Cuts in support by government and corporations present nonprofits with money-raising challenges

THE BALTIMORE SUN

Baltimore Reads' budget is a bit more than $1 million, which might sound good until you consider that it was four times larger a half-decade ago.

Its federal grants shrunk drastically after the government diverted welfare-to-work money away from programs that educate people but do not directly help them find employment, said Marlene C. McLaurin, the nonprofit's executive director. Appeals for private money didn't bring in nearly enough to bridge the gap. Her literacy group has cut its staff by more than half in the past five years, eliminated programs for children and reduced classes for adults.

Never mind the state's budget surplus, healthy economy and high average household income. A wide variety of nonprofits say it's harder to raise the funds they need to meet rising demand or just to hold the line.

It's an issue that matters to Maryland beyond the delivery of services such as shelter for the homeless because nonprofits are a sizable slice of the economy. They accounted for one out of every 11 jobs in the state in 2003, the most recent numbers analyzed by the Johns Hopkins University's Center for Civil Society Studies. That's 230,000 jobs, twice as many as banking, finance and insurance combined.

There's a laundry list of reasons that nonprofit employers are concerned:

More competition - 7,000 more charities in Maryland between 1996 and 2004, up 60 percent. More expenses, especially health care and energy costs.

More pressing needs elsewhere, with disaster relief in the Gulf Coast and overseas. And more signs that federal subsidies for nonprofits are in jeopardy as Congress attacks the ballooning federal deficit.

"The funding environment is basically pretty scary," McLaurin said.

Lester M. Salamon, director of the center and an expert on the nonprofit sector, calls the collision of funding changes "an emerging crisis." He's watching warily as Congress tries to rein in spending growth in Medicaid, the federal program that has the broadest impact on the nonprofit sector because so many charities are eligible for its grants or vouchers.

The bottom-line impact is unclear. But analyzing President Bush's five-year budget proposal released last winter, Salamon and a fellow nonprofit expert concluded that federal support of nonprofits - not counting health institutions such as hospitals - would fall $1.8 billion, or 4 percent, by fiscal year 2010.

"When we get periods [like] we appear to be in, when the government pulls out, then these organizations are in a very tight spot," Salamon said. "I think it is justified in people's minds by this ideological belief that nonprofits are really funded by the private sector, and so we don't really have to worry about it. That's a romantic notion that is not consistent with reality."

Nationwide, nonprofits get nearly a third of their revenues from the government, according to Independent Sector, a national coalition of charitable organizations. Private philanthropy accounts for a fifth. The rest is earned income - fees for services, investments, money produced by special events and the like.

That varies depending on the type of charity - health and human services providers rely primarily on the government. But many groups are feeling the pressure to be more entrepreneurial, or more aggressive fundraisers.

"Every organization is trying to find some way to charge at least small amounts for something," said Melissa S. Brown, associate director of research at the Center on Philanthropy at Indiana University. A popular strategy is to start a for-profit subsidiary, though experts are concerned that groups also will feel forced to charge core-service fees that would effectively shut out the poor.

Attendance at the Maryland Association of Nonprofit Organizations' fundraising training sessions, meanwhile, has been rising "phenomenally" in the past few years, said Tricia Rubacky, a trainer with 28 years of experience raising money for nonprofits. But foundations are besieged by funding requests as it is.

"I know just from talking to some of the larger foundations here, many of them can only fund between 10 and 30 percent of the proposals they receive, and that means it's a very competitive arena," said Rubacky, development director at Advocates for Children and Youth in Baltimore.

The same is true with other donors. Junior Achievement of Central Maryland relies almost entirely on corporate contributions, and businesses have been slashing their usual amounts or bowing out altogether with the message that they're focusing on disaster relief, said Bonnae J. Meshulam, president of the group, which teaches young people about financial literacy and the role of business in society. She's about $200,000 behind where she was this time last year, no small issue for a nonprofit with an $800,000 operating budget. And costs are up - health insurance by 20 percent in the past year.

"Does it concern me? Oh yes," said Meshulam, who said any cuts would have to come from programs that reach 27,000 students a year from kindergarten through 12th grade. "And are we out there pounding the pavement, trying to get to new businesses and companies? Yes."

Some charity experts doubt "donor fatigue" is a major issue; some local charities say they've had excellent results in recent months. But hurricanes or no, fundraising is uncertain work. More than a third of nonprofits see a drop in giving in a typical year, even if Americans donated more overall, according to Giving USA, an annual report on philanthropy.

"Because there's more charities, there's more competition for the dollars," said Diana Aviv, president and chief executive of Independent Sector, who's seen a shift in giving to arts and culture groups at the expense of human services. "So charities have to work harder to maintain the same donors."

Not all the news is grim. Gov. Robert L. Ehrlich Jr.'s recent proposals for state funding increases next fiscal year include several areas of interest to nonprofits. His rolling announcements have included plans to expand spending on services for seniors and people with disabilities, on education and on the arts.

Jeff Richardson, executive director of Mosaic Community Services, a Timonium mental health provider, is glad to hear that groups like his would get cost-of-living increases in rates paid by the state under Ehrlich's proposal. Looming federal funding issues have him concerned.

"To keep up with the cost of doing business is almost untenable in the current environment," he said.

The Maryland Association of Nonprofit Organizations hopes the state will step in if federal cuts filter down. This legislative session, it plans to propose a "special reserve fund" to substitute for any federal reductions during the state's budget year.

"There's a disaster coming down the road with funding," said Peter V. Berns, the association's executive director.

Baltimore Reads hopes that it's already felt the worst of it. After the federal reductions, the number of adults it could educate was halved to about 250 a year. Its staff is the equivalent of 10 full-time people, compared with 25 just a few years ago. No longer can it offer after-school programs for children, hand out bus passes to get impoverished adults to literacy classes or employ someone to help clients smooth out life crises that interfere with learning.

But there's a chance of more state grants because the governor's budget proposal for the next fiscal year includes $2 million extra for adult basic education. United Parcel Service recently awarded Baltimore Reads $100,000 to start a workplace literacy service that the nonprofit will take directly to employers, an opportunity to earn fees for services. And the group just moved to new offices downtown, cheaper and closer to businesses it wants to woo.

"We're certainly grateful that we're still here," McLaurin said. "When we look around the last several years, some agencies aren't."

jamie.smith.hopkins@baltsun.com

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