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Illinois budget crisis impacting non-profit organizations — Part 4

When I started this blog series two weeks ago, I thought it might be a good idea to invite a few of my local elected officials (as well as former policy-makers) to weigh-in on the subject. Unfortunately, everyone has either declined or not responded except for Michael Noland, who is my state senator. I want to thank Senator Noland for taking the time to be thoughtful and responsive. (A copy of the senator’s guest blog can be found in the space below.)

For those of you who are coming to the party a little late, here is a quick summary. In Part 1 of this series, I shared survey results provided by United Way of Illinois along with other insights and perspectives . In Part 2, I talked to a non-profit executive director whose organization lost significant funding as a result of Illinois’ budget impasse and shared some surprising developments. In Part 3, I offered a few suggestions for Illinois non-profit leaders on how to tackle this issue inside their organizations as the crisis deepens.

I hope this four part series on the Illinois budget impasse and its effect on non-profit organizations has been information and engaging. Please share your thoughts in the comment box below. Here’s to your health! ~Erik


In February of 2015, the governor proposed his first budget to the General Assembly, a budget that would make harsh cuts to important services in our state. His message was a call to cut waste where at all possible. In 2015, I was hopeful that we would be able to work with the Governor to establish both a source of revenue and make responsible cuts to balance the state budget.

The Governor also submitted for the General Assembly’s approval what he referred to as his “Turnaround Agenda”.  The agenda was one that called for creating Right to Work Zones; an end to collective bargaining for teachers and state workers; reduced funding for education and health care and tax breaks for large corporations and the wealthy; all, clear non-starters for Democrats.

A year has passed and it has become clear to me that the Governor wants nothing more than to continue his standoff to push a “turnaround agenda” that is harmful to the people of Illinois and specifically to the working-class families I swore to represent.  And so, since June 1st 2015 Illinois has operated without a budget.

Over this time I have received numerus emails from citizens, heads of social service organizations, small business owners and others over the lack of a state budget and I continue to share in the anxiety and hardships that this places on my constituents and on our state. The result of this delay and uncertainty over the funding for our vital programs and services in Illinois is an inexcusable disaster that I do not go a single day without standing at the ready to negotiate a solution with the Governor and Republicans in the General Assembly.

The truth is, in Springfield, in the senate, we have passed numerous budget proposals since June 1st in attempts to address the budget impasse. The senate has fought for a budget for K-12, worked to secure the appropriation of federal funds, battled for funding for the Monetary Award Program to support our college students, attempted to grant funding to human services programs not covered by consent decrees and more. Most recently, the senate approved SB2059, which would appropriate 3.8 billion dollars in funds to various agencies, including social service programs and higher education. The fact remains that the Governor is simply unwilling to negotiate a budget that does not include multiple aspects of his harmful agenda.

Through all these legislative proposals the public must understand something very important that is often forgotten: the General Assembly does not have the power to distribute these funds. All we can do is grant the Governor the ability to do so. The Governor, as chief executive, directs staff to write the checks we have allowed him to write. This budget impasse is shaped by two main causes. The first and foremost is the Governor’s unwillingness to compromise and listen to the angry voices coming to him with legitimate concerns and crises.  These angry voices, our social services, colleges and universities and health care providers are asking to be paid for their services and the Governor, quite simply, refuses to write the checks for the money the state owes them.

However, the Governor is right about something that is impossible not to acknowledge.  We have a lack of revenue in Illinois. Elected officials that ignore this are simply kicking the can down the road, something I personally refuse to do. There are social service programs that simply cannot be cut, there are educational services and public safety programs that need more funding and to do this the state requires more revenue.  There is ample evidence that we, as a state, are more than capable of providing that revenue.  This is a discussion that needs to be happening in Springfield now and not later when the state is in even greater crisis than it already is.  As we now return for the second half of the spring session in the Illinois General Assembly, I look forward to working with members on both sides of the aisle to craft a state budget that meets the just demands of the good people we are sworn to represent.

Sincerely, State Senator Michael Noland (D-22nd)
noland sig








Illinois budget crisis impacting non-profit organizations — Part 3

illinois budgetEarlier this week and last week, I started writing about the State of Illinois’ budget crisis and how it is impacting non-profit organizations. In Part 1 of this series, I shared survey results provided by United Way of Illinois along with other insights and perspectives . In Part 2, I talked to a non-profit executive director whose organization lost significant funding as a result of Illinois’ budget impasse and shared some surprising developments. Today, I have a suggestion for Illinois non-profit leaders to mull over as the crisis deepens (and there is lots here for non-profit leaders from other states to chew on, too).

Frog in boiling water

We’ve all heard the story about frogs and boiling pots of water. Right?

Assuming that some of you haven’t any clue of what I’m talking about, here is a nice summary from Wikipedia:

“The boiling frog is an anecdote describing a frog slowly being boiled alive. The premise is that if a frog is placed in boiling water, it will jump out, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death. The story is often used as a metaphor for the inability or unwillingness of people to react to or be aware of threats that occur gradually.”

