Executive Summary

Poverty is more common in rural areas of the United States than it is in urban areas. Yet the nonprofit sector, a key force in the fight against poverty, is three times smaller in the rural US on a per capita basis than it is in urban areas.

Based on a comparative analysis of Form-990 tax returns for all rural and urban nonprofits and an examination of our growing base of clients working in rural communities, this paper highlights the differences between urban and rural nonprofits, discusses the barriers that rural nonprofits must overcome in serving their communities, and offers some lessons gleaned from the experiences of nonprofit organizations that have found ways to operate effectively in rural America.

Key findings include:

• Spending: While rural areas account for 18 percent of the total population and 22 percent of the nation’s poor, they receive only 8 percent of the total spending in the nonprofit sector.
• Financial health: Rural nonprofits actually exhibit better financial health than urban ones: They are less likely to run an operating deficit and have relatively more in cash reserves.
• Funding: Rural nonprofits appear to suffer from a shortage of financial “nutrients”: They lack local funding sources, connections to outside funding sources, and the capacity to go after both.
• Leadership: Rural nonprofits face challenges in hiring and retaining talented staff and board members. Smaller budgets make it hard to offer attractive salaries, and even when talented candidates are hired, it can be hard to retain them. Smaller budgets mean less potential for raises, and smaller organizations can mean fewer opportunities for training, development, and advancement.
• Distance: On average, in rural America, there is one nonprofit for every 50 square miles, while in urban areas, there is one nonprofit for every half of a square mile. This fact, coupled with what we know about the size of rural America, suggests that, in general, rural nonprofits serve much larger swaths of land than urban ones?and beneficiaries who are highly dispersed and lack access to public transportation.

The overall sturdiness and financial health of rural nonprofits is a testament to their ability to adapt to a challenging climate. The nonprofit leaders we spoke with described several strategies to overcome these challenges:

• Funding: The most successful rural nonprofits are strategic about seeking grant opportunities; they aggressively pursue government funding (to which they may have greater access to than foundation or corporate funding), and rural nonprofit leaders spend a large amount of their time networking outside their communities because, by and large, that is where the money is.
• Leadership: Some rural nonprofits have succeeded in assembling very strong leadership teams and boards of directors by seeking candidates with strong connections to the local community and individuals from the community who currently live elsewhere (but who understand the local culture and have relationships in the area), and engaging past employees or alumni.
• Distance: Nonprofits have altered their program design to minimize the amount of travel required (for example, by bringing the program to a location where the beneficiaries convene, such as a school or church), adopted schedules to maximize the ratio of hours of programming to hours of travel, and used phone, videoconference, or the Internet to deliver services long distance.
• Coordination, collaboration, and affiliation: We’ve seen rural nonprofits respond effectively to challenges by collaborating with other local nonprofits, merging with another local nonprofit, or affiliating with a state or national nonprofit network.

While rural nonprofits have often been able to employ innovative strategies to survive in a tough environment, they will need more support from their private funders and policy makers who shape the environment for government funding. With more support, rural nonprofits will be able to continue innovating and to mount a response that matches the challenges that their communities face.