Article by Jacob Beizer
10:20am | As the economy mends for Wall Street, it continues its stubborn, slow growth for those citizens of the country who don’t trade stocks or didn’t invent the iPod. State and city budget cuts have offset federal stimulus and consumer demand is tepid. Caught in the middle of this mess, along with small businesses and the unemployed, are nonprofit organizations, who rely heavily on contributions from individuals. Donations are difficult to come by when the national unemployment rate hovers just below ten percent and Long Beach’s unemployment sits almost five points higher. This has forced many nonprofits to limit their services and, in some cases, shut down entirely.
The cyclical booms and busts of the economy typically have an effect on the funding of nonprofits, but the latest recession has been the longest economic downturn since the Great Depression, causing some speculation that the current state of things may be somewhat permanent. “We’re wondering if this is sort of a new ‘normal’,” says Judy Ross, director of the Long Beach Nonprofit Partnership, an organization in Long Beach that provides management support to other nonprofits. She stated that although she hasn’t seen any effects of the economic downturn that are unique to the Greater Long Beach area, like other regions of the country the overall impact has forced local organizations to figure out which of their programs are the most important and prioritize.
Among those local organizations who are facing fundraising challenges is Long Beach Rescue Mission, a homeless shelter and services center on Pacific Ave. led by Rev. Jim Lewis. Lewis says LBRM has seen its funding plateau for the first time in the four years he has been there, and that this year they have seen a drop-off in individual contributions. Added to this is an increase in the number of individuals seeking shelter. Typically, people living on some kind of financial assistance receive their payment at the beginning of the month, at which point they might seek alternative housing options to a homeless shelter. “Two years ago, we would have ten to fifteen percent vacancy at the beginning of a month,” says Lewis. “Now, at the beginning of the month, we may have to turn people away.” LBRM has had some success expanding its funding base to include grants from foundations and corporations, but this has not completely offset the drop in individual contributions.
At a national level, 40% of nonprofit charitable organizations have seen a drop in contributions, according to a survey conducted in June 2010 by Guidestar, an organization that tracks information for nonprofits. The survey asked over 7,000 public charity and private foundation employees to give impressions of the first five months of the year as compared with the year before. Coupled with decreases in funding were increases in the demand for services, and 63% of those surveyed reported that they saw an increase in demand for their services, with particularly large increases of 78% in demand for mental health organizations. The divergence between funding and demand for services has strained many organizations, whose staffs may feel a moral obligation to meet the needs of their clients but simply do not have the financial wherewithal to do so.
At Comprehensive Child Development, Inc., a nonprofit organization that provides low-cost child care to low income families, Executive Director Tammie Kyle is dealing with this very problem. The organization provides care for 525 children, with a range of ages from 4 months to Kindergarten, whose parents spend the day working or participating in vocational training. Because a significant portion of their funding comes from the State of California, the recent budget stalemate in the State Legislature has left them with few options but to plan massive cuts unless a budget deal is struck.
“Despite careful planning and extreme frugality, we are still caught in the middle of political battles,” wrote Kyle in a letter in response to a request for comment on these issues. She also stated that CCD has had no choice but to issue layoff notices to its workers in lieu of state funding, which makes up 95% of CCD’s funding base.
Should the organization move forward with the layoffs, it would leave hundreds of families without affordable child care and put parents in a tremendously difficult position in which they need to work but have no one to care for their children. The Board of Directors for the organization has worked to increase other sources of funds and Kyle has written appeals for bridge loans to major foundations and corporations, but so far those appeals have been unsuccessful.
According to Ross, 80% of nonprofit funding comes from individual contributions, so a decrease in this area can be particularly detrimental. Some organizations might receive government funding or contributions from foundations, but both of these sources have their drawbacks. State and local governments have been cutting their budgets significantly, and the little money that is still available requires mountains of paperwork to maneuver around bureaucratic red tape.
For example, a recent Request for Proposals for funding from the U. S. Department of Housing and Urban Development, which was distributed by the City of Long Beach Department of Community Development, contained 26 pages of instructions for local social service organizations applying for $15,000 awards. Although that amount would certainly help some organizations close their budget gap, given that even small nonprofits have budgets several times that amount, organizations must analyze the cost-benefit of applying for what amounts to a relatively small sum of money.
On the other hand, private foundations, who tend to offer larger awards, have seen the value of their portfolios shrink in the last few years as the stock market plummeted from its highs in the middle of the last decade. And that presumes that their portfolio was not being managed by Bernard Madoff or his imitators.
At Long Beach Rescue Mission, Rev. Lewis has floated the idea of a fee-for-service model for some of the programs the organization offers, in addition to trimming their budget line-by-line. LBRM already has one internship-placement program in which participants are expected to give a small portion of their earnings back to LBRM to keep the program going, while placing another 80% of their income in savings. If fundraising does not rebound, Lewis thinks this model might need to be extended to other services offered, though he was careful to point out that those who cannot afford to pay at all would still be assisted.
All of these issues have reinforced the notion that nonprofits should diversify their funding base, just as an investor spreads out his investments over a variety of stocks and bonds.
“No matter what the economy is doing, we know that it is a good idea to diversify your funding streams,” says Ross. She added that she also sees a silver lining in the situation, because many nonprofits have had to analyze their budgets and cut any items that render the organization inefficient. While budget cuts can be devastating for any nonprofit, it can also result in more effective operations which, when the recovery finally picks up steam, can give the organization a head start.