I have no clue what the origins of this old story are, but I do know this . . .


boiling frog1Don’t want to take my word for it because you might have heard it from your grandfather or another beloved family member. No problem … I completely understand. Let me provide you with scientific proof. Simply click here, click here for more, and click here if you are in deep denial.  If you clicked all three links, I’m guessing you probably also believe a number of other grossly inaccurate things about other animals and suggest you the article titled “Critter Country: Wild Inaccuracies

So, what does any of this silliness have to do with non-profits and the Illinois budget impasse?

Your organization is like a frog!

In other words, your non-profit should (and likely will) jump out of the boiling waters of government funding if things get too hot. It is a simple matter of survival.

Question #1: When?

I’ve lamented too often — right here on this blog — that too many non-profit boards operate poorly. They don’t understand (and sometimes reject) their legally defined fiduciary responsibilities, focus their meetings obsessively on monitoring rather than governance, micromanage the organization and its staff, rubber stamp things (oftentimes very important things) that staff put in front of them, and my list can go on and on.

If anything in the last paragraph describes your organization’s board of directors, please hear me clearly . . .

You’re at risk!

In other words, you might just be on the road to proving all of the scientists, who said in the last section that “the boiling frog story is an urban legend,” are liars.

boiling frog2Your board is likely made up of smart people. If they aren’t being used (at a minimum) as a “sounding board” on the issue of government funding and what to do about it, then my suggestions are:

  • Stop business as usual in your boardroom
  • Start adding a 45 minute “generative discussion” agenda item to every one of your monthly meetings for the foreseeable future
  • Focus your discussions around various aspects of your government funding situation
  • Bring in guest speakers who know more than you do about state funding and your grants
  • Pose open ended questions and facilitate an engaging dialog where everyone is encouraged to share their thoughts and feelings
  • Don’t just have theoretical conversations … also pose action oriented questions (e.g. what are our options? what should we be doing?)

If you and your board can make this adjustment in non-profit governance, I guarantee you that . . .

It will be clear when it is time to jump out of the boiling pot!

Question #2: What?

boiling frog3Of course, the more difficult question for most non-profit organizations is “What to do about it?

If your organization isn’t reliant on government funding, the answer is easy . . . carry on and try not to gloat too much around your non-profit friends. For those of you who rely on modest (or perhaps significant) government money, then you want to keep reading.

If you and your board have decided the water is getting a little too hot, then here are a few suggestions:

  • Re-exam your non-profit revenue model
  • Explore other models (refer to previous section about generative discussions in the boardroom)
  • Make a group decision about which model (or hybrid model) is best for your organization at this time
  • Don’t try to turn the battleship all at once … choose one (or a few) things to “try on for size” and experiment with small aspects of your new revenue model (e.g. write a private sector foundation grant, engage a corporate partner, identify prospective individual donors and start a conversation with them; write a business plan for a potential social enterprise, etc)
  • Invest time, energy and effort in evaluation of every new thing you undertake and commit to nurturing a culture of improvement and excellence
  • Celebrate every success from top-to-bottom and side-to-side of your organization (no matter how big or small it may be)

If you got this far and still find yourself scratching your head over the idea of different non-profit revenue models, then you need to click-through and read a Bridgespan white paper titled “Ten Nonprofit Funding Models“. I also highly suggest clicking on and reading every hyperlink embedded in the white paper.

If you don’t believe your organization can do this without help, then I have some good news. There are countless non-profit consultants (myself included) who are available for hire.

Stop listening to stupid people

boiling frog4I’ve heard state funders (e.g. foundations, United Ways, etc) say loudly and clearly, “The state cannot expect funders to fill the gap created by the State“.

I do NOT believe foundation leaders and United Way professionals are “stupid people“. However . . .

I have heard some people (in fact some are even dear friends of mine), amplify the cautionary words of foundations and United Ways and then twist them by concluding “private sector philanthropy” cannot fill the gap. It is these folks to whom I urge you to please stop listening.

The reality is that foundations, corporations and United Ways only account for 20% of the $358 billion of charitable giving. The remainder of the pie (a huge whopping 80%) comes from individuals either directly or through bequests.

Moreover, charitable giving is only 2% of our country’s GDP.

The pie can be increased. There is room to expand and grow. Foundation leaders and United Way professionals never said private sector philanthropy couldn’t be the solution (or at least a big part of the solution). They were simply say that politicians need to stop telling voters their organizations will fill the gap.

Are you a doubting Thomas? If so, then I have a proposition for you . . .

Add this topic to your board agenda. I think it makes for an awesome generative discussion. If you’re an Illinois non-profit organization and you’re looking for someone to speak in your boardroom on this subject and facilitate a generative discussion, then please contact me because I would be willing to consider it.

Next up in this blog series?

I’ve sent emails to a handful of politicians and policymakers who I trust and respect. I’ve invited them to share their thoughts on this subject. If any of them respond, then I’ll publish those next week.

