If you speak to nonprofit leaders these days, concern and trepidation will likely come up quickly in the conversations. The nonprofit sector, while vibrant, is still in a very tenuous position with its heavy reliance on government funding.
“Many nonprofits are operating very thin, without the necessary cash reserves to get them through setbacks that may arise,” said David Goldstein, a nonprofit attorney with the law firm Certilman Balin Adler & Hyman.
You don’t have to look too far into the past to see what happened to FEGS, one of Long Island’s largest nonprofits, to realize how fragile the sector is. This has pushed many nonprofits, such as Victims Information Bureau, Visiting Nurse Association of Long Island and Center for Developmental Disabilities, to merge with other nonprofits, and the trend will continue and most likely pick up speed as governmental regulations and funding change. “Consolidation has and will continue to happen as a natural progression of the pressures the sector is facing,” Goldstein said. “We expect the number of high-profile mergers to increase due to shrinking levels of funding, increased pressures to streamline administrative spending and the move to managed care in the healthcare marketplace.”
What’s added to the sector’s angst is the results of the presidential election.
“In the beginning of 2016, organizations appeared to be optimistic, exhibiting the most optimism since 2009,” said Marian Conway, executive director of the New York Community Bank Foundation. “Organizations began to worry around June, when it became clear who the presidential candidates were going to be. Since the election, the bottom has fallen out of any optimism at all.” While, at this point, nobody knows how funding of the nonprofit sector will shake out under the new administration, Gwen O’Shea, president/CEO of the Health and Welfare Council of Long Island, is concerned due to some of the pre-election comments made by the new administration. “There is the potential for significant defunding of the social safety net and that is, of course, alarming for at-risk and vulnerable individuals. Additionally, there is grave concern over the increase in discriminatory actions, from bullying to assault, in our communities.”
A similar concern was addressed to Vice President-elect Michael Pence by Brandon Victor Dixon, a member of the cast of “Hamilton” after a recent performance that Pence attended, when he said, “We, sir, we are the diverse America who are alarmed and anxious that your new administration will not protect us – our planet, our children, our parents – or defend us and uphold our inalienable rights, sir.”
“The growing gap between the rich and the poor and the shrinking of the middle class has resulted in many feeling left out and left behind,” said David Okorn, executive director of the Long Island Community Foundation. “Too many people are disenfranchised, depending more and more on the social service and nonprofit sector to provide for basic needs. Simultaneously, nonprofits are competing for smaller pots of funding.”
The election of the new administration has already led to an uptick in the demand placed on a sector that is already stretched too thin. The election has been so divisive that it has impacted relationships and support systems. “Many individuals that rely on the sector for support are overwhelmed with anxiety that the necessary services that provide their lifeline will be suddenly eliminated,” Goldstein said. “The fact that these anxieties may be unfounded or at least premature is entirely academic because when you are so vulnerable and facing such fundamental daily challenges such as food, shelter, etc., rational arguments are entirely unavailing.”
As a result, the sector will need to pay attention to the changes made at the federal level, be they healthcare access, education, child care, immigration rights, Medicaid funding or the environment.
“Changes in these policies will have significant implications on the fabric of our communities,” O’Shea said. “If negative policy changes are implemented, we’ll need to pay careful attention at the state level to see where it can and will step in to ensure the social safety net is in place and the rights of individuals are protected.”
“Nonprofits will need to be vigilant about how Long Island’s federal, state and local representatives are supporting the interests and needs of all of the region’s residents,” Okorn advises.
According to Conway, the election is already having an impact on giving.
“We are seeing a new type of giving – ‘rage philanthropy’ – with organizations such as Planned Parenthood, ACLU and Human Rights Watch the beneficiaries of increased giving,” she said.
There seems to be a new concern surrounding health and human service organizations that could find themselves with shrinking government funding under the new administration. With an emphasis on decreased taxes, increased military spending and immigration reform, New York State, one of the largest recipients of federal Medicaid dollars, could be looking at reduced resources available to assist the nonprofit sector. Couple this with President-elect Donald Trump’s desire to move to a Medicaid block-grant system, the state will need to determine how to either subsidize or divvy up a shrinking pool of funds.
“Block-granting social programs, like Medicaid, are a huge concern,” O’Shea said. “If the new administration removes certain aspects of federal support related to the Affordable Care Act, we’d lose the revenue that has allowed over 1 million New Yorkers to access coverage. That would not only impact individuals and their families, but also hospitals and businesses.”
All of this is going to put increased pressure on nonprofits to change the way they do business.
“Change and growth need to be happening simultaneously across multiple fronts and involving multiple disciplines and skill sets,” Goldstein said. “Organizations need to evolve in the areas of delivery of services, donor relations, regulatory compliance, corporate governance, risk assessment and risk management, marketing and social media platform and capability – this and much more, and all at the same time.” Furthermore, the sector needs to find ways to increase collaboration at all levels: with other nonprofits, for-profit organizations and the public sector.
Additionally, nonprofits need to find ways to increase their overall impact, as funders and rating agencies, such as Charity Navigator, are demanding better tracking and documentation of outcomes.
“The sector as a whole is increasingly moving toward outcomes-based, value-driven payments,” O’Shea said. “Between DSRIP [Delivery System Reform Incentive Payment Program] and Pay for Success, there is movement toward recognizing the value that evidence-based services have on moving significant social issues and thus paying providers for those services that are having real impact.”
Okorn advises that “nonprofits, like any other business, must fully understand their cost of doing business in each of the programs and services they provide in order to adequately cover all of their expenses.” If a governmental agency is unwilling to provide adequate funding for the services contracted for, the nonprofit needs to consider declining those contracts that require them to subsidize the cost of these programs through their fundraising efforts, he added.
This is becoming more important with increased competition for fundraised dollars and the growth in donor-advised funds. The Fidelity donor-advised fund is the largest 501(c)(3) organization in the United States, with more than 100,000 donors and distributions to charities in excess of $3.1 billion during 2015.
“We are seeing a greater level of donations to donor-advised funds, with the possibility that by 2017, the three largest charitable organizations will all be donor-advised funds,” said James Rennert, director of Mission Advancement at Sisters of St. Joseph in Brentwood. “This takes away the relationship between the organization and the donor, which is so critical in the development of major gifts.”
Since many donors are doing their own research, especially among millennials, more and more nonprofits are pushing out their message through multiple social media platforms.
“There are too many messages grabbing the attention of donors today, both at the local and national level,” said Michael Pfeiffer, executive director of Habitat for Humanity of Nassau County. “This is making it much more difficult to get your message out to your target donors. As a result we have to work much harder to cultivate the necessary donations than in the past.”
While it is extremely important to maintain a strong web presence, “over the next 20 years most of the biggest donors will be baby boomers, who have amassed a large level of wealth over their lifetimes, and they still open mail,” Rennert said.
With anticipated cutbacks in government spending, uncertainty in the marketplace and the high level of anxiety and need, Okorn is bearish on the sector.
“As the nonprofit sector continues to struggle to keep up with needs that seem to increase exponentially, I would encourage everyone reading this article to make a contribution to a local nonprofit addressing an issue close to your heart,” Okorn said.
Kenneth R. Cerini, CPA, CFP, FABFA
Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.