Non-Profit Organizations Economic Outlook 2006 December 2, 2005

1. Non-Profit OrganizationsEconomic Outlook 2006December 2, 2005 Robert Eyler, Ph.D. Department of Economics Sonoma State University eyler@sonoma.edu

2. Introduction Nonprofits should think like for-profits Compete for the same resources (labor, buildings, office supplies) Depend on revenue generation from economy Need to have revenue greater than expenses to survive Need to keep 501c(3) status, of course Susceptible to economic cycles and lags Like any other business Somewhat dependent on wealth accumulation Lag behind other parts of the economy

3. General Challenges Non-Profits face similar economic challenges Donations/Endowments Search Two-sided challenge: income versus wealth Need good development personnel Need local philanthropists willing to give regularly and/or big Staff Turnover The private sector�s growth acts as a natural lure. Staff must derive benefit from being in organization. Management must reinforce that benefit.

4. Challenges (cont.) Net Income Anomalies Donations shocks, cyclic or episodic The natural disaster conundrum (Katrina) Changing services When new need identified, have both costs and revenues Competition Many local nonprofits (800? 1000?) Fighting for the same dollars Competition beyond county borders

5. Opportunities The economics of nonprofits focus on finding opportunities Must identify challenges and turn them into opportunities Must be creative in using current and finding new resources Budgets must be maintained and analyzed, especially in soft economic times Market major needs Cannot assume citizens and firms will pick your organization specifically

6. The Economic Outlook Economic Cycles lead nonprofits Currently in a strange economic cycle Incomes slow moving, productivity strong. Gas prices rising, then falling Local housing market softer, still relatively high Especially for wages offered by most non-profits Should non-profits care about economic cycles? They affect budget and reality. Can also help target certain firms, individuals and industries.

7. Outlook (cont.) Outlook for nonprofit revolves around expected revenue Will revenue increase in the coming year? 2006 looks like another tough year for non-profits. Federal and State deficits still exist Higher interest rates mean higher rates of return on endowments. Local economic growth unlikely without national trend upward Most costs are predictable. Gas prices are both a cost to workers and the organization. Higher interest rates also mean higher credit costs.

8. Outlook (cont.) National economy looks to be headed in right direction Gas prices have fallen from episodic surge Still relatively high Will remain there for some time Has effect on labor decision to work and stay at nonprofit Interest rate increases look to continue May hurt line of credit costs for seasonal low points in donations This also depends on endowments Should, at least, be looked at in the budgets of non-profits Economic Growth in place Local employment somewhat up, non-profit employment is up.