Form 990 Videos: Understanding the Changes

MCN has uploaded videos from 990s Do Matter, a training designed and conducted by Eve Borenstein.  Nearly 3 hours of video is available on their website, Form 990 Videos: Understanding the Changes:

You’ll want to download the presentation slides (3.06 MB, PDF) and the sample form (2.12 MB, PDF) used during the training prior to viewing. We’ve tried to make each section roughly 10 minutes or less to allow you to learn at your own pace.

Additional Resources

• Not-For-Profit Accounting
• Online mini courses from StayExempt.org (IRS)
  
• What’s New from the IRS: The 2009 Work Plan for the Nonprofit Sector (GuideStar)
• Six Things Every Board Member Should Know About the NEW 990 (Blue Avocado)
• New 990 To Do List

This Week’s Harvest

• Nonprofit News Update from Not-For-Not-For-Profit AccountingProfit Accounting
  
  • Video: Ten Basic Responsibilities of Nonprofit Boards (BoardSource)

• Philantopic’s Nonprofit Strategies for Tough Times: Economic Stimulus Act FAQ, including:
  
  • How do I find out which types of programs are eligible to receive funding?
  • Where do the decision-making powers lie?
  • Where can I turn for assistance and counsel?
  • Related resources

• Transcript from Managing in Hard Times: How Nonprofit Leaders Can Make the Right Decisions

• Media Matters for America launches Financial Media Matters

• Foundations comment on the State Budget
  • Foundation group throws out big ideas to shake up state budget talks (MinnPost)
  • Improve Public Services and Spend Less: Foundations Speak (Philanthropy Potluck)

Inspired by Nonprofit Leadership 601, I’m going to keep an eye out for innovative and interesting examples of how nonprofits are collaborating during this challenging economic time.  Taking a note from Heather, I’ll also tag those stories npoeconomy.

• Now That’s What I Call Collaboration…

Another Collaborative Framework

In his post, Social Movement Innovation Andrew Wolk asks how nonprofits can work together to maximize impact.

What are the unique roles of a direct service organization, an advocacy organization, a coalition, or the government? How do they all fit together to ensure lasting social impact?  What are the connections in education, for example, among Teach for America, Alliance for Excellent Education, the National Alliance for Public Charter Schools, and the U.S. Department of Education?  Each organization is  concerned with its own sustainability and impact, but shouldn’t they also consider their role in a collective purpose: better education?

How Liquid is Your Cash?

From Balancing the Mission Checkbook, an important reminder that Cash is Cash, Sometimes:

Beyond verifying an accurate number, though, it’s important to have a solid grasp of all the strings and restrictions that might hinder your ability to use that cash when you need it. Some restrictions are external, such as temporarily restricted grants. Other strings on cash result from internal decisions related to investment decisions, reserve policies, or overly-complex designations and conditions.

To help organizations get a better handle on how accessible their cash really is, Nonprofits Assistance Fund has created the Cash and Investment Analysis worksheet.

I would also suggest reading a related post, It’s 10 am, do you know where your cash is?

 This Week’s Harvest

Updates on the Stimulus and the Proposed Deduction Changes

• Sources of Information Regarding Stimulus Funds: National Council of Nonprofits Special Report #4

• More information on federal stimulus in Minnesota from Minnesota Budget Bites

• Information about the Proposed Changes in Charitable Deductions: National Council of Nonprofits Special Report #5

• Obama’s Charitable-Giving Plan: What It Means for Nonprofit Groups Live Discussion Transcript from the Chronicle of Philanthropy

Other Developments

• L3C – Developments & Resources from Nonprofit Law Blog

• What I Learned From the IRS, Part 1 from Not-For Profit Accounting

• Art as collateral from the Artful Manager

• The Critical Alignment of Mission, Money and Competence blog post and discussion on Social Velocity

Lucy Bernholz writes an “instant classic” by reframing the moment: It’s not a recession, it’s a restructuring.

What might now seem to be on the edge of philanthropy – or any industry – may very well come to its center. And quickly. Here are some ways restructuring might happen:

• Social enterprise begins to morph the philanthropic giving that exists to its left and the commercial enterprise that exists to its right (on a spectrum from giving to investing)

This is just the first idea, relevant to the Social Enterprise Network.  I suggest you go read the entire piece.

