Nonprofits must gear for tough economy

Nonprofits stressing over the sinking economy and capital markets should focus on the big picture and work to make sure their finances, operations and supporters are secure, says an expert on nonprofit finance.

“At the end of the day, the biggest risk is to the people we serve,” says Clara Miller, founder and CEO of the Nonprofit Finance Fund, a New York City-based nonprofit that provides financial and advisory services to nonprofits and their funders.

Nonprofits should take a hard look at their finances to be sure their bank accounts are safe and their cash is accessible, and they also should assess their revenue streams, she says.

While the looming recession may cause giving by individual donors to dip, for example, and while causes like the arts that depend on discretionary giving could suffer a bigger decline than social-services, she says, individual giving historically has not declined as much during recessions as some nonprofits may fear.

Government funding could decline, Miller says, and while some nonprofits actually could see an increase in government support to cover rising demand for services, the reimbursement rate for services nonprofits provide could decline.

So while a nonprofit that makes home-care visits might receive more government dollars to cover more visits, for example, it might receive fewer cents per dollar on the cost of each visit.

The expected tightening in government funding for nonprofits likely will increase the need for charitable giving to fill the gap, “and that’s a tough place to be,” Miller says.

So nonprofits should move carefully and not look for quick fixes.

“It’s important not to panic and over-diversify lines of business,” she says. “This is a time to be watchful and keep the powder dry.”

Uncertainty about the economy represents an opportunity for nonprofits to “reach out and communicate with the board, staff and funders,” Miller says. “That will make everybody feel better. Information is important.”

Nonprofits “do have a tendency to grit our teeth and make it through bad times,” she says. “That’s a strength. But it can be a weakness if in fact it’s so bad we need to be talking to one another and making contingency plans.”

And in working with foundations, which often make grants based on a “two-year rolling average” and “often, especially in bad times, maintain their giving levels,” she says, “conversation is very important, reaching out is very important.”

Still, nonprofits should recognize that “foundations are not going to fill the breach lost by government cutbacks,” she says.

“If you get most of your revenue from fundraising from government sources, it’s unrealistic to expect philanthropy to replace those funds,” she says. “If government is looking at very bad economic times and cutbacks in direct services, that’s where we are going to feel some pain.”

And instead of working on strategic plans for the long-term, nonprofits should focus on contingency planning that looks at specific financial scenarios, Miller says.

Ultimately, surviving and thriving in tough economic times requires leadership, she says.

“We want to be here for people who need us, so part of what we’re trying to do is live to fight another day,” she says. “This is about making sure we preserve our programs and services for the people who absolutely need them.”

Wall Street plunge a wake-up call for charity

The financial quicksand swallowing some of Wall Street’s biggest players is a powerful reminder that nonprofits must find solid ground rooted in the basics, and that givers can dig deeper to address urgent social needs.

Instead of stressing, nonprofits should focus on strengthening their operations, stepping up their fundraising, and diversifying and cultivating their donor base, experts say.

“These situations are always a reminder of the importance of saving and preparing as a nonprofit for the lean times, whenever possible,” says Fred Stang, director of development at the Triangle Community Foundation in Durham, N.C.

Nonprofits “should not go into panic mode” and should “be patient and see how the financial picture falls out,” he says. “They might need to readjust fundraising projections to be more realistic, but they should not make the assumption that their donors do not have any funds available to support their mission.”

Nonprofits that previously may have taken a “fairly passive approach to their fundraising” by limiting their efforts to distributing newsletters and an annual appeal, for example, now have the opportunity to “step up” and use more active tactics like phoning donors, he says.

The slumping economy and turmoil on Wall Street will put more pressure on nonprofits that serve people who are “on the edge financially,” Stang says, with more people likely to lose their homes and jobs, and to find it harder to get loans.

“Things will most likely tighten up for a lot of their clients,” he says.

Doug Bauer, senior vice president at Rockefeller Philanthropy Advisors in New York City, says that, with last week’s roller-coaster ride on Wall Street, “people on both sides of the ask and give are kind of holding their breath.”

Nonprofits should have “as diversified a fundraising base as you can have,” he says.
“So when you hit rocky times like this, you can navigate through it.”

And because the markets “have not performed to anybody’s liking,” he says, investment returns on endowments and donor-advised funds are down.

Individual givers, whether high-net-worth, ultra-high-net-worth or middle class, are “thinking twice about who they’re giving to and why, and probably sticking to groups close to them,” he says.

So givers likely will focus on “need-to-do giving rather than nice-to-do giving,” he says, and will “support institutions that really matter to them.”

