Nonprofits have been crushed by inflation over the last two years and the gains of the budget increase from the last biennium have almost completely been swept away.

While every American has experienced inflation, nonprofits have been hit particularly hard, as the major cost centers that drive nonprofit budgets are the same as the areas of the economy that have accounted for the bulk of inflation. The most significant factor in inflation is wage growth, particularly in the healthcare sector.

According to a 2023 survey of Alliance members, 32% of nonprofits reported that their expenses rose by 10-20% in the last five years. Thirty percent of nonprofits reported that their expenses rose by 20-30% and 22.5% of nonprofits reported that their expenses rose by 30-40%. Not one nonprofit reported their expenses decreasing.

Seventy three percent of nonprofits identified being unable to offer competitive salaries as being the biggest barrier to recruiting staff. The second most reported challenge of offering competitive wages that attract staff to nonprofits over other industries and service areas.

In the Alliance’s 2023 survey, 88% of nonprofits report demand for services have increased over the past three years. Over the course of the past 5 years, 36% of those nonprofits reported that their demand for service has increased by 25-49% and 15% reported demand has increased by more than 50%. This has led to over 58% of respondents having a waitlist for essential programs that include intensive in-home treatment for children, residential, employment and day support services for adults with Intellectual/Developmental Disabilities, case management and supportive housing for people experiencing homelessness, work release programs, and more. The time people spend on these waitlists can vary with one provider noting that, “Waiting times range wildly from 3 months to 7 years.”

One provider noted last year that, “Demand has increased for the intensity and frequency of service. We have a three-week waiting list for an assessment and another week for new clients to be seen by a clinician – much longer for Spanish speaking clients as we are at capacity. Youth requiring medication must be referred out as we don’t have any providers that prescribe to children…Our agency refrains from marketing our services because we know we are unable to meet the current demand.”

This leaves some of the state’s most vulnerable children, families, seniors, and people with disabilities without support, destabilizing the state’s health and human services system. When the safety net fails, people may wind up in more expensive care, such as emergency rooms, nursing homes, or even the prison system.

Community nonprofits are facing an unprecedented workforce shortage and cannot attract or retain staff. This affects nonprofits’ ability to retain and attract staff at all salary levels. Clinical staff that have advanced degrees are moving to private practice, state or municipal employment, or other more competitive industries, where they will be paid higher salaries for the same or less difficult work. Further, community nonprofits are in competition with employers across the retail industry like Amazon and Target for positions that do not require advanced degrees. These companies can afford to recruit staff with similar experience and education by dramatically increasing their starting wages.

Nonprofits simply cannot compete.

The minimum wage has increased at a more rapid pace than nonprofit funding. The minimum wage has increased by more than 55% since 2019, while nonprofit funding has only increased 13%. In addition, each year moving forward the minimum wage increases by a rate of inflation, but nonprofit funding does not.

According to the 2023 survey, the average vacancy rate among nonprofits was 15%, which is up from 9% in 2019. Ninety five percent of nonprofits found it difficult to recruit employees this past year, with the majority of that number identifying it as ‘very difficult’ in 2019. Seventy three percent of nonprofits identified being unable to offer competitive salaries as being the biggest barrier to recruiting staff. The second highest challenge is competition from other industries and service areas.

One organization said: “Staff are overburdened, feel they cannot take time off, and tend to feel like they are constantly putting out fires versus moving their work forward,” and another adds, “We have senior leadership picking up double shifts doing direct care in the group homes at times due to the staffing shortage. Last fiscal year, temporary staffing costs exceeding our budgeted line item by over $300,000. We have lost long time employees from the stress and burnout including one 14-year Director, a degreed professional, who left the field entirely to take an office job in manufacturing.”

Staffing shortages also impact the people nonprofits serve. As one provider recalls, “I spoke with a client who’s been with the organization for more than 20 years. He lamented about how he’s had four different prescribers in the last two years. He told me about how difficult it is to retell his story over and over again, and relive his painful past, but that’s the only way a new prescriber can get to know him and best understand his needs and his goals. He said staffing changes have increased his symptoms and his anxiety, he’s requiring more time with our staff because of it, and he’s terrified his clinician and case manager will leave, and it’s keeping him up at night.”