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Nearly half of Minnesota nonprofits ran deficits in 2009

Continued employment growth, coupled with slight drops in revenue, produced operating deficits for an increasing number of nonprofits during the recession.

The proportion of Minnesota nonprofits reporting an operating deficit grew from 34 percent in 2007 to 48 percent in 2009, according to the most recent Minnesota Nonprofit Economy Report (PDF), issued by the Minnesota Council on Nonprofits.

The report, issued in mid-December, warns that nonprofits’ continued employment growth during the recession “may be coming at a cost to the financial health of the sector.” It notes that that nonprofit organizations’ revenue “had fallen slightly” from 2007 to 2009 while spending increased an average of 8 percent a year.

The report also details the sector’s contribution to the state’s overall economy and employment picture, based on more than 1,500 Minnesota nonprofits that had filed a Form 990 with the Internal Revenue Service as of September 2010.

Minnesota’s nonprofits paid out $13.2 billion in annual wages to more than 290,000 employees, one out of every nine workers in the state in 2009, the most recent period for which data are available. Nonprofit employment actually grew through the recession, averaging about 2 percent annual growth from 2007, while private-sector employment declined by a similar amount, the report said.

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Health care, social assistance and educational services are the largest nonprofit industries, together accounting for 86 percent of nonprofit employment, the council reported.

From December 2007, before the recession started, through November 2010, employment in education and health care sectors  has risen 7.7 percent (from 434,200 to 467.600) while total nonfarm employment shrank by 3.7 percent (2.77 million to 2.67 million), according to the Minnesota Department of Employment and Economic Development (DEED).

Nonprofits’ assets fell an average of 2 percent a year, the report states.

“The nonprofit sector has been rising to the occasion — continuing to provide vital services and enriching Minnesota’s communities even in the face of economic turmoil,” the council report said. “While nonprofits can weather a downturn by experiencing deficits for one or two years, like other sectors, nonprofits need the economy to recover if they are to continue to maintain current levels of employment and services.”

More than half of the nonprofit workforce (53 percent) is located in the Twin Cities metro area. Southeast Minnesota (home to the Mayo Clinic) accounts for 17 percent, followed by Central Minnesota with 9 percent, 8 percent in Northwest Minnesota, 7 percent in Northeast Minnesota and 6 percent in South Central/Southwest Minnesota.