More Positive Thinking

• pubTalk asks, Out of Crisis, Opportunity?

• Nonprofit Leadership 601 is looking for something positive

I’m getting tired of the media focusing on negative stories of nonprofits struggling to survive, so recently I started tagging POSITIVE stories of nonprofits that are saving money, improving their operations and thriving during this current economic downturn.

A Round-up on the Stimulus and the Federal Budget Proposal

• The National Council of Nonprofits is producing Special Reports on Economic Stimulus & Recovery.  I’ll post them here, but you can subscribe to an RSS feed for the most up to date information.
  • Nonprofit Grant Opportunities
  • Stimulus Grant Tips and Thoughts
  • Whether and How States Are Accepting & Distributing Federal Stimulus Funds

• Coverage from the New York Times
  • Obama Plans Major Shifts in Spending
  • Limiting Deductions on Charity Draws Ire

• From the Washington Post
  • In $3.6 Trillion Budget, Obama Signals Broad Shift in Priorities
  • 2010 Budget Blueprint: Agency by Agency

• The Center on Budget Policies and Priorities weighs on the budget proposal

• The Chronicle on Philanthropy assesses the sector’s reaction to a plan to reduce charitable deductions

The Minnesota Angle

• Minnesota Budget Bites has posted their take, First look at Obama’s budget 

• The League of Minnesota Cities has posted information on their website and presented a webinar on how the Federal Stimulus may impact Minnesota’s cities
  • Download the presentation
• Read Budget Bites on the Minnesota budget

• The legislature’s presentation on the state budget that they deliver at town hall meetings

• Obama’s shout-out to Minneapolis was unexpected

Transparency and Accountability

• Examine the federal budget documents

• State Recovery Sites are now included on Recovery.gov to “help explain how they are spending funds allocated by the Recovery Act.”

• The Minnesota Management & Budget website has a section devoted to the Stimulus

Other News

• The National Council’s  February Policy News features a number of items of note
  • It leads with a story on the Preserve Charitable Tax Exemptions Campaign lead by MCN
  • Includes an update on L3C legislation, which has been introduced in Illinois, Mississippi, North Carolina, North Dakota, Utah, and Wyoming
    • Read Kate’s take on L3c – a Low-profit Limited Liability Corporation
    • Read an overview written by Americans for Community Development

• From the Chronicle of Philanthropy
  • Charities Merge at Almost the Same Rate as Businesses
  • Individuals Make Fewer $1-Million Gifts; Grant Makers Help Offset Decline

• Charities Now Seek Bankruptcy Protection

• New York Times:
  • For States, Stimulus Offers Temporary Relief 
  • Economic Stimulus Special Section
• Washington Post:
  • Taking Apart the $819 billion Stimulus Package
  • States Counting on Stimulus Aid to Balance Budgets

Analysis from Center for Budget and Policy Priorities

• Statement by Robert Greenstein, Executive Director, on the Conference Agreement on the Recovery Package
• Economic Recovery Act: Key Provisions (With State-by-State Estimates)

The Nonprofit Angle

• From the Chronicle of Philanthropy:
  • Congressional Compromise on Stimulus Plan Includes Money for Arts, Social Services, and Volunteerism
• The Cohen Report:
  • Reading an Early Draft of the Stimulus Bill Conference Report: Compromise Provisions (Part I)-Spending 
  • Reading an Early Draft of the Stimulus Bill Conference Report: Compromise Provisions (Part II)-Safety Net Tax Relief 
• Washington Post Op-Ed: Where Stimulus Funds Can Make a Difference

Transparency and Accountability

• Recovery.gov
• From ProPublica (Hat Tip: Utne Reader)
  • Will We Be Able to Follow the Money?
  • The Stimulus Plan: A Detailed List of Spending
  • State-by-State Breakdown of the Economic Stimulus Plan?
• ShovelWatch
• ReadTheStimulus.org (Hat tip: A little light reading…readthestimulus.org)
• From the Sunlight Foundation: We Need Online Review of Stimulus Legislation
• Show Me the Spending

The Minnesota Angle (aka Budget Update)

• Minnesota’s stimulus take: About $9.1 billion
• MPR has a special section devoted to news on the Bailout (it complements their coverage of Minnesota’s budget shortfall)
• From Minnesota Budget Bites:
  • Minnesota quick to prepare for infusion of federal funds
  • Revenue-raising options, with their price tags and impact on tax fairness
  • Legislature asks for your opinion about budget solutions at forums around the state
• pubTalk: MN Legislature: Please Fix the Governor’s Budget
• Political Animal (from Pioneer Press): Pawlenty must redo his budget
• Politics in Minnesota does a great daily roundup of stories on the budget and other related news.

