Anatomy of the Nonprofit Starvation Cycle

27 Pages Posted: 4 Nov 2012 Last revised: 30 Jan 2014

Jesse D. Lecy

Maxwell School of Syracuse University; Georgia State University - Andrew Young School of Policy Studies

Elizabeth A.M. Searing

University at Albany (SUNY)

Date Written: November 1, 2012

Abstract

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.

Keywords: Starvation cycle, overhead costs, accountability, expense ratios, nonprofit competition

Suggested Citation

Lecy, Jesse D. and Searing, Elizabeth A.M., Anatomy of the Nonprofit Starvation Cycle (November 1, 2012). Andrew Young School of Policy Studies Research Paper No. 12-27. Available at SSRN: https://ssrn.com/abstract=2170740 or http://dx.doi.org/10.2139/ssrn.2170740

Jesse D. Lecy (Contact Author)

Maxwell School of Syracuse University ( email )

400 Eggers Hall
Syracuse, NY 13244
United States

Georgia State University - Andrew Young School of Policy Studies ( email )

Public Management and Policy
35 Broad Street, 6th Floor
Atlanta, GA 30303-3083
United States

Elizabeth A.M. Searing

University at Albany (SUNY) ( email )

Rockefeller College of Public Affairs
135 Western Avenue
Albany, NY 12222
United States

HOME PAGE: http://www.albany.edu/rockefeller/faculty_pad_searing.shtml

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