In the meantime, please use the comment box to share your thoughts and experiences on the Illinois budget impasse, the impact you’re seeing on the non-profit sector, your thoughts on what organizations should be doing about it, or anything else that is top of mind regarding the state of government funding (federal, state or local) and those trends. We can all learn from each other.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Illinois budget crisis impacting non-profit organizations — Part 1

illinois budgetLast week I had the privilege of attending a Fox West Philanthropy Network meeting where Jack Kaplan, Director of Public Policy & Advocacy for United Way of Illinois (UWI), reported on survey findings about the impact of the state’s budget impasse on the non-profit community. It should come as no surprise to anyone the longer this budget crisis drags on the worse it becomes for the state’s non-profit sector.

If you have time to read the white paper summarizing UWI’s survey, then click here. If you’re on the run today, here are a few of the highlights (or should we say “low-lights“):

  • The number of organizations that have made cuts to clients served as a result of the state’s budget impasses has more than doubled since July 2015
  • Nearly half of respondents reported making cuts to services, programs or operations as a result of the budget impasse
  • The number of respondent that reported making cuts to services increased dramatically from the survey conducted in July 2015 to the one conducted in January 2016
  • Of those agencies responding, 49% said they’ve tapped into their cash reserves
  • Of those agencies responding, 26% said they’ve had to access their line of credit
  • Of those agencies responding, 27% said they’ve laid off staff
  • Of those agencies responding, 5% have “skipped” a payroll

As I soaked in all of this survey data, I came to the following conclusions:

  • The longer this budget impasse lasts, the more programs are likely to be cut
  • The longer this budget impasse lasts, the more staff are likely to be laid off
  • The longer this budget impasse lasts, the more likely it is that agencies will cannibalize themselves — undercutting their organizational capacity — and do long term damage to their infrastructure and ability to come back from this crisis (read more about the Nonprofit Starvation Cycle in the Stanford Social Innovation Review)
  • The longer this budget impasse lasts, the more likely organizations will lose their most valuable and talented staff, who I suspect are currently looking for alternative employment
  • The more programs that are cut, the more clients will go without necessary services, which will have a long term effect on our communities (e.g. increased homelessness, increased crime, decreased student test scores, etc), which ultimately always leads to increased public expenditures down the road (e.g. increased taxes for policing, increased taxes for prisons, increased taxes re-open state institutions that were closed for cost savings when those services were shifted to the non-profit sector decades ago, etc)

I admit all of these conclusions are “my opinion” and none of us will know the real truth until the damage is done and smarter people that I are doing research years from now on the impact of the Illinois budget impasse. However, my intuition tells me I’m not too far off with these thoughts.

In addition to these thoughts, I’m also left with a number of questions such as:

  • When did so many Illinois non-profit organizations get so reliant on state government funding? And how can we avoid this from happening again in the future?
  • As is the case with most crises, there are really bad things that happen but there are usually unexpected good thing that come from the experience. I wonder what may rise from the ashes?
  • When will the budget impasse finally get resolved? (Note: I’ve heard some people predict Illinois won’t have its next budget until November 2016 or possibly even the beginning of 2017. Just for the sake of perspective, the last budget expired on June 30, 2015.)
  • What will happen to FY 2016 state contracts that were issued to non-profits “in lieu of appropriation” if the state never passes a FY 2016 budget and simply skips to passing a FY 2017 budget?

Lots of opinions and many more questions. I suspect many of you are in the same boat. Please use the comment box to share your thoughts and experiences.

If you want to learn more about the Illinois budget impasse and its potential impact on non-profit organizations, then I suggest the following:

  • If you are interested in diving into the survey data, I encourage you to click the link I provided earlier in this post to the United Way of Illinois survey summary.
  • If you want to review the PowerPoint slides that Jack Kaplan used for his presentation to the Fox West Philanthropy Network (FWPN), I uploaded them to one of my cloud drives and you can see them by clicking here.
  • Carol Gieske, who is the President of the Elgin Area Chamber of Commerce, shared an easy to understand infographic she secured from Illinois Comptroller Leslie Geissler Munger that illustrates the severity of the Illinois budget crisis. The infographic explains the budget issues as if your home finances were in the same position as the State of Illinois. I also uploaded this document to one of my cloud drives and you can see it by clicking here.

Next week I plan on publishing two more blog posts on this subject. While they are still coming together, one of the posts will summarize a discussion I had with an organization who has been significantly impacted by this crisis (of course, names will be changed to protect the innocent). The other post will likely focus on what organizations might consider doing to weather the storm. Who knows … there may even be a fourth post if things get too long. Stay tuned!   😉

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

More on the government shutdown and the non-profit sector

shutdown5In yesterday’s post titled “Did fundraising cause the recent government shutdown,” we talked about whether or not fundraising strategies are one of the leading factors contributing to our current situation. Today, I want to stay with this topic and look at how the shutdown is impacting non-profits and what you should do in the long-term to mitigate some of these issues.

