| Crash! Nonprofits Face Uncertain Future |
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| Tuesday, 11 November 2008 20:28 |
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It’s that terrifying split second before a car crash. You see what is going to happen in slow motion, knowing that the impact is unavoidable. It’s being the last domino in the row, watching those in front fall one by one toward you. In this case, however, the earlier dominoes are larger and more ominous – the mortgage crisis, Bear Stearns, AIG, Lehman Brothers, Wall Street, the local economy, state government, local government, foundations and individual donors. Nonprofit human service providers know that bad things are happening and that worse things are coming. They just don’t know exactly where the pain will be, how bad it will be and how long it will last. Government Cuts For those that rely heavily on government funding, it may only be a matter of weeks or months before the bottom starts to fall out. Governor David Paterson, who began the budget year with an across the board 2% budget cut and came back in August for another 6%, has called on the legislature to reconvene in special session on November 18th to identify an additional $2 billion in savings for the current fiscal year. On an annualized basis that would mean cuts equal to $6 billion – roughly the equivalent of the deficit forecast for the budget year beginning next April 1st. In New York City, Mayor Michael Bloomberg has instructed his commissioners to identify 2.5% cuts in their expenditures this year -- $515 million – and 5% for next year $1 billion. This comes on top of the loss of at least $40 million in City funding for a wide range of human service programs during the initial adoption of this year’s budget. Providers and clients had already begun feeling the impact of the earlier round of government cuts in hundreds of small and not-so-small ways. Goddard Riverside Community Center, for example, recently closed its Community Achievement Project in Schools (CAPS) program, a drop-out prevention service, in PS 165 and is considering closing the PS 84 program due to a more than 50% cut in the City’s support for this initiative. It is a service cut being replicated in communities across the city. Similarly, Goddard has laid off an organizer and staff attorney in its SRO Law Project, which prevents homelessness, due to a $130,000 cut in this year’s City Budget. The Children’s Village saw the Administration for Children’s Services cut its evidence-based Intensive Preventive Services for Adolescents program by 28%, reducing the number of families it could cover and immediately eliminating seven staff positions. Among the casualties of Governor Paterson’s 6% across-the-board state budget cut enacted during the August special session was “Stay’n Out”, the oldest in-prison therapeutic community substance abuse treatment program in the nation. The entire $550,000 budget for this 31-year old program, which serves 100 inmates in the Arthur Kill and Bayview Correctional Centers, was eliminated by the Department of Correctional Services (OCS) in its effort to achieve an estimated $200 million in savings during this year’s first two rounds of State budget cuts. Two other contractual programs were also eliminated by DOCS – a $114,000 Interfaith Reentry Network program operated by Osborne Association and a $440,000 post-release employment program run by America Works. At Henry Street Settlement, Greg Rideout, Director of Youth Services reports that the agency’s afterschool programs this year are able to accommodate less than half the number of young people as last year and that only 40% of those who applied for Summer Youth Employment Program citywide could be accepted. While these initial budget reductions have hurt, they have received relatively little attention by the media and the general public. The impacts of the cuts now being proposed by the Governor and Mayor are likely to be devastating. “There has been a tendency among some of the editorial boards to say if you cut $600 million so far and the sky hasn’t fallen, why can’t you do four times that amount?” explains James Parrott, Deputy Director and Chief Economist at the Fiscal Policy Institute. The answer, he explains, is that the first round of cuts is always the easiest. “There are always some cushions that develop within the state’s budget. Those get grabbed right away. Then, any subsequent cuts start to mean personnel eliminations, fewer contracts and reduced services. “We really have our work cut out for us in educating the public and media that these cuts are real and they are not going to be pretty.” One New York In response to this challenge, a broad coalition of advocates, providers and labor organizations have banded together to urge State and City governments to look beyond budget cuts as a way of dealing with the current financial crisis. The new alliance, “One New York: Fighting for Fairness”, includes representation from an unusually broad range of service sectors, including education, healthcare, government employees, and human service providers. The coalition launched its effort with a City Hall press conference on October 10th with more than 250 individuals representing over 75 supporting organizations in attendance. “We have come together in a historic way across all sectors to say that this is not the time to cut services for the most vulnerable of city residents,” said Nancy Wackstein, Chair of the Human Services Council of New York City and Executive Director of United Neighborhood Houses. “In this time of economic crisis, it is not just Wall Street that needs help. It is also Fordham Road, Roosevelt Avenue, Flatbush Avenue, 125th Street, Port Richmond Avenue and all the other streets of our city where the people we serve reside.” “Last year, when we were fighting budget cuts, you saw education advocates on these steps every single day,” said Randy Weingarten, President of the United Federation of Teachers and the American Federation of Teachers. “This year, given the magnitude of what is about to hit us…we have a coalition of everyone who is protecting the vulnerable in the City of New York. “We can not in 2008 revisit the New York City of the 1970s,” Weingarten continued. “We have been here before when thousands were laid off in city government and that meant thousands of people were unserved on the streets of New York. We have been here when the schools were hit so hard that people did not have up to date textbooks and there were classes of 50 or 60 children. It took decades to turn that around… We must even in tough times invest in our city, invest in our most vulnerable, invest in our children. We are going to protect the safety net regardless of what happens on Wall Street.” The One New York Coalition is extremely unusual, both in terms of the range of organizations and sectors which have come together and the speed with which the group has mobilized. The