Nonprofits and Credit

• Billions in Nonprofit Projects on Hold Due to Credit Crisis, Report Finds
• Charities Set $166-Billion Worth of Construction Plans on Hold
• Credit Crisis Is Leaving Charities Low on Cash

Other News

• NY Times Op-Ed: Soup-Kitchen Accounting
• From pubTalk: New opportunity for “economies of skill”? 
• Half a Million Nonprofits Could Lose Their Federal Tax Exemptions
• POLICY MEMORANDUM: A Scan of Nonprofit Policy Recommendations for the Obama Administration

The Center for Budget Policies and Priorities

The Center for Budget Policies and Priorities has a Special Series Economy Recovery Watch where they post regular updates and analysis on the stimulus package, the state budget crisis, and other economic news.

• Recovery bill’s “Fiscal Stabilization Fund” is important to protecting education and averting state and local budget cuts that would further weaken the economy

The Stabilization Fund would provide funds to partially close state and local budget shortfalls and allow states to avoid some of the most harmful actions they otherwise would have to take to meet their balanced budget requirements.  In particular, it would help avert damaging cuts in state aid to education at a time when school districts are reeling from declines in property taxes caused by sinking property values.

Additional Useful Resources

• What Nonprofits are Saying About the Bailout: A Fast Roundup from Blue Avocado

• From the Cohen Report:
  • What Can Nonprofits Look Forward to in the Economic Stimulus Bill
  • Ensuring a Timely Economic Stimulus: The Benchmark of CDBG Expenditures

• The Artful Manager asks Stimulus or pork byproduct? on the NEA’s possible inclusion in the stimulus package

• Economic Stimulus Package’s “Infrastructure Financing Tools” – a Boost to Charities

The Minnesota Angle

• Impact of federal economic recovery bill on Minnesota

• Update: The stimulus challenge from MPR

Updates

• Sources: Tentative deal reached for $780 billion stimulus package

• Democratic officials say tentative stimulus deal reached

Harvesting the Web

• From Philanthropy Potluck:
  • Nonprofit Survival: Four Steps to Take Now
  • Filling the Gaps: Expectations vs. Reality

• Blue Avocado: The Nonprofit Layoff Issue

• From Scott Russell at MinnPost: One more way nonprofits can save a little money

• Q&A with Nell Edgington – Accelerating Social Innovation

• Global Social Investment Exchange on Philanthropy 2173
  

• Avoiding the Sirens Song of Social Media Fundraising – The Great Social Media Debate?

Minnesota Budget Update

• From Smart Politics a Humphrey Institute blog: Minnesota’s 2010 Budget Deficit Among Top 10 Largest In Nation

• Pawlenty budget makes things worse a Star Tribune editorial written by Dane Smith of Growth and Justice and Nan Madden of the Minnesota Budget Project

• Finance and Commerce
  • Even the small state agencies are taking a hit
  • Pawlenty’s HCAF proposal could cost Minnesota federal stimulus dollars
• Politics in Minnesota:
  • How much would it cost to leverage the additional $2 billion in health care money in federal stimulus package? No one knows
  • The T Word: Which taxes to raise? Five ideas that are circulating at the Capitol

• State think tank leaders find little common ground on economic issues

• From the Star Tribune: Editorial: Tobacco bonds aren’t a lasting fix
  

The Nonprofit Angle

• Nonprofits lobby for fair tax hikes to avoid drastic cuts from MinnPost
  

The Local Government Angle

• The City of Minneapolis: Cuts to the City’s 2009 budget

Our goal is to share thoughtful analysis on the budget, the proposed cuts, and what it means for everyday Minnesotans on this blog and over twitter (a great big thank you to @tomsheck, MPR’s Political Reporter for live tweeting the press conference).  We will try to bring you the highlights, with an eye on how these changes will impact Minnesota’s nonprofit organizations and those they serve.