Those you serve

Last night, I was watching the news and an executive director of a veterans agency was being interviewed about how the government shutdown was impacting veterans. Throughout the interview, he eloquently talked about the impact on:

  • military support staff
  • vendors
  • contractors
  • VA Hospitals (except for emergency room services)
  • students waiting for G.I. Bill payments for school costs
  • disbursement of death benefits to families

While I found all of this interesting, the thing most interesting to me was how his agency was being impacted. Obviously, informational hotlines are not being staffed in government offices. So, this organization is trying to fill that void and trying to answer their questions or get them the information they require.

All of this got me thinking. How many other non-profit organizations have clients who rely on the government for something? And by “things” I mean benefits, services, etc.

I suspect there are many non-profits whose phone lines and case workers are now working overtime to fill the void normally filled by government agencies.

Funding concerns

shutdown4From what I’ve heard and read, many non-profit organizations are concerned about how the government shutdown will impact their funding. Consider the following:

  • organizations fund their operations with federal contracts
  • states receive federal pass-through money which eventually can put state funding to non-profits in question
  • vendors, who do lots of business with the government, might not be able to continue providing your agency with the services you require
  • donors who work for the government or receive benefits from the government might not be in a position to pay their pledges or continue their support in the short-term

The longer a shutdown drags on, the more pressure will be placed on many non-profit organization’s revenue models.

Human capital

Just the other day, I was speaking with an agency who runs many of their programs with work-study students from the local college. The question they were pondering was obviously, “What impact might the government shutdown have on their situation?

There are government programs like work-study and Americorps that fuel countless agencies’ human resources needs.

Unanticipated consequences

Our system of government is large and complicated. There are countless numbers of programs that non-profit organizations rely upon, and there are millions of individuals who are impacted. Some of these challenges are immediately obvious, but many others will only make themselves visible down the road.

When businesses — regardless of whether they are for-profit or non-profit — operate in an environment of uncertainty, crazy things start to happen. Uncertainty and the human experience mix together about as well as oil and water.

While finance professionals brace for instability in financial markets, so too should non-profit organizations prepare for the obvious impacts and attempt to anticipate unexpected challenges.

What should you do?

While you might feel helpless at a time like this, there are some things you should consider:

  • Pull together an ad hoc committee to assess your agency’s vulnerabilities
  • Revisit your strategic plan and invest some time in contingency planning
  • Engage fundraising volunteers in a discussion about how to shift your agency’s dependence on government funding to other more stable sources like private sector fundraising efforts and specifically individual giving

Has your agency been impacted by the government shutdown? If so, how? What are you doing about all of this right now? Please use the comment box below to share your thoughts and experiences. We can all learn from each other.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Get your ducks in a row if your non-profit accept government grants

govt funding2The news last week that the Justice Department will freeze grant funding for Big Brothers Big Sisters (BBBS) should send a chill up the spine of every non-profit organization who accepts government funding.

Here is the CliffNotes version of what is going on:

  • BBBS co-mingled its federal grant dollars with its general fund,
  • Oversight of disbursements from the national organization to its local affiliates was allegedly lacking,
  • Documentation required by the grant agreement allegedly wasn’t well or is missing, and
  • Grant dollars were allegedly spent on things it shouldn’t have been.

If you’re interested in more information, here are a few links you may want to click on:

As I said in the title to this blog post, I see this as a cautionary tale for all non-profit organizations who accept public funding from any level of government (e.g. local, state or federal).


govt fundingI believe that when money is abundant controls are less strict. Conversely, when resources are scarce . . .

  • every penny is watched,
  • those agencies that don’t have the money are making the case for why those who do have the money shouldn’t have the money (e.g. classic have’s versus have-not’s),
  • there is a debate occurring among policymakers about the “role of government” and whether or not government should even be in the business of allocating money in this manner (e.g. redistribution of wealth versus letting private philanthropy markets do so), and
  • decision-makers are looking for reasons to take money away because it is easier to tell voters that funding was eliminated when there are good reasons (and alleged mismanagement of funding is always a great reason).

Here are a few simple and cheap things you can do to ensure your agencies doesn’t end up in the same place as BBBS:

  1. Assemble a task force of board volunteers to help you conduct an internal review of your government contracts.
  2. Pull out your grant agreements and carefully review the items you are contractually obligated to deliver.
  3. Randomly conduct spot checks of documents you are contractually obligated to keep.
  4. Randomly conduct spot checks of expenditures charged to the grant and ensure they were allowable expenses.
  5. If you find discrepancies, put together action plans to fix the problems and monitor implementation. If money was inappropriately used, re-appropriate / re-budget the money and use it in the manner that it was intended.
  6. Document this process simply by keeping meeting notes. This way, if you get audited, you’ll be able to demonstrate your due diligence and commitment to internal controls.

