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America Tests Positive for Social Capital Decline

Much has been said about coronavirus’s costs to public health and the economy, but it’s also worth considering how the virus may affect the health of American civil society. Non-profits constitute at least one significant element of civil society and they are currently being put to the test.

As a recent Wall Street Journal article discussed, America’s nonprofit sector now faces two challenges:

(1)  Non-profits must handle increasing demand for services, as Americans file for unemployment claims at record levels and turn to charities for support.
(2)  Non-profits must cope with falling revenue, as donors divert their funds towards coronavirus-related causes.

Together, these challenges will create unprecedented difficulties for many non-profits. This is worrying news: like other institutions of civil society, non-profits play a crucial role in American life by allowing Americans to come together to solve collective problems and provide mutual aid. As we noted in our recent report “The Space Between,” civil society provides a place beyond the market or state for addressing mutual obligations and building social cohesion.

Unfortunately, even the most prominent, well-known non-profits are not immune from current challenges. The Wall Street Journal article provides a number of examples of large nonprofits facing enormous losses:

  • Catholic Charities predicts a deficit of at least $3.5 million by June
  • The YMCA projects a loss of $400 million in April
  • Habitat for Humanity has largely ceased building and selling the homes that provide roughly a quarter of the nonprofit’s revenue

With limited name-recognition and shallower pockets, smaller non-profits are likely to take an even harder hit: a 2018 survey by the Nonprofit Finance Fund found that only 25 percent of nonprofits had enough cash on hand to last more than six months and that 19 percent did not have enough funds to survive longer than a month.

If many nonprofits are overwhelmed and forced to close, civil society will pay the price, and the long-term decline in civil society documented in “The Space Between” will only continue.

On the other hand, the current crisis also provides an opportunity. Despite the hardships non-profits face, their services are essential, and Americans may come to realize the value of civil society as they face new social and economic difficulties. As we noted in our paper, “Mutual aid is a product of necessity; once the need is satisfied elsewhere, only interest can keep a person attached.”

Policymakers should consider creative solutions to help our non-profit organizations and civil society institutions. The CARES Act will undoubtedly provide some short-term relief through various non-profit-eligible loans and grants and a temporary charitable deduction expansion, but policymakers should consider reducing costly regulations that hold both private and non-profit organizations back as well as permanently reforming the charitable deduction as solutions in the longer term.

These are common-sense policy proposals that might keep more critical institutions afloat. That’s an important goal, because if they do survive, non-profits will provide critical support during a post-crisis recovery.

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