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VOL. 124 | NO. 180 | Monday, September 14, 2009

Service First: Nonprofit orgs struggle to balance client needs with funding shortages

By Tom Wilemon

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Jack and Sylvia Foster load a cooler full of lunches as they prepare to drive a route for MIFA’s Meals program.  The Fosters, who started driving a route after retiring, have been volunteering for the past 12 years. -- PHOTOS BY LANCE MURPHEY

Rahema Barber gazed into the void of the Power House. It looked as though all the art had been wiped away: blank walls, empty rooms and silent space.

What had been a center of creative energy was about to become a shuttered building once again – just six years after the nonprofit Delta Axis had transformed the old coal plant into a venue for contemporary art and film.

Barber, the organization’s executive director, was closing the place down because Delta Axis ran out of money.

“I’m sort of shell-shocked ...” she said. “If you had told me this is what I would be doing last year around this time, I would not have believed it.”

Delta Axis is one of a handful of Memphis nonprofit agencies that have ceased operations during a recession that came to this city suddenly and lingers stubbornly. Calvary Street Ministry, Family Services of the Mid-South and New Directions Inc. have also shut down or announced intentions to do so.

Leaders in the nonprofit community worry that other organizations will follow suit because nonprofits usually suffer the impact of an economic downturn later than businesses and industries. Nonprofits typically raise operating funds the year before they actually spend the money, depending on the generosity of individuals, corporations and foundations. These funders get hit by a recession before the charities, and a trickle-down effect occurs.

This lag time could be a drag on the city’s economy. Nonprofits account for about 11 percent of the gross domestic product in Memphis, more than double the national average, according to a 2008 study commissioned by The Community Foundation of Greater Memphis.

While contending with diminished revenue and funding sources, nonprofit organizations are also dealing with increased demands, especially those on the frontline of meeting basic human needs.

Nonprofits – which proliferated and expanded during the economic heydays of the 1990s – must now rethink how they operate and better define their core missions.

Meeting the need

Cutting costs is an obvious starting place, but that’s easier said than done when people come knocking on your door for food or medical care. In some cases, these potential clients don’t even know which door to come to.

Dr. G. Scott Morris examines a knee fracture in patient Angela Guy, 52, at the Church Health Center Clinic. The clinic, which provides health care to uninsured workers, has seen more than 50,000 patients since opening in 1987.

“I met two women who came to the Food Bank, not knowing that we do not directly serve individuals,” said Susan Sanford, president of the Mid-South Food Bank. “We are a large distribution facility to not-for-profit agencies and churches. (The visitors) were dressed very nicely, and I made the incorrect assumption that they were here to volunteer.

“They said, ‘No, no, we’re here to get some food.’ They had worked for a prominent Memphis company, one of the women for 28 years and one for 20 years, and had been laid off. One started to cry. The other told me she just needed a hug.”

Sanford directed them to a pantry where they could get food.

Others, middle class people who bought homes in Germantown and Collierville, are now driving past the shiny new medical offices of East Memphis into the inner city to seek care at community health centers and nonprofit clinics.

Midtown’s Church Health Center has experienced a 70 percent increase in the number of people coming in for new patient orientations in the past year and a half, said Marvin Stockwell, the center’s public relations manager.

Dr. Scott Morris, founder and executive director of the clinic for the working uninsured, said he has just hired another nurse practitioner to keep up with the increased demands.

“What I see over and over again every day is a person who had been working for 40 hours a week for the same business for 15 years,” Morris said. “They are now getting only 24 hours a week, which means they now have to live off less money. Yes, when they went below 30 hours a week, they lost their benefits. So they will have no insurance and some form of chronic disease, for which they can no longer afford to care for themselves.

“They can’t afford the medicine. They can’t afford the doctor. That’s the heartbreaking story I can tell over and over again.”

People who lose jobs also lose medical benefits. Last month, the national unemployment rate rose to 9.7 percent, with a 10.1 percent rate for men and 7.6 percent for women, according to the U.S. Bureau of Labor Statistics. The unemployment rate for Shelby County, at 10.4 percent, is higher than the national average.

Clinic assistant Thu Nguyen searches for a medication in the dispensary at the Church Health Center Clinic.

“We see far more people from Germantown and Millington than we’ve ever seen before,” Morris said. “We see more men than we’ve ever seen before.”

At the Food Bank, 906,783 pounds of food were distributed during July. That compares to 730,426 last July.

But numbers don’t really tell the story.

“One lady who found herself in our shelter has a bachelor’s degree,” said Maj. Mark Woodcock, area commander of the Salvation Army Memphis. “Her house was foreclosed on.”

Finding the money

Metropolitan Inter-Faith Association (MIFA) is another nonprofit organization dealing with increased demands. Its core missions are to sustain the independence of senior citizens, stabilize families in crisis and equip urban teens for success.

The aging population depends heavily on MIFA’s services. MIFA provided 479,774 meals to 3,100 senior citizens this year, compared to 423,321 for 2,300 senior citizens last year.

Margaret Craddock, the organization’s executive director, said MIFA set a conservative fundraising goal for this year and exceeded it. The charity raised $200,000 more than its $3 million goal.

