One in six nonprofit organizations that care for foster children, the elderly and those with disabilities has drained its rainy day funds, a situation that the Governor’s Cabinet on Nonprofit Health and Human Services reports is worsening every year.
Additionally, 72 percent of the state’s providers that serve thousands of residents report that any unexpected costs — a large spike in energy prices, for example — would force them out of business.
The situation has forced many providers to cut their workers’ wages so much that many employees of nonprofit groups qualify for state assistance.
“Providers have seen a significant change in their financial position,” says the report, which was approved unanimously by the cabinet this week. (Read the report: Part 1 and Part 2.) The panel includes a mix of state agency commissioners and leaders of nonprofit groups.
Help from the state is unlikely, the governor’s budget director said Tuesday during an interview.
“A robust [increase in state funding] is not likely to happen in this upcoming biennium,” Ben Barnes said, noting that the state faces its own fiscal challenges.
For Hartford-based Oak Hill, one of the state’s largest providers for those with disabilities, this will mean having to eliminate even more of the nonessential services it offers. A decision to take the disabled adults living in a group home in Hartford to a free concert in the park, said Patrick Johnson, Oak Hill president, can come down to whether he can find the gas money.
“It isn’t a huge amount of money, but when you are on the brink it could break you,” he said.
This reality has become the norm in Connecticut, with 43 percent of nonprofits reporting they closed fiscal 2010 with a deficit. The situation is even more grim for the state’s large nonprofits: 73 percent of those with budgets over $1 million closed 2009 with a deficit.
“They face a Sophie’s choice,” the cabinet’s report says, acknowledging that these nonprofits must either cut salaries or the extra nonessential services and field trips in order to balance their budgets and stay open.
The Urban Institute reports that two-thirds of Connecticut’s nonprofits froze or reduced salaries in 2009.
“You are talking about reducing the quality of life for both our clients and employees,” said Peter S. DeBiasi, co-chairman of the cabinet and president of Access Community Action Agency, which provides services for thousands of children and disabled residents in the northeast region of the state. “It becomes a justice issue.”
The state’s nonpartisan Office of Legislative Research earlier this year reported that thousands of people working at nonprofit groups throughout the state earn so little that they qualify for the state’s health insurance plan for low-income individuals. The cabinet report also says the group is researching how many employees, and their children, qualify for other public assistance programs such as food stamps.
Terrence Macy, commissioner of the state’s Department of Developmental Services (DDS), said fiscal instability among providers is making it difficult for his agency to find providers to offer the complex services clients often require.
“They are constrained to participate because they don’t have the capital,” he said. “There are many providers who are in no positions to provide the service now and get payment later.”
The cabinet report shows that the “vast majority” of providers — 67 percent — have no ability to expand.
They “are not in a position to engage in long range planning and opportunities, but rather are concerned with the current stability of the organization.”
States across the country face this issue. The 2012 State of the Sector Survey, which is paid for by Bank of America’s Charitable Foundation, reports that 31 percent of the 4,601 group surveyed closed 2011 with a deficit, and 25 percent broke even.
How did nonprofits get here?
Nonprofit leaders in Connecticut say the state is starving them financially. While the state has increased the rates paid to nonprofits by 33 percent over the past 25 years, their costs for food, rent, gas and heating oil have doubled, reports the Community Providers Association.
“They are at the tipping point,” said Terry Edelstein, the president of the providers association, who will become Gov. Dannel P. Malloy’s nonprofit liaison to the private nonprofit agencies that the state pays $1.4 billion annually for a wide range of services to 500,000 residents. “Something has to change.”
But, with the state’s fiscal cushion now gone, the current state budget could be as much as $27 million in deficit. Contracts with nonprofits, which represent about 7 percentof the budget, stand out as targets for potential emergency budget cuts. The reasons go beyond math; they’re among the largest pools of state spending that the governor has the authority to unilaterally rescind.
The Urban Institute ranks Connecticut as the seventh worst state in reimbursing its providers for the actual cost of providing services.
Expecting private fundraising to fill the gap is also not a feasible alternative.
“Philanthropy can only go so far,” said Johnson, noting that his supporters are reluctant to pay to close deficits.
“It is neither reasonable nor possible for private charity to supplant the state’s responsibility with respect to caring for its most vulnerable citizens,” the cabinet report reads.
After four years of flat funding, state lawmakers did approve a budget that will provide a 1 percent increase in reimbursement rates. This increase will cost the state $8.5 million this fiscal year.
Solutions
The cabinet’s report offers several recommendations for Malloy to consider, and most come with either a price tag or a reduction in services.
One recommendation calls for agency leaders to routinely review existing contracts and adjust rates to respond to increased costs or review and modify their “service capacity.”
Patrick Johnson, at right, of Oak Hill talks about deficits and field trips. Terry Edelstein and Peter DeBiasi listen.
Another recommendation would allow nonprofits to keep any surpluses they manage to achieve in good years to fall back on in tough years. Providers who contract with DDS to provide services for those with developmental disabilities used to be able to keep half of their surpluses, but lawmakers reversed that policy last year.
“There’s a lot of pressure when the budget gets tight to look at every penny,” said Edelstein. She said DDS providers were able to retain about $4 million a year before lawmakers decided the full savings would be returned to the state.
The cabinet also recommended that the state step up and help them with building repairs and the other renovations their buildings need.
“We are struggling. Where exactly is the money going to come from for this?… Good luck getting it from the state,” Johnson said about the lengthy process of getting state funding.
Barnes said the condition of the facilities is on his radar, and the administration is open to taking on debt to renovate facilities. “We have supported quite a number of those projects… We are prepared to support even more of them,” he said.