Lessons for Nonprofits from the 2008 and 2020 Recessions

By: John Harrington, Common Good Vermont Intern

In the last 20 years, the U.S. has faced two major recessions: the Great Recession of 2007-2009 and the COVID-19 recession of 2020. Both of these upended economies domestically and abroad, but provide us with important information regarding the stability of nonprofits in the face of recession. Though impossible to fully predict, economic recessions have the distinct potential to exacerbate unemployment and place added stress on the ability of organizations to meet their missions. With major U.S. bank failures and persistent inflation suggesting the possibility of another recession headed our way, the nonprofit sector – already faced with the challenges of a workforce shortage and inadequate government funding – must be prepared. How have nonprofits fared during previous recessions, and how can the lessons of the past inform our ability to handle economic crises in the future?

All things considered, data indicates that nonprofits actually fared better over the course of the Great Recession than did many other sectors in terms of employment and revenue. The following figures demonstrate the ability of nonprofits to remain stable – and in some instances, to grow – over the course of the recession:

  • Nonprofit employment increased in the U.S. by 8.5% between 2007 and 2012
  • Revenue for U.S. nonprofits grew 39% nationally between 2005 and 2015
  • Revenue for Vermont nonprofits grew 48% between 2005 and 2015

It is important to note that, while this information does offer some reassurance, the relative stability of nonprofits during the Great Recession was not felt equally. Smaller nonprofits tended to be at greater risk of losing financial ground than did their larger counterparts. In addition, organizations tended to fare differently depending on the type of services they offered. Education, health care, and human services were less likely to see a loss of assets as compared to other sectors. In times of recession, there is also evidence that donations become more targeted to organizations relevant to those experiencing economic hardship, such as food banks.

The 2020 recession caused by the COVID-19 pandemic created its own set of challenges for the nonprofit sector, the ramifications of which continue to resonate. A study by Candid found that up to ⅓ of nonprofits in the U.S. were at risk of closure because of the pandemic’s financial burden, with BIPOC-led organizations at a disproportionately high risk. They found that organizations oriented towards arts and entertainment were most at risk.

A top concern among nonprofit organizations in times of recession is its impact on donation and funding sources. Need for nonprofit services are “countercyclical” to economic conditions as more resources are needed to handle instances of widespread personal and financial strife – such as recessions.

The Great Recession did not have a significant impact on individual donations; in fact, individual contributions actually increased between 2009 and 2011. This offers some reassurance, considering that a majority of charitable donations in the U.S. come from individual donors (around 67% of all charitable giving in 2021). By contrast, the following sources of funding were shown to decrease over the recession years: corporate donations, government grants, and investment income. Cultivating and expanding individual donor relationships is thus advisable to maintain funding in the face of recession. The number of recaptured donors (those who have donated previously but not in the past year) rose by 6.5% for nonprofits over 2022, offering another potential to expand funding sources.

A comprehensive 2015 study of New Jersey nonprofits during the Great Recession found that higher operating margin and equity ratio was the most effective method of maintaining financial sustainability throughout the recession. By contrast, higher debt ratio and revenue diversification were shown to have adverse effects.

A January 2023 survey of nonprofit leaders by La Piana Consulting found that 91% of respondents were concerned about the economy and 80% thought it would significantly impact their operations within the year. History indicates that certain organizations are more at-risk than others, and that some may be in a unique position to continue success through any future recession. Using the past as a guide, we can identify and implement strategies that may help “recession-proof” any organization.

As recessions have had a demonstrable impact on charitable giving in the past, it can be helpful to increase communication with donors and other funding sources. Cultivating these individual donor relationships, and working to build new ones, can help to ensure continued funding. Additionally, taking the time to re-evaluate long-term goals and measure current impact can help provide clarity in terms of resource allocation. Emphasizing areas where impact is strongest can make it easier to reduce spending while maintaining effectiveness in achieving organizational goals. 

Taking proactive steps such as these to mitigate risk now can go a long way in the event of a crisis. Here are some additional resources to support the resiliency of your organization: