Nonprofits of all kinds provide critical help to communities across the United States, but it is the medium-sized ones that make a critical difference — those with at least 500 employees. Their workers operate food pantries, and homeless and domestic-violence shelters. They manage and staff residential facilities for young people with mental illnesses. They offer in-home and residential services for older Americans and people with disabilities. During the Covid-19 pandemic, their work is more urgent than ever.

Yet, even as many face challenges as daunting as their smaller counterparts, these organizations are not receiving the government support they need to survive. The federal Paycheck Protection Program excludes nonprofits with more that 500 employees from obtaining the forgivable loans that would allow them to retain and compensate their employees and continue to deliver essential services during this public-health crisis.

At a time when many nonprofits are at a breaking point, we can’t afford to leave those with more than 500 employees out of support programs that are keeping smaller organizations afloat.

A new analysis of New York City’s larger nonprofits found that under normal circumstances, most have just two weeks of cash on hand. Without immediate assistance, the report projects that some won’t survive through May and that few, if any, will be in a position to continue services during the Covid-19 crisis and its aftermath. Most of these organizations lack meaningful endowments and have limited access to credit. Their operating margins are razor thin (an average of 1 percent), even before taking into account the reduction in revenue and increase in expenses associated with the pandemic. Most importantly, their philanthropy, which covers less than 5 percent of expenses, cannot make up for a reduction in funding and contracts during the health crisis.

This situation is not unique to New York. A 2018 report on the financial stability of community-based human-services organizations found that 40 percent of the larger nonprofits had less than one month of cash reserves. Those providing housing and shelter-related services faced significantly greater financial stress.

Full Costs Rarely Covered 

The challenges confronting these nonprofits are not the result of inefficiency or poor management. Most government funding and philanthropy traditionally does not cover the full cost of providing services. Government contracts for essential services also create cash-flow problems since, unlike with grants, payments are not made until after the work is completed and can be subject to long and unpredictable delays. Cash, as a consequence, is an ongoing issue. But unlike large for-profits, these organizations do not have access to capital markets, cannot easily unlock illiquid assets, and are unable to use bankruptcy to restructure while continuing to deliver services. Any increase in costs, reduction in revenue, or delay in cash receipts could put some of them permanently over the edge.

Consider the problems currently facing Woods Services, a Pennsylvania health-management and advocacy nonprofit that serves 18,000 children and adults with intellectual and developmental disabilities, and medical and behavioral health challenges. To date, the organization has spent close to $2 million on personal protective equipment, antibodies tests, and cleaning supplies. Woods Services also offers hazard pay to staff members who have volunteered to provide live-in care for residents. By July, it expects to have spent $10 million in pandemic expenses, none of which is reimbursable.

Similar shortfalls plague Children’s Home Society of Florida, which provides services to nearly 60,000 children and family members through foster care, child welfare, and other support programs. With a work force of more than1,600 case managers, therapists, and home visitors, it is ineligible for the Paycheck Protection Program. However, it has remained 100 percent operational by shifting home visiting and mental-health services to telehealth visits. Despite an ongoing commitment to the families it serves, Children’s Home Society faces nearly $1.6 million in revenue shortfalls as a result of canceled fundraising events, additional costs for disinfecting shelters, and providing hazard pay for staff who must interact with children who have Covid-19 symptoms or were exposed to the virus.

Congress Needs to Act 

The Cares Act, which established the Paycheck Protection Program, does include larger nonprofits in the economic stabilization funding (now known as the Main Street Program), but fails to provide guidance or loan forgiveness for these organizations. (The Chronicle of Higher Education, the organization that publishes the Chronicle of Philanthropy, has received a loan under the Paycheck Protection Program.)

Nonprofits with more than 500 employees must be able to access capital and receive the same loan forgiveness as smaller nonprofits. This will require changes from Congress in the next stimulus bill. It is unclear whether nonprofits will be competing for the same funds out of the Federal Reserve as corporations under the Main Street Program. For this reason, nonprofits will need a dedicated pool of funds so they are not placed in line behind for-profits to access vital dollars.

A new bill, scheduled to be introduced this week by Rep. Joyce Beatty, an Ohio Democrat, titled the Help Charities Protect Communities Act, would provide some relief by introducing a lending program that includes loan forgiveness for nonprofit organizations with 500 or more employees.

A coalition of more than 200 national nonprofits have outlined these and other priorities in an appeal to lawmakers to recognize the impact and vital importance of larger nonprofit organizations that are continuing to provide for their communities over the course of this pandemic. The Cares Act was an important first step, but we must do more during this unprecedented crisis to sustain the organizations that do so much for the health, well-being, and safety of America’s families.

Susan N. Dreyfus is CEO of the Alliance for Strong Families and Communities, and John MacIntosh is managing partner of SeaChange, an organization that helps nonprofits facing complex financial challenges. He most recently wrote “8 Steps Nonprofits Should Take Now to Survive the Pandemic Fallout,” with David La Piana