Recommended Reading

• State of Minnesota press release
• Star Tribune
  • Pawlenty would balance budget with cuts, federal stimulus
  • Your Voices (especially Budget doesn’t solve deficit, just prolongs it)
  • Losses loom for adults without children
• Minnesota Budget Bites
• Pie charts and numbers of Minnesota’s proposed budget fix don’t tell the whole story from MinnPost
• MPR
  • Pawlenty’s budget: 2.2 percent spending cut
  • Human services cuts inevitable under Pawlenty plan
  • The governor’s budget from Bob Collins’ News Cut
  • Legislature to begin dissecting Pawlenty’s budget proposal

Governor Pawlenty’s Proposal

Yesterday the Governor released his 2010-2011 budget proposal. All of the information is available at the Minnesota State Budget website. State budgets are incredibly complex, and we are still trying to make sense of it.

However, there are some overarching principles, goals, and recommendations that we can unpack.

Budget Principles

•

• Balance the budget (this is mandated by our state Constitution)
• Fund priorities in order of importance
• Strategically position Minnesota for success in a changing world
• Enhance and expand pay for performance
• Don’t increase burdens by raising taxes

Financial Goals

• $250 million in budget reserves to address additional economic risk
• $350 million in cash flow account
• Understate potential level of federal fiscal assistance until finalized
• Improve structural budget – reduce 2012-13 budget gap by nearly half

As the slide illustrates, in order to achieve his goals, he proposes a series of cuts and cost saving measures. (Please note that these are screen shots and the presentation can be downloaded here.)

Budget Assumptions

All budgets have a set of assumptions. Minnesota Budget Bites unpacks some of the Governor’s underlying assumptions:

• He assumes Minnesota will get $920 million in federal stimulus relief (this is just a placeholder amount for now).
• He reduces the FY 2010-11 deficit by $1.3 billion by shifting K-12 education payments into the future.
• He raises close to $1 billion upfront by selling bonds secured with our tobacco lawsuit revenues.

Budget Priorities

• Enhance Minnesota’s job climate
• Improve K-12 education
• Protect state public safety programs
• Maintain military and veterans programs
• Increase government reform and accountability

Budget Cuts

The budget calls for $2,368 million in permanent spending cuts (a 2.2% spending cut). These cuts include:

• Changing eligibility standards for MinnesotaCare, which means that “84,000 people will lose health care eligibility over the next two years.” These changes include:
  • Only those at 100% of the federal poverty level qualify for Medical Assistance (a family of four living on $21,200)
  • Adults without children are no longer eligible for MinnesotaCare
  • Cuts in state reimbursement to hospital and long-term care providers
• $151 million to the University of Minnesota (you can read their response here)
• $245 million in Local Government Aid
• $125 million in County Program Aid
• 5% cut in state agencies

All of these cuts will impact nonprofits.  The changes in health care eligibility, a decrease in reimbursements, and cuts to local and county governments will affect health and human service organizations precisely at a time when need is growing and donations and foundation support is lagging.

These budget cuts, while not surprising, will force nonprofits to make hard choices.

Other Recommendations

• Borrowing $153 million from the Health Care Access Fund.  It often runs a surplus and the state has used these funds to balance the budget in the past.
• Merge the Health Care Access Fund with the General Fund. 
• Sell half of bonds from the state’s tobacco settlement
• Freeze wages
• K-12 payment shifts, totaling $1,294 million.
  • This means deferring state reimbursements to school districts to the following year, known as the “holdback.” The current holdback is 10%, under Pawlenty’s budget it would be 20%.
    

These additional recommendations are primarily one-time solutions that will balance the budget for the moment, but not address the underlying structural problem – Minnesota has a flawed business model.

I was amazed at the breadth of experience in the room. We have a vibrant nonprofit community.  Many of these organizations are pursuing entrepreneurial earned income strategies.  The purpose of this network is to to support and strengthen social enterprise in Minnesota, and provide a space to facilitate dialogue.

These notes are the participants’ thoughts on how organizations can foster a culture of entrepreneurship. Please share your own ideas and any reactions in the comments section.

