Nonprofits Still Seen Struggling Long After Recession

The Jewish Week. (Dec 31, 2014.)

One billion dollars lost.

With the U.S. economy digging itself out of a deep hole, the $1 billion figure represents the collective revenue loss to Jewish nonprofits from 2007, the start of the Great Recession, to 2012, according to a new study.

That’s an 11 percent drop in money that could have gone to care for the Jewish elderly in nursing homes, combat anti-Israel activity on college campuses, seed Jewish startups, curate cultural programs and help parents of day school students facing rising tuitions.

The wallop taken by the Jewish nonprofit economy — one that has reached into every corner of the Jewish community — was worse than the one absorbed by American nonprofits overall during the Great Recession and its aftermath, the study suggests. And the economic hit to the Jewish community was far worse than that to the American economy as a whole.

“We might try to forget the fiscal trauma,” said business strategist and report co-author Mark Pearlman, “but the full force of this economic crisis still affects the American Jewish community every day. We have not yet fully recovered from the economic fallout.”

The figures about the community’s financial health are part of an in-depth analysis, a collaborative effort of Pearlman and Yale management professor Edieal Pinker supported by The Jewish Week Investigative Journalism Fund.

The compilation of “The Jewish GDP” (Gross Domestic Product) is an update of an earlier study by Pearlman, published in The Jewish Week in 2009. The project aims to track the financial health of the Jewish nonprofit sector over time, and to foster productive discussions about transparency, efficiency and accountability.

“It’s important to assess the basic economics of the Jewish community on a regular basis,” Pearlman said. “The Jewish GDP Project can help organize and frame an intelligent/informed discussion on our community’s finances and performance.”

Pearlman and Pinker analyzed financial data from the years 2007 and 2012 (the latest data available at the time of the analysis), from Jewish nonprofit organizations, using the GuideStar database of public financial disclosure forms that nonprofit organizations are legally required to file. (Organizations with exclusively religious missions, such as churches and synagogues, are exempt from this requirement, a point to which we will return.) The total revenue that all those Jewish organizations collected is “The Jewish GDP.”

They focused on revenues rather than expenditures, Pinker noted, because “the revenues better reflected the amount of money going in to the Jewish community, the resources available to the institutions in a particular year.”

Pearlman and Pinker split the revenue total into two separate numbers — one for “service providers” (that’s most Jewish organizations) and one for “financial intermediaries” (Jewish foundations and federations) — in order to avoid double-counting any dollars that were first raised by the foundations and federations and then given out as grants to the service providers, thus counting toward the total revenues of both.

The results show an American Jewish communal sector still struggling to recover from the recession, three years after the downturn officially ended. The Jewish GDP for service providers dropped by over $1 billion, a setback in income equivalent to losing more than one dollar in every 10. As for financial intermediaries — the Jewish federations and foundations that fund so much of the work performed by the Jewish service providers — revenues fell by a larger amount and in larger proportion: a $1.29 billion difference equal to almost one-third of 2007 revenues. (For clarity all dollar amounts are adjusted for inflation and expressed in 2012 dollars.)

That drop in Jewish GDP between 2007 and 2012 represents missing social services that might have helped people in need, missing cultural and educational programs that might have enriched lives, and missing endowment income that might have grown the capacity of American Jewish organizations to sustain their work in the future.

The broader economic context does not paint an encouraging picture of how the Jewish nonprofit sector weathered the Great Recession and the first years of the subsequent recovery. The overall American economy (as measured by GDP) stopped declining in June 2009, and by December 2012 it was 3 percent higher than it had been in December 2007. Revenues for American nonprofits still hadn’t recovered by that time; according to Giving USA Foundation, charitable revenues in 2012 were 8 percent lower than they had been five years before.

But those overall nonprofit revenues were still in better shape than Jewish service provider revenues, which remained 11 percent lower than their pre-recession levels. Investors were also still playing catch-up in 2012; the S&P 500 index, a broad-based measure of stock prices, was 1.5 percent lower than its 2007 value (adjusted for dividends and splits). Revenues for the big institutional investors in Jewish communal life — that is, Jewish federations and foundations — lagged far behind, proportionally, with revenues still almost one-third lower than their 2007 levels, even after three years of economic recovery.

Biggest Hits

Which Jewish organizations took the biggest hit?

To find out, Pearlman and Pinker separated Jewish organizations that operate primarily in the U.S. into six categories, by mission: Advocacy, Art/Culture, Communal (JCCs, Camps, etc.), Education, Religious and Social Welfare. They found that Communal, Social Welfare, and Education organizations suffered modestly in proportion to their share of the total Jewish GDP, with drops in revenue of less than 5 percent.

Religiously oriented organizations didn’t seem to suffer at all, collecting 3 percent more in 2012 than they had in 2007, but since this category is exempt from legal disclosure requirements, this category’s numbers are less reliable than others.

