The Built-in Risk of Growth in Government-funded Nonprofits

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March 18, 2017; Detroit Free Press

Government grants and contracts have a pattern of fueling unsustainable organizational growth by rarely funding all of the costs associated with the contracted program and service. Yet, one of nonprofits’ main functions is to provide services the state is otherwise obligated to provide. Responsible nonprofit leaders need to fully articulate program costs and improve evaluation systems, thereby providing long-term dependable services.

Recently, the Greening of Detroit laid off all of its 26 employees and temporarily shut down operations. According to its last published IRS Form 990 return, in 2014, the nonprofit organization had a budget of over $4 million and over 200 employees. Over its 16-year history, it has planted tens of thousands of trees, replacing a large number lost to Dutch elm disease. The organization plans to restart programs in April once funding resumes.

At its peak, the organization had employment training and urban agriculture programs as well as tree-planting activities. Much of its work was fueled by youth and volunteers and the majority of its funding was programmatic government grants. Unfortunately, this structure didn’t provide for the administrative or overhead costs necessary to fuel a healthy organization.

The Nonprofit Quarterly has written many articles chronicling the unsustainable growth of diverse nonprofit organizations. Often, this stems from decisions to accept government grants that barely fund the program, staffing, and equipment and not the space the program is housed in. Lacking the funds for utilities, supervisory, administrative, and overhead costs, organizations have little margin to fund activities to develop other, less restrictive funding and earned income revenue streams. Without other healthier revenue streams, the nonprofit has few options when government funds are late, disrupted, or ended.

Another trap is the belief that using volunteers doesn’t cost money. Volunteer activity may be free, but the identification, training, and supervision of volunteers are not. Without funding to support volunteers, many will become frustrated, and more staffing will be needed to replace the ones that leave.

These decisions create a propensity to continue these untenable government contracts. After all, how can nonprofits argue the contract is insufficient when they have a history of accepting it as full programmatic funding? Additionally, leaders and staff perceive it as a responsibility to provide the services outlined in the organization’s mission and not as creating a dangerous unsustainable precedent. These conditions create an environment where burnout and insufficient staffing become the norm.

Greening’s solution is to develop fee-for-service landscaping opportunities for condominiums and other large landowners. Hopefully, the new earned income revenue stream will be up and running before the federal government guts the Great Lakes Restoration program that’s responsible for funding Greening’s tree planting program.—Gayle Nelson

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In the Philanthropic Weeds: Cannabis Giving Goes Local

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January 12, 2017; Denver Post

Last November, seven more states legalized marijuana, increasing the total number of states where the use of marijuana in some capacity (recreational or medical) is not illegal to twenty-eight. Overall, the legal marijuana industry could gross as much as $20 billion in revenue by 2020. Many of the new businesses making up the legal marijuana industry are looking to give back to their communities, but many nonprofits are hesitant to accept their donations.

Tim Cullen, the CEO of the Colorado Harvest Company, was surprised by the challenges he encountered when he decided to donate some of his business’ earnings. “I have been shocked at how few places will take our money,” he said. Colorado Harvest Company is a chain of shops selling marijuana products. Cullen is also a shareholder of O.penVape, a company producing vaping pens.

Although Colorado legalized recreational marijuana over five years ago, many nonprofits continue to refuse gifts from the industry. Luckily, Cullen felt strongly about the need to give back. “I think philanthropy is what responsible businesses do. It’s not a choice so much as the next logical step,” he said. Eventually, he and his business partners at O.penVape made a donation of $250,000 to Levitt Pavilion Denver to partially fund a new amphitheater in Ruby Hill Park in the southwest part of the city. Once it is finished, the nearly $5 million Levitt Pavilion will host many events, including fifty free concerts each summer.

Accepting this gift was not a simple decision for Chris Zacher, the local executive director. Since the pavilion will be located in a city park, he first reached out to the city of Denver. City officials did not approve or object to the potential partnership but encouraged Levitt to reach its own conclusion, according to city licensing spokesman Dan Rowland. Zacher’s second phone call was to the organization’s national board. “We took it to Levitt, they took it to the board, and as long as it is legal in their state and not promoting the sex trade or tobacco, they were fine with it,” he said.

Although there are 2,966 medical marijuana dispensaries, 3,973 retailers, and 4,200 cultivators across the country, marijuana remains classified as a Schedule 1 drug by the federal government. This is the same classification as heroin, LSD, and ecstasy. At the same time, the public’s views of marijuana continue to evolve. According to a Pew Research Center survey taken in October of 2016, 57 percent of adults in the U.S. believe marijuana should be legal while 37 percent believe it should remain illegal, compared to 32 percent supporting legalization and 60 percent against ten years ago.

