"The Fate of State-Funded Nonprofit Organizations"

Sydney M. Williams

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Thought of the Day

“The Fate of State-Funded Nonprofit Organizations”

August 14, 2017

“It is not the strongest or most intelligent who will survive, but those who can best manage change.”

                                                                                                Leon C. Megginson (1921-)

                                                                                                Author: Small Business Management

The need to adapt is universal. As a board member of the Mentoring Corps for Community Development (MCCD) in Old Lyme, CT, I have been witness to the effects of state budget cut-backs on nonprofit organizations that help those with intellectual and developmental disabilities.

“Attention must be paid,” said Linda Loman about her husband Willy. She was speaking to her sons about the despair of their father’s life, as it was nearing its end. Attention must also be paid to thousands of eleemosynary institutions around the country, as state budgets are being strained, principally from demands by public employee unions for wages and benefits. While I write about eastern Connecticut, the problem, is nationwide.

“Nonprofits throughout the state,” according to an article in the New Haven Register on July 4, 2017, “have been told to plan for budget cuts of 10% or more.” The State of Connecticut is not alone in fiscal mismanagement, but it has been more egregious than most. It is the nation’s wealthiest by per-capita income and by assets per resident, yet more than 12% of its population is on food stamps. Connecticut has the second highest state debt per capita and as a percent of GDP. Its deficit, estimated at $1.5 billion over the next three years, is among the highest relative to its budget and population. It is unfriendly to business. It is understandable why Connecticut is experiencing out-migration, especially among the wealthy.

The crisis for nonprofits, alluded to in the Register, should provoke a debate as to the purposes and priorities of spending by the State. Revenues are supposed to help pay for schools and support state universities and community colleges. They build roads, bridges and tunnels. They pay for state police and fund the national guard. They operate prisons and courts, and they supervise and maintain parks, harbors, wetlands and forests. But, when one looks at the budget, it is hard not to conclude that Connecticut’s spending is largely to pay for the approximately 50,000 employees, plus retirees. (The State ranks near the top of the list in terms of compensation per state employee and in number of state employees per 100,000 population.) Approximately 55% of Connecticut’s budget goes to pay employee salaries, benefits, and retiree health and pension programs.

Over the years, Connecticut’s budget has been squeezed, as the population declined[1] and as some businesses vacated the state, and as other responsibilities, including programs to help those with disabilities, were assumed. In the meantime, retirement benefits, along with entitlements – welfare, Medicaid, unemployment compensation, food stamps – kept expanding. Prudence is needed.

Forced by budget constraints, Connecticut has had to make tough choices, as the article in the New Haven Register explained. The unpleasant fact is that the governor and legislature have abetted the politically connected, and let the axe fall on those with less influence – including those with intellectual and developmental disabilities. However, it is not the purpose of this essay to find guilt, but to explain that the State’s spending constraints are a reality for those in the nonprofit world, and to offer possible solutions.

In the New Haven Register’s article cited above, Ken Dixon quotes Gian-Carl Casa, president and CEO of the Connecticut Community Nonprofit Alliance: “There are devastating funding cuts to community-based providers. We continue to believe that budget solutions should be long term and include conversion of state services to the community, where $300 million can be saved over the next five years and used to prevent damaging cuts.” Perhaps. Maybe communities can save the day, but many local governments are under pressure, especially those in poorer parts of the state, like southeastern Connecticut.

The question facing nonprofits is what to do given this dismal state of affairs? Each year the situation worsens – demand for services expands, while revenues shrink. Options, apart from reducing expenses, are limited – and much of the cost-cutting has already been done. In eastern Connecticut, approximately 10,000 residents suffer from intellectual and developmental disabilities. They are served by multiple nonprofits – ten or twelve large ones and a dozen or more smaller ones. Another (estimated) 5,000 individuals in need are either not served or underserved. Each organization has its own director and staff, along with an independent board of directors. Thus, one possibility is consolidation. While mergers would make many of these nonprofits more efficient by streamlining programs and reducing administrative costs, there are, understandably, advantages to being independent and “local.”

Other choices include becoming more aggressive writers of grants. As well, they might expand efforts to find individual donors, but that activity is crowded. (Though, it is my belief that generosity is deeply embedded in American culture.) It is possible there are funds within towns and cities that could be tapped, but most municipal budgets have little flexibility. It is even possible that funds from other state departments may be accessed, but I suspect those sources are pinched as well.

One path we at MCCD have pursued, in working with a few of these organizations, in helping set up up for-profit businesses – bakeries, the manufacture of soaps, lawn services, and the like – within the nonprofit organization. All profits, obviously, accrue to the nonprofit. Such actions reflect a “can-do,” entrepreneurial spirit on the part of the nonprofit, which brings the advantages of self-sufficiency and independence to their boards, staffs and clients. Many of the latter work in those businesses.

Change happens. We adapt or we die. In contravention of my earlier promise to keep this essay apolitical, allow me to vent: I am incensed by the unconscionable cynicism of politicians who have, because of profligacy and promises to unions, put their most challenged constituents at risk. And I am disheartened by voters who refuse to challenge them.

Attention must be paid; facts must be faced, and decisions will have to be made. In The Silver Chair (Chronicles of Narnia, book six), C.S. Lewis wrote, “Crying is all right in its way while it lasts. But you have to stop sooner or later, and then you will have to decide what to do.”  Lewis’ book was written for youngsters, but his message is for all ages, especially politicians, the voters they represent and operators of state-funded nonprofits. If you cannot be all things for all people (and most of us cannot), needs must be prioritized, values must be considered and decisions must be made. The lesson as I see it – accept change, and distance your nonprofit organizations, wherever and whenever possible, from the enticing but entangling, amoral arms of government.

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[1] The Census Bureau reported last December that Connecticut’s population has declined three years in a row, at an accelerating rate.