In Hard Times, It’s Hard To Be a Nonprofit

Think it’s been tough for Westchester businesses to get through the recession? Try being a nonprofit.



Illustration by Chris van Es

 

At the end of the 2009 fiscal year, the Northern Westchester Boys & Girls Clubs (NWBGC) faced a dismal choice: Rack up a third consecutive year of carrying a budget deficit, or make drastic cuts to programs, staff, and salaries to shore up its finances. NWBGC, which will celebrate its 75th year of operation in Mount Kisco in 2012, chose the latter, reducing its staff by 10 people, cutting salaries, and ceasing its funding of affiliated programs at youth centers in Tarrytown and Yorktown. “We cut the budget to the bone and made changes in how we spent our money to avoid another deficit year,” explains NWBGC Executive Director Brian Skanes. “The result has been a small surplus in 2010 and a projected surplus for fiscal year 2011.”

NWBGC, which serves some 2,000 members with “fee-for-service” programs—including preschool, a daycare center, a highly regarded aquatic club, and various teen programs—is currently operating on a $2.7 million budget, a figure that is down significantly from 2008’s $3.9 million budget, Skanes notes. And its fee-for-service revenue dropped from $1.7 million in 2009 to a projected $1.5 million for 2011. “We also saw a reduction in contributions and government funding,” from $730,500 in 2009 to $230,000 projected for 2011.

Sadly, NWBGC’s story is not unique. As the recession wreaked havoc on the economy during the last few years, similar scenarios have been playing out across Westchester County’s nonprofit sector. Nonprofit organizations of all types—from large to tiny, in human services, the arts, childcare, education, and other categories—have had to trim staff and programs to survive. That survival not only is crucial to the county residents who depend on nonprofit agencies’ services but key for the county’s overall economy. Though not often thought of as an economic engine, Westchester’s nonprofit sector employs nearly 100,000 people, brings a whopping $7.3 billion (yes, that’s billion) in total revenue to the county, and posts total assets of $11.7 billion.

A Double Whammy
Budget cuts at the local, state, and federal levels, combined with decreases in donations from individuals, private foundations, and corporations, have slapped nonprofits with a double dose of economic woe. “It’s been a double whammy for Westchester’s nonprofits,” says Catherine Marsh, executive director of the Westchester Community Foundation, a nonprofit foundation that distributes grants to a wide variety of local nonprofit organizations. “If they were getting government money, that’s been slashed. And most donors are no longer able to give at the levels they had previously.”

To make matters worse, the nonprofit sector is being squeezed from both sides: Budget cuts and fewer donations come at a time when the demand for nonprofit services has increased. The Food Bank for Westchester, for instance, has seen an 18-percent increase in demand for food since June 2009, while requests for assistance from homeless-prevention nonprofit The Bridge Fund of Westchester increased approximately 28 percent in 2009. The recession’s toll has also led to an increased need for affordable childcare and healthcare options, and even for legal services to fight foreclosures and help prevent eviction, Marsh notes. “The demand for the services provided by our county’s nonprofits is overwhelming, but they are looking at fewer and fewer resources to address the needs and fulfill their missions,” she says.

For many nonprofits that call Westchester home, government funding—whether grants, contracts for services, or allocations from local Congress and Senate leaders (the infamous “pork barrel”)—provides the lion’s share of their cash flow. And this, according to Molly Penn and Gail Goodman, Westchester-based founders of the Consulting Collaborative, can be the kiss of death. “Government funding for nonprofits is drying up.”

Case in point: Yonkers-based nonprofit The Greyston Foundation, which provides workforce development, housing, and youth-services programs, and operates the for-profit Greyston Bakery. In 2009, it received nearly $2.2 million in government grants; in 2010, that number dipped to nearly $1.9 million; for 2011, it dropped further still, to $1.7 million. The Foundation had to end a tenant support program that was funded by New York State’s Supportive Housing for Families and Young Adults and a young-adult program supported by The Yonkers Workforce Investment Board. Steven Brown, president of the Greyston Foundation, says the Foundation is “working to provide these ongoing programs by partnering with other local organizations and restructuring of some of our internal programs to allow people to take on added responsibilities.”