This evolving landscape creates risk and uncertainty for the industry, for the thousands of people who legally use it to relieve pain, nausea, muscle spasms, and other conditions, for those who use it for recreational purposes, and for the philanthropic community.

One misconception is why the industry is giving. Although Colorado Harvest Company and O.penVape will be the Pavilion’s headline sponsors, most do not give for marketing or visibility. “I think there is some misunderstanding oftentimes between cannabis (businesses) and nonprofits where nonprofits assume what cannabis wants out of donations is marketing and visibility, and we find the industry does not want that,” said Courtney Mathis, COO of KindColorado. Additionally, since the industry remains illegal in the federal government’s view, businesses can’t write off or deduct their gift on their taxes.

Due to the continued hesitation, the industry as a whole has created a giving campaign through the DoingGood.FOUNDATION. DoingGood.FOUNDATION is a national organization “providing small and local charities with free resources to help them grow and help meet more of our community’s needs!” On April 20th, 2017—yes, 4/20—they are organizing a national campaign to educate the public on the connection between the cannabis industry and local communities. All of the funds raised during the campaign will be given to small nonprofits in the states where the donations originate.

In our opinion, there are far more questionable industries nonprofits take donations from and invest with. As people’s judgment of marijuana and the legal marijuana industry continues to transform, more and more nonprofits will be exploring potential donations and beating back the unease surrounding them.—Gayle Nelson

This article has been altered from its original form. The $250,000 donation to Levitt Pavilion Denver came as two $125,000 donations, one each from Colorado Harvest Company and from O.penVape. NPQ thanks CHC for the clarification.

Original Cite: https://nonprofitquarterly.org/2017/02/08/philanthropic-weeds-cannabis-giving-goes-local/

When Public Parks Become a Civil Rights Issue

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September 29, 2016; The Atlantic

Public parks and recreational areas in urban regions often support activity and healthy living for low-income communities. In the past, these amenities were mostly suburban enhancements, but today’s city leaders realize their importance in encouraging more vital lifestyles for all residents. They can also lead to gentrification driving out the people they were designed to serve.

For three years in a row, Minneapolis has boasted the best parks system in the U.S. as judged by The Trust for Public Land, a forty-four-year-old nonprofit dedicated to protecting and creating public parks throughout the country. The city’s numerous parks are also the center of a bitter dispute with many residents of color, who allege the parks are primarily maintained and presented for the benefit of the metro area’s affluent white residents. As noted in The Atlantic article:

In America, bike trails and baseball fields are luxurious perks of many affluent neighborhoods, boosting property values and creating a sense of community. Meanwhile, in many inner cities, public parks are magnets for crime and casualties of disinvestment.

The battle is most evident at the Minneapolis Parks and Recreation Board’s regular meetings. The semi-autonomous agency, overseen by a nine-member elected commission and superintendent, is responsible for managing the City’s parks. Often, the meetings are disrupted by groups of young African American men carrying signs demanding the agency increase minority hiring and equalize park funding throughout the region. The protest is organized by Voices for Racial Justice and Community and other nonprofits. The park board is all white, while the city is only 66 percent white, compared to 87 percent in 1980. It has a history of funneling substantially more funding to parks in wealthier areas in southwest Minneapolis at the expense of northern areas where most of the city’s low-income minority residents live.

The protests led to Minneapolis being the first city-park system to prioritize capital spending to parks in low-income/large-minority communities and those in the worst condition. State leaders are also advocating for expanded funding to increase minority communities’ knowledge of regional parks. Millions of residents visit regional parks annually, but only three percent are minorities.

The disproportionate access of minority communities to parks and recreational areas is a national concern. Earlier this year, the U.S. Secretary of the Interior, Sally Jewell, recognized the country’s history of funding parks in areas where older, white Americans reside and the need to expand access to younger, more diverse residents.

In Chicago, city residents are celebrating the one-year anniversary of the 606 Trail. Eighty thousand residents live within ten minutes of the 2.7-mile trail, which was converted from an abandoned railroad track. Residents use it year-round for recreation as well as traveling to and from work. It has also sped up gentrification in surrounding communities. The real estate industry has marketed homes near the trail nationwide.

