Anatomy of the Nonprofit Starvation Cycle
Jesse D. Lecy
Maxwell School of Syracuse University; Georgia State University - Andrew Young School of Policy Studies
Elizabeth A.M. Searing
Georgia State University - Andrew Young School of Policy Studies
November 1, 2012
Andrew Young School of Policy Studies Research Paper No. 12-27
The nonprofit starvation cycle is a debilitating trend of under-investment in organizational infrastructure that is fed by potentially misleading financial reporting and donor expectations of increasingly low overhead expenses. Since its original reporting in 2008, the phenomenon has been referenced several times, but seldom explored empirically; this study utilizes twenty-five years of nonprofit data to examine the existence, duration, and mechanics behind the nonprofit starvation cycle. Our results show a definite downward trend in overhead costs, reflecting a deep cut in administrative expenses partially offset by an increasing in fundraising expenses. The organization’s size is instrumental to its behavior, with a sharp rise in overhead occurring when revenues equal $100 thousand, but diminishing at $550 thousand. Finally, the brunt of the cuts have fallen on non-executive staff wages and professional fees, which heighten the concern of ill effects from a fixation on overhead cost reduction.
Number of Pages in PDF File: 27
Keywords: Starvation cycle, overhead costs, accountability, expense ratios, nonprofit competition
Date posted: November 4, 2012 ; Last revised: January 30, 2014
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