The Boston Foundation’s Call to Action
A headline last week in Philanthropy Today read “Mass. Charities Urged to Merge and Pool Resources”. The story comments on a report just released by The Boston Foundation on the financial status and condition of nonprofits in the state. The online story offers a few nuggets from the report and summarizes that “Its findings follow what officials at the foundation have been saying less formally in the past several years: that some of the state’s nonprofit groups should merge or pool resources to reduce overhead and offset cuts in state money and waning private donations.” This summary of the report’s recommendations is accurate, but it’s incomplete. The report itself, Passion & Purpose: Raising the Fiscal Fitness Bar for Massachusetts Nonprofits, offers so much more in information, analysis, and recommendations that are important for nonprofits everywhere.
In their analysis, the authors group nonprofits in three organizational/financial categories: small Grassroots Organizations, mid-sized Safety Net Organizations, and large Economic Engines. While it is a budgetary distinction, the authors dig into the financial profiles of these three groups and point out some systemic issues. They raise alarms, for example, about the vulnerable financial condition of the essential Safety Net Organizations caused by reliance on public funding that does not cover the cost of delivering services or building infrastructure and reserves. The report also acknowledges that the growth in the number of young Grassroots organizations can be seen as evidence that there are too many nonprofits, but that this group is often the source of new ideas and direct responsiveness to niche community needs.
The report concludes with three recommendations billed as “A Call to Action” on page 15 of the Executive Summary. The first recommendation, which earned the headline, is for Restructuring and Consolidation including mergers and/or alliances to efficiently provide some administrative and operational foundations. A great Minnesota example of this is MACC CommonWealth. The other recommendations that weren’t headlined are also important. The second is Repositioning nonprofits as an influential group in the state and region through collective action, policy work, and organizing for common goals such as cost savings, efficient regulations, and access to capital. In my view, the third Call to Action is most important – Reinvention and Reinvestment. This broad recommendation encompasses three themes: appropriate program funding structures that cover the cost of services, adequate funding for organizational capacity and stability, and healthy financial management practices. These structural questions are urgent. Nonprofits can’t merge their way out of recurring deficits if the formulas and expectations continue to demand more services for less money. The three recommendations have the most impact as a set – not an either/or choice. The challenges to stable services in the community and healthy nonprofits spring from various practices, systems, and perceptions and require multiple approaches. I hope you read this report and join the call to action.
While there is much of interest and many recommendations that I agree with in this report, I also think that the report missed the mark on a number of fronts that could backlash against nonprofit organizations by misleading the media, the less informed and those who give.
I’ve decided to start blogging about this report and have one entry in my blog,The Butterfly Effect at http://www.ceffect.com/Wordpress and will continue to add comments as I continue to digest the report.
But here are a few of my concerns…
1. The report has reduced the effectiveness of nonprofits to their financial statements. It is biased by the Nonprofit Finance Fund’s belief ethat only those nonprofits with budgets over $50 million (the so called Economic Engines)are truly financially stable — with the glaring exception of many hospitals.
I think we can all point to hundreds of nonprofits with budget below $50 million that have been around for decades, even over a hundred years. While their budgets and payrolls may expand and contract, it doesn’t mean that they are in imminent danger of collapse or that those expansions and contractions are unusual phenomenon in any business cycle.
2. The use of the term “Safety Net” diminishes the social value of those organizations between $250,000 and $50 million (which is an absurd lumping together on its face. If you read through the full definition of safety net, it does acknowledge “quality of life” contributions, but the use of Safety Net as the name for the whole obliterates the enormous community building functions of cultural, smaller educational, environmental, housing, youth services, and even those organizations that work with the most disadvantaged among us. I would argue that even those organizations that might be serve the societal safety net (homeless shelters, food banks, group homes, immigrant and refugee services, etc, etc) do not limit their vision to “rescuing” lives on the margin but also as animators of the value that their clients can add to our society.
