Joining Forces: To Prepare for an Uncertain Future, Nonprofits Collaborate Rather Than Compete
As Illinois nonprofits continue speaking the language of cuts — slashing budgets, laying off staff and shrinking programs — hopes are being pinned on a new project in Chicago that holds promise for delivering savings to nonprofits that sorely need those extra dollars.
Formed last year, the Back Office Cooperative brings nonprofits together to experiment with their combined power in purchasing and sharing office functions. Already the effort has cut members’ bills for food, office supplies and other items anywhere from 12 percent to 50 percent, says cooperative president Bryan Preston. Next, the cooperative is investigating whether it can find savings in sharing human resources, information technology and health insurance.
“Organizations have to take a hard look at what is truly the thing they do that’s strategic and not be afraid to look for help in some other ways,” Preston says. “It’s about getting people to think differently.”
On a course already made challenging by continual declines in state funding, decreased donations and more people needing help, Illinois nonprofits are searching for any way to shed weight, become more nimble and form new teams.
Like a reality show competition where the judges love to shock viewers by throwing last-minute curveballs at contestants, the state threw down plenty of obstacles for Illinois nonprofits to surmount this year. Planning for the future has become nearly impossible for many frustrated nonprofits. As of mid-September, organizations still had no idea about their state contracts for the fiscal year that started July 1. Nonprofits such as YWCA Metropolitan Chicago had to draft their budgets multiple times as they responded to changing information from state government, says the organization’s chief executive officer, Christine Bork. Like many other nonprofits, YWCA has seen its state funding shrink as each budget cycle has brought new cuts on top of the reductions of the year before.
This year, with the early expectation of 50 percent cuts to its state contracts, the organization cut staffing and shuttered some programs, only to learn later that some of the money would be restored. That meant some laid-off employees could be rehired, but the layoffs and closings “all could have been avoided if decisions were made more timely,” Bork says. Like many, YWCA has borrowed money to get by. “We can’t continue to draw down on a line of credit to front services the state should be paying for,” she says.
The insanity of this year’s budget cycle did prompt many organizations to shake off any discomfort they might have about raising their voice and advocating for their cause. Traditionally, nonprofits have spoken out for their own particular issues, but this year, they all came together around the common cause of killing the “doomsday” budget.
“Nonprofit folks tend to be conservative about not rocking the boat because oftentimes, there may be some delicate politics involved in whatever funding situation they have,” says Gordon Mayer, a vice president with Community Media Workshop, which works with nonprofits to communicate their messages. This year, “organizations were willing to take a stand.”
Going forward, nonprofits will have to find the time, staff and expertise to explain their story, nonprofit leaders say. It’s easy for the public to grasp the idea that schools need money and why that’s important, says Nancy Ronquillo, president of Children’s Home + Aid, a Chicago-based nonprofit that serves 40 Illinois counties. But illustrating the role of human service organizations requires painting a more complex picture.
The story nonprofits have to tell is that in an economy that works, a strong nonprofit sector is needed to provide the quality child care and senior services that allow workers to be productive on the job while knowing their families are being taken care of, Ronquillo says. While nonprofit organizations may target different problems, they are all integrated. “You can’t fund foster care but then close all the drug treatment centers because then you can’t prevent child abuse,” Ronquillo says.
As organizations look for ways to squeeze out savings, the Back Office Cooperative has started to put some dollars back into the accounts of its 10 member agencies, which include Metropolitan Family Services, Youth Guidance and Casa Central.
One member, Chicago Commons, anticipates it will save $85,000 on $350,000 of purchases this year. “That’s $85,000 that can go to the bottom line or back into services. It could be a couple of staff members,” says CFO Chris Nordloh.
In a budget year when the organization lost $250,000 from United Way alone, the savings on purchases could help restore some of that funding, he says.
The cooperative enables members to realize some of the advantages of a merger without having to actually merge. By shedding some office operations, a nonprofit’s staff can focus on its mission of helping children, families or the disabled instead of being bogged down by business functions. Being part of the cooperative group also provides a buffer for agencies hit with a sudden, significant budget decrease — not an uncommon occurrence in this environment.
“By consolidating the agency administration into a shared resource, nonprofits can basically offload some of the risk, cost and burden of running administrative functions,” Nordloh says. Instead of having to cut staff each time it takes a budget hit, the member agency can just reduce the services it needs from the cooperative.
The cooperative isn’t alone in trying to help Illinois nonprofits band together for financial benefit. Last year, an initiative called Illinois ResourceNet took on the challenge of helping link Illinois nonprofits with federal funds.
“Illinois overall receives a comparatively small share of federal dollars in return for the amount of tax dollars Illinoisans send to the federal government,” says Rich Kordesh, co-director of Illinois ResourceNet. Illinois ranks 45th among the 50 states in terms of the return on tax dollars, according to a 2007 Tax Foundation report.
Illinois ResourceNet directs nonprofits toward emerging federal funding opportunities, while providing training on the policies, procedures and oversight needed to attract federal dollars. Resource-stretched nonprofits often don’t have the time to stay current on funding opportunities that may develop, so the initiative does the initial screening and provides technical assistance through the process.
Since the start of the project, “I’ve seen a lot more interest, willingness and recognition that it’s in one’s self interest to collaborate,” Kordesh says.
Talk of mergers has also heated up in the sector but with some measure of doubt because such ventures tend to be incredibly complicated.
“There are certainly instances where organizations could create more efficiency in management or using building space better,” says James Lewis, senior program officer for the Chicago Community Trust, which provides support to nonprofits throughout Chicago.
