Social Currency

2014 STATE OF THE SECTOR SURVEY

By NFF’s Knowledge and Impact Team: Jennifer Talansky, Anjali Deshmukh, and Tessa Borelli

 

 On the day we opened this survey, a water main burst beneath an intersection near our New York office, snarling traffic, shutting down public transit, flooding the adjacent streets, drying up taps in thousands of homes, and creating widespread frustration.[i] A critical piece of our city’s infrastructure had failed, creating a domino effect felt by those even miles away. Later that day, we learned of another threat to our city’s infrastructure: a Human Services organization that responded to our survey, with hundreds of employees and exclusively serving a low income community, reported just one month of cash in the bank. To make ends meet, they were in a precarious balancing act of managing loans and delaying paying their bills. On top of that, community need for their services had increased significantly, and they weren’t able to keep up with it.

 Today we release the results of our 2014 State of the Sector Survey, chronicling the shared opportunities, challenges and financial realities from over 5,000 respondents in all 50 states. Findings from our sixth annual survey present several clear messages:

 The economic recovery is leaving behind many nonprofits and communities in need:

  • 80% of respondents reported an increase in demand for services, the 6th straight year of increased demand. 
  • 56% were unable to meet demand in 2013—the highest reported in the survey’s history.
  • Only 11% expect 2014 to be easier than 2013 for the people they serve.

 Nonprofits are working to bring in new money; in the next 12 months:

  • 31% will change the main ways in which they raise and spend money.
  • 26% will pursue an earned income venture.
  • 20% will seek funding other than grants & contracts, such as loans or other investments.

 41% of nonprofits named “achieving long-term financial stability” as a top challenge, yet:

  • More than half of nonprofits (55%) have 3 months or less cash-on-hand.
  • 28% ended their 2013 fiscal year with a deficit.
  • Only 9% can have an open dialogue with funders about developing reserves for operating needs, and only 6% about developing reserves for long-term facility needs.
Nonprofits are taking wide-ranging steps to survive and succeed.

 In the past 12 months:

  • 49% collaborated with another organization to improve or increase services.
  • 48% invested money or time in professional development.
  • 40% upgraded hardware or software to improve organizational efficiency.
  • 39% conducted long-term strategic or financial planning.

 Respondents said that more than 70% of their funders requested impact or program metrics.

  • 77% agreed that the metrics funders ask for are helpful in assessing impact.
  • Only 1% reported that funders always cover the costs of impact measurement; 71% said costs were rarely or never covered.

 “We provide Community Based Adult Services primarily to low income adults in a very poor area. The population is aging, concurrent with service cuts in related fields in our area, particularly in mental health programs. We are getting close to being the "last man standing" for a number of our participants. We see increasing needs, with more difficulty in getting people approved for services. Our funding contracts are primarily fee-for-service contracts through Medi-Cal and the VA.”

   -Healthcare NPO, CA

 Nonprofits like this one make up our country’s hidden infrastructure, the social safety fabric that is as crucial as our water mains, transit systems, and roads. This fabric is “built capacity”—often representing years or even decades of investment by taxpayers, foundations, and consumers. It educates us, keeps us healthy, and catches us when we are most at risk.  And it has been pulled taut over the years in deference to other priorities, frayed, and is on the verge of tearing.

 NFF’s survey calls out some of the targeted investments we can start to agree on as a society—whether we represent government, philanthropists, individual donors, investors, banks or intermediaries—that can salvage the already considerable investment we have collectively made in our social infrastructure.  It is infrastructure we cannot simply walk away from, and we believe that a coordinated intervention now will not only better prepare us for inevitable future economic crises; it can lead to a happier, healthier community for us all.

 Visit our online Survey Analyzer at survey.nff.org to explore the results yourself, and visit nff.org/survey for additional resources, including an in-depth look at the national results and a promotion toolkit to help share these results with others who are advocating for change. 

 


[i] http://www.nydailynews.com/new-york/overnight-water-main-break-union-squ...

This post originally appeared on Bridgespan’s Knowledge Hopper on March 27, 2014. It is part of Mergers that Made a Difference, a blog and case study series curated by Bridgespan, The Catalyst Fund, La Piana Consulting, and Lodestar Foundation. This is the second Catalyst Fund contribution to the Mergers that Made a Difference series, and comes from Rebecca Haag who has been CEO of AIDS Action Committee for 11 years. She will be stepping down from her position this spring as a part of the process of integrating with AIDS Action Committee’s new partner, Fenway Health. Please enjoy Rebecca’s firsthand account of the vision for and lessons from their recent merger.

