Minnesota nonprofits grapple with closures in the New Year

After three decades raising money for clean water and other environmental projects, the Minnesota Environmental Fund will close its doors for good this year. So will Community Shares of Minnesota, which has funded social justice initiatives since 1978.

Both of the St. Paul nonprofits blame their demise on waning workplace giving campaigns — a decline that only accelerated during the COVID-19 pandemic.

"I think if COVID hadn't hit, we would still be around," said Rylee Hince, who sits on the board of the Minnesota Environmental Fund.

More than 300 Minnesota nonprofits have dissolved since COVID broke out in March 2020, either closing or merging with other organizations, according to the state Attorney General's Office. Though that's not a significant change from the two previous years — contrary to the catastrophic closures some predicted for nonprofits nationally — nonprofits that have lost funding and employees during the pandemic are only now setting out on the long road to recovery.

The state's nonprofit workforce has decreased by 7% since the start of 2020, according to a new report from the Minnesota Council of Nonprofits. Nearly 30,000 nonprofit employees who worked before the pandemic haven't returned. In the last six months alone, nearly a third of the 300 organizations surveyed by the council reduced their budgets while 43% cut programming.

Some of the decline in the nonprofit workforce is due to furloughs and layoffs in 2020, which affected about a third of the sector and disproportionately affected women. But in the last half of 2021, nonprofits started noticing people choosing to leave in what's been dubbed the "Great Resignation."

Candid, a national philanthropic research organization, analyzed the financial future of nonprofits in July 2020 and said that anywhere from 3% to as many as 30% of nonprofits across the nation could go out of business because of COVID. But even one or two shuttered nonprofits can have a ripple effect on the community, especially in rural Minnesota.

For instance, after the closing of a mental health provider, Lakes and Pines Community Action Council in Mora has nowhere to refer clients for help.

"We rely on our partnerships out here because we can't do it all," said Bob Benes, executive director of Lakes and Pines, which provides housing assistance and other social services to 15,000 people a year across seven counties. "It's the ultimate team game out here in rural Minnesota."

The mental health provider that closed in the fall had struggled to fill jobs, Benes said, and lost money in the move to telehealth since some clients don't have online access for virtual visits. Now some people will need to drive more than an hour for mental health services.

"If one [nonprofit] closes in Minneapolis, there's probably three more that provide a similar service," Benes said. "If one closes in Kanabec County, guess what? That was the one."

According to the Minnesota Council of Nonprofits' December report, about 20% of nonprofits surveyed said they expected to experience financial distress in the next six months or less — though that would be fewer nonprofits than last spring or in 2020.

One reason Minnesota nonprofits haven't seen dire predictions play out during the pandemic is an influx in funding, ranging from forgivable federal loans in the Paycheck Protection Program to a boost in foundation grants. Donors have also shelled out more money, setting a new record on Give to the Max Day in 2020 and then breaking that record in November with donations of $34 million in the statewide fundraiser.

"It's been pretty extraordinary. It's really universal, the level of support," said Kate Barr, president of Propel Nonprofits in Minneapolis, which helps nonprofits with finances and loans.

After receiving questions from a handful of nonprofits about options for closing, Propel Nonprofits put together a guide in 2021 on how to sunset an organization.

Nonprofits close even in financially stable times, such as when an organization's work is no longer needed or when its resources expire. There are so-called limited-life foundations like the Robina Foundation, which closed in 2020 after giving away all its money, and ClearWay Minnesota, established until the end of 2021 with funds from the state's 1998 tobacco settlement.

"Closing is not defeat, closing is just a stage of organizations," Barr said. "The problem is ... which ones are leaving a significant gap in their community?"

More than 40,000 nonprofits are registered with the Minnesota Secretary of State's Office, though a number of them may not be financially active. The state Council of Nonprofits counts more than 9,000 nonprofits that have at least one employee, from tiny food shelves to massive health care organizations.

"There's no such thing as a right number of nonprofits," said Nonoko Sato, executive director of the state Council of Nonprofits. "Nonprofits exist because of community need."

In Minnesota and across the country, workplace campaigns — which enable employees to donate through payroll deductions — have been on the decline due to the rise in online giving and donors' desire to direct their dollars to certain projects or groups.

The Minnesota Environmental Fund's workplace giving campaigns tumbled by 30% during the pandemic, following a more gradual drop in recent years, Hince said. Greater Twin Cities United Way, which long relied on workplace giving, has also had to find new ways to drum up dollars to balance its drops in revenue.

"People like to give to something you see on the news, or a text message you get from a friend, or something you see on Facebook," said Maureen Hartung, executive director of Community Shares of Minnesota in St. Paul. "Workplace giving, where it comes out the following year ... is difficult for newer generations."

In announcing their closures, both Community Shares and the Environmental Fund encouraged donors to directly support the nonprofits they've funded for years. Community Shares has awarded more than $25 million to social justice, arts and community organizations since 1978, while the Environmental Fund has distributed more than $14 million since 1991 to groups that work to preserve areas like the Mississippi River and the Boundary Waters Canoe Area Wilderness.

The Environmental Fund tried to diversify funding sources, cut staffing and closed its St. Paul office. But this fall the board announced it would shutter for good April 30.

Hince's nonprofit, the Lake Pepin Legacy Alliance in Red Wing, will lose $10,000 annually when the Environmental Fund closes. She's trying to ramp up donations from individuals rather than rely on major organizations to weather future philanthropic changes for the small nonprofit, which has three employees and a $250,000 annual budget.

"There are so many other changes in the world of philanthropy right now," Hince said. "It's just a challenge for all nonprofits."

Community Shares developed its own online giving tool in 2008, but it wasn't enough to fully replace the loss in money and compete with new technology, Hartung said. The final straw came with COVID, leaving companies — some facing their own cutbacks — reluctant to ask employees for donations.

"We're honoring what the community is looking for," said Hartung, one of two employees at Community Shares. "But it is also sad."

Funding from Community Shares helped sustain the Center for Hmong Arts and Talent, a tiny St. Paul nonprofit with a $150,000 annual budget. "They were an amazing lifeline," Executive Director Steve Thao said. "It's not just the money. It's the reminder of the mission of what we're doing."

The lack of the funding, coupled with foundations' shift away from arts funding, will hurt small nonprofits like Thao's the most.

"The big picture is less people are served. It's really disheartening," he said of nonprofit closures. "I hope as the economy turns around ... some of these nonprofits come back and are revived."