Compare the $95 million project to the Major Taylor, a similar project in Chicago’s low-income South Side communities. The Major Taylor trail is over twice as long, but without the lighting, snow removal, and other amenities of the 606 Trail, it has fewer users and property values surrounding the trail have not increased.—Gayle Nelson

Original cite: https://nonprofitquarterly.org/2016/10/11/public-parks-become-civil-rights-issue/

Funding the Nonprofit Grocery Store: A Variety of Models at Work

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March 26, 2016; Waco Tribune and NPR

In the United States, 2.3 million people live in food deserts—places without access to grocery stores offering fresh fruits and vegetables at reasonable prices. Across the country, grocery stores serving rural and low-income areas are struggling and many are dying. As the large chains leave, residents are banding together to explore new methods of maintaining their neighborhood stores, including membership, connecting to other nonprofit or business services, and crowdfunding.

In Waco, Texas, Mission Waco has raised thirty-eight percent of the funds it needs to convert a vacant 6,500 square-foot building into a vibrant “Jubilee Food Market.” Its goal is to raise $488,000 to transform the eyesore into a community asset. Many years ago, the building was home to a Safeway, but the grocery store has long abandoned the community. Now, the nonprofit is looking to donors from as far away as Maine to rebuild this essential resource.

Jubilee Food Market supporters purchase shares of stock for as little as $25, although larger investment options are welcome. Mission Waco’s project budget consists of 4000 $25 stock shares for remodeling, 10,000 shares to operate the store for the first year, and 5525 shares for the ECSIA Hydroponics Greenhouse. Shareholders receive quarterly reports on the store’s status and the opportunity to participate in the shareholders’ meeting. All donors and residents of the 76707 ZIP code receive an Oasis Club Card entitling them to discounts on store purchases. The store is scheduled to open in September 2016.

Mission Waco chose to open a grocery store after surveying residents and learning the overwhelming majority wanted a supermarket. The organization’s mission is to provide Christian-based holistic programs that empower the community’s low income. The organization also operates a World Cup Café and Fair Trade Market, Jubilee Theatre, and Urban Edibles food trailer.

In Bowdon, North Dakota, residents are also at work. They came together to continue the operation of their grocery store after the store’s owner died and no other owners came forward. The next closest grocery store is eighteen miles away.

Run as a membership store similar to Costco and Sam’s Club, the effort is working but the margin is tight. They recently opened a thrift store and bakery nearby to increase business. The tiny town surrounded by fields of soybeans, wheat, and corn lost its community school years ago. Without the grocery store, the town would disappear from the map.

The loss of community grocery stores and its effects on rural America led to six federal agencies creating an $800,000 Obama administration initiative, “Local Foods, Local Places,” to support programs to create community owned grocery stores and farmers’ markets. Twenty-seven communities were selected from over 300 applications. Each community will work with a team of experts to recognize local asset and opportunities, set revitalization goals, and develop an implementation plan using these resources.

Throughout the United States mega-grocery stores are abandoning their rural and low-income urban communities for wealthy city edges and suburbs. Without these businesses, residents lose access to fruits and vegetables and gain more processed fast food outlets and convenience stores full of fat, cholesterol, and sugar. This phenomenon is contributing to the obesity epidemic and leading to an increase in heart disease and other diseases associated with this condition.

Food is Power, a California nonprofit “seeking to create a more just and sustainable world by recognizing the power of one’s food choices,” found that wealthy areas have three times as many supermarkets as poor ones. And the disparity is even more pronounced when comparing racial makeup: White neighborhoods have four times as many grocery stores as African American communities, and the stores in African American communities are smaller with a more limited selection. Overall, according to the Economic Research Service of the US Department of Agriculture, 2.2 percent of all households do not own a car and live more than a mile from a supermarket.

Although creating and running a community-owned grocery store is a challenge, Willow Lake, South Dakota’s Lake Grocery has been a beacon for the community for over five years. Operated by Willow Lake Area Advancement, the store employs a full-time manager and two part-time employees in addition to volunteers. Although the organization described the project as a leap of faith, it has worked out well for the community and the nonprofit.

Original site: https://nonprofitquarterly.org/2016/04/01/funding-the-nonprofit-grocery-store-a-variety-of-models-at-work/

Is a Microloan Any Different from a Payday Loan?

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Microloans

January 12, 2016; Hyperallergic

More and more philanthropy is funded by crowdfunding, and more and more sites are in competition for donors’ attention. Most highlight the heartfelt stories and hide the underlying costs and the meager return on investment. Yet once the costs are evaluated, the variations are staggering.

The meaning of Stephanie Rothenberg’s new project at the ZKM Center for Art & Media in Karlsruhe, Germany, “The Garden of Virtual Kinship,” is hidden at first glance. Visitors are captivated by the plants growing and flourishing in individual glass planters. Each seedling waits its turn to be watered, but one can’t help noticing the large amount of water leaking out and missing the thirsty plants. As your eyes follow the leak to the large tank underneath, one realizes just how much water the plants could be getting—if only the leak were repaired.