How to Check Your Ego and Three Other Keys to a Successful Nonprofit Merger

By Rebecca Haag, AIDS Action Committee

In 1985, legendary music producer Quincy Jones pulled off a triumph that no one thought possible: he convinced the mega music stars of the day to give their time and talent gratis to record the song “We Are the World.” Sales of the single eventually raised millions of dollars to fight famine in Ethiopia. When asked how he successfully corralled dozens of superstars ranging from Michael Jackson and Bruce Springsteen to Bob Dylan and Diana Ross, Jones said he taped a sign to the door of the recording studio that read: "Check your ego at the door."

Checking egos at the door was the key to our successful merger with Fenway Health in 2013. And it was the key to our mergers with The Strongest Link in 2011 and with Cambridge Cares About AIDS in 2010.

There is just no place for egos in nonprofit mergers. Instead of thinking "How does this merger affect me?" board members and senior staff must evaluate every merger-related decision by asking, "How does this enhance our organization’s ability to meet its mission?" At AIDS Action Committee, we developed a set of criteria that required us to document how a merger would improve client quality of care, ensure organizational sustainability, and allow us to continue to tackle the root causes of HIV/AIDS. It was paramount that our mission was preserved; organizational integrity or the future role of board members or senior staff was secondary.

But there are other important factors to achieving a successful merger. The process must be based in a strong strategic vision and plan. In our case, it started with the board and senior management recognizing that despite success in reducing new infections in Massachusetts by 52 percent over the last 15 years, which will save the state more than $2.4 billion in HIV-related health care costs—public attention to the issue and public and private funding were waning.

In Massachusetts over the same 15 years, funding for HIV/AIDS-related services was cut by nearly 40 percent, and the number of people living with HIV/AIDS increased 44 percent. This confluence of events put a greater burden on already strained providers and services. In 2012, after conducting a detailed strategic planning process, we realized that AIDS Action needed to partner with an organization that could either horizontally or vertically broaden the delivery of HIV-related community support services.

The strategic plan included goals and objectives for any potential alliance and a set of criteria by which to evaluate alternatives. We reached out to many organizations and engaged in conversations with several. Fenway Health best met our needs: it already served those living with HIV/AIDS; it had extensive knowledge of the health system and its reimbursement structure; and it had research capacity to demonstrate the value of our services to improving health outcomes and reducing health care costs. Leaders at AIDS Action and Fenway Health were interested in creating a model of care that integrated medical and community support services applicable to all chronic and behavioral diseases. AIDS Action would preserve its mission and create a health care platform that could enable ongoing funding streams, even as public funding of individual diseases like HIV/AIDS disappears.

Another key factor for a successful merger: Leadership roles must be resolved early in the process. If the CEOs of the two organizations are competing for one top position, the process ultimately will break down. Difficult conversations, such as what the roles, responsibilities, and reporting arrangements will be of the two existing executives after the merger, must be had early on in the discussion as critical issues are identified. The natural temptation will be to delay these discussions and decisions. But if leadership issues are left unresolved, they can derail final discussions. If necessary, hire an outside consultant to ensure that these discussions—and other difficult strategic decisions—are made in a timely fashion.

Finally: Make organizational culture a part of your due diligence process. In many ways, this is the great intangible of merging two organizations. But you must consider whether there is real potential for the two workplaces to eventually mesh together. Ideally, the process of business, operational, and programmatic exploration will give each organization a feel for whether the two workplace cultures are compatible. In most cases, you will not get a definitive answer to this question.

Merging a nonprofit is very much like deciding you have dated long enough and it is time to get married. You can never know everything about your fiancé or about another organization with which you are negotiating, but at some point you decide to trust your instincts. In the end, no one can tell you whether a merger is the right thing to do. It is a difficult and complex process. Do you have a shared vision for what life could be like together? Can you stay true to yourself and your mission but also be a part of a team? Can you have difficult conversations? Do your personalities and styles complement each other? At some point, you must ask whether mutual needs can be met. And if the answer is yes, you make that leap of faith and move forward.

Rebecca Haag has been CEO of AIDS Action Committee of Massachusetts for 11 years and will be stepping down this spring. Before coming to AIDS Action, she served on senior management teams in a variety of corporate and government settings including advertising, financial services, and consulting sectors.

We wanted to share with our readers this excellent blog by Serena M. Powell, executive director of Community Work Services and senior vice president for the New England region at Fedcap. It originally appeared on Bridgespan’s Knowledge Hopper on March 13, 2014. It is part of Mergers that Made a Difference, a blog and case study series curated by Bridgespan, The Catalyst Fund, La Piana Consulting, and Lodestar Foundation. Tune in for future cross-posts with Bridgespan in the coming months!

