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Nonprofits in financial bind over increased unemployment benefits

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During these uncertain times, the economic impact of coronavirus-driven cancellations, postponements and shutdowns continues mounting.

This is especially daunting for many nonprofit organizations whose financial struggles were exacerbated by fund-raising dollars that disappeared along with galas and other events.

The situation is made worse for nonprofits that self-insure for unemployment insurance and, through no fault of our own, were forced to lay off or furlough employees now filing for unemployment benefits.

Aaron Blocher-Rubin

Aaron Blocher-Rubin

Self-insuring nonprofits are required to reimburse the state for the temporary benefits provided through unemployment insurance claims. The potential impact is even greater now that unemployment eligibility rules have loosened and payments have been substantially increased, meaning more people are filing and are incentivized to continue doing so for extended periods.

“At a time when nonprofit organizations are still providing direct services in response to the COVID-19 pandemic, they will need additional relief from the significant financial burden caused by unemployment claims in order to provide some continuity of relief,” Kristen Merrifield, CEO at the Alliance of Arizona Nonprofits, wrote to Gov. Doug Ducey, urging him to hold self-insured nonprofits harmless from this financial burden.

Before coronavirus, Goodwill Industries of Southern Arizona employed 524 people. They have since laid off 144 employees, furloughed an additional 189 and shut down its retail store operations.

“It’s been devastating,” said Liz Gulick, co-president and CEO. “We’re able to cover benefits for our furloughed folks and we have some cash in the bank, but this is a dire situation.  Last year we served just under 10,000 people, and just over 95% of what we use for our funding comes from retail sales.”

Based on an estimate of Goodwill being closed for April and May, without forgiveness, the cost of reimbursing the state for unemployment benefits would be nearly $366,000.  “If we had to be closed for June, that number goes even higher,” she said.

For my organization, Arizona Autism United, another self-insuring nonprofit, the impact is undetermined. Nonprofits are allowed to self-insure because most of them lay off fewer employees than for-profit employers. Therefore, self-insuring provides cost savings and better financial control, which means more funds are available to support charitable missions.

Unfortunately, that leaves nonprofits disproportionately affected by the expansion of benefits, which in all other ways is positive for our community. Devastating the nonprofit sector financially, however, threatens the community safety net.

Because this has happened so quickly, we cannot yet assess the impact.  It’s possible we could see hundreds of claims. A majority of our 300 employees are direct-care providers working with children and families in their homes.  Right now, many families are putting services on pause or employees are choosing to take a leave for their own health concerns. Others have reduced hours if they work with multiple families. There is no way to know who is going to get approved for unemployment, how much it will cost us and how long it will last.

Merrifield, CEO of the nonprofits alliance, cited the governor’s “thoughtful response to the COVID-19 pandemic in Arizona” and initial steps to provide relief to nonprofits, including a CARES Act provision to forgive one-half of the reimbursements owed by self-insuring nonprofits.

She asked the governor to do more.

Merrifield asked for consideration to allow full forgiveness of COVID-19-related claim reimbursements owed by self-insured organizations, and to “ensure that Arizona is prepared to receive and apply the federal funds to cover half the costs of COVID-19 related claims for self-insured nonprofits. She also asked Ducey to provide automatic repayment deferments of at least 120 days for “immediate relief to charitable organizations” and to “relieve the Department of Unemployment Assistance from managing individual employer requests for deferments in their quarterly payments.”

On behalf of nonprofit organizations doing great work in every community in Arizona under terribly stressful circumstances, we encourage you to ask the governor to take steps to relieve the additional financial pressure so we can continue serving individuals and families who need our help now more than ever.

  • Aaron Blocher-Rubin, PhD, is chief executive officer of Arizona Autism United.

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