3. It seems that the authors have forgotten that this sector exists because business has not found it profitable to engage in the services that the sector provides. The public benefit sector has at its core a powerful and driving belief that the MISSION is worth the undertaking DESPITE the unpredictability and the shakiness of its financial footing. It will be a sorry day for all society if philanthropic investments only go to financial sure bets.
4. Why are private universities so “financially healthy?” Part of the reason is that they can raise tuition endlessly to cover costs a)because they mainly serve those with the financial means to absorb the costs and b) because most have passed the costs (in the form of enormous debt) onto the very students (and their families) that they serve. The nonprofits that serve folks on the bottom scale of the economic spectrum cannot (both practically and morally) pass their capacity-building costs onto the users of their programs. This is one instance of where I find the lack of class analysis in the study on the part of The Boston Foundation so distressing.
4. I personally haven’t encountered any philanthropic institution willing to invest the amount of money over the years needed to build significant capacity in fund development that could significantly increase the financial health of many of the “safety net” organizations … at best they dole out meager grants to barely fund the first development staffer for one year and call it capacity building.
5. It seems that the authors never asked — a question that I wish to pose to universities such as Harvard, Brown, etc — how much is enough? Is the kid on the streets of Lowell or Worcester or Springfield really better off because Harvard has $32 billion or more in its endowment and continues to raise more dollars in philanthropy?
I’ve got many more reactions … and many questions about the analysis, but it seems that the Foundation and authors aren’t inviting comments. I hope that the societal benefit sector, especially the “grassroots” and “safety net” organizations and those of us who love and serve them, will have much to say and not take the whole report on its face.
Best, Gayle
Comment by Gayle Gifford — June 20, 2008 @ 3:14 pm
I’ve been remiss in not responding to this meaty comment and the further posts on the topic on Gayle’s blog. I think that you have to keep in mind that the study was designed to be a financial study - so the finding are financial in nature. While the words used for the three categories may be inelegant, I don’t think anyone can disagree that it’s important to make a distinction between the financial characteristics of different sized organizations. Lumping all nonprofit organizations together causes too many problems that we can see on any of the “rating” or standard setting sites. I will agree that the range of $250,000 to $50 million for “safety net” organizations is pretty absurd. While the MISSION is indeed the most important factor in understanding any nonprofit, I think that the author’s greatest contribution is their case for the need to create new ways for service providing nonprofits to receive adequate revenue from government contracts and contributions to actually survive for the future. Yes, nonprofits have survived despite the shakiness of their finances, but frankly that shakiness is turning to thinner and thinner ice BECAUSE of the increased demands made by sources of funding. At some point enough has got to be enough.
Comment by Kate Barr — July 8, 2008 @ 8:06 pm
Kate, Thank you for your reply. I agree completely with you and the report authors that the reworking of government funding is essential. And while I do think that it is helpful to understand nonprofit financial structures (e.g. I am a big fan of the work that the Nonprofit Finance Fund has done to help explain the differences in nonprofit vs for-profit financial structure), I still think that this report has implications that are much, much larger than a look at the finances of nonprofit organizations.
I really do challenge the assumption on its face that financial health and/or organizational stability are related to budget size. Any size organization can be healthy financially, or shaky financially, regardless of how big or small they are. The authors validate this themselves by pointing to the financial conditions of many hospitals.
But the major concern that I have is that the report is based on a scarcity mentality (too few resources) and asks these questions:
“Can the sector support this proliferation in small and very small nonprofits?”
“Can our nonprofit organizations sustain their public purpose responsibility with their current financial practices?”
They might just have well asked:
Can the sector sustain the vast overconsumption of philanthropic support by a very few mega institutions that act like for-profit businesses?
Could this sector be better served by a redistribution of philanthropy?
How much is enough?
How do we assess the return on investment in societal impact? Where do we get the largest societal impact for our investments? Should we invest more in those organizations?
Gayle
Comment by Gayle Gifford — July 10, 2008 @ 11:03 am