Advancing the Mission, Not the Organization

By Serena M. Powell

I find the case study of two Boston homeless shelters merging to have greater impact both inspiring and reassuring as my organization starts a similar journey.  

On October 1, 2013, Community Work Services (CWS), a $4 million, 136 year-old workforce development nonprofit based in Boston, combined with Fedcap Rehabilitation Services Inc. (Fedcap), a much larger workforce development provider based in New York City with a budget of $130 million and 1,800 staff. CWS is now a subsidiary of Fedcap, but it has maintained a separate identity with its own 501(c)3 status in Massachusetts. In simpler terms, Fedcap is our parent company. I continue to lead CWS as its executive director, and I also lead Fedcap’s expansion northward as its senior vice president of New England. 

Fedcap is really big and CWS is small. But in considering a merger, CWS defined success as growing our impact, not our organization. We delivered exceptional services and wanted to touch more lives. We also wanted to preserve our brand and history, create career growth for staff, and find a partner organization that valued poverty reduction through employment. It’s been just over 130 days since the merger. The question is: Did we get what we hoped for?  So far, the answer is yes, and then some.  

From the beginning, our merger conversation focused on growth, not consolidation. Fedcap was interested in growing its geographic scope by expanding into New England, and considered CWS a possible platform for that growth. They respected and valued our history, liked our programs, and wanted to enhance the CWS brand. The strategic and mission-based motivation for pursuing a merger was our joint key to success.

Next, we got some help. A consultant whom we engaged through support from the Catalyst Fund in Boston, explored the potential of a merger. We identified numerous synergies and ways that we could increase our collective impact. For example, CWS had strong hospitality and culinary programs that could be replicated in other areas served by Fedcap. We both operated businesses in facility maintenance and food service that we wanted to grow. Fedcap and CWS had comparable experience in cultivating donors, which presented an opportunity to fundraise together. Fedcap had a powerful business development model and fundraising and customer relationship management technology like Raiser’s Edge and Salesforce, which would have required a significant investment for CWS to procure on its own. Fedcap also was impressed by our talented staff and wanted to create career growth for them.    In addition, the New York based agency was happy for us to maintain our brand and to promote CWS as a Fedcap partner in New England. 

Thus in the grand scheme, we got what we hoped for. Yet mergers are rarely easy. In just over four months, we have learned a lot about blending cultures.  Although Fedcap and CWS have much in common, large and small agencies think and act differently. The 200-plus miles between Boston and NYC can make communication complicated. We’ve all learned to follow up emails with phone calls and to follow up phone calls with emails. And we’ve learned to work in different gears: to go slow when changes affect the lives of staff, such as benefit plans and HR policies; and to use our expanded tech capabilities and extended network of fellow employees to react quickly when new opportunities arise. Sure, we have had some intense discussions, but in a short amount of time we have built a framework for how to make collaborative decisions, now and in the future. 

In fact, we’ve already started to realize a joint vision for success, one that is neither Fedcap’s nor CWS’s, but belongs to our combined organization. Funding and reach have borne fruit: in less than four months, we have doubled our revenues in New England, increased the number of people we serve, promoted our brands, and taken advantage of opportunities that would not have been available to either organization alone. For example, CWS has leveraged Fedcap’s huge capacity in facility maintenance to bid on larger contracts that are open only to Massachusetts-based companies. Members of CWS staff have grown in their responsibilities and are contributing to discussions on new business opportunities and program implementation in other states.

Our merger decision was as emotion-filled as you might expect for an organization with CWS’s deep history, but it was the right one. Our founders wanted to help people struggling with poverty and—much like the leaders of hopeFound who decided to merge  with Pine Street Inn to help end homelessness—CWS, by combining with Fedcap, is enabling more people to become economically independent. We all have recognized that the ultimate responsibility of a mission-based organization is to preserve its mission and then advance it. 

Serena M. Powell is executive director of Community Work Services and senior vice president for the New England region at Fedcap. Boston Business Journal recognized her as a 40 under 40 Emerging Leader, and the Boston Junior Chamber of Commerce named her as one of Boston’s Ten Outstanding Young Leaders.

Update: 2/20/2014 The 2014 Nonprofit State of the Sector Survey has now closed.  Sign up for our mailing list here to be notified when the results go live in April.  
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The 2014 Nonprofit State of the Sector Survey is now live!  Click here to respond, share your organization’s story, and help us refine solutions that contribute to a more just and vibrant society.

