Defining the American Dream

Nonprofits struggle to survive and maintain services

Posted on Thursday, November 11, 2010

When job losses and foreclosures began to mount in the recession, leaders of many local charities knew it was time to push their organizations to provide more -- more beds to the homeless, more opportunities for the unemployed, more meals to the growing number of hungry families showing up on their doorsteps.
A spike in need was coming and they were going to step up and meet it, regardless of the funding shortages that may result from the economic tailspin. They could worry about that later.
But now it is later -- nearly three years after the recession began in December 2007 -- and a new survey of nonprofit human service providers shows that nearly half of those in the District, Maryland and Virginia ran a deficit last year.
Many of the groups whose services protected families during the recession may not make it through the downturn themselves. Some already have not.
A national survey of human service nonprofit organizations released by the Urban Institute in October found that 42 percent ran a deficit last year. To cut costs, half froze or reduced staff salaries, 38 percent eliminated staff and 23 percent reduced benefits. Thirty-nine percent drew on reserves.
"In 2009, the recession increased demands for many basic human services and at the same time nonprofit revenues were severely cut," the researchers wrote. "Payments from government agencies fell; donations from individuals, corporations, and private foundations decreased; and investment returns and fee income declined."
Since the economy began to plummet, Chuck Bean, executive director of an association of local charities, the Nonprofit Roundtable of Greater Washington, has pushed organizations to make lasting changes such as shedding nonessential duties, sharing back-office functions, reducing staff size and in some cases merging with other groups. His core message, he said, was this: "If you think this is a storm, or you can batten down the hatches, maybe tap into your reserves and the storm will pass and things will go back to normal, then you're wrong. I think of this as less of a storm and more like an ice age."
Many organizations resisted. But as local governments, foundations and individual donors have failed to return giving to previous levels, their directors began coming to him. In the past month alone, he said, four nonprofit leaders came to him to inquire about possibly merging with other groups.
For some organizations, it's already too late. Beyond Talent was founded in the District to provide mentoring, training and support to high-school dropouts and GED students. But this summer, after seven years, the organization closed, with Executive Director Ellie Phillips saying in a farewell letter that "reaching the decision to close was like arriving smoothly at the end of a wonderful and exhausting journey." Phillips said in an interview that "a lot of the doors that were open to me and Beyond Talent in 2006 just weren't there any more."
"We would always make a budget for $100,000 or $150,000 and then our revenue was around $70,000," she said.
Other organizations are likely to follow, according to Beatriz Otero, president of the family support group CentroNia that provides services in D.C. and Maryland.
"I think in 2011 and 2012 the District will see a huge reduction in the number of nonprofits," Otero said at an October meeting held by the Nonprofit Roundtable at the Aspen Institute's offices in D.C.
She said public charter schools -- one of which she founded -- were tightening competition for corporate and foundation funding as well. "I think you'll see nonprofits in a great deal more trouble than they are right now, and at the same time you see the increase in a whole other sector that is public charter schools," Otero said.
CentroNia is celebrating its 25th year and as its success illustrates, the downturn has not affected all organizations in the same way. Larger groups in particular, Bean said, have proven to be more resourceful in weathering the downturn.
Some larger groups, like CentroNia, tracked federal stimulus legislation and attracted some of its dollars. Others sold real estate assets. The Whitman-Walker Clinic, a community health center that ran $4 million deficits in 2007 and 2008, is forecasting a $360,000 surplus this year after selling a Northwest Washington building to developer JBG for $8 million in 2008. Similarly, the YWCA of the National Capital Area sold its building downtown for $21 million in March.
Corporations have begun trying to tailor pro bono efforts to fill administrative roles for local charities, reducing their costs. Deloitte Consulting has provided analysis and research to the Capital Area Food Bank, for instance, while Booz Allen Hamilton has provided health policy consultants to the nonprofit Metro TeenAIDS.
One example of a financial turnaround in the downturn is Volunteers of America Chesapeake, which provides a broad array of services, including homeless shelters, mental illness treatment and substance abuse counseling to communities from Virginia Beach to Baltimore. The group serves more than 9,000 people annually through 26 programs.
When Russell K. Snyder took the helm as president and chief executive in January 2009, however, the organization was on its way to losing $1.8 million for the fiscal year. Snyder, whose professional background was helping trade associations improve efficiencies, began pushing to centralize operations, reduce utility bills, purchase cheaper supplies and invest in technology that could produce long-term savings.
He has not had to cut back on services, he said, and the staff of 600 is about the size it was when he started. Still, the organization cut the deficit to $1.4 million in Snyder's first full fiscal year.
This past fiscal year, he said, the group broke even. But given the status of local government budgets, it's still not out of the woods. "I believe we're still going to have budget pressures whether in the District, Virginia or the state of Maryland," he said.
Other leaders, seeing little improvement in the economy, are preparing their own changes. Mary Brown co-founded Life Pieces to Masterpieces, an arts-based tutoring program for African American boys, in 1996 and has prided the organization on exhibiting the same resilience that her boys do, keeping programs up and running first and worrying about making payroll second. But as the hard years have dragged on, she has begun taking the risks of living in the red more seriously.
"We've been operating in a deficit for 15 years -- definitely," she said at the Roundtable's meeting in October. "That won't work for us for the next 15 years."
By Jonathan O'Connell
The Washington Post

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