Best of 2019: Nonprofits say philanthropy alone can’t save services
Note: This story was originally published on November 19, 2019.
To paraphrase Connecticut’s private, nonprofit social service agencies: Gov. Ned Lamont just doesn’t get it.
Frustration with Lamont, who rebuffed a request from nonprofits for $100 million of the state’s $2.5 billion reserve, recently surged after the governor urged the agencies to ask more from wealthy donors.
Leaders of nonprofits, who provide the bulk of social services in Connecticut and will soon be asked to do more, were disheartened by that suggestion, saying it belies a fundamental misunderstanding of what they do.
“It is extremely difficult to raise money to support services for adults with serious mental illness and serious addiction disorders,” said Heather Gates, president and CEO of Windsor-based Community Health Resources. “They are a highly stigmatized conditions. Traditional philanthropy does not want to pay for hardcore professional supports.”
To her point, private fundraising typically accounts for 3% or less of most nonprofit budgets, while government sources represent three-quarters or more.
“It is extremely difficult to raise money to support services for adults with serious mental illness and serious addiction disorders. Traditional philanthropy does not want to pay for hardcore professional supports.”
President and CEO
Community Health Resources.
In other words, public funding is the meat and potatoes. Philanthropy, while much appreciated, is little more than an after-dinner mint.
Gates’ own organization is testament to this imbalance. With more than a dozen facilities across eastern Connecticut, CHR is one of the state’s larger nonprofit agencies, serving about 24,000 patients per year and operating with a $63 million budget.
About 87% of that budget comes from government resources — state contracts, federal grants, and Medicaid and Medicare payments. Another 12 to 13 percent comes from commercial insurance.
Less than 1% comes from private donors.
Gates praised her fundraising staff, but said CHR could triple its philanthropy revenue and that still wouldn’t position her agency to add programs and staff.
Former state Rep. Jack Malone of Norwich, who now is president of the Southeastern Council on Alcoholism and Drug Dependence, said fundraising accounts for only $29,000 of his Lebanon-based agency’s $9.5 million annual budget.
Like CHR, the overwhelming bulk of SCADD’s funding comes from government sources. Three different state departments contract with the council to provide addiction treatment services to roughly 3,500 adults each year.
“We have to work hard for our fundraising,” Malone said, adding that while he appreciates the council’s supporters, their resources are limited as well. “They’re not well-heeled, Gold Coast, western Connecticut families.”
Lamont, who addressed more than 550 leaders of nonprofit agencies last week at their annual convention, said the best he could do in his first year on the job was hold their state funding flat.
The Democratic governor inherited a state budget that — without adjustments — was on pace to run more than $3 billion in deficit across this fiscal year and next combined.
But that’s an explanation nonprofits have been hearing for years, particularly since Connecticut emerged from the last recession in 2010 with a sluggish economy and enormous pension debt.
“We have never benefitted from the state doing well and we have always paid the price when the state has struggled,” Gates summarized neatly.
Presently, more than a half dozen state agencies collectively spend roughly $1.4 billion to hire private, nonprofit agencies to provide social services, health care, job training and other government functions.
These payments represent more than 7% of the state budget’s General Fund.
Since 2002, state spending for nonprofits has grown by about 10%. After adjusting for inflation, nonprofits say they have lost money over that period.
Further complicating matters, state officials project a huge surge in retirements will occur in three or four years, potentially eliminating as much as 15% of the state’s workforce.
Nonprofits already provide 80% of state-sponsored social services, and Lamont said last week Connecticut will lean more heavily on them in just a few years.
Gates said CHR already has trimmed staffing and program slots in some residential programs and also is struggling with longer waits at its outpatient clinic — which translates into fewer patients served each day.
“We have never benefitted from the state doing well and we have always paid the price when the state has struggled.”
All of this begs the question of how nonprofits can be expected to handle more patients with flat funding three years from now?
The CT Community Nonprofit Alliance, which represents more than 300 agencies, proposed a solution this past spring: invest $100 million — most of which would come from the budget reserve, but some could be borrowed — in nonprofits right now, and then have the administration, legislature and industry work together to develop a multi-year plan to phase in higher rates.
Lamont said last week that preserving the surplus is the best way to provide stability for nonprofits.
“The rainy day fund is to make darn sure that when there’s a rainy day I don’t have to cut funding for services like this at a time of most need,” Lamont said last week.
“There is no level of philanthropy that, alone, will be sufficient to meet the needs I have now, let alone the growing needs.”
Andrea Barton Reeves
President and CEO
There is some historical evidence to support the governor’s argument. During the last recession — between 2008 and 2010 — annual tax receipts in the General Fund fell from $12.5 billion to $10.9 billion.
Lamont did offer the nonprofits an alternative at their convention, however
“I spent the last two weeks talking with a lot of pretty well-heeled investors,” he said. “I also mentioned to those investor-types that … I need them to step up more. And I need them to contribute more to what we’re trying to do in the not-for-profit community.”
The governor also suggested the state offer tax credits to philanthropic donors to encourage giving, but he downplayed this suggestion immediately after the convention ended and said he wouldn’t be proposing tax credits when he delivers his next budget proposal to the legislature on Feb. 5.
“I don’t think February,” he said, adding he has just begun discussions with state tax commissioner Scott Jackson. “I think that’s too soon.”
Gian-Carl Casa, president of the nonprofit alliance, said nonprofits appreciated Lamont’s appearance at the convention, “but his suggestion that increasing philanthropic support is the answer to funding shortfalls is, by definition, only a fraction of what needs to be done.
“Charitable giving does not have the reach or the capacity to substitute for state funding of substance abuse and mental health treatment, support and residential services for people with developmental disabilities, homeless shelters, re-entry programs and other vital human service programs,” Casa said.
Andrea Barton Reeves, president and CEO of HARC Inc., a Hartford-based agency serving about 2,500 people with intellectual and developmental disabilities, said only 1.5% of her $18 million annual budget comes from private donors.
“We really appreciate every single dollar every single donor gives us to move our mission forward,” Reeves said. “But there is no level of philanthropy that, alone, will be sufficient to meet the needs I have now, let alone the growing needs.”
Reeves said much of the philanthropy her agency receives supports complementary services rather than core programs in the budget. For example, summer camp programs for the disabled often are funded by private donors.
Stagnant state funding not only puts programs at risk, Reeves said, but also contributes to high turnover rates in a field that relies on patients and staff forming a close bond.
Over the past decade, nonprofits have routinely complained of annual turnover rates in excess of 20%, and in some cases more than 25%.
“This is so upsetting to parents and families and is one of the most critical issues we’re dealing with,” Reeves said. “We need to hire quality people and have them stay, but people are leaving to work at Wal-Mart and Chick-fil-A.”
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