In the Wake of the Recession, Eight TCWF Grantee Leaders Share Their Stories of Survival and Their Strategies for Emerging Stronger Than Ever

Riding Out the Storm

By Rick Nahmias

In the sunlit library of Para Los Niños, a downtown Los Angeles nonprofit designed to help impoverished children and high-risk youth succeed, President and CEO Gisselle Acevedo tells the story of how one of her teachers had put together a multipart lesson on bees only to have an ant crawl across a student’s desk as she stood there dressed in an elaborate bee costume. The students immediately forgot about their teacher and gathered around the desk entranced by the tiny, uninvited visitor. In a matter of seconds, out went the bee costume and in came a lesson about thoraxes and petioles. It is just one example of how Acevedo’s teachers and staff have learned to adapt to sudden changes and uncertainty, both inside and outside its classrooms.

The anecdote also works as an unlikely metaphor for how some of California’s 121,000 nonprofit organizations are having to abandon strategic plans, budgets and long-term goals in light of the economic crisis. The passage of the budget revisions in July compounded the situation for Californians when programs, services and funds – the lifeblood of many of these agencies – were sharply trimmed.

“Our core operating support grants increased to 90 percent during the first six month of this year,” said Gary L. Yates, president and CEO of The California Wellness Foundation (TCWF). “This rise is indicative of the struggles nonprofits are facing, with increased demand for services and falling revenues.

“Our experience has taught us that unrestricted funding is the most effective and strategic way to support the essential efforts of nonprofits working to improve the health of underserved Californians.”

For the eight health nonprofit leaders and experts interviewed for this story, this has been a time like no other.

We chose to reduce operating costs overall — in every area.

 

“California, as it often is, was ahead of the curve on this economic downturn,” said David Greco, Western Region vice president of the Nonprofit Finance Fund (NFF), which was founded in the early 1980s to provide lending and financial services to nonprofits. “We already had last year’s budget crisis, coupled with foreclosures and a drop in tax revenues. Combine all this with rising demand – and you have the creation of the perfect storm,” said Greco, framing the current situation in sobering terms. NFF serves both nonprofits and funders through an integrated package of financial and advisory services that includes loans, workshops and business analyses. (See sidebar.)

Effect on Health and Human Services

The devastation wrought by the severe economic downturn has been particularly hard on California’s health and human services organizations. Here are a few examples of its effect on TCWF grantees with core support grants:

Oral Health
St. Barnabas Senior Services in Los Angeles offers an integrated array of health promotion and medical services for older adults both on-site at its downtown Los Angeles center and in-home.

St. Barnabas Senior Services, founded in 1908, is Los Angeles County’s oldest senior services agency. In 2008, it saw its largest private case management contract, valued at $240,000, simply go away along with the complete deletion of government funding for its Alzheimers Day Care Resource Center.

Huckleberry Youth Programs of San Francisco, which runs the nation’s oldest runaway shelter, finished last year with the largest deficit in agency history – $350,000 – because of lowered individual and foundation giving and midyear state funding cuts.

MOMS Orange County, which offers pre- and postnatal health care coordination, education and access to community services, has been forced to lay off staff and abandon one of its popular pregnancy and early parenting health programs. As a result, the wait list for other services has skyrocketed to 190 expectant mothers – nearly 10 times that of the highest point .

The Shasta Consortium of Community Clinics (SCCHC), a network of five federally qualified health centers with 16 sites in three rural Northern California counties, served 70,000 patients with more than 250,000 visits in 2008 alone. So far this year, it has taken a hit of $3.7 million in state funding cuts.

Homeboy Industries, which for 23 years has strived to redirect the lives of Los Angeles youth involved in gang culture through violence prevention programs including everything from tattoo removal to silkscreening, is owed more than $300,000 by the state on a two-year grant with no word when the funds will be delivered.

Acevedo of Para Los Niños brings it back to the most vulnerable affected.

“These are not just poor children…these are some of the poorest children in America,” she said. Having come from her own childhood of poverty in L.A.’s Pico-Union neighborhood, she personally understands the difficulties the agency’s children face. For Acevedo, a decision she has been forced to make is especially tough – closing proven programs that have become models

so she can sustain those that are less successful but serve more children and youth at a lower-per-child cost.

The Shasta Consortium’s Executive Director Doreen Bradshaw explains that rural health care facilities provide three essential layers of health care: they are often an area’s sole medical care facility; they offer urgent care centers to tourists; and they act as disaster preparedness centers.

Moreover, “they often are an area’s largest employer,” she said. Add it all up and “you can see we’re in an unquestionably dire situation.”

Facing the Challenges

Seeing the financial climate go from bad to worse, many of these nonprofit leaders have strengthened their resolve to do just that – lead.

MOMS Orange County CEO Pamela Pimentel’s background prepared her for the worst.

“I’m a nurse. The signs and symptoms of sickness were coming our way over a year ago,” said Pimentel, who encouraged her board to respond proactively when she saw what was on the horizon. While the approach gave the organization a roadmap to follow as the situation worsened, it did not stave off the need for the board and senior staff to authorize program and staff cuts.

