May 2020 – Editorial

by Harald Breiding-Buss

The Rainy Day has Arrived!

The outlook for community funding for the next few years is not good.

Because of the lockdown closures of venues that operate gaming machines, there will be at least 80m in community funding less from these sources in 2020 alone – some estimates are as high as $120m. Investment returns have not only plummeted, but are negative, meaning the investment assets used to generate income from for some large funders (such as Rata Foundation or Foundation North) and a myriad of smaller charitable funders are reduced, and distributions will have to be reduced accordingly in future years, even if contingency funds are used now.

The outlook is not good for private donations, business sponsorships and similar sources either. A larger share of private donations can be expected to go overseas, as international charities will ramp up aid efforts in poorer countries, who are yet to be hit fully by the pandemic. Those staying in New Zealand will increasingly have to go to direct poverty relief such as food banks. At the same time, pay packets will be smaller, unemployment higher, and there will simply be less money around from private sources.

Less funding dollars available means more competition for those dollars. However, the need for those dollars is not equal.

Many community groups are operating on extremely tight budgets with very little, if any reserves. For these groups, any reduction in funding may mean reducing services – or even having to wind down. The volatility of funding has meant that those groups, who could have built at least moderate reserves to protect themselves at least somewhat from unexpected funding shortfalls, have better chances of survival. Yet others, however, have built ample reserves. Many groups have had a bit of a windfall from insurance payouts after the Christchurch earthquakes, for example, which has then partly been used to buy investments or investment property. Some charities have structured their operations in a way that those assets are ‘protected’ – i.e. they are vested in a different trust usually with the purpose of managing them as a growing investment.

Nobody likes dipping into reserves, and seeing their overall financial position being eroded. However, charities and other not-for-profits are not meant to accumulate wealth. They are meant to apply their resources to their purposes. If these investments are meant to protect from future adversity, this adversity has arrived.

The health of the not-for-profit sector in times of this unprecedented funding shortfall will depend a lot on whether the wealthier groups show solidarity by applying those reserves, instead of joining the fray to fill the budget holes with higher or more grant applications, or using their networks to get first dibs on funds.  New Zealand charities hold $40 billion in assets, and most of them are held by only 15% of organisations. Almost half of those assets are in property. While this figure includes about $2-3b held in assets by funders, who use the investment returns for ongoing community funding, the balance remains a staggering amount of wealth held by a relatively small group of charities. Investing only 1% of those assets back into the community would more than make up for any funding shortfall we can expect from the current crisis.

I would hope that managers and committees in community organisations will look at their balance sheets in these times, and assess whether they can use some of their reserves and accept deficits in 2020 and 2021 without frantically trying to protect their financial position and outcompete other groups. And likewise I would hope that funders will look hard at those balance sheets, too, and assess who can do with a little less, and who can’t.

In other words, I would hope that we really get though this together in deed, not just in word.