Are you concerns about the recent developments between the Justice Department and Big Brothers Big Sisters? Are you taking special precautions at your agency to get your ducks in a row? Do you think I am overreacting? Please scroll down and share your thoughts in the comment box below.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Government funding, charities and difficult questions

government fundingIn my hometown of Elgin, Illinois, we are gearing up for city council elections. There is a Primary Election tomorrow (February 26, 2013) to narrow the field for a two-year vacancy on the council, and the general election is April 9, 2013 where voters will fill the two-year vacancy as well as four additional four-year seats. A total of five seats are up for grabs, and 22 different people have their hat in the ring.

You’re probably asking: “What does any of this have anything to do with non-profit organizations or fundraising?”

As you can imagine, a race with those many people gets cluttered. Who stands for what? What are the issues of the day? Why are people running? In an effort to bring some clarity, The Daily Herald newspaper identified a few issues, talked to the candidates about those issues, and wrote stories about what they found. One of those stories is about the Elgin Symphony Orchestra (ESO) and its quest to restore its city funding.

I look at this local story and see bigger implications for the entire non-profit community nationwide. Increased pressure on government budgets in the upcoming years will transform how and where governments allocate money to non-profit agencies.

Accountability and sustainability

accountabilityIf you clicked the Daily Herald link above or this article from The Courier-News, then you know that one of the objections some folks have to funding the ESO is that they ran budget deficits for a few years and burned through some of their endowment during the economic downturn. This raises sustainability questions because no donor (regardless of whether they are an individual, corporation, foundation or governmental agency) wants to fund something that isn’t sustainable.

In this instance, the issue is evolving into an accountability question: “how can grant deliverables be designed to hold the ESO board and staff accountable to creating and implementing a sustainable business plan?

There also appears to be a community standard evolving out of this discussion where some council members don’t want to provide funding at levels that would be too high for an agency to easily replace if the city ever decided to pull its funding. Of course, this approach creates challenges because it is difficult to hold agencies to meaningful grant deliverables when the dollars at stake aren’t big enough to fund programming capable of generating community impact.

What does the future of government funding across the country hold? I suspect we’re on the path to:

  • fewer funding opportunities,
  • smaller allocations,
  • increased accountability,
  • greater demand for sustainability planning and increased organizational capacity, and
  • more transparency.

Who should get what?

allocationIt is a simple fact that government has less money to work with today than it did yesterday.

Ahhhhh. Do you remember the late-1990s and 2000s, when government appeared to have money and spread it around to a number of different charities?  I know that some of my non-profit friends fondly look back and proclaim: “Those were the days.”

With an economic slowdown and mounting debt problem, resources are getting tighter, which potentially means increased conflict over the question of: “Who should get what?

In the past, the City of Elgin used its Riverboat fund and Community Development Block Grant (CDBG) funds to support non-profit agencies that aligned with the city’s strategic priorities and direction. Here are a few examples:

  • PADS of Elgin funding helped the city with its homeless population.
  • Elgin Chamber of Commerce helped the city with economic development.
  • Boys & Girls Club of Elgin helped the city address issues such as juvenile crime, gang activity, childhood obesity, and supplemental educational opportunities.
  • Elgin Symphony Orchestra was an investment in the arts as well as an economic engine that brought consumers downtown to spend their entertainment dollars.
  • Downtown Neighborhood Association (DNA) was aimed at economic development and an attempt to focus downtown merchants on revitalizing the central business district.

In this new world of government funding, we are already starting to see two things:

  1. political candidates who are happy to turn these resource allocation issues into campaign issues (e.g. politicizing non-profit funding) and
  2. non-profit agencies taking their case for support very public as they compete for public dollars.

Outsourcing versus insourcing

outsource insourceBack when the government funding gravy train was running strong, I noticed that the case for support for government funding of non-profit organizations involved the idea of “outsourcing” with the silent case for support being it costs non-profits less to provide these services because:

  • non-profit agencies pay their employees smaller wages,
  • non-profit employees have fewer fringe benefits than public sector employees,
  • there are fewer unions operating in the non-profit sector than there are in the government sector, and
  • an ounce of prevention is worth a pound of cure (e.g. keeping kids out of gangs is cheaper than funding the problems created by gangs and crime).

Outsourcing was a conservative solution to questions involving the appropriate role of government and the size of government.

Now that municipal budgets are shrinking and public sector layoffs are occurring, I predict that the idea of “insourcing” could become a trend. City recreation departments will try doing more with at-risk kids. Police departments will employ more social workers to deal with domestic violence. The planning department will hire economic development specialists.

This money will come in part from what is clawed-back from non-profit organizations.

If I am wrong on this hunch, then I suspect that money will be used to fund other city priorities like potholes, capital projects, and core city services. If this is the case, then we’re about to all pay a lot more money to address things associated with social problems.

Is your non-profit organization taking in a lot of government money to fund your mission? Are you worried about the direction things seem to be heading? What are you doing (if anything) to make adjustments?

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Solving the age-old battle between fundraising vs grantwriting

It is the end of the year and for many non-profit organizations it means:

  1. constructing an agency budget for 2013, and
  2. putting together a comprehensive resource development plan to add meaning and depth to the revenue side of the agency budget.

