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Economic downturn challenges nation's, Utah's nonprofits

SALT LAKE CITY — For employees of Family Promise Salt Lake, the economic downturn isn't abstract. Homeless families who need help show up at the front door of the Salt Lake City nonprofit organization.

"Our capacity is four families at a time. We have a month and a half waiting list, which is terrible because people are showing up with their suitcases in hand," said executive director Tony Milner.

On the other hand, the fact that Family Promise is a "where the rubber hits the road" direct service provider has helped ensure steady donations to the nonprofit organization, formerly the Interfaith Hospitality Network. Family Promise houses and feeds homeless families through a network of area churches, helping them regain self-sufficiency.

Like the majority of nonprofit organizations across the county, Family Promise has experienced a decline in charitable giving and funding from government sources as the economic downturn has continued.

But unlike many nonprofits nationwide, Family Promise relies on a diverse funding stream. It also has six months of operating revenue in the bank, which bucks national trends.

"Almost half of executives (46 percent) reported cash reserves of fewer than three months, when the prevailing wisdom is that organizations should maintain reserves of at least three to six months," the Meyer Foundation's national study of nonprofit executive leadership found.

The report, "Daring to Lead 2011," said that the majority of the nation's nonprofit organizations had been hurt by the recession.

"Eighty-four percent reported negative organizational impact … with one in five executives describing the negative impact as significant," the report said. More than a quarter of organizations operate with smaller budgets than the previous year.

Beyond the balance sheets, the report says the recession has exacted a personal toll on nonprofit executives; 65 percent report significant stress-related anxiety. "Understandably, there was a strong correlation between executives' anxiety and the size of their organizations' operating reserves, or financial margin for error," it said.

In the best of economic times, some nonprofit organizations struggle due to poor business practices, says Anne O'Brien, director of the University of Utah's Nonprofit Academy.

The academy provides business classes tailored to the nonprofit segment.

While most nonprofit executives are well educated and bring a wealth of experience in the particular nonprofit segment, many lack business experience.

"They typically shy away from financial issues. They're in this business because of passion. They still need to have an understanding of the nonprofit sector," O'Brien said.

The academy teaches fund-raising strategies, how to evaluate their program and strategic planning — one thing O'Brien said many lack.

The recession has exposed the instability of many nonprofits.

The Wells Fargo Nonprofit Economic Dashboard reported in September 2010 that "the continued declines in giving have depleted operating reserve capital, meaning that too many nonprofits are, like their clients, living month to month."

The report, conducted for The Community Foundation of Utah, found:

14 percent of these agencies have no money in the bank.

Only 28 percent of all agencies have a suggested minimum of six months' reserve capital on hand.

58 percent have enough money to keep their doors open three months or less.

The study of nearly 200 Utah nonprofits and several national snapshots showed the same thing when they looked at the financial condition of nonprofit organizations during the recession, as well as how it has impacted their leaders.

"This reality is bleak. Reserve funds are gone. Staff risk burnout as people continue to need more help, and it must be delivered with ever-shrinking budgets and fewer hands. Signs of recovery are faint, if visible at all," the report said.

Nationally, nonprofits that rely heavily on government funding have been particularly hard hit, the Meyer Foundation report found.

"Nonprofits that rely on government contracts for more than 50 percent of their operating budget — typically those providing direct human services — are even more vulnerable, with 55 percent operating with less than three months' reserves compared to 42 percent among those that receive a majority of their funding from other sources," the report said.

Nonprofit organizations need "established, diversified funding streams," O'Brien said.

"If one source dries up, the organization is really in a bad position. The ones that do have diverse funding, they're weathering the storm."

The recession has forced many nonprofits across the country to recalibrate their finances and make difficult decisions about programming and staffing.

"There's a new normal out there. Panic time is over. Let's hunker down and figure out what we can do," O'Brien said. "It's about being strategic, not just practical."

Johann Jacobs, executive director of Ballet West, said the organization has finished the last two fiscal years in the black. "Our board and our organization consider it a major achievement."

It's no small feat considering the ballet company's costs are somewhat inflexible as programs are planned years in advance, Jacobs said. "Once you're committed to a season, you're pretty much going to produce that season," he explained. The ballet has fixed costs that include about $180,000 spent each year on point shoes and ballet slippers. A dancer may go through two or three pairs during each performance.

The ballet has cut costs, upped marketing and fund-raising efforts, made money by renting sets and costumes to other ballets and deferred maintenance.

Jacobs said the ballet's board, staff, artists and crew have each sacrificed to maintain Ballet West's high production values. The collective bargaining organizations that represent the respective artists and production crew agreed to concessions in their working agreements with the ballet. The staff has also endured furloughs to further cut costs.

The ballet is in the midst of 30 performances of The Nutcracker, its longest run of the season.

"It's a little crazy around here, yes, but it is vital to us. There's a misconception out there that The Nutcracker is sold out each year. We're roughly 70 percent attended. We would really like to push that number up," he said.

While the ballet has endured one of its most challenging periods, financially speaking, Jacobs said he believes the economy is showing signs of improvement.

"We remain very optimistic. That's one of the traits of nonprofit managers. We're always encouraged."

O'Brien said in times of economic hardship, nonprofit executives look for quick fixes they may not find. "That's when it's most important to think differently and get new ideas."

While the Wells Fargo 2010 report noted giving was down across all sectors, O'Brien said there are reasons to be optimistic about the future of the nonprofit segment.

"It's not going to be a quick recovery but there are signs out there that things are doing better," she said.

In this economy, nonprofit executives should consider themselves successful if they're not slipping.

"Feel good about remaining steady," she said.