In 2013, Nonprofit Finance Fund witnessed resilience and determination from organizations across the nonprofit sector as they continue to face economic turbulence and unstable funding sources. The data and stories from our annual State of the Sector survey illuminate a clear need for changes to the way resources are made available to nonprofit organizations:

  • For the fifth consecutive year, lifeline organizations (those that provide critical services to their communities) reported an increase in demand for services, and yet funding resources remain static or diminish in the face of this greater need
  • 83% of organizations that received funding from the federal government reported that this funding did not cover the full cost of doing business, and over half of those organizations received payment anywhere from 1 to 3 months late. These factors can leave organizations financially unstable and vulnerable to cash flow crises

Made possibly by the generous support from the Bank of America Charitable Foundation, Ford Foundation and the Doris Duke Charitable Foundation, this year’s State of the Sector Survey, our sixth, is aimed at illuminating the challenges and successes that our sector is experiencing. The survey is anonymous and asks nonprofit leaders about the management and financial dynamics they face in service of the organization’s mission. 

Last year, we connected with over 5,900 organizations across the nation, and by tapping into the wisdom of leaders and frontline providers, we are able to open a feedback loop with foundations, government entities, media, associations, advocacy organizations and nonprofits themselves. The information we gather helps define the innovations and adaptations that are needed on all sides of the table to better capitalize our sector.

From improved grantmaking and reporting processes to deeper awareness of true capital needs, the implications of this data set are impressive, and your story is vital to the conversation. We hope you will take a moment to fill out the survey, and join us in capturing the collective insight needed to move the needle in favor of a well-capitalized sector.  

And, when you've finished the survey, we hope you'll help us spread the word to other organizations via Facebook, Twitter, LinkedIn and Google Plus. Take a look at our Survey Outreach Kit for some easy cut-and-paste ways to help!  

Ed. Note: This post originally appeared on The F.B. Heron Foundation's blog.   

Heron Fellow Rodney Christopher asks the social sector to come up with a better umbrella term for enterprise-building capital grants.

I’ve been struggling with this: what do you call the thing that has too many names? I’d like your help.

There are several terms that describe what, for lack of a clearer umbrella phrase, I choose for now to call Flexible Capital Grants. When I am feeling verbose I expand this to Flexible Capital Grants for Greater Impact, but an acronym like FCGGI doesn’t really roll off the tongue.

The primary goal of my fellowship at Heron is to galvanize the nonprofit and philanthropic fields around this idea, which is too important not to be understood broadly and used wisely. But in my humble opinion, each of the various terms currently in use has deficits, and none are great as an umbrella phrase.

In hopes of clearing away confusion and sparking ideas for a great catch-all phrase, I attempt to lay out a chronological taxonomy of the terms used to date in the table below.*  I am confident it is imperfect, and seek comments for possible revisions. I also encourage you to read Heron President Clara Miller’s most recent essay on the subject.

These grants tend to have in common many of the following characteristics:

  • They seek to expand the impact of a given nonprofit organization or program, typically an organization with programs that have strong evidence of effectiveness.
  • They are grants or charitable contributions: while they often serve to grow and strengthen the organization, a purpose often served by investments that expect a financial return in for-profits, the mission-driven operations may not provide sufficient revenue to repay investors.
  • They provide multi-year support.
  • Their use is guided by a rigorously developed business plan, typically with a financial model projecting multi-scenario future activity, revenue and expenses.
  • They are sizable, particularly when raised in a capital campaign.
  • They are treated as capital (periodic in nature) and not confused with revenue (ongoing).
  • While they may be considered restricted for accounting purposes, the funds are typically flexible and can be used for a range of one-time and ongoing expenses such as:
    • Improving the ability to collect outcome data
    • Refining the design of programs
    • Marketing the organization and its programs
    • Training staff/peers to deliver services
    • Expanding the actual delivery of services (generally in advance of attracting future program revenue)
    • Improving operating systems – from accounting to reporting to fundraising and beyond
    • Advocating for informed government policy change
    • Breathing room to try new things – and to fail safely
    • Strengthening balance sheets (addressing historical issues, reserves)
    • Explicitly investing in efforts to improve future revenue generation

The term one uses is often the result of at least two things: the term that is familiar to the user, and the term that is most likely to resonate with the audience to whom the user is attempting to communicate. As an example, users of the term “philanthropic equity” find that some folks in the world of investing and banking “get it” because they understand the concept of investing equity to grow and improve for-profit companies.  But even then, this understanding is by no means universal even among for-profit investors—and some listeners may think first of the ownership stake implied by “equity”, while others may wonder what form a philanthropic “exit” might take.