Top 10 Ways to Foster a Culture of Entrepreneurship

Jim Thalhuber of Goodwill/Easter Seals hosted the first Network on Fostering a Culture of Entrepreneurship.  He shared his Top 10 Ways Nonprofits Can Build and Nurture a Culture of Social Enterprise:

10. They keep their board on board

• Set up an enterprise committee
• Don’t let board members “turn off their business brain”

9.  They keep their employees engaged

• Be transparent
• Engage as many different people and voices in the process as possible
• Generate buy-in by discussing
  • What is going on
  • Why it’s happening
  • The desired outcomes
  • How it will impact everyone’s job

8. They are brutally candid

• Assess the marketplace
  • What is unique about your organization?
  • What are your skills? What are your core competencies?
  • Don’t confuse the way things actually are with the way you would like them to be
• Cannot have tunnel vision

7.  They push the envelope

6.  They focus, focus, focus on what the customer needs

• 3 most dangerous words:  “I like that”
  • Doesn’t matter what you like
  • What does the customer like? What does the customer want?
• Remember the double bottom line
  • The customer’s needs are more important than what you want, but less important than your mission
    • Be mindful of this tension
    • Know your organization’s priorities to help make decisions when they are in conflict
  • A successful social enterprise is where the customer’s desires and the organization’s mission come together

5.  They don’t assume anything

• Research
• Make fact-based decisions

4.  They are keen on their core values

• Core values – what you do when no one is looking
• Social enterprise is a means to an end – to achieve your mission
• You don’t want the tail to wag the dog

3.  They are clear about their core competencies

• What does the market value in your organization?
  • How can you leverage that?
  • Where is there room for innovation?
• Avoid everything else

2.  They are persistent

• Social enterprise is a long-term strategic decision

1. They learn how to dance

• Be flexible
• Have a plan – but don’t be wedded to it

Other Thoughts

Why is internal culture important?

• Internal culture eats change for breakfast
• Takes time and commitment,  keep at it

It’s ok for nonprofits to talk about profit

• Some people are nervous to say the word “profit” or “sales” (the “p” word)
• Profit is good
• The real issue is what you do with the profit
• It’s ok to adopt from for-profit businesses
  • Use what works: business models, terminology, best practices
  • Nonprofits have a double bottom line, so not everything will be applicable
• Helpful framework: I operate a small business within a nonprofit environment

Perceptions

• Is a social enterprise marginalized if it’s one part of a larger nonprofit?
  • Important to engage your colleagues
  • Social enterprise helps support the mission & core services
• Perception that nonprofits can’t run themselves
• Must be good at the business you are doing

Dealing with Risk

• There is risk involved – but you have to leap/seize the moment
• What is the culture of your organization?
  • Is it risk adverse? If you are focused on stability and providing services, a risky venture will not work.
  • Having cash reserves increases your ability to take risks
• The value of a needs assessment
  • Although it can’t guarantee success, it can help mitigate risk
  • Balance risk with market need
  • Consider the opportunity cost
  • Assess what you can afford
    • Can you afford to take the risk?
    • Can you afford not to?
    • Can you afford to wait?
• Don’t put all of your eggs in one basket

Defining Success

• Do what it takes to be successful – to generate earned income for your organization
  • Don’t be married to a particular idea
  • Narrow it down to what is successful
    • Grow deeper, not wider
    • This may mean eliminating programs, rather than adding
    • Keep the focus on your mission and core competencies

Getting the Right Board

• Having the right board might be the most important factor in a successful nonprofit social enterprise
• Look outside the organization and your traditional constituencies
• Ideally you want a balance between “business” and “nonprofit”
• Try to recruit successful small business entrepreneurs
  • Running a successful small business takes a different set of skills than working at a large corporation
  • They have been there, done that (including failed)
  • They are probably connected with other successful entrepreneurs
  • They could serve in an advisory capacity or be elected to the board

Running a Social Enterprise

• You cannot run a social enterprise like you run a nonprofit
• You must generate a profit
  • Time costs money
  • What is the true cost of your social enterprise?
  • What are the true costs of your programs?
  • How much income do you need to generate from this venture?
  • This will help you set a realistic price point

Working with the Government

•  MCN’s Nonprofit Day at the Capitol is February 5th
• The Property Tax Exemption question will impact nonprofits whether or not they own land
• There are huge budget cuts coming – social enterprise can help mitigate reductions
  • Contact your representatives and let them know your thoughts
  • The State House and the State Senate both have websites devoted to the budget deficit

• New York Times article Facing Deficits, States Get Out Sharper Knives.

