05/16/2013 | 4 mins |

Perception and Cutbacks: a Cautionary Tale from Canada for Nonprofits

05/16/2013 | 4 mins |

In this guest post, Nora Sobolov, Founder and Senior Advisor of the Community Forward Fund in Canada, describes how accepted wisdom about nonprofits has laid the groundwork for the loss of important organizations north of the 49th parallel….and how the US appears to be moving quickly down the same path.

Nonprofits in Canada, like those in the US, are a valuable and precious resource. In both countries, it is also a resource currently under deep threat. Not coincidentally, the nonprofit sectors in both countries also are losing the public perception battle—and that is the battle that could ultimately lose us everything.

I don’t use war metaphors lightly, but my colleagues and I hosted a series of working sessions with Canadian nonprofits and began to call them: Tales from the Trenches. After discussions with hundreds of people, the fact that they were fighting a battle every day, and losing, was all too clear.

In my experience, as someone who has been a board member and offered financing and advice to nonprofits, most are extremely well run, offering high impact for low cost. For many years, however, the prevailing wisdom about Canadian nonprofits has been quite the opposite.

At times, government has helped foster the impression that large parts of the nonprofit sector have little impact and should and could do more with less. In a speech last fall, a senior government minister noted as an example that the homeless population count had stayed the same during her government’s tenure, promoting the fact as evidence that the work of those in the housing and homelessness services sector had failed to have any impact. In part as a result of such perceptions, the federal government in Canada has called on nonprofit organizations to find new sources of funding and inspiration from the private sector, and at the same time, reduce administrative costs.

Some of these criticisms are valid and some of the goals make sense. But promoting this negative view of nonprofits has helped ease the path for government cuts, even as private contributions haven’t taken their place. In Canada, donations have stagnated at 2005 levels, delivering a one-two punch from which nonprofits may be hard pressed to recover.

Quantifying funding cuts is tough. The demise of Statistics Canada surveys on the nonprofit sector has made it difficult to find meaningful numbers. What we do know is this: as part of the multi-billion dollar budget cuts made by the Canadian government over the last five years, many significant organizations (for example the Canadian Environmental Network and the Conference for the Arts) have disappeared. Organizations serving vulnerable populations such as immigrants and refugees have faced funding cuts of up to 100 percent, including those who had excellent track records of delivery, high impact and low cost. And according to Imagine Canada, approximately 85 percent of nonprofit organizations expect government cuts in the next two years.

Despite their negative impact, these cuts have largely gone unchallenged. While some national groups and foundations have attempted to shine a light on these losses, there were so many and they came without warning (often hidden in omnibus legislation), making it difficult to build momentum to reverse the decisions.

As founding CEO of the Community Forward Fund (a loan and financing fund for nonprofits in Canada) I saw a number of nonprofits that were great loan candidates, and simply needed the financing we offered to succeed. On the flip side, I saw many organizations that had gone from lean to emaciated, with no excess capacity to develop or execute on revenue generation opportunities. Ironically, often the first people to be let go in the cutback merry-go-round were those with financial expertise. Lack of financial capacity makes even the most basic of alternative financing or business planning a challenge, and for many the range of options has become narrower and narrower over time.

There is growing evidence that core funding cuts and a move to revenue generation have not produced the hoped-for positive results on levels of impact. Givewell has provided multi-year evidence that without a minimum administrative budget, organizations’ performance is consistently poorer. And social enterprise hasn’t been a quick fix either, as many take five to seven years to become profitable, if they are able to survive at all.

The United States now is facing a scenario that is strikingly similar to Canada’s. Sequestration, according to this expat’s local paper, the San Jose Mercury News, is already having significant effects on job training and employment support programs. The Nonprofit Quarterly has documented proposed federal budget cuts to organizations serving the poorest and most marginalized people, largely missed in the wake of press releases announcing funding for social impact bonds and new social innovation programs.

It seems a wake up call is in order.

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