Read More

  • View a recording of our most recent financial analysis case study webinar
  • Read a blog on key indicators of nonprofit financial health, using Financial SCAN’s metrics
  • Learn more about how one multi-service agency has put Financial SCAN to use

In 2012, NFF and Guidestar released Financial SCAN, an online tool designed to help nonprofits, funders, and advisors access comprehensive, automated data for nonprofit financial analyses. Our goal was to help people more easily make sense of comprehensive and often complex financial data, thereby enabling them to make smart decisions about nonprofit performance. With this online tool, nonprofits, funders, and advisors across the country have incorporated financial trends into their analyses, planning, and communications with stakeholders.

A year and a half later, we’re pleased to announce that Financial SCAN 2.0 will soon make this tool even more useful. On November 19, NFF and GuideStar will release Financial SCAN that bring greater interactivity and customization to the user experience:

  • Compare a nonprofit to a selected peer group: How does a nonprofit benchmark against its sector? In Financial SCAN 2.0, there are two ways to find out. You can compare one organization with up to five individual peer organizations of your choice. With the latest version of Financial SCAN, you can also compare your target organization to the median values of a group or broad sector’s financial data.  Select a sub-sector according to mission area, geography, and/or organizational size.
  • Excel download: In Financial SCAN 2.0, the multi-year dashboard and peer comparison dashboard will be available for export in Excel. Customize your organizational analyses by adding  financial and non-financial information, or create your own charts or tables. 
  • Improved access:
    • Nonprofits can enjoy a longer access period –seven days – for the same low price  as before.
    • Funders can take advantage of multi-subscription discounts for their institutions’ analysis needs. For organizations that require  access for a large number of users, new enterprise licensing is also now available. Contact us to discuss how we can customize a solution that meets your needs.

Look for more information about how your organization can benefit from Financial SCAN and its new upgrades when the new features launch on November 19!

Ed. Note: This guest post from Ian Galloway is cross-posted at our Pay For Success blog

As readers of our Pay for Success blog know, “Pay for Success” has two main components: 1) performance-based contracting; and 2) bridge financing.  The performance-based contract commits a funder, usually government, to reward a service provider, usually a nonprofit, for delivering a verifiable social outcome. (Increasing graduation rates at a disadvantaged high school, for example.) Then, on the basis of that potential reward, the service provider secures an investment—the bridge financing—to pay for its operations until the outcome is achieved and the reward is secured, at which point the investor is repaid with interest.

This is not how we typically fund social programs. More commonly, funders pay for the promise of success, not success itself.  A funder may require a program administrator to report their progress but only after the funding has been disbursed. This leaves the funder little recourse should the program fail (at least until the next grant cycle). Moreover, that progress is usually limited to outputs—clients served, seats occupied, patients treated—and is often centered on one siloed issue, treated by an individual organization acting on its own. While these outputs may provide temporary relief, they rarely lead to transformational change.

There may be a better approach. Consider the East Lake Foundation. The East Lake Foundation was created in 1995 by the Atlanta philanthropist Tom Cousins to address the needs of the city’s troubled East Lake community. Cousins charged the foundation with a single responsibility: fix the neighborhood. Nothing short of transformational change was acceptable. The foundation went to work negotiating with the Atlanta Housing Authority to replace the existing public housing with mixed-income units; securing the first charter in the City of Atlanta for a neighborhood K-8 school; inviting the YMCA and the Sheltering Arms Early Education and Family Center to be partners with the new school; and started  a junior golf academy that ultimately became  a PGA First Tee golf mentoring program to provide afterschool opportunities for local kids. The results have been striking.  Violent crime is down 90 percent. Everyone receiving housing assistance is employed or actively involved in a job training program. 99 percent of students are meeting or exceeding state math standards, up from 5 percent in 1995. And the high school graduation rate has risen nearly three-fold to 78 percent. Most importantly, people are buying into East Lake, unlike in years past when extreme violence earned it the pejorative moniker, “Little Vietnam.”

This transformational change was the result of a holistic approach to community development with a lead organization at the helm. And yet, replicating this success at scale has been hard, largely because funders don’t pay for coordination—they pay for programs. But without a neighborhood-level perspective, neighborhood-level change would have been all but impossible in East Lake. Moreover, the economic benefits—everything from increased property values and commercial rents to reduced public safety costs—can be attributed in large measure to the foundation’s careful neighborhood stewardship. Nevertheless, funding for this work is scarce.  The three largest funders of community development work—foundations, banks, and government—largely fund one-off programs or broad-based economic and real estate development (the Promise Neighborhoods program being a notable exception). A new approach is needed to fund neighborhood-level coordination. I believe that approach is Pay for Success.  

