It has been three years since the world went into lockdown as a result of the coronavirus pandemic, and nonprofit organizations are facing new challenges and crafting new responses.

• The nonprofit sector, like most other industry segments, has embraced remote work.
• Video conference calls with co-workers and clients, once the exception, are now commonplace because of office closures and the shuttering of direct service centers during the pandemic.
• In 2022, Americans gave an astounding $499 billion to charity with individuals contributing $319 billion while foundations gave an estimated $105 billion.
• But, perhaps the most significant change to nonprofit operations during the crisis was the willingness of foundations to provide general operating support and unrestricted funding. In 2022, 8% of dollars were awarded as general operating support, but the figure doubled to 16% after the pandemic crippled the normal operating modalities of most nonprofits.

The Pandemic “Starvation Cycle”

Delivering nonprofit services began to face new challenges when potential exposure to COVID-19 led to facemask requirements for many public and private functions, social distancing practices in organizations that were able to remain open, and the very real fear of contracting a potentially fatal disease from those people nonprofits were trying to help. The pandemic worsened a preexisting crisis of well-being in the social sector. People were exhausted, suffering from low morale and overworked prior to COVID, and it has only gotten worse since the pandemic began.

• According to the Urban Institute, burnout from an array of factors including overwhelming demand for services, insufficient staffing, and inadequate compensation is causing nonprofit workers to leave the sector, which is resulting in staffing shortages and service cuts.
• People are increasingly rejecting the narrative that workers in the sector are supposed to ‘bleed for the cause.’
• They’re looking for better wages, benefits, advancement opportunities, and diverse and equitable workplaces, and sometimes turning to unions as vehicles to get those things.”
• A recent study by Forbes found that 45% of nonprofit employees plan to seek new employment in the next 3 years. Of those, 49% stated they plan to seek new employment because their nonprofit does not pay them well enough. It is challenging to recruit qualified candidates when a nonprofit can’t afford equitable salaries or health benefits for its staff. This leads to high rates of burnout and turnover.
• From 2019 to 2020, nonprofits lost an average of 7% of their part-time staff and 33% of their volunteers.

How to Address the So-Called “Starvation Cycle”

Indirect costs are critical to a nonprofit’s infrastructure and directly impact an organization’s ability to operate well. Since so many contributions are restricted, it is quite possible that an organization would find itself in a situation where they have plenty of financial support for their programs but no funds to pay their staff or rent. If we’ve learned anything from the COVID-19 pandemic, it’s that the world is unpredictable—and nonprofits often need unrestricted funds to be able to respond to the constantly changing environment in their communities.

Restricted vs. Unrestricted Donations

The $499 billion that nonprofits received in 2022 were largely restricted funds. A nonprofit receives two main types of funds from its donors: restricted and unrestricted. Restricted funds are designated for a specific purpose by the donor, which cannot be changed. These funds are more common—most grants and corporate donations will be restricted to specific purposes or programs.

Unrestricted funds can be used for whatever purpose the nonprofit deems necessary, including indirect or overhead costs. Unrestricted funds are much less common than restricted gifts, but the benefits are limitless. Unrestricted gifts support longevity, effectiveness, and even staff retention.

Where Do We Stand?

The willingness of foundations to increase flexible funding during the pandemic has emboldened nonprofit leaders to have more forthright conversations with funders about increasing unrestricted giving.

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