coalition now includes more than 75 organizations including advocates, providers and labor unions from the human services, education and health sectors. Moreover, the October 10th press conference occurred barely two weeks after Mayor Bloomberg had issued his call for additional cuts this fiscal year. The group will also be fighting Governor Paterson’s proposed cuts in the State Buget. (For more on the Coalition, see this month’s Point of View: “One New York: Sustaining Progress, Sharing Sacrifices” by Nancy Wackstein and Jennifer March-Joly.) Making Both Ends Meet The One New York Coalition is also taking the relatively unusual step of openly urging State and City leaders to increase revenues rather than simply look toward cuts. “We can not cut our way out of this problem,” said Wackstein. “We are trying to make both ends meet,” said S.J. Jung, President of Young Korean American Service and Education Center (YKASEC). “In order to make both ends meet, we have to review both ends -- both revenue and spending. We are here to call on Mayor Bloomberg and the City Council to enact other measures, including progressive revenue (For more on some of the revenue initiatives likely to be considered by the Coalition, see “Raising Revenues to Avoid Service Cuts” on page 12.) Foundations Feel the Pain Government, however, is not the only place where nonprofits are beginning to see signs of fiscal distress. Foundations, which play an important role in funding human service programs and provider organizations, have seen the value of their endowment investments plummet during the recent downturn on Wall Street. “We have an endowment and we’re taking a beating just like everybody else,” says Chris Park, President of the New York Life Foundation. “Our portfolio has probably gone down over 20%,” says Victor De Luca, President of the Jessie Smith Noyes Foundation. In some cases, the impact of these losses has been immediate. “One foundation gave us $125,000 instead of the $175,000 they had previously given,” says one agency executive director. “Another regular supporter decided not to give us a $50,000 grant.” “While many foundations have indicated that they are making no immediate change to their grantmaking practices, we have heard an increasing number say they will not be accepting new applications from nonprofits who are not existing grantees,” says Laurence Pagnoni, President of LAPA Inc. a fundraising consulting firm. “And, for the first time, we have heard from several foundations that their fourth quarter giving has been or may be suspended completely. In one rare case, we have heard that the foundation is going to increase its giving slightly because they recognize that nonprofits will now be under greater pressure to serve those in need.” The real impact of the current Wall Street downturn is not likely to be felt until next year, when this year’s returns are factored into the formulas which drive foundation giving. Many foundations use a rolling three year average to calculate their payout ratios and grantmaking goals -- meaning that this year’s sharp drop in endowment valuations could affect giving levels for several years to come. “When these numbers come into those formulas we are really going to see more effects in the latter part of 2009 and 2010,” says DeLuca. “If things continue to go downhill we will on a quarterly basis have to make decisions and those decisions may mean having to reduce even more of our payout towards the end of 2009.” Nevertheless, some trends do appear likely. Chris Park agrees that foundations are likely to stick closer to home in terms of working with existing partners on their core giving priorities. “I think our chances of taking on lots of new partners are lower than usual, just because we will be watching to make sure we are able to respond to those folks with whom we are currently involved,” she says. “Nonprofits should stick to their knitting. If they have solid grantmaking partners, they should look to those partners as their first line of defense.” Both Park and De Luca also believe that foundations may be less inclined to make multi-year grants for the near future. “We will be making one year grants now,” says De Luca. “It is imprudent to tie up your funds in the future when you have no idea what those funds will look like.” Given the very difficult times that nonprofits will be confronting, will grantmakers step up their giving at a time when their support is needed more than ever? “Foundations, like all nonprofits, view these turbulent economic times with uncertainty,” says Ronna Brown, President of the New York Regional Association of Grantmakers. “But the conversations among our members these last two weeks do make one thing clear: the primary concern for NYRAG members is how--given the very real limits to foundation resources--they can best help their grantees weather the storm. Many members hope to maintain their 2008 giving volume throughout 2009, and have a commitment to transparency, candid dialogues with grantees, and creativity with new solutions wherever possible.” Taking Action Many nonprofits are already preparing for what they anticipate to be a devastating fiscal onslaught. Several agencies told us they have already implemented hiring freezes or are only filling vacancies on a case-by-case basis. Others are developing plans of action for when the cuts come. “We have plans for a 10% cut and a 25% cut,” said the head of one youth development agency who preferred not to be identified. “We have contingencies for different levels of cuts in different programs,” said another Executive Director. “Every day, that is the topic of conversation.” Regardless of where programmatic budget cuts may fall, however, they will certainly impact agency infrastructures for administration and support. “It may be too late for some agencies,” says Adel Ayad, Assistant Executive Director for Finance and Operations at Good Shepherd Services, Inc. “We started a year ago. We cut our administrative and support spending by $1.4 million.” Savings came through renegotiating agency-wide purchases of office supplies, household supplies, food service contracts, maintenance agreements and technology services. The agency also did a line-by-line review of administrative and support positions, consolidating and cutting back where possible. “We are getting a lot of calls for technical assistance,” says Fatima Goldman, CEO at the Federation of Protestant Welfare Agencies. “They want to know if they have to downsize how do they do it? On HR issues, how do I not hurt people to the extent I can avoid it? What is legal; what is not? If I can’t give a raise, what are the low cost and no cost benefits I can offer instead? We have been hearing a lot of that from our members. Agencies are frightened. It is not like these organizations had a lot of excess funding.” Add this page to your favorite Social Bookmarking websites           |
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