NFF’s 2012 survey of nonprofits revealed that among nonprofits that depend on federal or state funds, more than 75% are paid via contracts that fail to cover the full cost of services.  And more than half of those received payments behind schedule. As state and local governments face the ongoing challenge of balancing their budgets, cuts and delays in government funding have translated into programmatic reductions and cash flow issues for a large number of nonprofits. This is especially true in many rural areas where there are limited alternative funding sources.  The story below shares how these challenges have threatened the sustainability of a crucial social safety net provider in rural California:

“We provide anything and everything that our community needs that the government will pay for,” notes the Executive Director of Plumas Rural Services, a nonprofit based in rural Northern California. “Our community needs transit, it needs domestic violence services, it needs a childcare resource, and it needs drug rehabilitation services. In fact, many of our clients need all four.” With 16 programs and 57 government contracts, Plumas Rural Services’ (PRS) broad mission is to improve the quality of life in Plumas County, California.

Despite limited contributed revenue, PRS has historically pieced together enough funds for an administrative staff through a small amount of overhead on each of its 57 grants. But with recent funding cuts, Plumas Rural Services was forced to temporarily suspend all drug rehabilitation services in the county. Several of their programs are also at risk of line-item vetoes in the state and local government budgets.  

Given the tenuous and unpredictable nature of government funding, why doesn’t PRS become more sustainable by pursuing other sources of revenue? The unfortunate truth is that there are limited options available to generate unrestricted revenue in many rural areas. Some key challenges:

• Most clients can’t afford services. Like many areas of rural and urban concentrated poverty, it is challenging for PRS to generate significant revenue from client fees. While client fees can provide some supplemental income, they will never cover the full cost of business. Many of their government contracts also prohibit charging fees for government-subsidized services.
• Small population limits special events. Special events are challenging for nonprofits everywhere, but this is especially true for organizations in rural areas. With fewer people spread across a larger region, rural nonprofits have fewer potential attendees to invite to events and fewer wealthy donors.
• Few foundations focus on direct services in rural areas. Some foundations, such as The California Wellness Foundation and Sierra Health Foundation, have expressed a specific interest in rural areas. However, many foundations understandably focus their grants in communities with higher concentrations of people.
• Few large businesses see direct benefit from donations in rural areas. Some corporations, like agriculture and energy companies, have a significant presence in rural America. For the most part, however, corporations have a vested interest in donating to areas with higher concentrations of potential consumers.

With dwindling government funding and increasing community need, Plumas Rural Services is now faced with three options. These options are not mutually exclusive and long-term sustainability may require a combination of all three depending on the size of government funding cuts.

1. Reduce services to a level that corresponds with funder interest. Though it pains many of us in the nonprofit sector, our ability to address the needs in our community is limited by funder demand and interest in the issue. As a result, it is possible that PRS would need to reduce its services if government funding disappears and alternative funding is not available.  If the state decided to cut funding for transportation or abuse services contracts, for example, Plumas Rural Services may have no choice but to eliminate the only source of transit for many elderly in the community or cut counseling services for domestic violence and child abuse services.

2. Attract donors from other communities. Given the limited number of donors in Plumas County, PRS cannot sustain current levels of service with local giving alone. If their programs are to be sustained by donations, they would need to reach outside of the community to attract donors. It may be possible to do so by partnering with organizations in larger cities or connecting with people that vacation in the area. To attract donations from outside the community, however, PRS would need to overcome donors’ tendency toward giving in their own communities.

3. Develop social enterprises to fuel nonprofit operations. PRS is exploring the feasibility of several interesting for-profit social enterprises to subsidize core operations. Like all for-profit endeavors, each idea will require up-front capital that is flexible and each idea presents a risk of failure. Given Plumas Rural Services’ ability to navigate 57 government contracts and oversee countless programs, I do not doubt their ability to manage a small business. But the Small Business Administration estimates that about 50% of small businesses fail in the first 5 years, many for reasons outside of management’s control. Even when successful, a for-profit social enterprise is unlikely to generate more than 3-7% profit. A thriving for-profit social enterprise can certainly help subsidize a nonprofit’s operations, but it is unlikely to provide sufficient resources on its own.

Like many under-resourced rural communities, need is not dwindling alongside threats of decreasing government funding in Plumas County. If PRS is unable to attract donors from other communities or develop social enterprises to fuel its operations, programs will be cut and the most vulnerable populations will suffer. To enhance the likelihood that new fundraising efforts and social enterprises are successful, we must ensure that flexible capital is available for upfront investment in these endeavors. Without this upfront investment, significant community needs will go unmet.