“I had one donor say to me – and this was a person who had not made a gift in awhile – he said, ‘I’m through giving to bricks and mortar. I’m giving to those who are helping out on the breadline,’” Craddock said.

The organization trimmed costs and put capital expenditures on hold. It also revamped its Web site to make online giving easier. The number of online gifts increased 123 percent. The total amount of dollars from these online gifts increased 68 percent.

“We are spending a lot of time thanking people,” Craddock said. “We are trying to support our employees, who have not had a raise in two years. That’s one way that we’ve really had to cut back. We’re just trying to do things to make work fun and let them know how much we appreciate them.”

MIFA is a member of the Safety Net Collaborative, a group of nonprofit organizations charged with helping people with their basic needs. Other members include the Food Bank, Church Health Center, Memphis Union Mission, Christ Community Health Services, American Red Cross Mid-South Chapter, Catholic Charities of West Tennessee and the Salvation Army Memphis.

Jack Foster delivers lunch to MIFA Meals client Clara Tyson.

Some of these Safety Net organizations need some safety netting of their own. The local Red Cross chapter found itself in such bad financial shape that it had to lay off one-third of its staff this year.

The chapter had been operating with a deficit for about three years prior to the recession because of a series of disasters, such as tornados and apartment fires, then drawing down on a $1.8 million bequest from Elise Smithwick Miles, who died in 2005. When the recession hit, the chapter’s return on investments could no longer offset costs.

The chapter’s assets decreased $335,634 for the fiscal year ended June 30, 2006, and $282,682 for the fiscal year ended June 30, 2007. The next year, the figure ballooned to $938,106.

When the recession hit, the chapter’s return on investments could no longer offset costs. Investment income of more than $400,000 for the year ended June 30, 2007, became an investment loss of $86,000 for the year ended June 30, 2008.

The Red Cross also had to deal with a $100,000 drop in funding from the United Way of the Mid-South, but the agency remains the chapter’s biggest single source of funding. The United Way’s support for the Red Cross for the most recent fiscal year is $721,844.

The nonprofit’s annual budget is $2.67 million.

The Red Cross, which serves seven counties throughout the Mid-South, is currently going through a period of rebuilding as it seeks new donors and volunteers.

Another high-profile nonprofit with national name recognition, The Salvation Army, is a victim of its own success. It badly needs money for its core missions at the same time it has raised almost $23 million for the Kroc Center of Memphis, an all-around recreation center slated for part of the Mid-South Fairgrounds.

“It has distracted us, but it is a good distraction,” Woodcock said. “It will have such an impact on this community. Plus it will bring $60 million from outside this community here to Memphis. Having said that, ultimately, when you are taking on new ground – to use the analogy of warfare – there are costs to taking on that new ground.

“As we move forward with raising our endowment campaign for Kroc, which we are required to raise to receive the $60 million (matching grant from McDonald’s heiress Joan Kroc’s estate), it has impacted our regular operational fundraising for what we do every day.”

Woodcock said the organization will operate with an estimated $250,000 deficit this year. Its yearly budget is $8 million. Its board is in the process of strategic planning and will have to make some critical decisions this month, he said.

A chapel under construction near Kirby Whitten Road and Summer Avenue is part of a multimillion-dollar Salvation Army Adult Rehabilitation Center and Family Store project.

Last year, the Salvation Army’s income for its operations decreased 5 percent, he said, while it services increased 16 percent.

“We were able to do that in part because a year and a half ago we laid off about five workers,” Woodcock said. “We did that being able to tighten our belt and not impact the programs that we offer to the community. Now, this was before the big downturn with the economy.”

The Salvation Army shelters 200 men, women and children, operates a drug and alcohol treatment program, runs a child care center and provides other services.

While the public may have an increased awareness about the demands on Safety Net charities, people may discount the value of other nonprofits, such as those involved with the arts.

Barber, who came to Memphis from Hartford, Conn., last November to run Delta Axis, had hoped to put the organization on better financial footing with a special event. The organization was already operating in the red when she arrived. It had ended its prior fiscal year with a deficit of $82,452.

Delta Axis reported total revenue of $203,157 and expenses of $285,609, according to financial documents it filed with the IRS posted by GuideStar.

When the nonprofit opened the Power House in 2003, it received $238,272. Each year after that, the amount of grants decreased, according to the financial documents.

Barber had hoped to raise as much as $30,000 from a fundraiser.

“The whole premise was you buy a ticket, you get a canvas,” she said.

Established artists from the Mid-South and throughout the United States had agreed to paint a canvas. Ticket prices ranged from $150 to $200. The fundraiser, which was supposed to have occurred during the summer, was cancelled because the tickets didn’t sell.

“Basically, by the end of June, we sort of knew we were treading water,” Barber said.

She closed up on the last Friday of August – the day of the month when the South Main Art Trolley Tour occurs.

“We actually had plans to have an opening,” Barber said. “We were literally, probably a month ago, talking to an artist that was supposed to be coming in here.”