The skidding economy, particularly in the New York metro area, is likely to reduce tax revenues, a reduction could cut into discretionary spending for nonprofits that support the social safety net, he says.

Charles Collier, senior philanthropic adviser at Harvard University and the author of Wealth in Families, says nonprofit fundraisers should “try to be a non-anxious presence when you meet with donors.”

Even if nonprofits do not plan to solicit prospective givers immediately in the increasingly grim economic climate, he says, “you can still have a cultivation visit with your best donors and that is a good thing to do.”

In the face of donors’ fears about the economy, he says, “you listen and try not to be reactive to their anxiety.”

At a visit with an older Harvard alumnus last week, for example, Collier says he “asked about and talked about his family, and in doing so got new information.”

Collier also asked about the alum’s estate plan “without asking if we were in his estate plan.”

Many prospects “will value and enjoy a conversation surrounding their family or their estate plan without having to focus on the downturn in the capital markets,” he says.

But he also says a couple he was scheduled to visit last week cancelled the meeting, most likely because “of their own anxiety about where the economy is headed.”

Stang of the Triangle Community Foundation says the economic slide represents an opportunity for givers to “step up to the plate.”

Those who are more fortunate, he says, can “realize that, though our own stock portfolios might have decreased, we still can eat, we still have shelter, we still have a job,” he says. “And that brings out the generosity in people.”

Arts education needs investment

Supply of the arts is outpacing demand, a critical gap that arts advocates and investors need to help bridge.

The arts help drive the U.S. economy, and arts advocates have done a good job building arts program and access to them.

But they also have failed to invest enough in arts education to build an audience for the arts.

That is the conclusion of a new RAND study for the Wallace Foundation that urges policymakers in the arts and education to focus more on changing public policies to strengthen and expand arts education.

Connecting kids to the arts helps ensure they will become arts consumers as adults, creating the demand needed to help cultural life in America thrive, the study says.

National and state standards for the arts content that schools should teach are comprehensive, the study says, but too few students actually get that education because state, local and district policies fail to provide the resources or school time to teach the arts.

And over the last 20 years, the study says, state arts agencies have invested less than 10 percent of their grants in arts learning.

The study recommends that state arts agencies and policymakers survey arts education in their states, develop high-school graduation requirements for the arts, publicize exceptional arts-learning programs, and push for changes in state policy to increase the amount and breadth of arts-learning opportunities.

“For policy change to happen at the state level, the entire arts community needs to get behind it,” an author of the study says. “Arts educators can’t do it by themselves.”

A 2007 study by Americans for the Arts found nonprofit arts and culture fueled $166.2 billion in spending in the U.S. in 2005, generated $29.6 billion in annual federal, state and local tax revenue, and accounted for 5.7 million jobs.

In addition to enriching our culture, the arts clearly are big business.

But until arts advocates and investors focus more of their effort and resources on closing the gap between demand and supply, the arts will fall far short of their potential to transform civic society into a culture that is truly civil.

Nonprofits must invest in human capital

People are nonprofits’ most valuable asset and they must be smarter about finding, engaging and keeping the staff they need.

A new report from the Nonprofit Listening Post Project at Johns Hopkins University, for example, says nonprofits can be more effective at recruiting and retaining staff -- particularly from among “Millennials” born between 1982 and 2002, and Baby Boomers born between 1946 and 1964 – by focusing on their mission.

“Offering staff a life of meaning can be a powerful tool for recruitment,” says Lester M. Salamon, who wrote the report and directs the Center for Civil Society Studies at the Johns Hopkins Institute for Policy Studies.

Nonprofits also need to show they value their workforce by putting a high priority on personnel issues and adapting themselves to the diverse needs and interests of employees and prospective employees.

To attract Millenials, for example, nonprofits are shifting their recruiting to the internet and looking for ways to offset student-loan obligations, the Hopkins report says.

Other strategies nonprofits can use to be more effective at recruiting and retaining employees include:

* Selling their organizations’ “context,” including physical environment, work environment and mission.

* Taking the initiative on recruiting by reaching out to young professionals who may not know much about nonprofits, an approach can include recruiting young people as board members and donors.

* Redefining work and the work environment by redesigning benefits to reflect new family structures, offering flexible hours, and using focus groups to keep in touch with worker concerns.

* Staffing and investing in human-resources departments.

* Offering relief to recent college graduates who face debt burdens.

* Reaching out to diverse communities in recruiting.

The workforce is changing and becoming more diverse, and nonprofits must move quickly to make sure they reflect and connect to the interests, need and values of the workers they will need to thrive and grow.