The Nonprofit Pinch

Nonprofits. The term itself brings to mind charitable institutions like Project Home, Wheelchair Recycling Program, or Big Brothers and Sisters, all extremely worthy organizations. According to the Wisconsin Nonprofits Association, Wisconsin has about 30,000 nonprofits, a third of which file 990 forms. Madison, meanwhile, has more nonprofits per capita than any other city, with about 3,000. Some are large, some small, but all are in need of funding, and the wells are running low. How bad is their plight? IB learned that sometimes, it depends on who you ask.

“I’m kind of ‘gloom and doom,'” said Scott Haumersen, managing partner at Wegner CPAs, about the plight of nonprofits these days. Aside from his regular duties at Wegner, which has a large client base of nonprofit organizations, Haumersen also is a board member of the Wisconsin Nonprofits Association. He sees the numbers, the budgets, and red flags all around. “I hope I’m wrong,” he said, “but I think 2011, 2012 will be the worst for them.” In fact, he expects that 5% to 10% of the nonprofits in operation today will not be in existence three years from now. “Some will fade away, some will merge,” he said. In fact, he’s currently involved in the merger of four organizations.

Funding sources, such as UW-Madison or CUNA, have been urging nonprofits to merge for years, Haumersen explained, but there was no financial incentive for them to merge. Whereas for-profit businesses can take any reserves they might have and turn them into income, nonprofits can only invest them into funds that are making almost nothing.

Haumersen sees three “storms” ahead. First, charitable giving. Historically, he said, nonprofits often hold their own during recessions because the general public is more willing to send a few dollars their way. But post-recession, giving typically drops as people try to replace what they lost.

Second, foundation giving. Foundation support typically relies on a three- to five-year rolling average of net assets, so the impact of stock market losses from 2007-2008 is yet to hit. “The full impact of that won’t be felt until around 2012.”

Third, government funding. With stimulus money running out, the federal government won’t be able to continue funding as it once did. The state budget, he said, was based on the stimulus. Tax revenues are down, which will affect everyone. “Most government sources predict 2012 will be the hardest year for the feds, state, and local funds.”

Nobody is more concerned than the nonprofits themselves. Kathy Wagner, president of VSA Wisconsin (formerly known as Very Special Arts), has been with her organization since 1990. The arts program serves individuals from preschool children to senior citizens and across all disability categories: physical, learning, emotional, and cognitive. It provides programs in visual arts, music, dance, drama and creative writing, and just one program in Madison serves 600 individuals. “The hardest thing is fundraising,” Wagner said, “and knowing that we have a wonderful product to offer that makes a huge difference in the lives of so many people, yet not being able to do it because of a lack of funding.”

VSA is a national program, and the 25-year-old Wisconsin chapter conducts between 130-140 programs every year in more than 30 cities. It does so with a staff of 10, including only four full-time employees. Its arts programs also are facilitated by an army of 50 art professionals who are paid for their services. “We continue to get more requests than we can accommodate,” Wagner said, but despite the economy, “we simply vowed not to disappear.”

No different from any other nonprofit, VSA serves a need for people who are in need, and it needs funding to be able to continue. Last year, the program cut its budget by 15% and reduced staff hours and one part-time person was released. “Even with that, we may just break even this year,” Wagner said, “or come in just slightly under. We rely solely on charitable donations, but we have no guaranteed source of income.” Wagner said about 30% of its funding comes from foundations typically, 30% from state, local, and federal monies, and about 30% from corporate donations. The rest comes from the sale of art and donations from private individuals.

VSA has a full-time development person who solicits government grants, and seeks out individuals, corporations, and foundations interested in arts or culture, or interested in providing assistance to programs with disabilities. Because it is part of a national association, any solicitations it makes must be within the state’s borders. Luckily, it does have an emergency reserve fund available for emergencies only. “In that respect, VSA is very healthy,” said Wagner.

It also holds one major fund-raiser a year, an annual golf exhibition (not an outing) with local PGA golfer, Steve Stricker. With this year’s budget of $730,000 (down from $861,000 last year), an event like this should bring $40,000 to $50,000 to VSA’s bottom line. “It’s very exciting that Steve has taken an interest and gives us some of his precious time,” Wagner said.

But how many Steve Strickers are there to go around?

Haumersen said nonprofit arts groups have a special challenge because in down economic times, the donating public may direct funds more towards organizations providing life’s basic needs: programs offering food and shelter. But luckily, one Madison foundation doesn’t discriminate.

“At our foundation, we don’t separate the Arts groups from the others,” said Kathleen Woit, president of the Madison Community Foundation (MCF). “They’re all nonprofits, each with different focus areas.”

Woit paints a rosier picture for area nonprofits. “We’ve been very happy with the way nonprofits have handled the recession,” she said. Over the past year, many new executive directors have taken the helm, providing much needed energy and synergy to the community, according to Woit, and the public’s support at fund-raising events and silent auctions has been “phenomenal,” in her words.

As for MCF, the organization began scaling down when ominous signs began to appear, back in 2008. They cut costs, and haven’t seen too many layoffs. “We built our infrastructure before the recession hit and we still meet with donors on a day-to-day basis,” Woit noted. MCF has had the benefit of an administrative endowment for 25 years, and collects one-percent of the value of each of its 901 funds. For many years, the organization didn’t take any distributions.

Woit said she is not aware of any nonprofits folding in the past year, and while MCF has funded social services in the past, this year, the foundation is concentrating on job growth. “We’re still dealing with the Urban League, Operation Fresh Start, and MATC, and our grants are the best we’ve given in 13 years,” she said.

But for someone like Wagner, at VSA, a program that may not receive MCF support this year, and one that would not be successful without its 50 contracted artists — and Steve Stricker — times remain tough. “I may not make budget, and people count on me for their livelihood. Those are the things that keep me up at night.”

VSA’s 13th Annual Golf Exhibition with Steve Stricker is schedule for June 28. For more information, visit http://www.vsawis.org/stricker.htm.