By Ted Hughes
U.S. funding cutbacks are forcing many charities to take a serious look at the way they raise money and the services they provide.
A national survey of nonprofit organizations, done by the Washington, D.C.-based group Independent Sector, predicts that, if all proposed federal budget cuts are implemented next year, nonprofit organizations will face a $254 billion cumulative funding shortfall by the year 2002.
To make up that much of a shortfall, says Independent Sector lobbyist Bob Smucker, organizations would have to ask their donors to more than double what they gave in 2001.
Dr. Sara Melendez, Independent Sector President, says that because of the magnitude of the burden government wants to shift, nonprofits "will not only be unable to provide services at current levels, but their capacity will be so reduced that they will be incapable of increasing services to meet projected new needs. . ." Melendez says if the survey is an accurate projection, "there will be major increases in unmet needs among many segments of society, including those people who are most vulnerable."
Professor Mary Hall, director of Seattle University's Not-for-Profit Leadership program, in a telephone interview, said that while charitable giving in the United States rose 18% last year -- the first such rise in several years -- it still won't be enough to make up for federal and state budget cuts. "The most needy programs will run out of funds soon. And the real tragedy is that the programs that serve the most needy individuals will be the ones hurt most," Hall said.
A study done each year by Johns Hopkins University shows that during the past four years there has been a 10 percent drop in all government funding for nonprofit organizations, Hall said.
"This is happening at a time when the government also is throwing more and more individuals at the private service system. We're going to see people fall through the safety net," Hall said. "The nonprofits simply are not prepared to provide the level of service required to make up for what's being lost with the dismantling of the welfare system."
Civic leadership will be needed at the local level to address the problems being created at the federal and state levels, Hall predicted. Thorny issues are being debated -- in some cases for the first time. "Even good-hearted, well-meaning people," Hall said, "are reluctant to take a lead. They're talking about taking up the slack and creating good service programs at the local level, but they're fearful that if they do so they'll be flooded by individuals who'll move into their communities just to take advantage of those services. It is interesting that now this is openly being discussed as a problem even by those most concerned."
Nonprofit organizations are racing to keep up. They are increasingly more sophisticated about finding and keeping donors, Hall said. The biggest trend is for nonprofits to sell products and services. Last year, Hall said, that's where a quarter of all nonprofit income was generated.
Nonprofits are also finding they can double up on rent, office equipment and office help, Hall said. "We're seeing mergers, sharing of resources, and more entrepreneurial approaches. There still are a lot of efficiencies to be made by really getting serious on ways to cooperate. While this is driven mostly by financial necessity, it really is time to do this anyway."
Diversification of sources of money and methods for raising it is increasingly important for nonprofits according to Jody Fitzpatrick, an associate professor at the University of Colorado's Graduate School of Public Affairs at Colorado Springs. "Some nonprofits are getting more into marketing and entrepreneurial activities of their own to make money. One nonprofit here started a catering service operated by their clients, the profits go back into the agency."
Florida-based nonprofit consultant Terrie Temkin said relying on any source for more than 20 percent of an organization's income is very dangerous in times like these. Becoming more entrepreneurial is important, Temkin said, but more important is building strong endowment programs, even in small organizations.
"More than ever before, it's important that organizations begin to do whatever they need to do-cutting back current programming if necessary -- to build that nest egg." More careful analysis is also needed. "I would like to see more organizations confront the future by reexamining their programs every year to see what programs are really still relevant and successful, what can be eliminated, and what should be added," Temkin said.
There also is a new urgency for nonprofit managers to raise their own level of professionalism. "It is short-sighted for nonprofits to put all their money into service delivery and neglect staff compensation, training and development, evaluation, and public relations," Fitzpatrick said.
Donors are demanding more professionalism too. "Foundations and funding sources are very interested in outcome evaluations..Nonprofits should work to have these evaluations provide..useful information."
The pressure to do more with less has spawned a boom in nonprofit training programs. Hall and Fitzpatrick said such programs are a very fast-growing sector of academia. A few years ago there might have been 10 such programs in the U.S., Hall said. Now there are more than 60.
"I am seeing nonprofit professionals looking for ways to improve their management skills," said Russell A. Cargo, director of the Nonprofit Management program at George Mason University in Fairfax, Va. "They most often have come to nonprofit work through a non-management discipline. They are back in school for additional education to help cope with the real demands of the job, not the demands they envisioned."
Among the ways nonprofit professionals are learning to respond to the new pressures is to be more aggressive in promoting
More too must be done to improve efficiency, Cargo said. The organizations must carefully assess their capacity in the context of the new demands they face. Most organizations are trying to do it all -- cut programs and increase fund raising. "This of course has its obvious problems" Cargo said. "How do you convince someone to donate to an organization that looks as though it is failing, or at least, withering? The best strategy is to place more effort on funding. The second best is to cut programs while trying to hold on to current levels of funding while being prepared to lose support as program levels drop."
Most problems originate with boards of directors, Cargo said. "If we can improve the level of fiduciary responsibility practiced by nonprofit boards in this country, we can comfortably handle many of the problems we will face in the future."
Professor Hall tries to maintain a long-term sense of optimism. "We'll eventually see a reformation and a swing back to a different view of what government should do," Hall said. "When enough people get tired of having their homes broken into or whatever, there will be a swing back. In the meantime it will be the kids who will pay the biggest price."