Can Minnesota's nonprofits rebound from the pandemic? Here's what they're facing now

Lauren Peck is one of the 10,815 employees who has left Minnesota's nonprofit sector since 2019 and hasn't returned.

When the 33-year-old New Brighton woman was laid off in 2020 after five years with the Minnesota Historical Society, she landed a job at a public relations agency. And while she's considered applying to nonprofits since then, she said it's hard to find midcareer jobs that can match the pay offered in the private sector.

"It's a hard trade-off to make," she said. "Pay is definitely a factor."

Minnesota's nonprofits, which employ about 14% of the state's workforce, have been gradually rebuilding back to where they were before the pandemic. But they still have nearly 3% fewer employees than in 2019, a bigger decline than the state's overall workforce, according to new data from 2022.

In 2020, many nonprofits, especially arts and cultural organizations, closed their doors and laid off workers, in part causing the state's nonprofits to lose about 23,000 workers over the previous year. Then more nonprofit workers started leaving voluntarily, part of the "Great Resignation" of employees confronting burnout and switching to careers with better pay and hours.

As in the public and private sectors, nonprofits are also seeing more retirements as the tail-end baby boomers enter their 60s. It's unclear when — or whether — nonprofits will rebound to 2019 staffing levels, said Nonoko Sato, executive director of the Minnesota Council of Nonprofits.

"This is just going to force us to be creative in terms of how we continue to provide our services," Sato said. "It just takes longer for nonprofits to recover."

According to the state Department of Employment and Economic Development (DEED), nonprofits — which include the large health care organizations — employed 379,944 workers in 2022. The nearly 3% drop from 2019 is a larger decline than for-profit businesses. However, government jobs have been slower to rebound, with the number of government workers plummeting by 8%.

In a survey released this month of nearly 200 Minnesota nonprofits by the state Council of Nonprofits, 40% said they're struggling to recruit employees, and 30% are having a hard time retaining them. The top reason, according to half the respondents, is workers' wage expectations.

At People Incorporated, Minnesota's largest nonprofit provider of mental health services, more applicants are vying for higher pay, said talent manager Carrie Dean.

"Candidates are pushing back, asking for more," she said. "People are feeling the pinch of inflation."

People Incorporated started offering $1,000 hiring bonuses in 2020 to lure job candidates, making it one of a growing number of nonprofits offering new incentives to combat workforce shortages. It also awards $2,000 to employees who refer new hires.

The 700-employee organization now has about 90 openings each month, more than in 2019 but fewer than in 2021, Dean said. As the demand for mental health services increases, providers are competing for the same small pool of applicants, she added.

That's why People Incorporated is going to more high school career fairs, and has expanded an internshiplike program training students to explore the mental health field.

"We can't just hire our workforce, we have to build our own workforce," Dean said.

'A generational shift'

At Youthprise in Minneapolis, which runs youth initiatives, President Marcus Pope is seeing more staff turnover and more leave-of-absence requests among his 32 employees. People are moving out of state, leaving for job promotions or retiring early, he said.

He's also found it's hard to fill those openings. After trying for more than a year to hire two finance positions, he tapped a search firm for the first time.

"It's really tough to be competitive," Pope said, adding that employees, especially younger workers, are seeking remote work and better pay. "I think we're seeing a generational shift in the workforce."

He's also noticing a lot more nonprofit leaders quitting because of burnout. "I'm worried about the health and sustainability of the sector," he said.

In the state Council of Nonprofits survey, almost 70% reported their expenses had risen in the last year while a third reported declining funding.

"The headwinds are really strong ... and it's permanent," said Kate Barr, CEO of Propel Nonprofits, which helps nonprofits with finances and loans. "It just costs more to deliver services now."

The extra federal aid and boost in foundation grants earlier in the pandemic have waned. So have donors' unprecedented generosity. Nationally, total giving declined in 2022 for only the fourth time in four decades, likely because of stagnant incomes, rising inflation and decreases in the stock market, according to this year's Giving USA report.

"Getting more revenue for nonprofits is not the same as in a business where you sell some more hamburgers or you raise your prices," Barr said. "I think we're just in this period of a changing economic model for nonprofits."

Reshaping the sector

In the Council of Nonprofits' survey, more Minnesota nonprofits said they're boosting fundraising efforts. An influx in state funding approved by the Legislature this year will also help some nonprofits, including homeless shelters and food shelves.

Sato said others may look to partner or collaborate more, such as when nonprofits share office space. "Nonprofits really need help," she said.

The survey found that nearly two-thirds of Minnesota nonprofits anticipate facing financial distress in less than a year. Dire predictions three years ago that up to 30% of nonprofits nationally could go out of business haven't played out. But some nonprofits may still be reshaped by the pandemic into smaller entities.

For instance, YWCA Minneapolis announced this month that it was closing its Uptown and downtown fitness centers and laying off about 17% of its workforce. In St. Paul, the Science Museum of Minnesota laid off employees and cut vacant positions earlier this year as it struggles to rebuild from pandemic revenue losses.

And the Minnesota Historical Society, where Peck lost her communications job three years ago, is rebuilding staffing after COVID-19 closures cost $3 million and spurred layoffs for nearly a third of its workforce.

Peck has watched her former colleagues retire early, move to the private sector or switch to teaching. She said she'd still consider going back to a nonprofit, but for now sees mostly entry-level job postings that come with a significant pay cut, or openings for leadership roles she doesn't yet qualify for.

"A decade into the industry, it's hard to make [less money]," she said. "There's not a lot out there."