Shrinking funds, endowments, private giving hurt nonprofits

Lance Henderson

In many ways, a nonprofit organization is just like a business.

It provides services, pays taxes, employs local residents and just like many local businesses, it is vulnerable to the current recession.

Robyn du Pre, executive director of RE Sources for Sustainable Communities, a local nonprofit which owns and operates the RE Store, said the community should come together to support not only local small businesses but also local nonprofits.

“We are small businesses too,” du Pre said. “So if the community can support us, we can continue to give back not only through the direct service that the nonprofits are providing but also the trickle-down effect of all those jobs and taxes.”

The main place where businesses and nonprofits differ is that instead of reinvesting profits into the organization, nonprofits rely on government funding, endowments, charitable foundations and private donations to stay solvent and maintain operations.

Unfortunately, things are tough all over. Charitable foundations, which typically have their money tied up in the stock market, have taken a hit, endowments are underperforming, governments are strapped to provide basic services and private donors are re-evaluating their giving for the coming year.

The Northwest’s largest foundation with a $35.1 billion asset trust endowment, the Bill & Melinda Gates Foundation, announced in November that it would cut its payout by 10 percent in 2009. Reacting in kind, the Paul G. Allen Family Foundation, the region’s second-largest foundation, said that it cut its payout in 2008 by 24 percent — most of that in the last three months of the year — and doesn’t expect to increase its giving in 2009.

Du Pre said as the reality of the recession is hitting home, Whatcom County donors are begrudgingly thinning the donation list.

“I think the trick for a lot of nonprofits is to make sure that they are staying in that top three or four groups that the donor wants to support,” du Pre said.

‘We may not get it, but we are not going to stop asking’

For many nonprofits, the real squeeze from dire economic straits is on the horizon, and the nearest shoe to drop is the Washington state budget.

On Dec. 18, Gregoire released a budget proposal that would close an estimated $5.7 billion budget shortfall largely at the expense of social services and higher education.

With the legislature yet to propose their budget suggestions and the March revenue forecast still on the horizon, nonprofits are holding their breath to see just how bad the damage will be.

On Jan. 8, the Whatcom County chapter of the nonprofit National Alliance for the Mentally Ill (NAMI), which supports individuals and families affected by neurological brain disorders, held an educational forum to discuss the potential impacts of state budget cuts in Northwest Washington. The forum’s speakers included representatives from state agencies, nonprofits and county government.

Mike Ellis, president of NAMI Skagit County and NAMI Washington’s public policy committee representative for Skagit and Whatcom counties, said that while the budget challenges that face the state’s mental health services are great, they must work even harder to serve their populations.

“These are human lives and human tragedies,” Ellis said during the meeting. “We’ve made progress over the years, but we’ve got a heck of a long way to go.”

Ellis said even though the outlook is bleak, state mental health services can not afford to start asking for less.

“We like to pride ourselves on being a progressive state, but the fact of the matter is that Mississippi, Alabama and Arkansas have more psychiatric beds available than we do,” Ellis said.

Ellis then began to outline an aggressive list of NAMI’s legislative priorities for the coming year, which include maintaining the state share of mental health funding, increased availability of psychiatric inpatient facilities, expansion of employment/skill-building programs, and preservation of the General Assistance-Unemployable program, which serves 21,000 adults but has already been targeted for elimination in Gregoire’s proposal.

“We may not get it, but we are not going to stop asking,” Ellis said.

Whatcom County Councilman Carl Weimer also spoke at the forum about how mental health activists can work with government officials, but also posited that upcoming federal and state stimulus packages should take a holistic approach to how they will impact the economy.

“We need to question the current idea of stimulus and see if we can build up people instead of just building stuff,” Weimer said. “How do we use stimulus to enrich people and programs?”

Need goes up, funding goes down

Another local nonprofit waiting to see how the state budget unfolds is the Opportunity Council, a local community action agency serving Whatcom, Island and San Juan counties through a variety of programs from energy assistance to feeding the hungry.

“We are most concerned about the state budget and any funding that might be affected,” said Sheri Emerson, public relations director for the Opportunity Council. “We have already seen a little bit of a hit to one of our transitional housing funding streams and we don’t know what the rest of the legislative session will bring.”

Emerson said the Opportunity Council has a mixed bag of funding from donations, grants, and state and local governments, but it received 68 percent of its 2007 funding from the federal government.

“I don’t know what is going to go on at the federal level right now,” Emerson said. “Interestingly enough, we have a little bit more energy assistance money this year due to some increased federal funds.”

Emerson said that some of the local donation programs are down, but amazingly, some of them are up.

“The donors of Whatcom County are wonderful and they seem to realize that these are tough times and they have been stepping up to help,” Emerson said.

Emerson said the Opportunity Council runs pretty lean in terms of expenses, which means if any of the nonprofit’s programs were to lose funding, that program would simply end if alternate funding could not be found. This is a bitter pill to swallow for a nonprofit that is already seeing need on the rise. For example, since Oct. 1, the Opportunity Council’s energy assistance program has seen a 20 percent jump in households with zero income.

Erin Corday, the energy assistance program manager, said a lot of people are coming onto the program for the first time and many others are returning because they had nowhere else to turn.

“There were quite a few callers who reported their workplace shutting down, rounds of layoffs, incomes devastated and skilled workers and professionals going from $3,000 or $4,000 to only $200 or $400 a month,” Corday said.

Emerson said any hit to funding would hurt, but the Opportunity Council will continue its work.

“As a community action agency, we are charged with making the community a better place and helping make changes that will benefit everyone,” Emerson said. ”We will continue to work with that mission no matter what happens to our funding.”

Emerging better and stronger

Is it possible for a nonprofit to emerge from a recession better than before?

Economic hardship gives organizations an opportunity to overhaul processes, trim fat and generally clean house in an effort to run leaner.

Du Pre said most of RE Sources’ private donations and foundation contributions come a bit later in the year, so she wanted to enter this potentially rough time proactively.

To get the ball rolling in October, one of RE Sources’ board members retained a management consultant.

“We worked very closely with this person to identify opportunities to save, restructure, plan ahead and also begin to exploit new, upcoming opportunities,” du Pre said.

For most nonprofits, payroll is the biggest expense, so there is not much to be trimmed until someone’s job is on the line. Du Pre said they have also been actively cross-training their employees to make their payroll more efficient.

“We need to look at ways we can save on payroll without compromising our ability to provide services,” du Pre said. “We have managed to not fill vacant positions and to extend the length of seasonal layoffs, and hold onto our core staff.”

Du Pre said that now is the time for the nonprofit community to work together across sectors to make sure that the shrinking pool of funds is being utilized for the maximum benefit of the communities served.

“I really hope that people in the nonprofit community are thinking about how they are setting the stage for a shifting economy so they can emerge from this time better and stronger,” du Pre said.