News & Views

By Holly Delany Cole, CRE Co-Director - There is a lot to talk about in the recently released Daring to Lead Report. We chose first to talk about what the report points to about the sustainability of the nonprofit model in the current environment, given the behavior of its most frequent funding partner.

The effects of the recession are experienced so far in uneven ways by those in the sector. First, nearly three quarters of the NYC respondents either ‘held steady’ or grew their budgets in the past year. Nationally, 34% of respondents grew their budgets in the past year – in NYC, 38% did so. That was the good news. Significantly, twenty-six percent of respondents have down-sized and have smaller budgets this year than last. Second, organizations have reserves, though for most, they are modest. Fully 48% have monthly cash reserves of 3 months or less. Just 21% of NYC respondents had reserves of more than 6 months.

Overall, 60% of the NYC respondents indicated a significant or moderately negative impact of the recession on their financial health and stability.

A clear area of vulnerability for the NYC respondents is their heavy reliance on government contracts. Some 35% indicated that government contracts make up more than 50% of their budgets. The national data show that 55% of nonprofits with significant government funding have less than 3 months reserves as compared to 42% nationally of the respondents who have a smaller proportion of government support.

We work with a great number of nonprofits that contract regularly with the city and the state to deliver services that meet the fundamental needs of NYC residents for shelter, child care, employment services, youth development, senior safety – you name it, they are there making it happen. The tactics to remain sustainable while choosing to secure and deliver government contracted services include developing effective financial management systems that facilitate reporting and vouchering; having sufficient reserves via fundraising from individuals to provide cash flow needed when contracts are not executed in timely ways or when reimbursements are slowed; and knowing well what it costs to deliver high-quality services so that our choices about whether or not to pursue or accept government funding are informed ones.

Being sustainable requires investment in the architecture and infrastructure of our organizations. Nonprofits need experienced financial managers; good financial and information systems and the requisite technology; competency about raising money from the private sector and leaders or staff with time to do it; strong, informed and engaged boards; and professional development of staff, among other things. These assets require investments of time and money to achieve; the most sustainable organizations accomplish this over time.

More would too undoubtedly if their funding partners recognized the value in this and invested in it, or at minimum did not structure their funding in a way that undermined it – as is too often the case with city and state government partners.

The rates paid to nonprofit city and state government subcontractors almost never match the actual cost of service delivery. Government funding partners routinely underpay or disallow expenses associated with indirect expenses and cost of administration. There is an implicit expectation, sometimes explicit by government funders, that nonprofits will raise the additional resources needed to sustain the program, while at the same time under-investing in the very infrastructure needed so that nonprofits can accomplish this well. It is expected that in addition to having dollars in place to bridge the moments of cash flow deficits caused by late payments by government, that other sources of supports must also be in place to cover the true costs of administering, delivering and funding programs.

As the city, state and federal governments continue to reduce contracts, they should do so with ‘eyes wide open’ about the cumulative effects on their subcontractors’ ability to operate effectively and deliver value. There should be dialogue with their subcontractors about their sustainability and about the state of the safety net. As contraction of the services to the poor continues, it should not be haphazard. With actual conversations happening, as partners must do, is created the opportunity to problem solve. In the meantime, we would encourage our nonprofit colleagues to say NO more often to contracts that don’t pay their way – accepting such work frays, and does not nurture the ability to be there in the long-haul for your community or your issue.


Click here for more information about the New York City respondents and interesting facts about their Daring to Lead responses.

Links to previous posts in the Daring to Lead series:

Daring To Lead: A National Study on Executive Leadership