In the last few weeks as I’ve talked with various agencies about their resource development planning efforts, I’m reminded of age-old battle:

Fundraising vs. Grantwriting

Donors see government grants as “wealth redistribution” and a substitute for their charitable contributions. Fundraising volunteers (and even fundraising staff) get squeamish about asking other people for money, and they prefer asking government and private sector foundations over soliciting family, friends, co-workers and neighbors.

crowding1This phenomenon is called the “crowding out effect” and I wrote about it in the following blog posts in 2011:

While I would love for you to go back and read those posts, I also encourage you to read an awesome 2009 research paper written by James Andreoni and  A. Abigail Payne titled “Is Crowding Out Due Entirely to Fundraising? Evidence from a Panel of Charities“. They do an awesome job of looking at this from a data perspective, and they conclude the following:

Using instrumental variable techniques, we estimate total crowding is around 73 percent, and that this crowding out is almost exclusively is the result of reduced fund-raising. A $10,000 grant, for instance, reduces fund-raising expenses by $1370, which in turn reduces donations by $7271. Adding this $1370 savings in fund-raising expenses reduces the estimate of crowding out to 59 percent. If charities had maintained their fund-raising efforts, our estimates show that donations would have risen by the full amount of the grant.

hell2The crowding out effect is real, and it is something non-profit organizations need to understand and deal with. If not, then I advise putting the following age-old expression in a frame above the boardroom door: “The road to hell is paved with good intentions.”

I’ve been doing a lot of thinking lately about how to put the “crowding out effect” in check, and the following few paragraphs are just a few ideas. I think some are good thoughts and others are a little out there, but let’s work together on refining these ideas.

Planning – Planning – Planning

The planning process is not about the executive director putting stuff in writing and handing it over to volunteers for implementation. Planning is an engagement activity.

So, why not introduce volunteers who are involved in the resource development planning process to the research paper by James Andreoni and  A. Abigail Payne and ask them: “What should we do about this? How should we accommodate for this in our plan?

Simply stated . . . planning is the antidote for the crowding out effect.

policiesFundraising policies

I’ve always seen “policies” as a way of creating hard and fast rules for things that board volunteers and non-profit staff might otherwise find hard to implement if it weren’t “required“. Since so many people find grantwriting easier and preferable to fundraising, I started wondering if there weren’t some policies we could create that could put the “crowding out effect” in check. The following are just a few thoughts:

  • A written policy prohibiting government and private foundation grant revenue from exceeding a certain percentage of the agency’s overall revenue.
  • A written policy that commits board members to increasing their personal contributions by a certain percentage whenever grant revenue exceeds a certain level.
  • A written policy that commits board members to asking a certain number of new prospective donors whenever grant revenue exceeds a certain level.
  • A written policy that ties the agency’s annual campaign goal to the level of grant revenue. (e.g. every 1% increase in revenue goals from grant writing results in a 2% increase in qualified individual giving prospects and corresponding campaign infrastructure)

Truth be told . . . I’m not a huge fan of this approach, but I do think it is worth continued discussion and dialog.

Board development

I suspect that the best solution is the simplest solution — recruit the right board members.

Smart business people will understand a simple concept like the “crowding out effect”. Put this challenge in front of them and ask them to solve it.

I suspect they will simply conclude that more “fundraising-minded volunteers” need to be recruited to off-set the effects of grantwriting on the agency. After all, isn’t that what they’d probably conclude when it comes to their sales force staff and their business if confronted with the same challenge?

Are you in the middle of writing your 2013 resource development plan? Are you facing some of the same challenges with volunteers regarding the question of more fundraising versus more grantwriting? If so, how are you tackling this challenge? Do you have any suggestions on how to improve upon the recommendations I’m providing in this blog post? Please use the comment box below to weigh-in with your thoughts and suggestions.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Who should be “driving the bus” at your non-profit agency?

In my travels, I’ve seen hundreds of non-profit organizations, and I must admit that they come in all sorts of different sizes and shapes . . .  Big ones, little ones, short ones, tall ones, skinny ones, fat ones . . . you get the picture.

However, one question has haunted me for as long as I’ve worked in the non-profit sector and it is the title of this morning’s blog post:

“Who is responsible for driving the bus?”

Yes, I’ve heard all of the “best practices” and expert advice. I’ve sat through too many training events. Heck . . . I’ve even been the trainer for a number of those training events and sounded very much like the expert on this subject.

However, this question still haunts me because I see everyone answering it differently.

For example, staff are obviously responsible for day-to-day operations, but who gets to decide:

  • Which programs get run?
  • What impact and program outcomes get measured?
  • What new BIG grants (that might require new programming and new things to be measured) should be written?

I suspect that many of you have answers for these questions. I also suspect that there are many different answers. Some of you might see this as a question of “micro-management” and others of you might see “policy implications” all over the place.

