Charity Armageddon

Chicken Little thought the sky was falling. From the beginning of the pandemic last winter, the doomsayers predicted that the charitable sector would be hit especially hard. We’d see mass closures and bankruptcies. But when and how? Is COVID-19 an acorn or a harbinger of charity armageddon?

Early predictions
The dire predictions started last March. The charitable sector umbrella group Imagine Canada projected “that three months of mandated social distancing and the economic downturn associated with COVID-19 will cause charities to lose $9.5 billion and layoff more than 117,000 employees of which the vast majority would be women.”

Imagine observed that “physical distancing and the economic slowdown upon revenues derived from fundraising, inter-charity transfers and other earned income activities common to the sector.” In April, their research concluded that:
• Approximately 70 percent of organizations are reporting a decline in revenues.
• Nearly two-fifths of organizations have already laid off paid staff or reduced staff working hours.
• Another 25 percent of organizations are considering laying off staff or reducing staff working hours.

Imagine said there would be “thousands” of charity closures. It was just a matter of time. In the U.S. and the U.K. researchers predicted that one-third of charities would close their doors. Why would Canada escape this trend?

But then the sunny summer hit and COVID-19 didn’t seem so bad. Despite the lack of any meaningful Federal support programs targeted at registered charities, there were stories of charities adapting. Donors responded. Government programs kicked in. Programs went online. Digital fundraising exploded.

Winter relapse
With the winter relapse, however, it became clear that many organizations were stretched to the breaking point. Laurentian University, an Ontario public university located in Sudbury, announced in late January that it was going into creditor protection.

Ontario, the province with the lowest per capita provincial post-secondary education funding per student, had pushed universities to rely on foreign student tuition. Laurentian is not the University of Toronto, which now get twice as much of its revenue from foreign students as it does the province.

Earned revenue is fine if you’re a big brand. Less so if you’re a regional institution. Laurentian has struggled for years. As Ernest Hemingway famously observed in The Sun Also Rises, you go bankrupt “gradually then suddenly.” Slowly…and then all at once.

Canadian universities are generally much better off than other registered charities due to their scale and diversified funding. Some, like certain food banks and women shelters, have seen a bump in fundraising revenue. Among the hardest hit charities are health (disease and body part organizations, not hospitals), international development, environment, youth services, and the arts. Churches that serve an older population may be especially vulnerable. Many of these organizations don’t have reserves and rely on earned revenue, fundraising events and in person gatherings.

A recent article in The Globe and Mail about the state of the arts community in Calgary was especially sobering. Mike Grogan, President of consultant IntegralOrg, said “We haven’t hit the worst of it yet; we’re not done this yet in any sense.” He noted that charities “lag behind the rest of the economy when it comes to recovery, and that arts organizations have been particularly hard hit.”

Resources
Except in a few dramatic cases, it takes at least a year for a charity to fail. The bills add up, the revenue slows, and the volunteer board realizes the inevitable. A voluntary revocation with Canada Revenue Agency takes another three to six months. So…slowly…then all at once.

The Muttart Foundation, an Edmonton-based private foundation that focuses on the health of the charitable sector, recently published two free resources to help charities facing the end. (Disclosure: I am volunteer President of The Muttart Foundation.)

The first is a guide to the insolvency process for charities, which was prepared by the law firm Miller Thomson LLP. The second is It’s Time to Go, a workbook to help charities determine what to do with their charitable programs and resources at the time of dissolution. It was prepared with Carleton University’s Philanthropy and Nonprofit Leadership program. These are unique — and uniquely helpful — resources. Here’s hoping there is little demand.

Implications
COVID is hard enough, but the stress and uncertainty at charities is pronounced. There are countless stories of charities arising to occasion to fulfil their mission and deliver in the face of significant challenges.

I am concerned that this longer-term effect of this uncertainty will hurt charities for years to come. There will be burnout among volunteers and employees. With failures and layouts, charities, which depend on a dedicated and generally underpaid workforce, may have a hard time recruiting talent. Donors may pull back, worried about supporting struggling entities.

We face a future where already strong organizations become even stronger. And the many small and underfunded will be imperilled. There is already a lot of inequity in the charitable sector. This crisis will only make it worse. The result is concerning for causes and communities that are underserved.

Is the sky falling? Time will tell. There is, however, no question that the cloud layer is lower and the wind is picking up.