Sobering News on Nonprofits

July 23, 2010 at 12:32 pm Leave a comment

Nonprofits have uphill climb in tough economy


July 12, 2010


These days, Tom Isakson is executive director of New Creation Business Advocates, a Valparaiso nonprofit that offers shelter and services to homeless men.

It’s a position he’s had for two years. Before that, he worked for Christian Community Action in an assortment of capacities, most notably overseeing Spring Valley homeless shelter as it moved from a small motel on U.S. 30 to a 28-unit apartment complex on Calumet Avenue in Valparaiso.

Now, CCA has spun the various services it provided to other agencies in the community and the shelter is on the cusp of being consumed by Housing Opportunities. That agency will keep 12 units for the homeless, while the rest will be used for low-income housing.

CCA will, quite simply, no longer exist.

New Creation, Isakson said, uses a “social enterprise” model, running businesses to generate jobs and skills for its clients, while generating funding to keep the agency going. Businesses include a resale shop and a day labor service.

It is a model he hopes will help the fledgling New Creation, which opened its doors two years ago, get through tough times when other agencies cannot.

“This is an unprecedented recession. It’s bigger than any previous recession we’ve weathered in Porter County, which would be tough on a donor-driven agency,” Isakson said, adding CCA received some grants, “but the biggest part of their operating budget was donor driven.”

CCA is not the first nonprofit agency in the region to close its doors because of the economy, and it may not be the last. Lutheran Social Services of Indiana’s Griffith office shut down about a year ago because of a lack of funding, and a spokeswoman with GuideStar, a national organization that reviews nonprofits, said 7 percent of the agencies it surveyed last fall said they were in danger of going out of business.

Nonprofits close all the time, said Suzanne Coffman, director of communications for GuideStar. Maybe a founder dies and the family does not want to assume responsibility for the agency, or two agencies merge.

It’s almost impossible for GuideStar to compare how many nonprofits close with previous years because not all agencies notify the IRS, she said. Changes within the Internal Revenue Service will help that in the future.

As many as 400,000 nonprofits may lose their tax-exempt status with the IRS and there’s a good possibility 50 percent of them are going out of business, “but we don’t know,” Coffman said.

Still, nonprofits have not done well during the recession.

“The last couple of years have been looking pretty rough,” she said, adding a growing percentage of nonprofits have reported that donations were down each of the past three years. “You’ve got a trend.”

The Griffith office of Lutheran Social Services of Indiana served clients in Lake, Porter, Newton, Jasper, Pulaski and Starke counties, offering counseling and adoption services, as well as foster parent training, which were taken over by other agencies when it closed about a year ago.

The Rev. Charles Strietelmeier, pastor at Augustana Lutheran Church in Hobart, was on LSSI’s board for about four years.

“We were aware of the fact that funding was becoming a struggle,” he said, adding state contracts were a lifesaver for much of the agency’s services, providing the backbone for its funding. As those contracts became uncertain, so did LSSI’s future.

Lake Area United Way, which serves Lake County and Lansing, Ill., met its most recent fund-raising goal, but it was lower than that for the previous year.

Executive director Lou Martinez said the agency’s 2010 goal was $5 million, and donations came in $6,000 above that. The effort for 2009, though, was set at $5.2 million. Going into 2011, the agency will probably exercise the same amount of scrutiny.

“When there’s a downturn in the economy and companies are laying people off, it affects the United Way because we rely on payroll deductions directly,” Martinez said. “People are prudent in how they are using their dollars. They just don’t have as much to give at this time.”

The downturn has hit universities as well. Valparaiso University wrapped up a major fund-raising campaign last June, just before giving to most nonprofits began to fall off toward the end of the year, said Randy Hall, director of annual giving at VU’s Office of Institutional Advancement.

“Donors with a capacity to give major gifts continue to be extremely cautious with their giving. These individuals are still giving, but often times less and they are decidedly more careful about the projects they will support,” Hall noted via e-mail. “Revenue from corporations is also declining. We have seen a 36 percent decline in revenue from corporate matching gifts as many organizations have been forced to scale back on their charitable giving.”

As for CCA, Isakson noted that the 12 units that will remain for the homeless at Spring Valley are still more the shelter had on U.S. 30. He used the analogy of a neighbor’s home, damaged by a storm while a tarp was on the roof during repair work.

“Sometimes the storm is just bigger than the tarp can handle,” he said, “and maybe CCA got hit by something like that.”


Entry filed under: Nonprofit Funding, Nonprofit Mergers. Tags: , , , .

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