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On Thin Ice

Nonprofits On The Brink, United Way Survey Finds

By Sujata Srinivasan

October 18, 2010

Slammed by one of the worst recessions in recent history, a staggering 31 percent of the 100 Connecticut-based nonprofits in the United Way of Central and Northeastern Connecticut’s seventh annual Nonprofit Pulse Survey reported they are concerned that their organization could cease operations within a year.

Their pessimism reflects the seismic shifts in the economy that have already led some nonprofits to the brink. For example, the 220-year-old Hartford Conservatory announced last month that it would close in May 2011.

Compared to 6.4 percent of respondents in 2009, 7.8 percent of respondents said they’ve depleted reserve funds to cover operating costs. Adding to their woes, 60.7 percent reported an increase in the demand for services. The majority of nonprofits interviewed by the Hartford Business Journal — including some who did not participate in the United Way survey — said they’ve encountered a sharp increase in the number of first-time recipients, especially for food, clothing and shelter.

“We’ve seen a 10-15 percent increase in the number of new people seeking help at our food pantry,” says Paul Doyle, executive director, Coventry Soup Kitchen. “A lot of medium-income people who used to be donors are now seeking assistance.”

Compounding the problem, the kitchen is seeing a 10 percent drop in contributions from individual donors, which has resulted in a 20 percent operational loss. With people still looking for jobs and burning up their savings, demand is expected to soar by 15 percent in the coming year.

Susan B. Dunn, president and CEO, United Way of Central and Northeastern Connecticut, says she prefers to look at the glass as half-full. “There are nonprofits who’ve made it through the last two years and are still in business. They’ve learned to do a lot more with a lot less. But yes, they’re certainly not out of the woods yet,” she concedes, adding that although the downturn could lead to a reduction in the number of charitable organizations, she hopes the nonprofit sector’s capability in providing vital services to the community will not diminish.

To Dunn’s point, only 36.8 percent of the respondents said they expect revenues to decrease in 2010, down from 55.1 percent in 2009.

Still, storm clouds mask much of the silver lining. When asked about their overall outlook, 47 percent of respondents said they were pessimistic, up from 44.8 percent in 2009.

There is also uncertainly over the public policy climate. Tough the percentage of respondents who said their organizations will be affected by changes in public sector funding dropped from 68.3 percent in 2009 to 47.3 percent this year, several nonprofits expressed their concern that the pressure to balance Connecticut’s budget could drive the state government to cut back on funding in 2011-2012.

A significant proportion — 64.7 percent — of respondents in the United Way survey said they receive more than half of their funding from public grants or contracts. The Connecticut Association of Nonprofits estimates that nonprofits employed 11 percent of Connecticut’s workforce and generated more than $8.7 billion in wages in 2008. They hold over 2,000 Purchase of Service contracts from the state, worth $1.4 billion annually.

“Our problems stem from a pattern of chronic under-funding from the state and we’ve had to make cutbacks that will affect those whom we serve,” says Stephen Becker, president and CEO of HARC, Inc., a Hartford-based service provider to people with intellectual challenges.

He draws attention to the fact that nonprofits in Connecticut have not received a cost of living adjustment since July 2007, with the 20-year average standing at just one percent. But on the other hand, several nonprofits — including HARC — have been pummeled by an increase in the demand for family support services like respite care as more parents in their old age are providing homecare to intellectually disabled adult children.

The demand for regular daycare services, based on a sliding payment scale, is also on the rise as parents grapple with job losses and pay cuts.

“Most families who seek our assistance are experiencing negative cash flows due to cutbacks in the number of hours they work or a reduction in their hourly pay rates,” says Patrick Clow, executive director, Southfield’s Children’s Center, Inc. “Our center now has a two-year waiting list.”

There’s some relief in sight as private philanthropy has stepped up to the plate. The survey found 34.3 percent of respondents seeing an increase in donations by individuals this year. One out of three reported an increase in giving by foundations and corporations.

For example, the Hartford Foundation for Public Giving set up transitional grants to help nonprofits hurting from a drop in funding from other sources. According to spokesman George Chappell, the foundation awarded $2.25 million to 24 agencies in 2009 and expects to award $3 million by the end of 2010.

Becker says the foundation has provided a lifeline to nonprofits like HARC. Timothy Goodwin, executive director of the Community Farm of Simsbury, Inc., a year-old nonprofit that grows and donates organically certified vegetables to impoverished families, also received $128,000 in funding from the foundation. The farm plans to double the amount of vegetables it donates to 6,000 pounds next year. “We’re very popular right now because of the economic downturn,” Goodwin says.

But the picture is not entirely rosy. Ron Cretaro, executive director, Connecticut Association of Nonprofits, says there was some uptick in private philanthropy in early 2010. “But in the fourth quarter, individual and corporate giving may drop off, particularly for human services organizations,” he says.

Cretaro points out that several nonprofits will be hit by a substantial reduction in state funding. “We were able to avoid a lot of draconian cuts this year. But for 2011, there sure is bad news ahead,” he says.

Nancy Roberts, president, Connecticut Council for Philanthropy, a Hartford-headquartered statewide association of grantmakers, emphasizes that private giving simply cannot make up for a possible drop in state funding.

She illustrates the gap by citing the most recent funding data. In 2008, the state infused more than $2 billion into nonprofits. Although individuals in Connecticut donated $2.6 billion (as deducted on their tax returns), part of the money was disbursed to various charities worldwide. Corporate foundations in the state donated $810 million nationwide, part of which flowed into Connecticut.

“There’s just no way private philanthropy can fill this gap,” Roberts says. “And as with any downturn, these organizations may take up to seven years to revive. Many won’t survive and some may choose to merge,” she says.

Roberts points out that several of the council’s members find that age-related challenges are more pronounced in the aftermath of the recession. Retrenched individuals in the 50-to-55 age groups are finding it daunting if not downright impossible to find a new job. While these individuals are coming off of state unemployment benefits, they’re burning up their savings and — more troubling — their assets, putting a tremendous burden on the resources of nonprofits.

Incy S. Muir, executive director of the Farmington Valley Visiting Nurse Association, says people in the 50-55 age group are caught between a rock and a hard place, given that many care for aging parents on the one hand, and their young adult children on the other. “More people don’t have insurance because they don’t have jobs. Many are working longer hours at different part-time jobs and we don’t see any signs of things getting better for them,” she says.

Muir — whose nonprofit offers services on a sliding scale — has seen ups and downs in her 25-year career in healthcare, but this time the downswing appears deeper. “Today, among my network of colleagues, there is much more concern about the viability and survival of organizations.”

The survey is a longitudinal study of nonprofit organizations working in the health and human services sector in central and northeastern Connecticut. A total of 361 surveys were sent out via e-mail, of which 100 were returned representing a 27.7 percent response rate. According to the Connecticut Attorney General’s Public Charities Unit, there are 7,201 charities in Connecticut. Of these, 1,917 are located in the surveyed area. This sample size has a margin of error of +/- 8.3 percent at the 95 percent confidence level.