My Friend’s Place, Hollywood’s largest teen runaway support and drop-in center, wanted to avoid making incremental cuts, so it went directly to a 50 percent budget reduction. It whittled its staff of 25 to nine and moved from being open seven days a week to five.

“We’re having to try some new models…because we see over 100 young people a day,” said Heather Carmichael, a longtime staffer who recently transitioned to executive director. “There are definitely unknowns in this shift, but it is a necessity to bring the agency back to a financial equilibrium.”

Rigo Saborio
Rigo Saborio, executive director of St. Barnabas Senior Services, speaks to a client during his daily coffee stop at the facility’s Cyber Café. He often uses this time to update seniors and dispel rumors that occasionally arise during stressful economic times.

Compounding a bad economy, St. Barnabas Senior Services had a monthly deficit of $60,000 even before the recent state funding cuts.

“When I came in, there were very few grant proposals in the queue,” said Rigo Saborio, who took the reins as executive director last December.

“With the looming state cuts, and continuing economic pressure on our donors and clients, it was clear we had to make some quick changes,” he said. Saborio contacted every board member and set up one-on-one meetings with upper management – and as a team they implemented a bottom-up budget action plan that has resulted in improved operational efficiency and fiscal soundness.

Survival Strategies

Yes, the situation is dire for many, but each agency consulted for this story matched the power of the downturn with an openness to think outside the box. To be more competitive, save funds and generate income, many of them have retooled the way they operate.

“We chose to reduce operating expenses overall – in every area,” said MOMS Orange County’s Pimentel. In June 2008, the agency purchased and began the complete renovation of a once-derelict building in a low-income neighborhood. That September, it moved its headquarters there to be closer to its clients.

The agency has reduced operating costs by 15 percent and now has a rental space within its building that generates about $6,000 a month.

Also in the vein of using real estate to the organization’s benefit, St. Barnabas’ Saborio said that his agency is in the process of restructuring the 10.7 percent interest rate loan on its main building, the savings of which will give the agency access to unrestricted cash.

 Huckleberry Youth Programs Executive Director Bruce Fisher said that the agency sold an underutilized shelter in Marin County and put the $750,000 proceeds into the bank, giving it reserves and the ability to expand.

Acevedo said that at Para Los Niños the sacrifices have been shared across all levels: upper management has taken pay cuts of 6 percent; the organization has stopped picking up the co-pays for all employees’ health insurance; and 401k contributions from the organization have ceased.

In the current climate, furloughs have become commonplace – not just in state government offices but also in many nonprofits. Moreover, almost every agency interviewed has instituted staff layoffs.

Responding Through Technology

Strategies in adapting to the changes in the economic landscape has also included using web 2.0 technology to reach a wider range of potential funders and to relieve some financial burdens.

Merging “lemonade-stand” ingenuity with a net-savvy promotional sense, Homeboy Industries launched a micro-fundraising campaign over the summer that strives to target 1 million participants to each donate $10 on its online “Virtual Car Wash,” where contributors watch an animation video of a car going from filthy to sparkling clean after making their donation. Additionally, Homeboy is in talks with Whole Foods and Ralphs markets to carry some of its food products, which would boost the already $2 million it earns annually from product sales.

At the Shasta Consortium, it has been perfecting cost-effective videoconferencing as a tool to reduce travel costs for its outlying, remote member clinics.

“Rural providers need support. They can’t feel isolated during these challenging times,” said Bradshaw. “Many of our members do not have the resources to attend meetings or trainings which often support them in their jobs.”

COLLABORATIONS

In addition to cost cutting measures, most agencies are taking a fresh look at collaborations, building innovative partnerships to remain lean, better reach their constituents, and synergistically work outside the box to achieve things they cannot currently do on their own.

St. Barnabas – which serves over ten percent of the over 25,000 seniors in their Koreatown/MacArthur Park neighborhood near downtown Los Angeles – rents out excess office space in their building to other senior health services such as South Central Family Health Clinic and Partners in Care. These won’t just be revenue generating tenants, but will also be onsite collaborators offering complimentary services to St. Barnabas clients.

Para Los Niños has ongoing scholarships with local Los Angeles arts academies in addition to the California Science Center, Inner City Arts Center and joint events with their neighbor, the Midnight Mission.

Homeboy Industries works with Boeing and the Department of Labor to train and certify individuals recently released from prison to acquire the skills needed to install solar panels.

Also dealing with initiatives aimed at youth, Huckleberry has created their Wellness Academy which helps train at-risk teens to support themselves pursuing careers in health. The program has not just helped turn around the youth involved, but has solidified numerous collaborative relationships with other local partners such as UC Hastings Law School and SF State’s Department of Psychology.

SILVER LININGS?

Homeboy Industries
Through its online “Virtual Car Wash,” Homeboy Industries hopes to target 1 million participants to each contribute $10 to support the agency’s programs and services for at-risk and former gang-involved youth.

Though none of these organizations would ever want to return to the intense fiscal challenges they are working through now, some are finding unexpected benefits in being forced to rethink what it takes to run a successful nonprofit.

