Nonprofit Child and Youth Service Providers Showed Signs of Fiscal Stress before 9/11

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Community-based nonprofits play important and tangible roles in the lives of children and youth in the United States. They provide a host of vital services, such as tutoring and mentoring programs, youth development initiatives, and emergency services that help children in low-income families fulfill basic needs. But many child and youth nonprofits currently face difficult challenges. From elevated community needs that impact demand for services to state and local budget shortfalls that jeopardize funding flows, local community-based providers confront tough choices about how to maintain service levels (Atkins et al. 2004).

Many of the current issues confronting child and youth nonprofits, and the nonprofit sector more broadly, can be traced to the economic downturn, policy shifts, and the increase in public reticence toward charities that followed the terrorist attacks on the Pentagon and World Trade Center on September 11, 2001. The economic slowdown in the country, in part, caused state budget deficits to soar to $40 billion in fiscal year 2002 (National Governors Association and National Association of State Budget Officers 2002). In response, states cut deeply into social programs in which child and youth nonprofits are heavily involved, including child welfare services, teen pregnancy programs, low-income assistance, and child care (Children's Defense Fund 2002; Johnson 2002). On the policy front, government priorities shifted from domestic issues to homeland security and the war on terrorism. In philanthropic circles, well-publicized scandals at a few prominent charities increased public distrust of nonprofits, straining the capacity and fundraising ability of some providers. Taken together, the events that followed the terrorist attacks in 2001 produced new environmental stressors for community-based nonprofits.

Strong fiscal health can help nonprofits overcome—or at least weather—uncertain environments (see De Vita and Twombly 2003). For example, a nonprofit with a cash surplus can offset, at least temporarily, the loss of a grant or a decline in charitable donations. In contrast, nonprofits in poor financial standing are particularly vulnerable to environmental shocks that threaten to force them out of business (see Tuckman and Chang 1991). In the end, the survival of community-based nonprofits depends in part on their financial status prior to the introduction of environmental stressors, such as those that followed the events of 9/11.

Little is known, however, about the financial position of community-based nonprofits of child and youth services before 9/11. This brief addresses this issue by assessing the financial health of child and youth service nonprofits at the end of 2000 and, for a panel of child and youth serving nonprofits, examining how their fiscal well-being changed from 1998 to 2000. The brief describes the extent to which they were financially ready to absorb the environmental stressors that followed the events of 9/11.

The brief focuses on locally oriented nonprofits that directly serve children and youth in the Washington, D.C., metro area. Children and youth are defined in the study as those age 0 to 17. The brief divides the nonprofit child and youth field into three types of providers: education, youth development and recreation, and social welfare. A detailed description of this typology is provided in box 1. The brief uses a newly developed dataset that contains financial and organizational information on nonprofits in the D.C. region that filed Form 990 with the Internal Revenue Service in 2000. Because not all nonprofits file with the IRS, supplemental information was obtained from several foundations in the D.C. area and added to the dataset. The final dataset includes 1,114 local nonprofits that serve children and youth in the D.C. region. Of these organizations, 882 nonprofits (80 percent) include financial data in 2000. The 631 groups that supplied financial information in both 1998 and 2000 constitute the panel set in this analysis.

Note: This report is available in its entirety in the Portable Document Format (PDF).

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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