Money & Business

Government Shutdown: What It Means for Nonprofits

By / Sep 30, 2013 (iStock/Thinkstock)

From determining how to pay staff to facing increased demand for their services, nonprofits that rely on government funding are going to feel the effects of the federal shutdown no matter how long it lasts.

As of late afternoon September 30, it appears there will be no eleventh-hour deal to delay a government shutdown this time.

When the clock strikes midnight, much of the federal government is expected to shut its doors, and the impact on the economy is likely to be immediate. The most conservative estimates from the first government shutdown in 1981 put the cost of a the work stoppage at $8.2 million per day, or almost $21 million in today’s dollars. In Washington, DC, an estimated $200 million per day will be lost, and 700,000 jobs will be affected.

So what does this mean for nonprofits—in particular, charitable groups that rely on government contracts and funding?

As employers, nonprofits would need to determine whether or not they can afford to pay their employees and how they are going to do that.

“Nonprofits are in this environment where the shutdown is the new norm,” said Diana Léon-Taylor, president and CEO of the Nonprofit Roundtable of Greater Washington. “Every day there’s a threat for a shutdown and budgets are always being cut, so nonprofits are now having to think about how to leverage resources in different functional areas and across multiple sectors.”

Staff Takes a Hit

One of the immediate areas that will see the effects of the shutdown is staffing. With delayed payments from the government affecting cash flow, nonprofits will be forced to make decisions that could result in layoffs or furloughs. A blog post on the Roundtable’s website offers advice on such actions from a legal perspective.

“As employers, nonprofits would need to determine whether or not they can afford to pay their employees and how they are going to do that,” said Léon-Taylor. “They would need to review their employment contracts and look at any laws that apply—particularly the Fair Labor Standards Act—and make sure they aren’t doing anything that would interfere with the status of those who are exempt versus nonexempt employees. Understanding the terminology, where to find the resources, and how to prepare for the impact of the shutdown will be critical.”

Demand for Services Grows

When government stops, payments aren’t delayed only to nonprofits. Programs that provide food stamps, housing vouchers, and veterans services will also grind to a halt, which creates a vicious cycle for nonprofits, said Léon-Taylor.

“When the funding gets cut for food stamps, people still need to eat, so they’re running to the food banks, they’re running to any nonprofit that distributes food or resources,” she said. “At the same time, the nonprofits have not increased their supply—they can’t turn it around that quickly. It creates a disproportionate demand that becomes very challenging for nonprofits to serve.”

The impact goes beyond nonprofits as well, Léon-Taylor said.

“Statistics show that any community that has a strong nonprofit sector has a stronger economy,” she said. “The nonprofit sector serves as the glue that solves a lot of problems in a community. When things like government shutdowns are happening, it really has an exponential effect not just for the sector, but for the community at large.”

Rob Stott

Rob Stott is a contributing editor for Associations Now. More »

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