A volatile operating environment

Nonprofits are facing longer-term challenges as a result of ripple effects

In the face of domino effects as a result of budget cuts, we asked nonprofits how they are preparing for the changes. What actions are they considering in light of possible long-term impacts of the 2019 budget and related policy changes?

We asked nonprofits about their operating reserves. For most nonprofits – depending on their size – an operating reserve (or cash reserve) indicates they can deal with cash shortfalls or unforeseen expenses, and are able to respond to unexpected opportunities, as well as to help repair or replace fixed assets.

ONN’s survey found that almost 50 per cent of nonprofit organizations did not have the bare minimum of three months’ reserve funds – a necessity in a climate where funding can be volatile and government payments often arrive late even when agreements are signed.

This suggests that it could be challenging for nonprofits to sustain themselves during a period of intensive change stemming from the provincial budget. Even with reserves available, organizations face difficult decisions about how they invest their resources.

operating reserves 2019

We also asked respondents whether they thought their organization would incur any costs or liabilities as a result of program or provincial budget changes (for instance, severance pay, program wind-down costs, and self-funded client services).

Twenty-three per cent of nonprofits anticipate having to pay costs out of pocket as a result of Ontario Budget 2019 and related policy decisions. A further 38 per cent said they do not yet know whether they will incur such costs.

costs of program changes 2019
outstanding liabilities 2019

These unanticipated or as-yet-unknown costs, combined with nonprofits’ limited amount of reserves, reflect how many in the sector cannot predict or do not have the information needed to plan ahead.

In a typical transfer payment agreement, severance pay, for example, is not included, even though nonprofits are legally obligated to pay severance for layoffs. This survey demonstrates that nonprofits do not yet know how their bottom lines will be impacted nor how that will manifest in terms of staff or severance pay, the impact on their reserves, as well as delivering services to communities.

effects of changes on staffing 2019

When asked if nonprofits had been affected indirectly by the provincial budget, the majority (57 per cent) of respondents said yes.

The cumulative impact of Ontario Budget 2019 is that not just one subsector is impacted by a cut here or there. Given the nature of nonprofits and the diversity of services they provide, a budget cut in one area could have an impact elsewhere.

Despite the challenges of the 2019 provincial budget and limited (and uncertain) reserves, nonprofits are considering how to deal with the challenges as they begin to feel the effects.

We provided respondents with a list of options to consider. From this list, the five options that nonprofits were most likely to choose were: 1) downsizing staff; 2) ending programs; 3) Fee-for-service; 4) growing/expanding programs; 5) increasing fees.

Some nonprofits are considering other avenues. Of the respondents that chose “other” options, about half are considering social enterprise or co-op models. Some nonprofits will increase fundraising or pursue sponsorships, while others are focusing on securing funding from different levels of government.

organizational responses 2019