For Nonprofits, Time to End Business-as-Usual

Working in mid-town Manhattan, it’s easy to believe the pundits and politicians who talk about the “financial crisis” in the past tense. Restaurants are full and sidewalks are packed with tourists. It is clear that some have managed to put the economic woes caused by the recent recession behind them.

But the nonprofits we work with face an existential crisis that is just beginning to reveal its true ugliness. This is becoming particularly clear for the “frontline agencies,” such as homeless service providers, health clinics, and domestic violence shelters that provide essential services to the most vulnerable communities. These agencies are almost all caught between an increased demand for their services and lower revenues to pay for those same services. Government reimbursements, which, according to The Urban Institute, typically provide 65% or more of their funding, are drying up in the face of widespread local, state, and federal budget cuts.

Unfortunately, this is not a short-term crisis resulting from cyclical cuts. Even if the economy recovers, structural demands on public coffers driven by inexorable demographic trends and the inevitable diversion of public resources to pay off deficits will reduce governments’ capacity to fund essential social services for the next few decades at least.

Once we accept this fact, the typical responses—blaming the government for its stinginess or blaming service providers for their inefficiency—will be revealed as increasingly inadequate explanations.

Instead of these default responses, we need to consider a fundamental question: “How will we secure a just and vibrant society now that our old models of sustaining essential organizations are disintegrating?”

Take, for example, domestic violence service organizations in California, such as the members of the California Partnership to End Domestic Violence. Their reliance on state reimbursements has allowed most of them to build up their shelter facilities to house survivors of domestic violence. After all, in California, as in many states, housing has been one of the services that state reimbursements have consistently covered from the beginning. But, with budget cuts, the shelter business, already operating on a razor thin margin, has become a money-loser, and reimbursement rates still fail to cover the other services that the shelters used to cross-subsidize. Even the most efficient shelter cannot cut its way to sustainability.

So, what are we going to do if we are not willing to accept that families fleeing domestic violence will not have a safe place to stay? We have to broaden the question. This means we need to stop asking, “How do we provide shelter space for everyone who needs it?” Instead, we need to start asking, “How can we ensure that all families have a safe place to stay?”

In the case of domestic violence, a promising program in the state of Washington is focusing on getting families into non-shelter housing by allowing domestic violence service agencies to expand their continuum of care. The Domestic Violence Housing First approach, modeled after work in the homeless services sector, has led to creative partnerships with affordable housing developers, among others. Other domestic violence agencies are shifting focus from housing families fleeing violence to counseling high-risk families to prevent the violence occurring in the first place.

Across the country, similar re-framing is opening up exciting possibilities. In Boston, leaders in homelessness service agencies have similarly transformed their work by changing their organizing question from “How do we provide shelter beds for everyone who needs one?” to “How do we end homelessness?” Re-framing the question led the head of one major homeless services agency to discover that providing shelter alternatives for the 20% of clients who were using 80% of the shelter beds enabled them to serve more clients while actually closing down shelters and reducing costs.

But we cannot expect nonprofit organizations to embrace and implement breakthrough innovation on their own. Funders must provide “change capital” grants that give organizations the resources they need to innovate. And governments at all levels have an essential role to play even as their resources dwindle. By providing targeted loan guarantees and other incentives, they can mobilize private investment alongside public resources.

The economy may be in recovery, but it does not mean nonprofits can head back to business-as-usual. The sooner we confront our new economic reality and support visionary thinking and organizations, the sooner we can begin to rebuild a sustainable safety net.

Author: Antony Bugg-Levine, CEO, Nonprofit Finance Fund