Pay for Success can pay for holistic, collaborative community development because it captures disparate benefits and enforces accountability. It brings together organizations that often work in isolation and encourages client service that can better lead to outcomes, rather than just outputs. It aligns incentives and assigns roles: who is responsible when a community falls through the cracks? Who is responsible when it succeeds? And, just as Tom Cousins demanded total transformation from the East Lake Foundation, Pay for Success contracts hold investor capital at risk should the project fail. Most importantly, however, Pay for Success offers a way to pay for transformational outcomes, not just programs, like reductions in poverty and crime or increases in employment and graduation rates—in other words, success worth paying for.

Ian Galloway is a senior research associate at the Federal Reserve Bank of San Francisco and the issue editor of a recently-published Federal Reserve journal on Pay for Success financing. His views are his own and may not reflect those of the Federal Reserve Bank of San Francisco or the Federal Reserve System.  


We love it when our annual State of the Sector national survey data is put to work, so we were delighted to see this new report from the Community Foundation for Greater New Haven (CFGNH): State of the Nonprofit Sector in Greater New Haven 2013.  (You can download the full report as a pdf here.)  In many ways, community foundations are the ideal beneficiaries of the data we collect every year because, by their very mission and structure, they are deeply embedded in their communities, and they can augment the broad-scope data we collect with their own sensitivity to context. The potent combination of these sources of data can suggest a strategy for their investment of what we call Complete Capital: Financial, Intellectual, Social and Human.  Indeed, that is what CFGNH has done here: 

While Greater New Haven nonprofits are resilient and have fared well since the 2008 downturn, The Nonprofit Finance Fund’s annual survey has identified several areas that need to be addressed:

  • New funding sources and business models:
  • Half of Greater New Haven nonprofits report that they do not have the right mix of financial resources to thrive in the next three years.
  • One in four nonprofits has 30 days or less in cash-on-hand.
  • 35% plan on making changes to the way they raise and spend money over the next year
  • Nearly 20% will seek funding other than grants or contracts, such as loans or investments over the next year.

Public funding challenges:

  • 43% of nonprofits report that their state funding has decreased since 2011 while another 43% reported that their state funding stayed the same.
  • Only 30% of nonprofits receiving state funding are paid for the full cost of services; just 18% of federal fund recipients receive full reimbursement. Partial reimbursements require additional funding to cover the growing gap as the demand for nonprofits to serve more people continues to rise.
  • In Greater New Haven nearly 80% of nonprofits report that delays in payment from state contracts causes them to use their reserve funds and 30% report that the delays cause them to use lines of credit.
  • According to the Connecticut Institute for the 21st Century7, Connecticut spent over $1billion on contracts with nonprofits in 2012 yet the splintered delivery of services by the State makes it very difficult for the people seeking service to find the right agency or program for help.

Many of these trends will be familiar to those who have already used our data analyzer to zoom in on state-by-state or sector-specific results.  But CFGNH augmented our data with data from other primary sources: their own surveys, data gathered through the grantmaking process, IRS data, and CFGNH’s own public-facing giveGreater.org® database. This allowed them to look more closely at, for example, nonprofit governance issues and trends that are specific to their area of geographical interest: 

CFGNH

The data, and its presentation in an easily consumable report like this one, confirm what we have observed to be an increasingly critical function Community Foundations are fulfilling beyond their roles as grantmakers, that of conveners, information portals and stewards of the sector. CFGNH reflects on that role and its trajectory in the summary of the report:   

V. The Work Ahead:

The 2009 Economic Downturn report concluded that The Community Foundation needed to increase its focus and efforts on sustaining and strengthening the capacity of Greater New Haven nonprofits. The Foundation has done this through many avenues: granting support for operations, increasing its technical support and capacity building programs and funding, and convening and connecting people and organizations. Through giveGreater.org®, the Foundation website (and its Learn section) and surveys, The Foundation has developed a deep and accessible resource of common knowledge. giveGreater.org® in particular has provided new ways to bring donors- especially new donors- together with local nonprofits.

This report confirms that we should continue on this path. It also shows the resilience and resourcefulness of Greater New Haven nonprofits, which have survived the economic downturn and continue to assist the needy, preserve our cultural heritage and expand our artistic horizons, assure the quality of public education, nurture our children, and care for our elderly.

With a tepid and slow economic recovery, reduction of federal and state monies, and the decrease of corporate funding, there is much work ahead to strengthen Greater New Haven’s nonprofit sector in order to build a stronger community.

There are some strategies for the nonprofits to consider:

  • Be innovative, introspective and creative even when time is short and crises loom — this may result “in breakthroughs in new ways of working, new models of organization and new ways to finance social change …”
  • Build reserve funds, which have proven to be critically important in times of economic uncertainty.
  • Understand how to adjust business models in light of the ever changing economic climate and the transition to outcomes based and/or pay for success funding models.
  • Focus on leadership development and management succession planning for staff and volunteers. The first wave of successions has already occurred, but there are more to come.
  • Identify new Board members with specific expertise and access to resources who have an understanding of the roles and responsibilities of Board service.

