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Safety nets stretched thin

Report urges fund-strapped charities, social service groups to consolidate

Email|Print|Single Page| Text size + By Robert Weisman
Globe Staff / June 11, 2008

The nonprofit sector employs almost 14 percent of the working population in Massachusetts, about twice the national average. But a growing number of the state's nonprofits, especially charities, and social service groups, face financial strains from a slowing economy, jeopardizing the safety net they provide to many citizens.

Those are among the findings from a study set to be released today by the Boston Foundation, the largest funder of nonprofit organizations in the state. The report is billed as the most comprehensive portrait yet of Massachusetts nonprofits, a sector made up of more than 36,000 organizations employing 447,000 people and ranging from giants like Harvard University and Massachusetts General Hospital to neighborhood Little League teams and volunteer groups.

As state government and private donors scale back their support, and operating costs escalate, smaller nonprofits should pool their resources, forge alliances, and improve their financial stewardship to make their programs more sustainable, the study recommends.

Boston Foundation officials have quietly advocated in the past that nonprofits consolidate to reduce overhead and offset funding cuts, but today's report marks a more formal and public call to action. Some nonprofits already have heeded the call. In a high-profile 2006 merger, the Women's Union and Crittenton, two Boston charities that help at-risk women and families, joined to form the Crittenton Women's Union.

More such mergers might be necessary as the economy worsens. "We have not yet had the kind of draconian cuts we had early in the decade, but it could happen," warned Paul S. Grogan, the Boston Foundation president and chief executive. "That's all the more reason for nonprofits to do the hard work of becoming more efficient."

Nonprofits have played a growing role both as economic pillars and providers of services to the poor and disadvantaged as dozens of Boston area companies have been acquired and the state government has transferred many community health and youth services to outside groups. At the same time, with the number of public charities in Massachusetts nearly doubling in recent years while the population of the state has stagnated, the foundation's study concludes there are too many nonprofits with too few resources and too short a focus.

"The ability of the state's nonprofits to deliver on their public purpose depends on the health of the sector," said Geeta Pradhan, director of programs at the Boston Foundation and one of the study's authors. "But there's a tendency to put all their resources into their programs, not invest in the capacity of the organization. So when the organization comes on hard times, the result is devastating."

Pradhan said nonprofits should refocus on sustainability, investing in their "people assets" and infrastructure while keeping three to six months of cash on hand to keep programs going. Historically, nonprofits, driven by the priorities of donors, have concentrated more heavily on funding programs than on building their organizations.

Especially vulnerable to the economic downturn are what the report defines as "safety net" organizations, with $250,000 to $50 million in annual expenses, and "grassroots" organizations, with less than $250,000 in expenses. While also feeling the pinch, larger "economic engine" organizations, mostly hospitals and universities with more than $50 million in expenses, have a stronger financial footing.

Jeremy Liu, the executive director of the Asian Community Development Corp. in Boston, which serves area immigrants, said potential funding cuts from the group's financial backers threaten its youth leadership and home ownership programs, though it's trying to restructure the programs to keep them viable. "A lot of our support has come from places like banks," Liu said. "And as we know, they're under stress now. So that creates pressure on organizations like ours."

Similarly, the Boys & Girls Clubs of Boston, which runs nine clubs in disadvantaged neighborhoods in Boston and Chelsea and has transitioned to a more businesslike culture over the past decade, has delayed a growth plan approved last year because of the increased costs of everything from materials to fuel to employee healthcare.

But the organization hasn't backed off its ambitious goal of opening five to seven new clubs over the next five years, doubling the number of youths it serves. "We're very careful about expanding with an eye toward financial sustainability," said Linda Whitlock, the president and chief executive of the Boys & Girls Clubs of Boston.

The Boston Foundation study also calls on state nonprofits of all sizes to join the Massachusetts Nonprofit Network, an organization created a year ago to encourage investment in the sector and limit the damage from budget cuts. The network is also getting involved in legislative issues, such as pushing to exempt more nonprofits from having to file financial reports and fighting a drive to eliminate the state income tax, a move that could hurt nonprofits.

"There's a powerful economic argument for investing in this sector, but there's also the human dimension," said David P. Magnani, the executive director of the nonprofit network. "These are not jobs that are going to get relocated. If you're talking about a nonprofit shelter for women, you're not going to relocate it to Japan."

Robert Weisman can be reached at weisman@globe.com.

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