Running on Empty: The Operating Reserves of U.S. Nonprofit Organizations

Abstract

Operating reserves allow nonprofit organizations to smooth out imbalances between revenues and expenses, helping to maintain program output in the presence of fiscal shocks. We know surprisingly little about why nonprofits might save operating reserves and what factors explain variation between organizations' savings behavior. Findings suggest that operating reserves are reduced in the presence of concentrated public funds, access to debt, fixed assets, and endowment. However, size is not an important predictor, indicating that the lack of reserves is not limited to small nonprofit organizations but is instead a sectorwide issue. Significant numbers of nonprofits maintain no operating reserves at all. One potential explanation is that organizations discount the benefits of reserves because they are evaluated on spending, focusing instead on the “benefits of costs.” This preference for spending over reserving may also help explain the general lack of liquidity in the sector beyond operating reserves alone.

Exploring organizational capacity in a Sport for Development and Peace setting.

“…Few studies appear to have considered expenses of nonprofit organizations (Wicker & Breuer, 2011 A recent large-scale study on German and Swiss nonprofit sport organization indicated increased organizational size was also associated with increased expenses and thus did not reduce the organization's financial challenges . These findings are further supported by Calabrese's (2013) discovery of the lack of influence of organizational size as a predictor of operating reserves among nonprofit organizations.…”

Place Matters: The Spatial Effects of Human Service Expenditures

“…Any quantitative empirical study where clustering or contagion could be at play should lead us to test for spatial dependence. Valuable datasets such as the NCCS core files could exhibit spatiality: studies of financial distress (Never 2014;Hager 2001), financial reserves (Calabrese 2013), market entrance (Mook, Maiorano, and Quarter (2015), voluntarism (Rotolo, Wilson, and Dietz 2015), and donative behavior (Casale and Baumann 2015), all could have clustering of like organizations. Clustering and contagion can also be prevalent in studies of resource flows across actors, where space is more conceptual than physical geography Hays 2006, Frazese, Robert, andHays 2008).…”

Intersecting Sectors? The Connection Between Nonprofit Charities and Government Spending

“…Hence, state and local tax exemptions also encourage nonprofit charities' capital formation. Because much of nonprofit charities' capital takes the form of fixed assets (Calabrese, 2013), this tax exemption is especially valuable at the state and local levels because of the variation in types and effective rates of taxes imposed upon these types of assets. In addition to income tax exemptions, registered nonprofit charities are usually exempt from sales taxes that are levied at the state level, as well as property taxes at the state and/or local level.…”