The Community Foundation will continue to look for innovative ways to promote the sector to new audiences and donors by adding to the public’s understanding.

This kind of data-driven analysis is compelling evidence for CFGNH’s commitment, and we look forward to seeing how the work develops over the next few years. 

The focus on innovation and creativity, as well as the acknowledgment of the financial challenges facing organizations in Greater New Haven foregrounds another area we know Community Foundations are beginning to explore: impact investing.  In fact, we recently contributed to a Field Guide to Impact Investing aimed exclusively at Community Foundations.  The sensitivity to context and embeddedness in networks that makes them powerful sources of information and careful stewards of their local nonprofit sectors also make Community Foundations ideal impact investors. It’s a capacity we’re very interested in developing further among Community Foundations in the next few years, and we’ve said more about our aspirations, capabilities and experience in this vein here and here.

Community Foundations have been enthusiastic conduits for NFF’s ideas over last few decades, helping us reach a broader community of organizations than we might have otherwise.  And, in the decades to come, we believe they will be central to the challenge of bringing Complete Capital to communities in need, expanding the idea of what counts as an investment to include Financial, Intellectual, Social and Human Capital.  

Part 2 of a 2-part blog from William Pinakiewicz, Vice President, Eastern Region at Nonprofit Finance Fund. Please find Part 1 here

Also, please see NFF's press release announcing the first of a series of efforts to build service provider readiness for outcomes-based funding. 

The Pay-for-Success phenomenon in the U.S. recently has reached another important inflection point in its evolution, and in our ability to learn from and build on the work to-date. Although disclosure on Pay-for-Success transaction details is still somewhat limited, selected information has been released on some of the implementation details involved in existing Pay-for-Success pilot and proof-of-concept transactions. And a second wave of pilots and broader-based capacity-building initiatives has just begun. These recent initiatives are allowing us to move beyond the early—and necessary—focus on re-engineering the financial structure used in the U.K.’s initial Social Impact Bond for a U.S. market, and towards a more expansive approach to the delivery and financing of high-impact, evidence-based social programs.  We are collectively leveraging the early Social Impact Bond work, to build capacity more broadly among service providers and state and local governments to help them achieve meaningful and measurable results for individuals, families and communities of need.

For instance, Salt Lake City, Utah announced an early childhood education pilot Pay-for-Success transaction to reduce the future need for special education services. One of the private investors in the transaction also made a sizable, additional investment to build the capacity of an early childhood education provider and launch an online hub for sharing early childhood education best practices. The 2014 budget proposed by the Obama administration includes over $500 million in funding to support Pay-for-Success pilot financing projects for social programs sponsored by state and local governments. In June of this year, the Harvard Kennedy School announced its Social Impact Bond Technical Assistance Lab capacity-building program for six governments - Colorado/Denver, Connecticut, Illinois, New York, Ohio, and South Carolina – to develop Pay-for-Success contracts for Social Impact Bonds to support promising outcomes-driven social programs in these locations. Just this month, Nonprofit Finance Fund announced the launch of a series of boot camps to incubate and accelerate investment readiness and capacity for PFS among service providers The “incubators” for Chicago, Connecticut, North Carolina and South Carolina are designed for selected nonprofit service providers in those locations to build the capacities necessary for successful service delivery and access to capital in an outcomes-driven world. The “accelerators” for Dallas and Santa Clara will more specifically build the capacity of selected nonprofit service providers in those locations to participate in a Social Impact Bond or other Pay-for-Success outcomes-driven financing approach.

This shift from a dominant emphasis on financial engineering underscores that recent activity on Pay for Success in the U.S. is rebalancing, maturing and refocusing emphasis on its core function – encouraging and supporting better results for vulnerable populations through improved outcomes-driven services delivery. This, after all, is what the Pay-for-Success phenomenon is and should be about. Certainly, there will always be an amount of financial engineering required to effectively and sufficiently connect capital to service providers that deliver positive outcomes to vulnerable populations. But financial engineering is not the goal or objective of Pay-for-Success or other outcomes-based approaches. What we are now observing with increasing optimism and enthusiasm is greater emphasis on actions to improve the capacity of service providers and government to meet their mission and program obligations through a focus on outcomes and evidence.

Equally important for the replication and scaling of approaches that deliver positive outcomes is that this capacity building leads to longer-term, structural improvements in the investment readiness of both providers and governments. As a complement to their ability to deliver better outcomes to vulnerable populations, enhanced investment readiness improves their ability to attract financing from a wider pool of mission-driven private investors (such as private foundations, family foundations, donor advised funds and commercial “impact“ investors) to replicate and scale preventative and early intervention programs.  

