The voices of Urban Institute's researchers and staff
May 13, 2011

The Frayed Safety Net: Strained State and Nonprofit Budgets

May 13, 2011

A friend recently emailed me asking for help. She had lost her job and, despite her vast professional experience, has been having a hard time finding work and now stands to lose her home. Unfortunately, her situation is far from unique.

The economy may officially be on the mend, but millions of Americans remain unemployed. The latest report from the Bureau of Labor Statistics pegs the unemployment rate at 9 percent. This rate is higher for teenagers (24.9 percent), African Americans (16.1 percent), and Latinos (11.8 percent).

Unemployed individuals and their families rely on the social safety net held together by governments and nonprofits during hard times. Governments enlist human service organizations to provide employment, housing, food and other essential programs that keep people afloat.

But state governments are facing budget gaps that result in less funding for nonprofits.  For fiscal year 2012, which begins July 1 in most states, 44 states and the District of Columbia project shortfalls amounting to $112 billion. For FY 2013, 26 states are already projecting deficits totaling $75 billion. This bleak outlook is worsened by the fact that nonprofits have already been struggling with government contracting glitches and payment problems and making do with declining revenues.

It is particularly dire for nonprofits in states with the largest budget shortfalls in the nation. In Arizona, government contracting is widespread, with human service nonprofits averaging six contracts each.  In Illinois, nine out of ten nonprofits have contracts with the state, which has been late in paying its subcontractors. Four in ten nonprofits in Maine, New Jersey and Nevada are in the throes of budget deficits.

Nonprofits’ predicament doesn’t auger well for my friend and the millions of others who are out of work. The safety net they need now more than ever is frayed and there’s no recovery in sight.

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