The new charity funding crisis

February 2024

Charities do not exclusively depend on donations, despite popular perceptions to the contrary. In Canada, government funding and earned revenue contribute more to registered charities than donations.  Both these types of low-key funding are under pressure, enough so that we will soon witness some large charities shrink or even collapse.

A recent CRA Charities Directorate report outlined the funding mix of Canadian registered charities. Now, it’s true that a high percentage of charities get most of their income from donations, but these organizations are typically small, volunteer-run, and local – and religious. Conversely, big charities are facing pressures that many have never experienced.  These organizations, which are the largest beneficiaries of government funding, are in sub-sectors like post-secondary education, healthcare, human services, international, and the arts.  Trouble is brewing, especially in the US.

USAID

The topic of government funding has come to the forefront south of the border due to recent Trump cuts.  In January, an executive order effectively shut down the United States Agency for International Development (USAID), cutting 10,000 jobs and freezing vital foreign aid around the world.  This cut leaves $500 million of food aid in limbo and is causing severe food shortages in refugee camps in Sudan and other vulnerable settings.  The New York Times reports that the cuts are especially hitting aid charities hard, particularly Christian charity groups, and many have Canadian affiliates.

According to the Times, World Vision, an evangelical development and humanitarian NGO, received 44% of its $1.5 billion annual budget from U.S. government.  The Canadian branch is one of the largest charities in Canada by revenue, and fully intertwined with program delivery with its US cousin.  Global Relief, a Lutheran charity, receives 95% of funding from the government.  And Catholic Relief Services rely on 64% of US funding from the US government.  While there was a perception that Christian organizations would be exempt from cuts, Trump nativist creed has little sympathy for non-Americans. Should these cuts go ahead, we may see international organizations under stress – both in US and in affiliate organizations around the world.

Canada’s NGOs

A quick look at Canadian international development organizations shows the dependence on government funding.  For example, Oxfam Canada reports that it received 59% of its revenue from government in 2023.  World Vision Canada received 15% and Plan International Canada 36%.  The United Nations system, which include Unicef and World Food Programme, is even more dependent on the government support.

International charities that are independent of government contributions are rare.  There are two major stand-outs.  Doctors without Borders/MSF, which is the world’s largest non-governmental medical NGO, receives approximately 1% of its global budget from governments and the rest from (mostly) small donors.  Samaritan’s Purse, an evangelical humanitarian organization, receives a mere 5% of funding from government in the US.  But these organizations are outliers.  Most NGOs don’t have such strong, deep donor support.

Higher Education

Post-secondary education is currently experiencing a funding crisis in Canada due to a combination of long-term government funding reductions and, more critically, a reduction in foreign students.  The Ontario Government predict a loss of up to $3.1 billion in lucrative foreign student fees over the next two year.

Most Ontario community colleges are cutting programs and laying off staff.  For example, last year, Sheridan College announced it was cutting 40 programs due to $112 million shortfall due to a 30% decline in enrollment.  In January 2024, Queen’s University reported a $48 million deficit, which was later pared to $36 million.  Queen’s Principal told the media that “there is no risk that Queen’s in any foreseeable future will close its doors.”  I should hope so, but the very fact that it needs to be said indicates we’re in a new epoch.

What does this mean for estate donors?

The challenge of the estate donor is time travel.  A charity named in a will created today may not be in existence tomorrow.  This has always been the case with small, volunteer-run charities, but increasingly it may be the case with large institutional charities with mixed revenue streams.  In the future, it will be even more important for estate donors and their advisors to monitor the health of charities.  And to ensure planning methods consider for the risk of charity failure. Stay tuned.