• The CBPP has a number of useful articles, including States in Trouble Due to Economic Downturn and State Revenues Plummet.

How can you start assessing tough choices you may have to make at your organization? One idea is to think through possible state budget scenarios, and develop corresponding program and organizational budgets.

These resources provide additional information on budgeting for nonprofits:

• Annual Budget Planning

• Nonprofit Budgeting Process

• Annual Budgeting Planning: 10 Step Checklist

• Budgeting Nonprofit Income: Grants and Contributions

• Nonprofit Budgets Have to Balance: False!

• Is Your Budget Broken?

• Two Guiding Principles for Effective Budgeting

Related news

• Pawlenty upbeat about governors’ historic meeting with Obama but worried about the growing federal and state deficits

• Fitch changes not-for-profit hospital outlook to negative (Hat tip: Stephanie Jacobs, from Fieldstone Alliance)

So, what are the numbers?

Although the numbers are not as bad as some projections, they are ugly.  What a weird reaction to be oddly relieved that the gap is “only 5.2 billion.”

Minnesota Budget Bites has a great breakdown of the numbers:

• For the current biennium (FY 2008-09, which ends June 30, 2009) the deficit is $426 million (that’s about half the size of the deficit we already closed during the 2008 Legislative Session).
• For the next biennium (FY 2010-11) the deficit is $4.8 billion (add another $650 million for inflation).  That deficit amounts to about 13% of our budget. That’s a lot. State Economist Tom Stinson says this recession is expected to last 24 months – which would be the longest recession on record.
• For the biennium after that (FY 2012-13) the planning estimate predicts a $4.6 billion deficit (add another $1.5 billion for inflation).

By the way, in case you are confused by the $5.2 billion deficit announced in the media – that adds the FY 2008-09 and FY 2010-11 deficits together.

What people are saying

There is, and will continue to be, a lot of conversation on this issue. A great place to go for up to date information is the Budget Bites blog from the Minnesota Council of Nonprofits.

• Deficits: $426 million now, $4.8 billion soon and $4.6 billion later 

• Predictions of a $4 billion state budget deficit

Here are some additional news stories:

• Officials react to Minnesota’s dire deficit projection

• Budget deficit: Pawlenty remains oppposed to tax increases

• Minnesota’s red ink: $5.2 billion; Pawlenty seeks 10% spending cuts

• As Minnesota reels from a record deficit, leaders offer no specifics on recovery

• Op-Ed from Dane Smith (Executive Director of Growth & Justice)

• Minnesota Revenue Loss Pushes State $5.5 Billion in the Red

• Session of a thousand cuts: Thursday’s budget forecast sure to force painful decisions

• Looming Minnesota deficit offers chance to innovate

You can also visit the Minnesota Management & Budget website to see the state’s financial information, the November forecast, and get up to date on budget planning for FY 2010-2011.

What are our options?

The impact will be huge and felt across the state, in every community and every sector.  This figure represents 14% of the state budget.  Minnesota’s constitution requires a balanced budget, so tough choices will have to be made.

Where do we start?

• Budget Bites calls our attention to an article from 2001, Budget Cuts vs. Tax Increases at the State Level: Is One More Counter-Productive than the Other During a Recession? from the Center for Budget Policy and Priorities.

• A more recent article from CPBB outlines proposed budget cuts that would disproportionally impact those most vulnerable.

• Scott Russell at MinnPost weighs the relative merits of cutting rates or eligibility for health and human service organizations.

• Post your ideas and suggestions at Minnesota 2010 and elsewhere.

If you tweet or use delicious, I suggest tagging items as mnbudget. Let’s aggregate our ideas!

(My favorite tweet on this topic was from @dbrauer, who writes for MinnPost: “Seriously, we are going to need MPR’s budget challenge for this deficit thing. Stories today made clear cuts alone won’t do it.” For a bit of levity, check out the Budget Hero.)