But when it comes to smaller agencies that work with niche populations, it may not be more efficient for a larger organization to recreate what the smaller agency was doing to help that population. “Plus, with a lot of those organizations, the executive director is also a case manager, and the overhead isn’t as big as it looks sometimes,” Lewis says.
After a lifetime of differentiating themselves from other nonprofits to obtain funding, it can be difficult for nonprofits to surrender themselves to another organization. Many boards and managers continue to justify their agencies’ existence even when the problems may be too large to overcome. “By the time the organization is on its last leg, it ends up cutting staff and closing the doors before merging,” says Diana Aviv, president of Independent Sector, a national association of nonprofits.
Independent Sector has been monitoring the sometimes dysfunctional relationships between nonprofits and state governments, finding the most serious problem to be the delay in the states’ reimbursing nonprofits for services rendered. Nationally, the association is pushing for a federal loan fund from which nonprofits could borrow money interest free or at a low rate to carry them through the period while they’re waiting to be paid. “You’re talking about government money that was promised to them,” Aviv says.
Illinois organizations say they’d like to better prepare to serve the increased numbers of people showing up at their doors, but planning of any kind is extremely difficult in the current environment.
Barb Hicks, executive director of the Madonna House women and children’s shelter in Quincy, says her small organization has shelved plans for a capital campaign. The agency wanted to build a larger facility to help clear a six-month waiting list, but the nonprofit pulled back when its funding was cut from various sources by a total of 40 percent. Now it appears that any building project will be at least seven years away.
“We’re hoping we’ll be able to at least keep the staff we have now and continue services even at the reduced level we have now, but that’s not a given,” Hicks says.
Preparing to mark its 25th year, the Williamson County Family Crisis Center in Herrin is prepping for its first fundraising event, as well, a necessary undertaking after the nonprofit suffered significant cuts in state and United Way funding. The hope is to raise $30,000 by next year to keep the organization going, says executive director Peggy Russell.
“We are so small we already all do double-dipping. If one of our staff members can’t come in, I come in and cover the shift,” Russell says. “It’s payday to payday, and I’ve never had that problem.”
The ambiguity with the state’s financial picture forces tough decisions for nonprofit leaders throughout Illinois.
“The uncertainty of the budget leaves us in a situation of trying to decide whether or not we go ahead and render the services and hope we get paid,” says Vivian Loseth of Youth Guidance, which had to lay off about 25 people this summer while waiting for state contracts to be sorted out. “There will be a point where we can’t do it anymore.”
Like many organizations, Youth Guidance is trying to improve private fundraising to diversify its revenue stream. “We really see growing our individual donor base as one way of helping to guard and protect ourselves from the throes of the state budget,” Loseth says. “But it’s not a good time to raise those dollars.”
Indeed, donations decreased in 2008 for the first time since 1987, according to a June 2009 report by the Giving USA Foundation. What frightens the sector is that the economic shift did not happen until the end of the year, when most donations were already in. “If last year went down,” Aviv says, “we’re expecting 2010 and 2011 to be way down.”
Public disclosure rules tightened
A 501(c)(3) status says, “Trust me,” to a public looking for a way to help.
While the vast majority of nonprofit organizations take that public trust to heart, there are exceptions. And as nonprofit leaders make greater appeals to the public for donations in an ailing economy, they want to avoid any smudges on the reputation of their sector. Observers are watching with great interest this year to see whether new disclosure requirements in the federal tax form that nonprofits file leads to more transparency — or more scandals.
“Donors are asking more questions now. They’re taking it more seriously because they have less money to give,” says Daniel Borochoff, president of the American Institute of Philanthropy, a national charity watchdog organization based in Chicago.
Under the changes, nonprofits must report more about their governance structure and executive compensation. With a public already enraged by executive salaries in the private sector, excessive salaries for charity executives who may be pleading for more dollars won’t exactly sit well.
“Some of the perks that the executives receive, like having first-class travel, companion travel, a housing allowance, executive chef — this will now have to be disclosed. In the past, charities could do these things and not have to tell anybody,” Borochoff says.
Nonprofit status under section 501(c)(3) of the Internal Revenue Code is easy to obtain but difficult to revoke. Questions have been raised about whether some nonprofits, such as hospitals that provide low levels of charity care, deserve the special tax status.
The sheer number of nonprofits makes it tough to provide oversight, and the system relies heavily on self-reporting in tax documents. “Being able to fake out the public is pretty easy to do. The current state of U.S. nonprofit financial reporting allows for charities to fudge the numbers to look good when they may not be doing much of anything of value,” Borochoff says.
Illinois is not without its own tales of people who use the trust bestowed on nonprofits to take advantage of others. Illinois Attorney General Lisa Madigan filed suit this spring against a Minooka man who pretended to raise money for veterans but was allegedly using the cash to pay his personal debts. Political insider Stuart Levine was brought down during a corruption scandal in part by charges that he used a charity set up to benefit a medical school to enrich himself instead.
While the increased public disclosure this year may help, the most important oversight could be provided by those whose job it is to do so: the organization’s own board of directors. “They need to do their job and not be asleep at these meetings,” Borochoff says.
Being part of the cooperative group also provides a buffer for agencies hit with a sudden, significant budget decrease — not an uncommon occurrence in this environment.
Crystal Yednak is a Chicago-based free-lance writer.
This is the third and final installment of a three-part series on the plight of nonprofits in Illinois. The series was underwritten through a grant from the Donors Forum, a Chicago-based organization that serves as a major informational clearinghouse for philanthropies. The Donors Forum did not exert any editorial control over the content of the articles — those decisions were made by the writers, photographers and Illinois Issues’ staff — but did provide information on charitable giving and nonprofits that was used as a resource for several of the articles. – Dana Heupel, executive editor
Illinois Issues, October 2009