MOMS of Orange County’s Pimentel has no problem pointing out an irony.

“We are stronger now – financially – than ever, she said. “More clients are sticking with the program now because they value the services more and want to have support and certainty in their lives at a time of great uncertainty.”

Acevedo has found strength by recommitting to her agency’s mission: serving impoverished children and high-risk youth. She has been forced to restructure both its after-school program and its Youth Center’s peer-directed teen pregnancy prevention program, which draws from 22 middle and high schools in Central and Downtown L.A, a district with the state’s third highest teen birthrate.

“I’m optimistic because of the kids,” she said. “Success stories are our silver linings and we see them literally every single day.”

At St. Barnabas, average daily attendance at its S. Mark Taper Foundation Adult Day Care Health Center has soared, generating increased revenue. Saborio believes that his agency’s collaborative relationships and venerable reputation may help it through some of the turmoil.

Meanwhile, the Shasta Consortium has found strength in numbers. Bradshaw has witnessed more collaboration and peer networking among community clinics and consortia since the start of the economic recession.  One example is a peer support group of chief financial officers, which conducts videoconferencing amongst members of the Shasta Consortium, North Coast Clinics Network and Alliance for Rural Community Health to discuss the latest fiscal policies affecting community health centers.

“By maximizing a resource that already exists, we are increasing collaboration and supporting our members through a fiscally challenging time,” Bradshaw said.

Words of Wisdom

Providing some advice for her peers, Pimentel, who came from the for-profit health care sector, is leery of “mission drift.”

“Mission should drive everything. Stick with your core,” she said.

Huckleberry Youth Programs’ Bruce Fisher understands why many nonprofits don’t enter into partnerships and collaborations – but, he said, they have helped “keep our agency going in this new financial landscape.”

For Acevedo, summing it up was even simpler – “Two words: open heart. When you ask for help, it is amazing who responds.”

Uncertain Future

Few people at any level in the nonprofit sector would be bold enough to predict how or when they will come through this storm – and what havoc it will wreak on nonprofits in future years. But they all agree that even if the economy rights itself this year, the after-effects will linger well into 2010, maybe even 2011.

Uncertain times? Yes. Down for the count? Don’t bet on it.

Pimentel of MOMS Orange County points out that while the agency streamlined its programs and cut its budget by 15 percent this year, it has been able to serve the same number of clients who access its core services.

Carmichael of My Friend’s Place strikes a similar tone. She says it is quite clear that its budget, staff and program cuts in no way constitute a long-term plan.

“We have distilled ourselves to a core team that is incredibly passionate and has hopes to begin to grow back in the next 12-24 months,” she said.

Nothing seems to be off the table at Homeboy Industries, which takes partial credit for the 50 percent drop in gang-related homicides in the Los Angeles area since 1992. Its leaders are troubled by the thought of a future without the services it offers.

After some major budgetary triaging, St. Barnabas’ Saborio says he’s optimistic that the strategies the agency implemented earlier this year have progressively reduced its deficit nearly to the point of breaking even each month. As a result, the agency has hired a full-time development director rather than use the services of a part-time consultant.

“We are seeing signs that our efforts have turned things around in a positive direction,” said Saborio, who makes daily coffee stops at its facility’s Cyber Café in part to talk directly with St. Barnabas’ clients. He uses this time to pass along news from an executive level and to dispel any of the fears and rumors that occasionally pop up during stressful economic times.

We are seeing signs that our efforts have turned things around in a positive direction.

 

Back in the otherwise-silent Para Los Niños library, the whoosh of rush-hour traffic builds outside. Acevedo grows emotional as she describes having recently found some of the agency’s children under bridges, left by parents stuck with a difficult choice: to risk losing their jobs to take time off to watch them or to leave them to fend for themselves for 90 minutes because of the trimmed-down summer school schedule.

“We are not better than any of these children. We are these children,” she said, with a quiver in her voice but a resolve on her face.

WEATHERING THE STORM

David Greco of the Nonprofit Finance Fund provides some tips for agencies to survive the recession:

1 For nonprofit organizations to be responsive to their clients’ needs and have long-term sustainability, leaders need timely, reliable and accurate financial data.

2 Create a “worst-case scenario” contingency budget ahead of time.

3 Focus on how the financial and capital underpinnings of your organization impact its ability to achieve its mission.

4 Be clear about which of your programs or services are core to mission and which ones generate surplus or deficit.

5 Know the fully loaded cost of delivering services and be able to communicate to funders and supporters transparently without apology.

6 Don’t promise more than you can deliver to clients or funders.

7 Encourage funders to move away from current funding trends and toward more flexible, less restrictive funding/giving that allows nonprofits to be adaptive in today’s rapidly changing environment.

8 Understand that the current economy is an opportunity for leaders to transform how they do business and emerge from it with stronger and more viable organizations.

For more information on NFF, including its free resources, workshops, loans and consulting services, please visit www.nonprofitfinancefund.org.

Compiled by Rick Nahmias