and their particular financial circumstances apply to each of these scenarios.

So, the aggregate number of captures some of that variety, but we definitely know that, you know, the reality is that this is going to play out differently for different types of nonprofits.

George: Thank you. Great insights. I'm going to turn back to you Anna and ask, so here we are at a low of what appears, like 12 to as many as 30 plus thousand non-profits that could close.

Could you share with the audience what you feel like the impact of the closings of these non-profits would have on local communities? You know, people being served and then both on the national and local economy?

Anna: Certainly. So, I think very simply put non-profits matter in communities and people depend on their services. Whether it be sort of a homeless shelter, an organization providing housing services, food banks et-cetera. So, I think that, you know, to the extent that organizations providing valuable services that people depend on are closing or need to significantly cut back their services people will be affected and will suffer.  

In terms of employment the nonprofit sector employees, about 13 million people nationally and already others have done great research. John Hopkins Center for Civil Society Studies regularly puts out figures about job losses in the sector and the sort of anemic recovery since March of nonprofit jobs.

So certainly, this has an effect on the overall economy as well as an individual human cost of those who are losing their jobs.

George: Thank you. Jacob I'm going to turn back to you only because one of the things I loved about the study was, it wasn't just like, hi, here's all the bad news good luck. It was here's lots of bad news and then here are some strategies that you guys have identified that the nonprofit sector and all of the proverbial ecosystem of support around them, government foundations, individuals, et cetera could do. So, could you speak a little bit about the collaboration idea or restructuring?

I was reading, as I mentioned, the article with Ford issuing debt to give more money which I thought was wonderful idea. Hopefully more than foundations do that, but please share with us some of the identified solutions or strategies that you would suggest.

Jacob: It has been quite encouraging to see the creativity and innovation that's come out of the nonprofit sector and funders over the last few months. And I think a big question is how much of that will last you know, you mentioned foundations are changing behavior in a number of ways.

Most dramatically borrowing billions of dollars so that they can give more taking advantage of their balance sheets to tap the capital markets, to bring in more money to do good in this hard time. It's an incredible innovation in my opinion. You've also seen foundations just change their practice shifting to more general operating support, being more flexible extending deadlines for reports, et cetera.

Just recognizing the reality of work on the ground right now.  And then you see nonprofits be really creative on both the fundraising side and the programmatic side, whether that's, you know, an arts organization figuring out how to do online shows that are still meaningful to people, or, you know, a jazz nonprofit in New York doing online happy hours you know, with some of their supporters.

And then on the programmatic side, you know, Food banks completely restructuring the way that they distribute food in ways that have been really important for countless Americans. So there has been real innovation. To me the big question is how much structural innovation will last. And you know, the best example of structural innovation is, you know, mergers and acquisitions when organizations truly change their underlying legal structure.

Now we at Candid can speak to both the power of that and that it is not easy. It is a very significant undertaking to do that, but I do hope that this crisis has created an opportunity for nonprofit boards to think about their structure, to think about their partner organizations, and to imagine how they might, change the way they look and operate, um, to create more impact in the future. The big question mark in my head is duration. It's again, this question of how long does this crisis last?

Because I think if you had told non-profit board members, the summer of 2020, this is going to be a three-year crisis. They would have had a very different kind of conversation, but I think many nonprofits were prone to a hope that, ah, this all be over early next year, we can go right back to normal. So, to me, you know, there is still this question mark, of whether this will last long enough, and people will know that it's going to last long enough to really spur on that sort of bigger structural conversation, so we'll see. But you know, my hope is that, you know, some of that innovation can make up for the very real suffering that we've seen in the sector this year.

George: Some great insights there. Final question for both of you and I'm going to start with you, Anna. And that is what are some of the positive things that you could see coming out of the pandemic and economic crisis to support the nonprofit sector?

Anna: So, I'll pick up on one point that Jacob mentioned, which is about foundation practice. So I think there has been an acknowledgement for years that, you know, reduced reporting requirements, flexible funding, essentially funding practices that give non-profits kind of more leeway, more control over how they allocate the funding that they receive from foundations.

These have been, you know, talking points and there's been acknowledgement that there should be, you know, normative shifts, should happen here. But I think we are seeing preliminary evidence this year that foundations are starting to walk the walk here a bit. So in no small part thanks to the Council on Foundation's pledge calling on funders to, do these very things, increase their payout amounts, reduce reporting requirements these sorts of things.

So, I think that's certainly a positive shift that we can see, sort of how long the lasting legacy of, of this year's shifts are. And then the other thing I would point to is kind of the rise of mutual aid. We work at Candid with certainly a lot of the data we're collecting is about sort of the institutional nature of, social good in the U S, but I think by no means is social good limited to the nonprofit sector. And so seeing the rise of mutual aid networks, um, the solidarity based community-based, support and, you know, providing things like grocery delivery and rent relief for neighbors is  a really positive, development. I'd say that really compliments the nonprofit sector.

George: Thank you. And then Jacob, same question. What are some of the great things that you could see coming out?

Well, you know, I'll build on what Anna mentioned with, mutual aid is I just think this has forced a reconsideration of the roles of all institutions in our society. And that I think the power and importance of the nonprofit sector has become very clear when we see photos of long lines of people in their cars waiting to pick up food from a food bank. It's just, it's a very stark, very visual reminder of how important the nonprofit sector is. I think we've also been reminded that there are some things that only government can do. But the scale of, you know, economic stimulus that's been offered. You know, the nonprofit sector simply isn't big enough to do that. And so, we've been reminded of the importance of government. And similarly, that, you know, there are certain businesses I'm thinking about grocery stores that are just essential for our lives and are capable of doing certain things at scale that also the nonprofit sector can't do.

Jacob: And so, this crisis has reminded us of the important, critical role of all parts of society of the non-profit sector of mutual aid networks of government, of business. and I hope has just, you know, shaken us out of our stupor in how much, you know, we rely on each other and we rely on these institutions.

George: Some great points there. I want to thank both Jacob and Anna for sharing their wonderful insights from your research into COVID 19's impact on nonprofits. And then we'll make sure that the listeners and viewers of this have your contact information website social media and links to the report and the research so that they can review it and do a deep dive. There's lots of information there and get engaged with candid and support your work. So please stay safe and healthy out there as we work our way through this very strange new normal.

Episode Outro - Show Host George: To provide some context to Anna and Jacob’s scenarios that identified a low of 7% to a high of 38% nonprofits closing down completely, there are 1.3 million nonprofit organizations employing roughly 13 million people which is the third largest workforce in the U.S. economy, overtaking manufacturing by nearly 100,000 workers nation-wide in 2017. The nonprofit sector is estimated to be a $200 billion industry that touches the lives of more than 1 in 5 Americans. 

Anna had mentioned John Hopkins Center for Civil Society who’s 2020 Nonprofit Employment Report estimated there were 1.6 million job losses from March through May which rebounded to about 900 thousand job losses in their November 16th report. This job loss data is before the latest third wave of Covid-19 that has led to a majority of states to shut down their economies as hospitals are overwhelmed.

A common theme we have heard through sharing the voices in the series is that the Covid-19 pandemic has provided an X Ray to all of the problems in our community and that what we consider to be the most valuable services in our community such as social services, arts and culture, recreation and education are provided by our nonprofits and have always been there for us.

One of the observations of Anna and Jacob’s report that really hit home was that “unless government, funders and nonprofit leaders take immediate and decisive action, many nonprofits around the nation may just disappear over the next few months leaving those they serve and employ in disastrous circumstances.” Anna and Jacob's State of California analysis scenarios estimate that between 2,600 to 4,200 nonprofits will close their doors because of the Covid-19 pandemic. That would not only be a blow to those who rely on their services but also do further damage to the economy. That would not only be a blow to those who rely on their services but also do further damage to the economy.       

Thank you for listening to our series this year. We will continue the series until we get to the other side of the pandemic. As you listen to the many incredible voices in the series, we hope that you will consider the thousands of nonprofits in our community as purpose-driven, small businesses "owned" by the public. Please go to George Koster dot com and click on voices of the community and our Covid 19 and San Francisco Nonprofits series to read Candid’s report from Anna and Jacob’ team

Series Outro: We hope that you enjoy the insights, points of view, and personal stories from the voices of change-makers and their nonprofits and small businesses featured in this series. To find out more and get engaged with the nonprofits, small businesses and staff members, featured in this series please go to my web site george koster dot com and click on Voices of the Community to find links to the extended versions of these interviews and to listen to the entire series. After listening to these stories we hope that you will consider making a donation and volunteering to provide a hand up to your fellow community members.

Series Credits: I want to thank my associate producer Eric Estrada, along with Mel, Michael, and Lila at the San Francisco Public Press and KSFP. To listen to our next episode in this series and to our archived past shows which feature community voices working on solutions to critical issues facing Northern California communities, please go to george koster dot com. While you are on our website please consider making a donation to help us provide future shows just like this one. Please subscribe to Voices of the Community on Apple Podcasts, Spotify, Google Podcasts or where ever you get your podcasts. Follow us on twitter @georgekoster and please email us with feedback and show ideas at george@georgekoster.com. I'm George Koster in San Francisco and thank you for listening.

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