Tuesday, March 8, 2011

Indianapolis Nonprofits Indicative of the Times?: Nonprofit Grant Receipts and Dwindling Municipal Revenues

In Crime-prevention grants cut, putting some programs at risk, The Indianapolis Star reports that nonprofits in Indianapolis are feeling the pinch of declining city revenue: 

With a $74,000 city grant last year, the Church of Acts started a program that has taken hundreds of teenagers off the street each Friday night.  The children play basketball and video games, shoot pool and play foosball at three locations across the city.  Now, those activities and dozens of others are in jeopardy of elimination because of cuts in the city's 2-year-old Community Crime Prevention Grant Program.  The total money for the grants will be reduced by 50 percent, to $2 million, in 2011. That means Cheri Gable and organizers of other programs will have to convince city grantors that their programs are worth saving.

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Last year, 68 groups shared $4 million in grants ranging from $19,000 to $249,000. The largest chunk of grants -- $1.5 million -- went to programs for youths. The second-largest, $1 million, targeted offender re-entry programs. Education, health and neighborhood services rounded out recipients.  The organizations ranged in size from the Salvation Army to Bethlehem House on the Northside, a small nonprofit with a $400,000 annual budget that helps people battle substance abuse and cope with HIV.

"The cuts make me nervous," said Nate Rush, Bethlehem House executive director. Last year's $56,000 grant allowed him to hire a full-time counselor who served 75 people, he said.
"We are a small community-based organization that doesn't receive any other grants," Rush said. "We provide long-term services for free. The people we see don't have any money and couldn't get this help anywhere else over the long haul."

The decrease in funding from municipal sources hardly seems a problem unique to Indianapolis nonprofits.  In The New York Times’ Broke Town, U.S.A., author Roger Lowenstein offers a sobering assessment of the financial condition of cities across the nation:

Cities across America are facing dire financial distress. Meredith Whitney, a banking analyst turned independent adviser who correctly predicted the banking meltdown, has issued an Armageddon-like prediction of mass municipal defaults. Others — notably Newt Gingrich — have suggested that state governments as well as cities should be allowed to file for bankruptcy. Congress held a hearing to examine the idea.

These forecasts of apocalypse have touched a nerve. Americans, still reeling from the devastating impact of the mortgage debacle, are fearful that the next economic disaster is only a matter of time. To anyone reading the headlines of budget deficits and staggering pension liabilities, it takes little imagination to conclude that the next big one will be government itself.

The problems of cities are everywhere. The city council of Harrisburg, the capital of Pennsylvania, has enlisted a big New York law firm to explore bankruptcy as a means of restructuring a crushing debt. Central Falls, R.I., is in receivership. Hamtramck, Mich., a small city within Detroit’s borders, says it could run out of money next month. Hamtramck has only 90 employees, yet it is saddled with the pensions and health care obligations of 252 retirees. Detroit itself is at risk. Large deficits will mean closing about half of the city’s schools and will push high-school class sizes to 60 students.

These and other struggling locales do not begin to approach Whitney’s forecast of hundreds of billions in municipal defaults this year. (It would take defaults by 40 cities with as much debt as Detroit to reach even $100 billion.) Some industry experts accuse Whitney of exaggerating the crisis and of worsening the cities’ problems by frightening away investors. Whitney’s theory is that states, whose finances are also in desperate shape, will cut off local aid to preserve their own budgets; cities that have been subsisting on government transfers would become fiscal orphans and, in a financial sense, unworkable. She has not elaborated on her thesis beyond a few well-chosen television appearances. (She declined to talk to me.) But in the two months following Whitney’s warning, investors unloaded about $25 billion in shares of mutual funds that invest in municipal bonds. The selling spree sent the prices of these munis, typically among the most reliable investments, into a free fall.

Of course, some nonprofits are much more dependent on local governments than are others.  Health and human services appear to rely heavily on governmental sources of funding.  The following brief discussion, appearing on the website of the National Center for Charitable Statistics, offers some perspective on the issue:

What percentage of an average public charity's total revenue comes from government?

Government support for charities is difficult to measure because it comes in different forms and is reported on the IRS Form 990 in several places. A grant to provide a service for the public, for example, is reported under "Government contributions (grants)" on Form 990, line 1c, while a contract to provide a service or good to the government itself is reported under "Program service revenue" on Form 990, line 2. Program service revenue is further divided into revenue from Medicare/Medicaid and from government fees and contracts, as well as other contracts.

In 2004, government grants only made up about 9 percent of revenue for all reporting charities (about $100 billion), but represented a higher proportion for human service, international, and public benefit organizations. This amount does not include  government funding from Medicare and Medicaid, and the revenue from contracts for providing services directly to the government, all of which are reported under program service revenues on the Form 990. (Medicare and Medicaid revenues are drastically underreported on the Form 990.  See the latest Nonprofit Almanac 2008 for more information and new estimates for these sources.)

A third source of government support for charities is more indirect, as individuals may receive grants or subsidies and then use them to pay fees for services and goods provided by nonprofits. This would include, for example, primary and secondary school vouchers or college scholarships. Further research is necessary to measure this source of government support for charities.

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JRB

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