Nonprofits Strategize to Help Them Cope With a Perilous 2011

The year 2011 is shaping up to be even more difficult than 2010 for many charities.

While donations from individuals seem to be rising as the economy improves, foundation giving remains flat, and corporate contributions have yet to rebound. Federal stimulus money will soon come to an end, and many charities have already tapped their rainy-day funds to respond to increased demand for their services and to stave off significant cutbacks.

Most ominously of all, state and local governments, which have already made painful cuts, face staggering deficits that will take a long time to close.

For instance, in the next 18 months, the state of Arizona has to make $2.2-billion in cuts to its roughly $9-billion budget, says Patrick McWhortor, chief executive of the Alliance of Arizona Nonprofits, in Phoenix. “As hard as it’s been the last two years, there’s a tougher year or two coming ahead,” he says.

Some charities’ survival will be at stake.

Forty-two percent of social-service organizations that have government grants and contracts ended 2009 with a deficit, according to an Urban Institute study, and that was before state and local budget crises began to intensify.

Paul Light, a professor of public service at New York University, who predicted in 2008 that 100,000 groups would close as a result of the bad economy, says he still thinks that is an accurate forecast.

Large national organizations with strong name recognition and reserves are “doing OK, not great,” but local charities that provide direct services are struggling to get by—and in very poor urban and rural areas, failing, says Mr. Light.

“I see the emergence of what can be called nonprofit deserts in particularly hard-hit communities,” he says. “There’s no way to get money to those neighborhoods because there are no nonprofits there anymore.”

Last-Minute Reprieve

Fear and uncertainty have become mainstays for nonprofit groups that rely on government money, says Eric Erickson, executive director of CDM Long-term-Care Services, a charity in Vancouver, Wash., that provides home-care services to people who would otherwise have to go to nursing homes.

In a midyear cost-cutting measure, the state’s Department of Social and Health Services planned to cut in half the program with which CDM has a contract as of November 1. The organization was planning to lay off roughly 100 of its 200 employees when the program got a last-minute reprieve.

“Literally, it was supposed to go into effect on a Monday, and they sent out a memo at 4:45 on Friday saying they were holding off,” says Mr. Erickson, who says he is thankful for the breathing room but worries the department might have to revisit the decision during future rounds of cost cutting.

Joining Forces

With so many nonprofits teetering on the brink, charities and their supporting organizations are taking aggressive steps to pull them back from the abyss—striking mergers to save or improve programs, seeking new ways to extend credit in a time of tight lending restrictions, or creating partnerships to tackle social problems in a new way.

To try to help charities navigate the difficult economic terrain, community foundations and nonprofit umbrella groups have sought to increase charities’ access to information about fund raising, board development, and other critical topics—either by providing the training themselves or by supplementing groups’ travel and professional development budgets.

The Cumberland Community Foundation, in Fayetteville, N.C., for example, awarded 14 nonprofit leaders with scholarships to attend the annual conference of the North Carolina Center for Nonprofits.

“We want to keep them on their A games and give them access to networks and new ideas,” says Mary M. Holmes, the foundation’s executive director. “And it was a morale booster, which avoids burnout.”

As another way to support nonprofits’ work, grant makers across the country are encouraging charities to think about how they can serve more people by working together more closely.

The Foundation for the Carolinas, in Charlotte, N.C., for example, raised $5-million from local grant makers, banks, and individuals for its Community Catalyst Fund to support innovative approaches to providing services as well as collaborations and mergers. More than 1,000 local nonprofit officials attended training sessions offered as part of the program, and 14 grants totaling $800,000 have been awarded to support nonprofit groups that are merging or creating other types of partnerships.

Among the other community foundations that have created programs to support mergers and collaboration: the Arizona Community Foundation and the Boston Foundation.

A Changed World

Some arts groups, which have been particularly hard hit by the economy’s downturn, are also considering joining forces.

In November, Berkshire Theatre Festival, in Stockbridge, Mass., assumed management of the Colonial Theatre, in Pittsfield, Mass., which had been without a chief executive. The groups’ boards of directors will be meeting over the next six months to negotiate a merger. The poor economy is a “major factor” in the theaters’ coming together, says Kate Maguire, who now serves as chief executive and artistic director for the two organizations.

For the past year, Berkshire Theatre Festival has been reaching out to nearby arts groups to find ways to collaborate, says Ms. Maguire. The Berkshires region, she says, has an abundance of cultural organizations, all of which have full administrative staffs despite their small size.

Riding out the recession hasn’t been easy, says Ms. Maguire. When Berkshire Theatre Festival was preparing its 2009 budget, the group made cuts totaling $500,000 on what had been a $2.5-million budget.

But Ms. Maguire thinks the changes that charities have had to make, while difficult, are in many ways a good thing.

“We were all being driven by an artificial bubble, and the bubble needed to burst probably in a lot of different areas,” she says. “We can see the improvements are happening rather slowly, and it does look like the world may never be what the world was a few years ago.”