SYMPOSIUM ON LAW, PHILANTHROPY AND NEW ECONOMIC CHALLENGES
CHANGING THE RULES OF ENGAGEMENT

The Fort Garry Hotel
September 16, 2009

FUNDING CHALLENGES FACING CHARITIES AND NON-PROFTS

Speaking Notes by the Moderator,

Janice Y. Lederman
Thompson Dorfman Sweatman LLP

Let me start this panel by setting the context for our discussion on funding challenges facing the voluntary sector.

THE SECTOR IS SIGNIFICANT ECONOMIC FORCE IN CANADA

There has been a sea change in the role of non-profits and charities in Canada over the last 20 years. The issue is not so much that the number of organizations has grown significantly, although it has, or that some of these organizations have become very large and sophisticated, although they have, but rather that these organizations and the programs and services they provide are ubiquitous, embedded almost invisibly in our everyday lives (kids’ recreation, hospitals, palliative care, education at all levels, day cares, services for the blind, disabled, addictions counselling, faith based groups, business services and supports, community organizations, arts groups, churches and religious gatherings, and it goes on and on).

What most Canadians do not appreciate is that the third sector has become a significant economic force in Canada. Canada’s non-profit and voluntary sector is the second largest in the world (the Netherlands is the largest; the United States is 5^th largest).

There are approximately 161,000 nonprofits and charities (85,000 charities) in Canada, and 53% of these organizations are run entirely by volunteers. Having said that, over 2 million people are employed in the sector in Canada, representing over 11% of the economically active population;  compare this to 10% in the manufacturing sector, or 12% in the service sector, and it becomes apparent that the third sector is a major source of employment for Canadians.

But we also should look at the financial data. The sector represents over $79 billion of economic activity, or 7.8% of Canada’s GDP, larger than automotive manufacturing. GDP for the core non-profit sector (excluding hospitals, universities and colleges) has been growing faster on average than the Canadian economy as a whole for a number of years.

WHY HAS THE SECTOR GROWN SO SIGNIFICANTLY

In the 1990’s governments cut back dramatically on services, and began outsourcing functions and services. Non-profits grew to meet this demand.

At the same time, the need for new services in areas such as literacy, domestic violence, immigrant needs, homelessness, arose. As with other sectors, these different “markets” were fragmented and specialized. Communities don’t have just one seniors home; there are multiple choices serving different needs.

HOW IS THE SECTOR SUFFERING IN THIS ECONOMIC CRISIS

The non-profit sector is substantial, but has been suffering for a few years under the strain of chronic underfunding.

The fear of this economic crisis is that we have hit a perfect storm, and increasingly organizations are asking whether they can survive. Different parts of the country are experiencing it differently, but the anecdotal evidence from certain areas, Alberta and Ontario among them, is that the downturn is hitting the sector very hard.

Demand for services is on the rise

There is evidence from many areas of the country that the economic downturn has had a significant impact on things such as domestic violence, homelessness, alcohol abuse, and the like, resulting in an increasing the demand for services. For example, food banks in many parts of the country are reporting significant increases in demand (70% year over year in Edmonton).

Revenue is falling

Evidence is starting to mount that all forms of revenue generation are in steep decline.

Gifts of stock of public companies have been a major source of donations in recent years, but the dramatic decline in the stock market has reduced these gifts.

Endowments and community foundations have lost millions in the stock market over the last year, forcing many to cut or suspend grants for scholarships and bursaries for students or grants to community arts, sports and recreation, health, social service organizations or environmental groups.

Fundraising campaigns, special events, bingos, lotteries, charity galas and dinners generally are not drawing as much as they have in the past. Many corporations are cutting back on donation commitments. In BC, the government froze distribution of gambling revenue to charities and announced a $20 million funding cutback to arts groups. In Calgary, the United Way lowered its fundraising target, after missing last year’s goal.

In the US, research indicates that 52% of corporations and 47% of foundations will be reducing grants in 2009 (although announcing plans to contribute more in kind and encouraging employee volunteering).

Volunteering may be falling, or increasing

Volunteering in the US is down.

Evidence in Canada is that volunteering is up, which has happened in the past in a recession as it is a credible way to gain skills, but the demand for volunteers is also up. Equally important, however, is that for many organizations there is a cost to volunteers, as it can often take up to 80 hours of work to screen and train volunteers. And not all of the work of non-profits can be done by volunteers. Those 2 million people working in the sector are often highly skilled professionals, whether it is in social work, or education of fundraising.

DOES IT MATTER TO US

There is evidence that some charities are questioning whether the can continue to operate. They simply cannot continue to provide effective services with inadequate funding. However, the issue is not so much whether any particular charity continues to operate, but who will provide the service if it is not operating, because the demand is real.

Communities could no longer survive without the voluntary sector, as we depend on it to deliver the social services that effectively have been off-loaded by governments.

Although the voluntary sector plays an integral role in our communities and in our economy, it largely operates invisibly. Non-profit organizations have neither found nor exercised their collective voice to lobby for the work they do, let alone carve out a role in policy-making.

Beyond the immediate crisis of falling revenues and increasing demand for services, the biggest challenge facing the voluntary sector is sustaining the people infrastructure by strengthening the social service workforce.

WHAT CAN BE DONE

There are a number of initiatives that could be undertaken to support the sector.

New Funding Models

A number of people have argued that the voluntary sector should be the target for government stimulus packages. Not only is the sector is a significant force in the economy, but all of the money invested in the sector goes right back into the economy. Imagine Canada presented a budget brief to government at the beginning of the year with a number of recommendations, including earmarking infrastructure spending to the sector (whether sports and recreation, culture, social service, etc.) and a time limited increase to 50% in the amount of the tax deduction for charitable gifts made in 2009 which represented an increase over that individual’s gift in the 2008 base year, to a maximum of an additional $15,000.

Others argue the not-for-profit sector needs tax measures that will stimulate charitable giving at the lower end, where people have not given in the past.

Governments and other large funders could be encouraged to streamline their requirements. In the US, as a result of a research paper “Drowning in Paperwork, Distracted from Purpose”, a large group of major funders got together to establish Project Streamline. They set some principles: funders should be clear about what they really need to know and not ask for things just because they can or they have in the past; information should be tailored to the size of the grant, there should be better, two-way communication.

Voice

The sector needs to find, and use, its collective voice. Imagine Canada is increasingly playing an important role here, and in the last couple of years has become extensively involved in research, public policy debate and policy formation.

In Alberta, Calgary and Edmonton have each formed a Chamber of Voluntary Organizations and are building support for the sector through human resources-training and research.