September 5, 2023
Demand for nonprofit services is on the rise, and legislators are paying more attention to ways they can support the sector.
- Nonprofit organizations met critical needs during the pandemic.
- While the need for their services increased, funding decreased. The sector is still recovering.
- Maryland state Sen. Cheryl Kagan is working with the National Council of Nonprofits and the National Conference of State Legislatures to create a national legislative caucus focused on legislative strategies to support nonprofit organizations.
INDIANAPOLIS — Nonprofit organizations play an essential role in maintaining the “social fabric,” the connective tissue and relationships that hold communities together. They bring compassion, patience and determination to thorny problems that can tear communities apart, and to spiritual and artistic work that can uplift them.
The pandemic brought new kinds of stress to the nonprofit sector. It was never an option for homeless and domestic violence shelters or food banks to close their doors. Moreover, the social and economic disruption the pandemic brought to communities increased demand for nonprofit services. At the same time, donations went down.
Almost 70 percent of the nonprofit leaders surveyed in 2022 by Grassi Advisors and Accountants said that demand for their help had increased that year, especially for health care and social services. Six in 10 said that their finances were insufficient for their mission. (Shortages were worst among those involved in social services, education, and arts and culture.)
This combination of increased need and reduced resources is creating extreme pressure, says Tiffany Gourley Carter, policy counsel for the National Council of Nonprofits (NCN). At the same time, she says, “Governments are waking up to how necessary and vital the services that nonprofits provide to their communities are.”
A healthy nonprofit sector also brings economic benefits. Nonprofits employ about 7 percent of U.S. workers, a workforce larger than either state or local government, offering higher median pay than the business sector. They spend about a trillion dollars a year on goods and services and more than $800 billion annually on compensation and taxes.
State legislatures can play a big role in creating a climate in which nonprofits can succeed. A handful of states have formed state legislative caucuses to ensure that nonprofit issues aren’t neglected. In partnership with the National Conference of State Legislatures (NCSL) and NCN, Maryland state Sen. Cheryl Kagan is leading the creation of a National Nonprofit Legislative Caucus
“It can be so easy to include the nonprofit sector, but it has to be top of mind,” Kagan says. “Too many policymakers don’t consider the community-based organizations that make such a difference in every legislative district in the country.”
After serving in the Maryland House for eight years, Kagan took a 12-year break from the Legislature. During that time, she served the nonprofit sector in roles ranging from staffer to founder and funder.
“When I returned to elective office as a senator, one of the things I realized was that government doesn’t offer enough support or respect to the nonprofit sector,” she says. “I thought we could do better.”
Kagan has been in the Senate for nine years now and has sponsored and passed a bill to aid the nonprofit sector almost every year. She’s also sponsored amendments as simple as including the phrase “and nonprofit organizations” in legislation aimed at the small-business community. These can remedy omissions caused by inattention, with significant impact for the sector.
In 2017, Kagan created NIMBL (Nonprofit Interest-Free Microbridge Loan), which offers up to $25,000, interest free, to nonprofits waiting for delivery of a grant or contract from federal, state, county or municipal government. These loans enable them to cover payroll and rent and keep working. When their funding arrives, repaid loans go back into the loan fund.
“We just added a million dollars to that fund — the word was getting out and we had a waiting list,” Kagan says. “That undercuts our goal of quick turnaround revolving loans; it’s a very modest amount of money that makes an enormous difference.”
She points to a bill enacted this year as another example of a simple step with big consequences. SB 0112 requires prompt payments to nonprofits receiving grants from the government, as the state does for businesses with procurement contracts. “Those are two commonsense bills,” says Kagan. “They’re not expensive, and they are supporting groups that are helping our constituents.”
NCN publishes lists of state legislation with potential to assist nonprofit missions. The 2023 compilation includes dozens of bills introduced in about 20 states. Several states enacted legislation raising the income threshold at which audits are required. Nonprofits are already required to be financially transparent in order to retain their status, and an audit can be an outsized expense for small groups.
Other successful bills have appropriated funds for nonprofit grants or capital projects. (An Arizona bill provides grants up to $100,000 to bolster security measures for nonprofits at risk of attacks or hate crimes because of their missions.)
The national caucus can provide a forum for sharing and developing best practices. It also establishes a point of contact that can bring about a more holistic approach to the needs of communities, says Carter. “It creates a relationship-building opportunity between elected officials and the nonprofit leaders.”
Doing What Others Can’t
As far as Carter knows, only three states have formed state-level nonprofit caucuses: Kentucky, Pennsylvania and Nevada. The last two came into existence this year.
Nevada Assemblywoman Tracy Brown-May had two decades of experience in a nonprofit dedicated to disability services when she came to the Legislature in 2021. “As we came through the pandemic, we were relying on many of our nonprofits to make sure our community was being housed and fed,” she says. “We started to focus on the nonprofit sector being able to do things that other businesses could not do.”
In the recent legislative session, six assemblymembers who were employed by, ran or were members of nonprofit organizations came together to form a caucus. Members have met with nonprofits in their communities to better understand their needs, and to learn from what they are encountering in their operations.
The nonprofit sector provides a significant amount of revenue as well as creating sustainability for the “least of those among us,” Brown-May says. “We have to recognize their formidable business force and the fact that we need them in order to have successful communities.”
The Nevada Legislature meets in odd-numbered years. The caucus didn’t put forward legislation in 2023, but members will meet over the next 18 months to explore the ways it can increase the impact and stability of nonprofits in their districts.
Jessica Rauch is the facilitator for the CEO Exchange, a partnership involving 14 nonprofits that serve Southern Nevada. Rauch currently works as consultant to nonprofit and government clients through a firm she founded, Give Better Group, but her nonprofit experience includes years as president and executive director of the D.C. Public Education Fund.
The CEO Exchange meets monthly. “These leaders have made a commitment to each other to come together, share common challenges and find areas where they can advocate to advance the strengthening of the social safety net,” Rauch says.
The caucus is an important new point of contact for Nevada’s nonprofit sector, says Rauch, especially because Nevada’s citizen legislature only convenes every two years.
“It’s vital that we have people who understand the perspectives of our community and of organizations that are truly the backbone of Nevada. We’re not funded as well as other states, and in many ways nonprofits support services that individuals need to thrive.”
Nonprofit groups work in a broad range of fields that come within the scope of legislation, Brown-May says. The caucus can ensure that opportunities to tap their skills are not lost, including within bills not expressly directed at the sector. “It’s incumbent upon us as legislators to help our nonprofits flourish.”
Doing the Work
Kagan intends to start a nonprofit caucus in the Maryland Legislature, but the most important thing for legislators in any state is to make an effort to connect with nonprofit groups and leaders, she says. Almost every state has one or more nonprofit associations.
“The devil’s in the details of any particular bill, but no one opposes the concept of supporting the nonprofits,” says Kagan. “The challenge is causing people to think about this and to include the sector in legislative proposals.”
There are benefits in both directions. Groups working in legislative districts have real-time awareness of the problems and tensions that exist in them. Many have cultural and language expertise that is increasingly important as America’s demographics shift and communities in every state become more diverse.
Nonprofits can often use public dollars more efficiently than government, Carter says. Better partnerships with legislators can mean better outcomes for communities.
“This isn’t about us, it’s about the work getting done,” she says. “If we can work with governments to be more effective, everyone wins.”