The project, part of the exhibition GLOBAL: infosphere, examines crowdfunding and microlending costs and return on investment. Each plant represents a campaign in a certain region of the world listed on the crowdfunding site Kiva. As a donor makes a donation, a plant is watered, yet more water leaks into the tank below. The leaking water represents the money that fails to reach the borrower due to high interest and fees charged by the site.

Combined with a second project, “Planthropy,” on view at Manchester’s The Lowry, displaying how social media affects philanthropy, Rothernberg explores, “the intersection between social media, finance, and philanthropy,” Rothenberg toldHyperallergic. “Both pieces are questioning what it means to donate through the click of a button.”

Why are the costs of microfinancing so high? Some of it is the nature of the industry itself and the need for scale. Many microfinance sites research and authenticate the site projects. These activities are cost intensive, particularly in developing rural areas. Costs are also incurred to market and connect the sites to social media, thereby creating a platform donors are drawn to. Other considerations include the method of computing the interest. Overall, these costs add up to a palatable percentage on a $10,000 loan, but for a $550 or $1000 loan, these same costs take up a much higher percentage.

Many donors are drawn to the stories and fail to examine the costs of investing and the meager returns. The microfinance sites highlight the opportunity to use the funds more than once as the initial loans are repaid, but once fees are tacked on, the amount that can be reloaned is minimal. Further, donors are often unaware of the lackluster rate of return because many sites hide the costs and charges. Some studies even suggest that the high interest rates and fees have similar effects on borrowers as payday loans do in the United States.

Rothenberg appeals to donors to research these sites before investing and ask the hard questions: Does the return justify the donation? What is the loan’s cost to the borrower? What is the method of calculating interest payments? (She’d also like them to share their findings on social media.)

But microloan sites charging high interest rates and fees are not the only models. Another option is to support institutions that create tools to help people in developing countries save. Often, group savings can fuel similar opportunities without the high fees and interest rates. Further, since little money is actually rechanneled, donors might consider donating instead of lending. Websites like GivingGrid only charge credit card fees and ask donors to make a second donation to the site to cover its fees and mission. Another site, Benevolent, is a nonprofit raising donations from foundations and individuals to cover its costs. Benevolent partners with other nonprofits to validate the client’s need, and since the donation is channeled through the nonprofit, donors can deduct their donation from their taxes.

As donors research and invest in sites with lower costs and fees, competition will work to decrease fees and increase return on investments.

Original cite: https://nonprofitquarterly.org/2016/01/29/is-a-microloan-any-different-from-a-payday-loan/

New Partnership Will Reduce State College Tuition in Washington State

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During the recession, many states drastically cut their funding of public colleges and university systems. The drop in funding led to increases in tuition, with many people giving up their college dreams and higher debt for those that chose to enroll. As higher education leaders scramble to find funding, some are exploring corporate partnerships. These donations are creating stronger connections between universities and corporations as well as expanding those between corporations and their hometowns.

The Nonprofit Quarterly has discussed the drop in state funding of public colleges and universities in many recent stories. Specifically, the 25 percent drop between 2008 and 2013 led to public university students paying 28 percent more in tuition. With the recession clearing, many state budgets remain in the red. Legislators are unable to renew funding, leading to some states and colleges finding new sources for money. Washington State is one of them.

In the state of Washington, public spending per-pupil is currently 28 percent below pre-recession levels, instigating tuition rate increases of up to 58 percent even after adjusting for inflation. But thanks to a new deal with the state’s largest employer, Microsoft, tuition will decrease by fifteen to twenty percent at public four-year colleges and by five percent at public community colleges and state funding will increase by $200 million. Specifically, the source of 30 percent of this new revenue, or 57 million over the next two years, will be generated by a new sales tax on some of Microsoft’s equipment purchases.

Microsoft started the conversation in March. At that time, its general counsel, Brad Smith, was quoted by the Seattle Times saying that the company would be “comfortable” paying higher taxes, particularly if they benefited civic causes.

Overall spending for higher education has remained critically low in a majority of states, often due to large state budget deficits. Only ten states have increased tuition funding since the end of the recession. The largest increase was in the state of New Hampshire, where per-pupil state funding increased by 28.5 percent. In thirty other states, public funding plummeted. The largest drop was in Arizona, and it led to an increase in tuition of over 83 percent and a decrease in the educational opportunities offered students.

Without these essential state funds, colleges and universities are raisingtuition and fees at an alarming rate. Sometimes students, caught by surprise by the fees, argue these increases represent a change of institutional behavior. Students and other nonprofits in a number of locales are advocating for colleges and universities to be held accountable to their students and the general communities where they are located.