The 2011 budget proposed by County Executive Robert Astorino also has caused some panic in Westchester’s nonprofit sector, because it aims to reduce the county’s budget by $33 million. Some of the proposed savings for the county are coming from reductions in funding for childcare (-$4.3 million), neighborhood health centers (-$1.9 million), and homeless shelters (-$1.9 million), among others. “The cuts to social welfare in Astorino’s budget are very deep,” says Penn. “The budget has evoked a uniform rallying cry.”

Amy Kohn, CEO and executive director of the Mental Health Association of Westchester County (MHA), has seen both sides of the coin when it comes to cuts in government spending. MHA receives 90 percent of its funding from the government, and a large chunk of that comes from Medicaid payments for the services MHA provides—a situation which, going forward, Kohn deems “precarious” because of statewide attempts to reduce Medicaid services.

“But MHA’s story is complicated,” she says. “We have lost funding for mobile services to people with serious mental illness, at-risk youth, and families, and we received an across-the-board one-point-five-percent decrease in state-funded contracts. However, we have expanded clinic services in areas where Westchester County is closing services.” This has helped to account for MHA’s budget increases, from $11.8 million in 2009 to $13.2 million in 2010, and $14.1 million in 2011.

Kohn also supports Astorino’s move to privatize mental health and other human services, giving more leverage to the nonprofit sector. “Nonprofits can provide services efficiently and cost-effectively,” she says. “We have the knowledge base and the history, and we are nimble.”

Taking a Private Sector Approach
Some nonprofits seeking to hedge against the recession’s impact have taken a page from the private sector playbook and are embracing cost-cutting measures, including outsourcing administrative and operational duties in order to focus more on efficiently and cost-effectively achieving their core missions.

“We’ve embraced a significant amount of outsourcing over the last few years, including food service, transportation, and rental property management duties,” says Greyston’s Brown. “It reduces costs for us, and it means we don’t have to manage a function that detracts from our core purpose. In some cases, outsourcing allows us to operate a program that we otherwise couldn’t afford to continue.”

Outsourcing to other nonprofits has proved particularly popular, because nonprofits are familiar with the intricacies of the world in which they operate. MHA, for example, is offering its robust business practices and technology capabilities as an outsourced provider to nonprofits with weaker internal infrastructure. “Unlike an accounting firm, we understand their business, know the players in town, and know the nonprofit rules and regulations,” Kohn says.

MHA helps other nonprofits boost their bottom lines not just by performing their back-office functions, but also by locating missed opportunities for financial gain. Says Kohn, “Our finance people can point out situations where the agency could have billed more for a service, or can point them to grants which they would qualify for.”

Another example of nonprofits helping nonprofits is ArtsWestchester’s online portal. The 45-year-old organization—the largest private nonprofit arts council in the state—hosts an online guide to events in Westchester as well as an affiliate directory comprising 140 nonprofit arts organizations. “Each affiliate has a page on our website with mission, contact, and event information,” explains Janet Langsam, ArtsWestchester’s CEO. The portal also acts as a revenue driver—visitors can click on an event and go directly to the affiliate’s website to purchase tickets—and it gives free publicity to arts organizations who could not afford to advertise their offerings otherwise. “I think what we are doing is important for the future of the arts in Westchester because it really promotes what the arts community has to offer,” she says.

“Westchester nonprofits are all looking to find new ways of working through this economy—partnerships with each other and with corporations, new ways of marketing, a strict emphasis on reducing costs, and developing new income potential.” Langsam went to her vendors to renegotiate contracts in light of the downturn. “Most of our vendors worked with us to reduce costs,” she says.

Buffered from the Worst?
Interestingly, recent research from Pace University’s Wilson Center for Social Entrepreneurship shows Westchester’s nonprofits may be more resilient than the prevailing wisdom indicates. Though the sector was undoubtedly hit by drops in government funding and individual contributions, Pace’s numbers—obtained through examining the tax returns of all registered nonprofits (any non-religious nonprofit organization with assets of at least $25,000) in the county from 1995 to 2010—show that the sector actually increased in number and asset value, added jobs, and increased salaries.

The highlights:
From 1995 to 2010, the number of registered nonprofits in Westchester grew 47 percent, from 3,871 to 5,709.

Nonprofit assets in Westchester grew 143 percent in the same time period, well above the New York State growth of 128 percent.