We are hopeful and encouraged that the good work on financial engineering in the first wave of Pay-for-Success activity gives us the ability to focus more on the positive mission aspects in this second wave of efforts. Pay-for-Success has the potential to accelerate needed improvements in the reliable and responsible financing of successful preventative and early intervention programs.  The real opportunity with Pay for Success is new, stable funding for high-impact, evidence-based programs.  And these programs are crucial to supporting a just and vibrant U.S. society. 

Part 1 of a 2-part blog from William Pinakiewicz, Vice President, Eastern Region at Nonprofit Finance Fund. Please find Part 2 here

Even in the best of times, nonprofit organizations that provide vital services to individuals, families and communities of need struggle to raise the revenue and capital necessary to meet the demand for their services and operate in a financially sustainable fashion. The period since the Great Recession of 2008 has been, and continues to be, far from the best of times. Surveys of the  sector, such as the one my organization,  Nonprofit Finance Fund, has conducted annually over the past five years, point consistently to the continued and increasing stresses faced by these vulnerable populations and the organizations that serve them.

Demand for services from these nonprofits has increased steadily over this period due to the heavy toll that structural changes in the domestic and global economy, persistently high levels of unemployment and budget pressures at all levels of government have taken on already vulnerable lower income individuals and families as well as increasingly vulnerable middle income individuals and families. While the demand for services is increasing, the historical sources of funding for them from government and philanthropy are either decreasing or struggling to keep pace with demand. In particular, cuts in social program budgets at all levels of government have been pervasive during this period and continue as the effects of sequestration ripple through the economy.

In a situation such as this, it is imperative that we focus on finding more cost-effective ways to provide these services, and that we optimize the results for each dollar invested. By results, we mean meaningful and measurable positive outcomes for the individuals, families and communities of need these programs are designed to serve. 

There has been a drive in the U.S. to develop Pay-for-Success financing mechanisms for the past three years. Pay-for-Success is increasingly gaining recognition as a potentially effective, replicable and scalable approach for attracting capital to finance social programs that deliver verifiable evidence of promised positive outcomes for the populations they serve, and do so at reduced costs through an emphasis on prevention and early intervention. As promising as Pay-for-Success appears at this juncture in its development, it is not the perfect or only solution for addressing the challenges we face in the financing the social sector. However, at a time when we are so hard pressed to find capital to efficiently and sufficiently finance effective social programs, it is important to acknowledge what it is we have learned from Pay-for-Success to date and to discuss what it will take to make outcomes-driven, Pay-for-success approaches successful and more broadly applicable to better serve the needs of (i) our most vulnerable populations, (ii) the nonprofit organizations that serve them, (iii) the governments that provide the vast majority of the funding for them, and (iv) the largely untapped sources of private capital interested in investing in the economic benefits associated with positive social outcomes for vulnerable populations and communities. 

Roughly a year ago, this outcomes-driven Pay-for-Success phenomenon in the US social sector reached an important inflection point in its early evolution. Almost two years of education, debate and investigation of Pay for Success were turning to action. The principal focus of this action was to adapt the Social Impact Bond, a financing mechanism first launched in the UK, to fit the contractual, regulatory, budgetary, political and cultural requirements of the U.S.  

Although initially slow to take root, the activity that resulted from this focus on financial engineering has been both impressive and well documented. A Pay-for-Success pilot transaction focusing on reducing adolescent recidivism at Rikers Island was launched by New York City.  Massachusetts solicited and awarded Pay-for-Success pilot transactions focusing on adolescent recidivism and permanent supportive housing. The US Department of Justice solicited and awarded Pay-for-Success planning grants and pilot transaction support funding for state and local government recidivism reduction programs. Fresno, California and The California Endowment announced a proof-of-concept pilot transaction for childhood asthma reduction. The US Department of Labor, New York State, Minnesota, Illinois and other state and local governments either launched Pay-for-Success solicitations or otherwise started seriously down the path to action through Requests for Information (RFIs) or other means.

All of this activity has been built on the fundamental principles of Pay-for-Success - attracting private sources of capital to finance preventative and early intervention programs, a requirement to deliver verifiable positive outcomes, and net cost-savings compared to existing approaches). Importantly, this period of financial engineering also produced a diversity of Pay-for-Success approaches and structures. Even at this early proof-of-concept phase in its development, this diversity demonstrates the capacity of the Pay-for-Success concept to adapt to the requirements of diverse: (i) social mission areas and programs, (ii) levels of government in the U.S, (iii) private and philanthropic investment interests and (iv) local and regional requirements across U.S. geographies.