Considering mergers

The Alliance for Nonprofit Excellence, which has a mission of strengthening area organizations that meet community needs, did a survey earlier this year to gauge how well Memphis nonprofits are weathering the recession. The survey revealed that about half of the respondants said they would end their budget years with a deficit, and almost a third said they had no cash reserves.

Patrick Lawler, CEO of Youth Villages, looks at a spider web with Demetrius, 9, and Austin, 10, at the Bartlett Campus of Youth Villages. Youth Villages, which helps nearly 14,000 children and families in 10 states and Washington, D.C., just finalized a merger with Georgia-based Inner Harbour.

At the time of the survey, hardly any were considering mergers. That has changed in recent weeks, said Nancy McGee, the executive director of ANE. Discussions have begun between some organizations, she said, but no definite plans have been announced.

“I think those organizations that might have had a good year last year are now starting to feel some of the impact,” McGee said. “In the past, if funders have felt like there are a couple of organizations that are kind of duplicating one another, then those organizations may be starting to feel more pressure to come together, either partnering or merging. I think you’re going to see more of that. It’s not right for everybody, but in some cases it may work for the benefit of both organizations.”

The Mid-South followed a national trend when nonprofit organizations proliferated during the 1990s and into this decade. There are 331 Memphis-based charities registered with the Tennessee Secretary of State.

The number of nonprofits is much higher, according Giving Memphis 2008, a report prepared by The Center on Philanthropy at Indiana University. It estimated the number of nonprofit agencies at between 3,850 and 3,900 and also counted congregations, membership associations and clubs.

The 2008 report covered data from the previous year, when $1.58 billion was given. Household donations accounted for 78 percent of the total, followed by corporations at 10 percent, foundations at 8 percent and bequests at 4 percent.

Now that economic times are tough, these funders may be less inclined to give to nonprofits that duplicate services.

“That’s not to say that there aren’t a lot of needs in our community,” McGee said. “I do think there have been concerns in different areas of the community about the number of nonprofits we have and how are we going to be able to support them and so forth.”

The United Way each year sends volunteer teams to assess the work of nonprofit organizations and ensure duplicated efforts are kept to a minimum, said Dave Skorupa, the organization’s vice president of communications. The United Way functions as an umbrella agency, funding numerous charities from contributions made annually by workers, businesses and individuals.

“We are less concerned with growing the number of nonprofits receiving funding,” he said. “We are more concerned with making sure that funds are being used in a way that has the greatest impact on our local population.”

Planning for the worst

Youth Villages is a Memphis-based nonprofit organization that has expanded its reach through mergers – most recently by joining forces with a Georgia organization. Youth Villages provides mental and behavioral health services for children and their families at 59 locations in multiple states.

This year, President Obama recognized Youth Villages as a nonprofit with “promising ideas that are transforming communities.”

The successes and expansions may appear to have occurred in a short time, but the organization built its way up slowly, said Youth Villages Chief Executive Officer Pat Lawler.

“When I came here 30 years ago, the first 10 years we operated on a shoestring budget,” Lawler said. “We started with a budget of $150,000. I know what that’s like. It’s very difficult. Every day could be a pending crisis if a bill comes due or you don’t receive a payment you’re hoping to receive. Every day is survival.”

Crisis planning is crucial, he said. Lawler advises nonprofit organizations to spend as much time as possible planning for unknown risks.

“By risks, I mean everything from an accident occurring to possible funding cuts,” Lawler said. “Are you relying too heavily on maybe a pilot project that there is only funding for one year and then the state is going to determine based on your performance whether to continue? Or do you have a contract with the state where they rebid the contract every two or three years? Or do you have a group of donors that rely very heavily on one particular area of the economy? For example: homebuilding or car sales or even the financial market.”

A nonprofit agency should make sacrifices and even hold back on expanding services to build financial reserves, he said. Typically, Youth Villages has enough to cover 40 percent to 60 percent of yearly operating expenses, but the reserves are currently at the lower end of that range because of the economy, he said. The organization’s current annual budget is $133 million.

Lawler’s best advice, however, is to maintain quality programs above all else and competently communicate how well they work. Funders want to know the money they give is not being wasted and is making a difference in people’s lives.

Asking people to give

Memphis has several foundations that distribute grants to nonprofits, but they may have less to give in the year ahead because of investment losses. Most of these foundations have not yet filed annual reports with the Internal Revenue Service, which would indicate how they have fared since the economic slump.

The Community Foundation of Greater Memphis, which manages approximately $250 million in charitable assets, publicly discloses the quarterly performance of its investments because it functions as a money manager for other nonprofits. Although its investment pools rebounded in the most recent quarter, total assets are still significantly down from last year, when they exceeded $300 million.

The United Way, which raised more than $26 million during 2008 and 2009, will launch its new campaign this month.

“A lot of people make their decisions about how they are going to support the community based upon returns on investment and things like that,” Skorupa said. “Often, when an economy is going through a recession and a recovery stage like we see now, it can be difficult to decide how much to give. What we are encouraging people to do is instead of looking at their investment portfolios ... take a look at the needs in the community.”

PROPERTY SALES 61 61 6,453
MORTGAGES 46 46 4,081
BUILDING PERMITS 113 113 15,474
BANKRUPTCIES 19 19 3,289