Many moons ago, when I worked at my local Boys & Girls Club, I was presented with an opportunity to apply for a very large state grant. Many of you have probably heard of 21st Century Community Learning Center grants (this opportunity is part of the federal No Child Left Behind legislation). When I was presented with this opportunity, these were some of the facts I was facing:

  • The grant (if received) would increase the agency’s budget by more than 25 percent,
  • We would need to open a new site by asking a local school to share some of their space with us after-school (aka new collaboration with memorandum of understanding spelling out responsibilities of all parties)
  • The grant would result in hiring more staff (e.g. increasing overall staff size by 25 to 50 percent) and serving more kids (expanding membership by approximately 25 percent)
  • The type of staff we were accustom to hiring would change because the school district obvious wanted us to hire their teachers (and pay them the after-school stipend rate negotiated in the collective bargaining agreement)
  • The grant would require some different programming and outcome measurements.
  • The grant also required that some serious thought be put into “sustainability planning”. How would we continue serving those kids after the five-year grant expired. How would we fund it? Where would we provide service?

I was in favor of applying for this grant. It was a game changer for the organization. However . . . how much authority did I have as the executive director to make this decision. Sure, at first blush, the question was simple . . . “Apply for this one grant? Or don’t apply?” . . . but one question leads to another and then another.

So, what parts of this decision belong to the board of directors and what parts belong to staff? AND what parts needed to be shared between board and staff? AND what happens if there wasn’t agreement?

In the end, I engaged the Program Committee and came to the table with my “case for change”. We talked about it, agreed on all fronts and made the recommendation to the board of directors. The grant was written. We were selected to receive funds. We signed the contract with the state board of education. And the rest, as they say, is history.

That was easy . . .  Right? NOPE!  Because I see everyone making similar decisions in very different ways. Why? Because it isn’t easy and every non-profit organization has a different culture with different levels of organization capacity.

Is there a RIGHT answer to this question? I think so.

I believe there are A LOT of policy questions wrapped up in aforementioned example, and all policy issues clearly belong to the board of directors. Additionally, I see grants the same way I see “contracts,” and every non-profit bylaws document that I’ve ever looked at has clearly stated that entering into a contract is the responsibility of the board.

So, why do I see so many non-profit and fundraising professionals working alone on identifying grant writing opportunities, writing the grant proposals and committing the agency to the terms of the grant agreement (or asking their board after-the-fact to rubber stamp the grant agreement)?

Why do staff let this happen? Is it because we really don’t want the headache of having to build consensus? Or is it because of time constraints? Why do boards let this happen? Is it because they don’t know what the right answer is and in the end would rely on staff to inform their opinion? Or is it that they don’t understand their roles & responsibilities as board members? Or is it simply lack of time? And regardless of how you answer these questions, does it really change the fact that there is a “right answer” to the big picture question and our responses to these smaller questions really just amount to nothing more than rationalization and justification for doing something we know is wrong?

Today’s post really does raise some serious governance issues that most non-profits of all sizes and shapes struggle with on a daily basis. Please scroll down and use the comment box to share your thoughts as well as examples of how your agency has dealt with this issue. We can all learn from each other.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

The Age of Austerity: Don’t cut your nose off to spite your face!

Yesterday’s blog post introduced the idea that the non-profit sector might be entering into “The Age of Austerity” thanks in part to projected decreases in government funding. Today, we continue exploration of this topic by looking at what types of budget cuts are occurring and processes for responsible cutting.

First, I decided to ask my non-profit Tweeps on Twitter where they were making cuts and why certain things were off-limits. Needless to say, people were all over the place, and there was no consensus except around two things:

  • 100 percent of respondents said they would start with cutting administration and management expenses.
  • 100 percent of respondents also said they would start with facility maintenance cuts.

After an informal survey of my Tweeps, I did a little research using my best friend “Mr. Google,” where I found a recent article from the Wisconsin State Journal titled “‘New normal’: Nonprofits struggling with budget cuts“. Not surprisingly, a much more scientific survey than my informal Twitter poll found that approximately one-third of respondents plan on cutting or reducing programs services. This number is up from where it was in 2009, when 29 percent of respondents said they were cutting or reducing programs.

I suspect there are many non-profits who started cutting what they saw as “non-essential services” a few years ago. Now that there isn’t any more “fat to cut,” it is time to start cutting muscle.

It shouldn’t surprise anyone that more and more non-profits are getting to the brink of collapse, failure and contraction. We see signs of it in the Wisconsin State Journal article where they point out that smaller agencies have no cash reserves. We saw it in the Guidestar report that I referenced in yesterday’s blog post. I even wrote about it during my new year predictions blog series at the end of 2011 — “2012 Non-Profit Trends and Predictions: Contraction Continues“.