Westchester nonprofits employed approximately 97,054 people in 2009, up from 88,010 in 2000—a 9-percent increase.

Total nonprofit wages during the same time period increased from $3 billion to $4.5 billion—a 50-percent increase.

The average annual salary in Westchester nonprofits rose from $34,195 in 2000 to $46,124 in 2009—an increase of 35 percent.

“I think this study shows a certain resiliency in the nonprofit sector,” says Rebecca Tekula, executive director of the Wilson Center and co-author of the study.

“Westchester nonprofits experienced a major decrease in giving, but nonprofit revenue and assets had already made a positive turnaround by the end of 2009.”

The data on the sector’s employment and wages is quite compelling, according to Tekula. While the overall average salary change in Westchester dropped from 5.4 percent in 2006 to -2 percent in 2009, the nonprofit average salary change in Westchester stayed positive, dropping from 4.2 percent in 2006 to just 1.7 percent in 2009. And, in recent years, Westchester lost 10,835 jobs, but the nonprofit sector gained 5,172 jobs during this same period, according to the Bureau of Labor Statistics.

“Employment in nonprofits has been relatively buffered from the storm,” Tekula adds, though she admits she has not yet pinpointed exactly why. The study includes large Westchester nonprofits like universities and hospitals, which may have fared better during the recession than smaller arts and human services nonprofits and may account for the rosier picture.

“Still, I think this is compelling for people about to enter the workforce—you may be paid less in the nonprofit sector, but when there is a downturn, you may have a hedge against that,” she says.

Economic Prowess
How well the nonprofit sector bounces back from the recession remains to be seen. What is indisputable, however, is the important role the sector plays in Westchester’s economy—in good times and bad. According to the Pace study, the overall economic impact of nonprofit spending in Westchester County is a staggering number: nearly $24 billion. This figure was calculated using the Federal Reserve Bank of New York’s spending multiplier, which says that every dollar made/spent generates $3.40 in additional business activity in the region. Since nonprofit spending for 2010 was $6.9 billion, the total impact figure is $23.5 billion.

“The last three years showed an estimated seven-hundred-sixty-nine-million-dollar decrease in nonprofit spending, which translates to an overall loss in economic impact of two-point-six billion dollars in the county,” Tekula says. “That is really significant.”

While the link between the nonprofit sector and the economy isn’t always that easy to calculate, you don’t have to dig too deep to find the connection. Consider the downtown revitalizations which have boomed throughout Westchester’s towns and cities in recent years; many have a performing arts center or other cultural organization as an anchor. These venues often help to bring other businesses to the area, all of which boosts tax revenue.

An economic chain reaction occurs when Westchesterites take in an indie movie at the Jacob Burns Film Center in Pleasantville or go to see a performance at the Paramount Center for the Arts in Peekskill or the Tarrytown Music Hall, says Langsam of ArtsWestchester, which moved into its Mamaroneck Avenue offices in White Plains back when it was a has-been block. In fact, a 2007 study commissioned by ArtsWestchester determined that arts and cultural nonprofit organizations alone have a $120 million economic impact on the county. “When people go to a show, they might have drinks before, then go out to dinner afterwards,” she says. “They pay to park, they hire a babysitter, they are spending money locally.”

And those local dollars are, after all, just what we need to get the nonprofit and business sectors growing again.

Amy Roach Partridge is a veteran business writer and editor who has called Westchester home for more than a decade.

BY THE NUMBERS

5,709
Total number of registered nonprofits* in Westchester in 2010

$11.7 billion
Total 2010 assets of Westchester’s registered nonprofits

$7.3 billion
Total 2010 nonprofit sector revenue

$6.9 billion
Total 2010 nonprofit sector expenditures

$23.5 billion
Total estimated economic impact of the Westchester nonprofit sector**

97,054
Total number of Westchester nonprofit employees in 2009

$4.5 billion
Total wages for the Westchester nonprofit sector in 2009

$46,124
Average annual pay for Westchester nonprofit employees in 2009

*A registered nonprofit is a non-religious nonprofit with more than $25,000 in assets.

**Calculated using the Federal Reserve Bank of New York’s spending multiplier, which says that every dollar made/spent generates $3.40 in additional business activity in the region.

(Source: Pace University’s Wilson Center for Social Entrepreneurship)