The Roosevelt Institute’s Rethinking Communities Initiative is partnering with college students at several institutions to advance policies and models promoting economic progress throughout the community. The movement believes university systems are an anchor for and have a mission to strengthen the community. Students explore sources of inequality and develop strategies and coalitions to advance policies leading to greater growth and prosperity. They also work together to hold higher educational institutions accountable to the communities they are located in.

The initiative sees colleges and universities as more than a place of employment—rather, as a place of exchange among students, alumni, professors, trustees, and neighbors. The goal is to demand that institutions invest locally throughout the community to create community wealth, strong employment opportunities, and vibrant communities inside and outside of the school’s campus.

Students are also exploring purchasing habits, investment strategies, and financing policies to highlight opportunities to strengthen local communities as well as benefit the institution. For example, at Michigan State, students are identifying local companies that can provide supplies throughout the campus. At New York University, coalition members are exploring opportunities to decrease the number of people without a bank account, another factor limiting individuals and families’ ability to exit poverty. Once these policies are instituted, they often have a cost neutral effect on the university budget but have multiple beneficial effects for their students and the community they live in.

Original Cite: http://nonprofitquarterly.org/2015/07/13/new-partnership-will-reduce-state-college-tuition-in-washington-state/

Are Universities Acting like Parasites in Some Communities?

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NPQ has written fairly extensively about the effect of large nonprofits on the tax bases of communities. This piece written by Zaid Jilani for AlterNet asserts that the vague financial relationship between a university like Syracuse and its surrounding community can exacerbate poverty in those surrounding communities.

While universities like Syracuse drive economic development and attract businesses to their region, the towns surrounding the campus often contain high levels of poverty. This poverty, according to Jilani, stems from the large number of university buildings exempted from property taxes. Without this critical revenue source, the towns struggle to fund essential public services used by university employees as well as residents not employed by the university.

In the case of Syracuse, as of 2011 a full 51 percent of its property was not taxable because it is owned by nonprofits, the city, and the state. The two nonprofits with the biggest portion of that are the University and Saint Joseph’s Hospital Health Center.

Syracuse University is a private research university with enrollment of 21,400. It is one of the flagship universities of New York State, containing thirteen colleges including business administration, public administration, and engineering. It has a rich history dating back to the 1870s as well as an endowment of $1,183 billion; it charges its students tuition and fees of over $41,000 annually.

Sadly, it is an oasis of wealth in its community. The city of Syracuse is the 23rd most impoverished city in America, according to data released last year by the U.S. Census Bureau. One-third of the city’s residents, or 48,000 people, live on incomes of less than $23,500 for a family of four. Symbols of poverty are not hard to find, from the boarded-up homes to the public services that struggle to respond to the area’s severe winters.

Although university workers tend to receive higher salaries, these resources may not trickle down to the entire community. Some towns with universities struggle with limited funding for schools and other public services because the main employer is exempt from paying property taxes. Property taxes are the main source of revenue for elementary schools, streets, and public services, but nonprofits and government agency buildings are not taxable. As schools and other public services suffer from lack of resources, more and more families leave the university town and move to surrounding communities. The families that remain are often those most requiring the services the town is unable to fully fund.

Additionally, the city is forced to depend on the taxes it receives from the smaller amount of land that is taxable. These businesses and residents subsidize the university by providing the services the university system uses. These circumstances increase the divide between rich and poor.

The 2014 Census report compares 575 of the largest cities in the country, including several cities like Syracuse. While Syracuse’s position did improve from the year before, when it ranked fourth with a poverty rate of 38.2 percent, it remained within the bottom fifteen. Syracuse’s company includes cities like Bloomington, Indiana, and Gainesville, Florida, which also contain universities.

The city of New Haven, Connecticut, is trying to utilize Yale’s university system to bridge its divide. Yale is the second-richest university in the country, as measured by its endowment of $23.9 billion. Yet the divide between those in the New Haven community living in poverty and its wealthy increased by twenty percent between 2006 and 2012 and is one of the largest in the country. The community is building a retail district to employ those with few skills, connected to an expanded university research and technology area. Additionally, it is targeting resources to its low-income students including offering summer employment and technical training in its high schools.

The theme throughout all of these cities and the country as a whole is the loss of manufacturing jobs that provide good-paying employment to individuals without advanced degrees. Society cannot substitute these opportunities with university employment without providing education and other services to upgrade the skills of these workers. The rate of inequality in this country continues to rise, and university communities stand as symbols of this divide.

Original cite: https://nonprofitquarterly.org/policysocial-context/26159-are-universities-acting-like-parasites-in-some-communities.html