So, how should a non-profit organization go about making these tough decisions? Here are just a few tips:

  1. Always go back to your mission and ask: “how will this cut impact our ability to fulfill our mission?” Obviously, you would prioritize your cuts so the ones that affect mission the most are some of the last cuts you’d ever consider making.
  2. Are there things you can do to save money that are less painful than others? (e.g. Can you stretch a project (and its costs) out over a longer period of time? Can you re-bid certain services such as insurance or building maintenance?)
  3. Stop trying to hide these discussions from key donors. Invite your biggest supporters into the discussion so they can better understand how and why certain decisions are being made. For those not at the table, develop a communications plan to inform them of why certain cuts were made (not just that they were made). No one likes a surprise — especially donors. Remember, this is a way to get lots of smart people, who care about your mission from different backgrounds, around the table and focused on your problem. Please don’t approach this with a hidden agenda to secure more money from your supporters. They are surely able to see through this, and it’ll feel disingenuous.

The bottom line is that non-profits who find themselves cutting services run the risk of harming their program outcomes and community impact. Once this happens and donors see it, fundraising dollars will start drying up, and you know what they say about being on a “slippery slope”. Next thing you know, you’re at the bottom of that hill and you’re going out of business.

Of course, there is a another road to take. Stop exclusively focusing on cuts-cuts-cuts and start focusing on engaging donors and fundraising activities. I’m not suggesting that you stop cutting. There are most likely smart cuts your agency can make, but I’m suggesting you do so while implementing an aggressive resource development plan.

In my research, I found an amazing white paper written by David Maddox of John Wiley & Sons which was reprinted with permission by The Grantsmanship Center. The paper was titled “Strategic Budget Cutting“. It really is an amazing resource with great ideas and process. I encourage you to check it out!

Is your agency in cost cutting mode? What are you cutting and what aren’t you cutting? It is easy to say “use your mission statement to filter these decisions,” but how have you effectively done that? If you are both cutting and trying to do more fundraising, have you had much success? Please use the comment box below and weigh-in with your thoughts because we can all learn from each other.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Whoa! Special events and individual giving

We ended the last week with a close-up look at what many non-profit organizations are doing to adjust to a restriction in government funding. Click here to read the post titled “Sir Isaac Newton was right about nonprofit organizations“. I ended Friday’s post with a promise that we would look at individual giving strategies from different angles this week. Today, we will look at special events as an individual giving strategy.

I thought it might be fun to look at individual giving through the eyes of those Disney characters from the movie “Finding Nemo”. Why this movie? Because this movie was all about a father who in his search for his lost son learned how to take risks and also discovered his son is capable of taking care of himself. In some ways, I think that individual giving for non-profit agencies kind of follows the same storyline.

Let’s take that scene in the movie where Marlin (the father clown fish) is talking to Crush (the turtle) about Marlin’s experience with jellyfish:

  • Crush: “Oh, I saw the whole thing, dude! First, you were like, whoa! And then we were like, WHOA! And then you were like, whoa.”
  • Marlin: “What are you talking about?”
  • Crush: “You, Mini-Man! Takin’ on the jellies. You got serious thrill issues, dude.”

LOL . . . I think special events are a little bit like this scene from “Finding Nemo”. They are fun. They are not for the faint-of-heart. Too many might actually be dangerous for your organization. However, they are something you probably need to do if you want to “find” donors.

As we talked about on Friday, there are many fundraising volunteers who are fearful about asking friends to make a direct charitable contribution. However, special events feel different from asking for direct contributions because there is a trade involved — you give me $50.00 and I giving you a ticket to a dinner. Quid pro quo.

Unfortunately, there are too many non-profit organizations who just kept adding more and more events to their resource development plan every time there was a shortfall in revenue. Now, they have an unbalanced resource development program, and much like a car with unbalanced tires this can be a recipe for danger.

I won’t go into a long diatribe about how special events aren’t a very efficient way to raise money from individuals. This is a well-worn path, and you can find countless blog posts from me on the subject. However, you may want to click here to read Charity Navigator’s study on special events and how they cost (direct + indirect costs) the average non-profit agency $1.33 to raise $1.00.

All that being said, every non-profit organization needs to have one or two well-run special events built into their annual resource development plan because:

  • They will bring in some money for your agency (if you factor out indirect costs like staff time),
  • They are a soft way for new prospective donors to learn more about your agency,
  • They are a fun way for your agency to engage new volunteers, and
  • They have a cultivation and stewardship effect for many prospects and donors especially if the event has a “mission-focus”.

However, please keep in mind that too much of a fun thing is never good for anyone.  I recent had an opportunity to interview more than 40 donors. I asked the donor if they prefer to make a charitable contribution using an event vehicle or a direct solicitation from a friend armed with a pledge card.  In EVERY interview, the donor came back and said without hesitation that they would prefer the friend and the pledge card.

Remember . . . events have their place. Keep them to a minimum, but do those few events very well. Keep the event mission-focused with an eye to introducing new prospects to your agency and demonstrating to existing donors that their contributions are making a difference. Most importantly, keep in mind that special events are only one of many solicitation strategies you will employ in your efforts to secure more individual giving to compensate for the receding tides of government funding.

How does your agency ensure its special event program doesn’t get out of hand? Do you evaluate every event? If so, what metrics do you use?

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

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