“Virtually no part” of non-profit funding is indexed to inflation — what does that mean for non-profits and their communities?

Canadian currency. Photo: Shannon VanRaes

Rising costs have charities and other service providers asking an important question: Could indexing grants to inflation ensure non-profits have the resources they need to keep serving the community?

“There is virtually no part of non-profit funding that is indexed to inflation … even on a national level,” says Andrea Hesse, executive director of the Alberta Council on Disability Services. “And we’re not businesses, we can’t pass costs onto the consumer.”

Without significant change to funding models, core services provided by non-profits could be at risk, she says.

Some philanthropic organizations are taking note, providing additional funding for existing projects in response to inflationary pressures. The McConnell Foundation recently announced it will provide current partners a one-time top-up payment of either seven or 10 per cent, depending on an organization’s need.

“We are working to ensure an equitable distribution of funds, as not all organizations face the same financial pressures, depending on their geographical location, and the types of programs being offered,” reads a notice on the foundation’s website.

Chad Lubelsky, McConnell’s acting chief program officer, says partners with food or transportation costs have been particularly hard hit by rising prices, as have those operating in remote or northern communities.

“The twin pressures are really putting the organizations we partner with in extremely difficult situations,” he says. “And everything we do is in partnership, we’re wholly dependent on our partners for any impact we hope to see in the world.” 

The McConnell Foundation is also updating its due diligence guide to ensure prospective partners account for inflation in future funding requests. “We’ll make sure that it’s included in all proposals moving forward,” Lubelsky says.

The Law Foundation of Ontario has responded to inflation with a one-time grant increase. The 25 organizations who rely on its Catalyst program for core funding will receive a five per cent bump-up, representing an additional $656,000 investment over two years.

“It was a fairly easy decision to make,” said foundation CEO, Lisa Cirillo. “You can’t listen to the news today without a conversation around inflation, it’s so ever present. And we’re hearing from our grantees about the pressures that they’re feeling, particularly on the compensation side and so we knew there was a need.”

Jean-Marc Mangin, president and CEO of Philanthropic Foundations Canada, says he’s seen a variety of approaches when it comes to tackling inflation. Some of the organization’s members have increased grants across the board, giving all grantees funding top-ups of about five per cent, while others are approaching the issue on a case-by-case basis.

In some instances, he’s seen grantees receive funding increases of eight or even 10 per cent. Other foundations are still in early stages of speaking to partners and assessing the impact inflation is having on them.

But not all foundations are a position to address inflationary pressures faced by grantees through increased funding, he adds. As non-profits themselves, foundations also have to carefully consider the impact addressing inflation through grant expenditure will have on their own operations.

“Markets have been not only volatile, but poor. So I believe all foundations that I have dealt with are seeing negative returns to their investment this year,” Mangin says. “So the size of endowments are going to go down.”

Foundations will also have to consider how a plan to increase the disbursement quota from 3.5 per cent to five per cent will affect their ability to respond to inflationary pressures faced by grantees, he says.

“The idea was to broaden philanthropy as opposed to just support the existing partners. But the fact is there are some existing partners that are under very real pressure right now. So, there are limitations to what foundations can do,” says Mangin.

Cirillo notes the Law Foundation of Ontario, like many foundations, has seen its revenue impacted by higher interest rates, hiked by the Bank of Canada in an effort to slow inflation

“Year-to-year our revenue can be unpredictable and highly variable,” she says. “It’s important to balance our responsibility to be cautious, so we can fulfill our granting commitments, while being responsive to extraordinary economic circumstances when we can.”

Lubelsky says the McConnell Foundation has also experienced inflationary pressures, but adds frontline service delivery organizations bear the brunt of rising costs.

“I think any organization in Canada now is facing a strain,” says Lubelsky. “But is it reasonable and fair to compare our strain to the strain community organizations are facing? I would say no, not at all — we have the resources to absorb the strain.”

Hesse says non-profit organizations that provide services on behalf of governments, such as disability or children’s services, are some of the hardest hit by inflation and would benefit greatly from a funding rethink that includes indexing grants to inflation.

“Those services have been so chronically underfunded by governments for so long with some expectation that you would come along and fundraise to fill the gaps,” she says. “That’s just unrealistic. And it’s kind of crazy when you think that government would never contract out any other service with an expectation that the provider or the vendor somehow fundraise to fill the gaps.”

But indexing grants to inflation alone won’t fully address the funding disparity between demand and capacity in the non-profit sector.

“To me that only that solves half is the problem,” says Inez Hillel, an Ottawa-based economist and co-founder of Vivica Research. “If you index funding to inflation, yes, money could stretch the way it had in the past basically. But it doesn’t address the issue that more and more people are needing to rely on these services.” 

She believes the non-profit sector, when it has the resources and capacity to do so, needs to advocate for policies that curb inflation, make life more affordable and reduce reliance on charitable organizations. Government policies tackling corporate greed and reducing consolidation in key sectors of the economy, like housing, could reduce pressure on both charities and society more broadly, Hillel says.

“I think that’s where individual organizations can really stand out and show their true colors,” says the economist. “Is this more of a non-profit industrial complex that they’re pushing for, where they become permanent services? Or are they really looking at their client base, the people who use their services, as a priority and asking what would meet their needs best.”

Individual donors can also play a role in addressing inflation by taking stock of their own contributions and asking, not only if they’ve kept up with costs, but if the charities they support are achieving larger goals, says Hillel.

“I think donors can also put their weight behind this, saying, ‘Yeah, I want a service that is looking for transformative change.’”

One thing is certain; inflation will be the new normal for the foreseeable future.

“Both funders and their partners need to address this accordingly to make for sensible programming. But at the same time … there’s no one, one-size-fits-all solution,” Mangin says.