Advocacy organization revenues fell by one-fifth, and Art/Culture organization revenues dropped by more than one-third.

Damaging as those large-percentage drops in revenue must have been for American Jewish advocacy, arts, and cultural organizations, the setbacks were only large as percentages of relatively low amounts to begin with; those categories account for less than 14 percent of the billion-dollar drop in Jewish GDP from 2012 to 2007. Indeed, drops in revenue for all U.S.-focused organizations, of all mission categories, accounted for less than one-third of that gap.

The more severe blow fell on American Jewish organizations whose programs operate primarily in Israel and other foreign countries. (“American Friends of” various Israeli organizations are a primary example.) Revenues for those organizations dropped by nearly $700 million between 2007 and 2012. The difference is even starker considering that the harder-hit foreign category receives a much smaller share of the total Jewish GDP than domestically oriented organizations do. The $326 million shortfall for U.S.-focused organizations in 2012 amounts to just a 5 percent drop from their 2007 levels, while the $700 million gap for foreign-focused organizations amounts to a 28 percent drop.

Like the actual GDP for which it is named, The Jewish GDP as a measure of the sector’s financial health is subject to real limitations. Pearlman and Pinker are the first to acknowledge the problems, the most important of which is the lack of truly comprehensive financial data for the Jewish nonprofit world. Since there is no central, official list of American Jewish organizations, there is no way to be sure that every Jewish institution is included in the analysis.

More importantly, since synagogues and other organizations with primarily religious missions are exempt from the legal requirement to file IRS Form 990 (the nonprofit financial public disclosure form that was the source of Pearlman and Pinker’s data), the current Jewish GDP numbers fail to reflect synagogues altogether.

And not only synagogues fall through the cracks; some in other Jewish organizational categories are internally divided about whether to take the religious exemption. Many Jewish camps and day schools, for example, claim a primarily religious mission and decline to disclose their basic financial data, even as many other Jewish camps and day schools do file Form 990, defining themselves as primarily educational.

These data gaps don’t invalidate the Jewish GDP as a useful tool for tracking the sector over time, but they do make certain kinds of analysis more appropriate than others. “Without being confident that we have equally exhaustive data from all the different mission categories of service providers, we can’t make definitive statements about how money is allocated across those categories,” Pinker said. “On the other hand, analyses over time, and within each category, are more likely to be valid.”

Other limitations arise from the complicated structure of the Jewish communal economy itself. Some communal leaders feel that tabulating grand totals of Jewish communal revenue is inherently misleading because these totals include not only private donations and grants that fund specifically Jewish programs, but also government revenues that fund nonsectarian human service programs which happen to be operated by Jewish organizations. These are “really public utilities,” said one prominent leader, “and to lump them all together with others that rely substantially on Jewish philanthropic dollars is substantially misleading.”

Pearlman and Pinker clarify that government revenues are indeed included in The Jewish GDP total revenue figures. But these funds, too, affect the financial health of the Jewish nonprofit sector, even when they fund nonsectarian programs. “Shifts in the Jewish communal economy pivot to the individuals and ultimately to management,” said Pinker.

“If federations reduce their support to service providers because of poor stock market returns, then individuals must pick up the slack in higher fees or contributions. If contributions are shifting from financial intermediaries to direct contributions, it reflects a change of individual giving behavior. If there is still a shortfall, then management needs to make appropriate decisions on service priorities and funding.” Government funds likewise affect the choices donors and managers must make, Pearlman and Pinker maintain, and so they should be included in a complete reckoning of the Jewish communal economy.

Pearlman and Pinker’s ongoing analysis also addresses the daunting complexity of the Jewish communal economy by covering territory broader than just the initial findings discussed in this article, which focus on changes in total revenues.

In the coming months, The Jewish Week will present more of their findings from Jewish economic data in the years 2007 and 2012: Pearlman and Pinker have also examined the field’s net assets over time (a measure of overall financial resources, rather than just income); the important role of federations and their efficiency in fundraising; and trends taking shape in the economy of Jewish education.

Despite inevitable challenges and imperfections, Pearlman hopes that his efforts with Pinker to measure and track The Jewish GDP can galvanize the Jewish community to find new ways of comprehensively collecting basic financial data from Jewish organizations voluntarily, regardless of the legal disclosure loophole for religious organizations.

“We deserve a more transparent marketplace,” Pearlman said. “The community needs to better collect and organize critical, baseline information on the financials, best practices, strategies and performance of our Jewish nonprofit organizations. For religious organizations, once you set aside separation of church and state, there seems to be no compelling rationale to perpetuate a veil of secrecy.”

For now, The Jewish GDP project remains in its early stages. Its future success will depend on how many funder organizations, individual philanthropists and Jewish thought leaders will take up the banner of financial disclosure, and how persistently they will make the issue a requirement, and central item on the Jewish communal agenda.