Rural Nonprofits Lag On Revenue, Access

November 1, 2011       Samuel Fanburg      

Even though 22 percent of the nation’s poor live in rural areas, those areas account for only 8 percent of the total spent by nonprofit organizations. And with such poverty issues, only 10.4 percent of nonprofits in rural areas are dedicated to human services.

These are among the results of a new study published by the Bridgespan Group, in Boston, Mass., called Small but Tough: Nonprofits in Rural America. Written by Alex Neuhoff and Andrew Dunckelman, the study illustrates the large disparities rural nonprofits have compared to urban nonprofits in their fiscal health and service reach.

Neuhoff and Dunckelman collected a non-weighted, non-representative data set of 344,000 nonprofits, of which 55,000 (16 percent) were rural and through interviews with 18 leaders of rural nonprofits.

These organizations have had to do a lot more with less. Of human service nonprofits in rural areas, only 2 percent have budgets of more than $10 million. The majority (73 percent) have budgets less than $500,000 and cover much more land.

The distance of those in need is a challenge. Rural nonprofits have to cover 49.1 square miles, whereas urban and suburban nonprofits only cover 0.5 square miles and 4.8 square miles, respectively.

A rural area is described as an area where 90 percent of the population lives in a non-urban area or there is no urban area in the county with a population of 10,000 people or more. Rural areas are defined as having a population density of less than 500 people per square mile.

“Rural nonprofits have had to get creative in providing services to people living far away from each other,” said Neuhoff, a partner at the Bridgespan Group. “Because of the distance problem, rural organizations have had to use technology or change programs to stay in touch with people. For example, if there is an after-school program that meets everyday, some organizations have moved these programs to the weekend, so people from far away can participate.”

Although these organizations are financially strapped, they may be more fiscally responsible than those organizations located in urban and suburban areas. Just 39 percent of rural nonprofits reported a deficit in 2007 as opposed to 41 percent in urban areas. In addition, 30 percent of rural organizations had less than 3 months of reserves compared to 38 percent of urban groups.

Rural organizations successful at fundraising took a very focused approach, diversifying within one channel. “They seemed to be very clear and focused about where they went after money,” said Neuhoff. “They recognize there is a unique set of capabilities when getting government funding. We found focusing on 2 or 3 channels works better than spreading your resources too thin. They are very disciplined about the funding opportunities to go after.” Rural organizations enjoy funding from a mix of sources. Fee for service accounted for 53 percent of funding, 41 percent came from individual contributions and 6 percent from “other” sources.

In urban areas, organizations received 52 percent of revenue from fee for services and 39 percent came from individual contributions. Suburban organizations had 52 percent of revenue coming from fee for services as well, receiving 38 percent from contributions. To overcome these funding challenges, organizations aggressively seek government funding and grant opportunities. Less effort is put into trying for one-off grants. These organizations are much more interested in “pursuing grants that have the potential to grow into large, long-term commitments.”

Kelly Lucas, president and CEO of the Community Foundation of Greater South Wood County, in Wisconsin Rapids, Wis., said that she has not seen organizations pursuing government funds. Many groups lack the “organizational capacity” to do so, she said.

“You need capacity inside the organization to be able to identify federal funding opportunities,” Lucas said. You have to administer these resources according to federal guidelines. To be able to ‘aggressively’ get government funding requires organizational capacity and a strong collaborative effort. Communities who have figured out how to come together can quickly evaluate a funding opportunity and see who has the capacity to handle it.”

Nonprofit leaders cited problems hiring and retaining talented staff and board members. Smaller budgets make it harder to offer job candidates sufficient salaries and the education of people in rural areas itself is an issue. In rural areas, only 17 percent of the workforce has a four-year degree, compared to 34 percent of the urban workforce.

To combat this “brain-drain,” some organizations have sought candidates with a strong connection to the community. One group got together individuals who lived elsewhere but understood the culture and had relationships to the area from earlier in their lives. Others looked at current employees or alumni of the organization.

One of the most useful strategies advocated by Neuhoff was having organizations join a network of similar nonprofits. By combining with another organization, you will only need to find one executive director and one board of directors. Fewer organizations means less competition for funding.

“Folks who were the most successful tended to be those who were aggressively monitoring for new fundraising opportunities and were part of a larger network,” Neuhoff said. On the other hand, Lucas has invested in leadership skill building, specifically aimed at adaptive skills. “This is not a traditional technical style leadership program,” said Lucas. “We see a better return on investment when equipping people with skills like building trust, resolving conflict and communicate effectively. We are looking at this at more on an interpersonal level.”

Others have joined larger networks of groups like the Boys & Girls Club (BGC). These types of networks can provide invaluable information like assistance in applying for grants, providing guidance on how to apply for grants, supply helpful information and can review draft proposals.

Although Lucas is a proponent of nonprofits joining networks, she advised organizations to look at the local level, rather than the national scene. “I like to tell organizations to be focused on ‘grassroots’ collaborations,” said Lucas. “There may fewer players but in general we know each other and invested in building ‘social capital.’ If we are going to address some of the issues we have as a nation, we need to be looking at longer-term, systematic thinking. I think this is a topic rural organizations can add to with local collaborations.” NPT

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