August 3, 2011

Connecting the Dots on Our Budget Problems

In this age of ongoing government funding cuts, there is a clear connection between the budget problems in Washington and those experienced by many nonprofits. To survive in the increasingly challenging environment, nonprofit organizations will need to manage their programs for maximum impact, reset their funding models, and better measure their outcomes.

By: Daniel Stid

Yesterday, at the same time that Congress and President Obama were putting the final touches on the bill that they had cobbled together to raise the debt ceiling and cut discretionary spending, I was in Washington, D.C., speaking to a group of more than 150 nonprofit leaders who had been convened by a federal department that has underwritten their organizations for more than a decade. A major thrust of the conference was to help these nonprofits identify ways of sustaining their missions without federal funding. These organizations do good work, much of it in support of low-income parents and their children, but the department will no longer be able to fund them. With the sweeping budget cuts in the current environment, simply doing good work is not sufficient to warrant ongoing public support. These nonprofits, like many others helping underserved people in different programmatic areas, will soon be left to their own devices when it comes to funding their missions.

I shared some messages with the leaders of these nonprofit organizations that will be familiar to readers here, to wit: We are in the midst of a fundamental fiscal shakeout that, as ugly as it has been recently, is going to get worse. Discretionary programs will bear the brunt of the cuts as mandatory spending (interest on the debt we’ve run up, Social Security, Medicare, retiree benefits, pensions, etc.) take up a growing portion of the available revenues. As a result, the federal funding that these organizations have enjoyed to date is going if it is not already gone, and it is not coming back. The longer term outlook at the state and local levels is just as bleak in most parts of the country. To stand a chance in the sharper competition for alternative sources of funding, which will pit these nonprofits against others that have likewise had their government grants and contracts curtailed, they will have to make a series of difficult choices in managing their program portfolios for greater impact and sustainability, resetting their funding models, and measuring outcomes more systematically. This is the only way for them to improve their results, boost their productivity, and win over new funders.

I acknowledged that this was not an easy set of messages to hear. People in the audience had different reactions to it. Some were deeply engaged, nodding their heads, taking notes, thinking through what they could do along these lines in real time and whispering to colleagues as they did so. Others were visibly put off–an understandable response to the situation–and sat back frowning, arms folded across their chest, seemingly in defiance of the data I was sharing on the fiscal outlook and its ramifications.

These visible reactions were reflected in what people came up to me and said afterwards. Several in the head-nodding contingent let me know they appreciated the dose of reality, recognized that they needed to change and indeed had already started to, and wanted a copy of the presentation to share with their boards. But I also got more of a sense for what was on the minds of those who had been grimacing. One gentleman told me with some agitation that if the country would simply raise taxes, we could cover the current costs of government instead of scaling it back, in which case the deep fiscal shortfalls that I had projected would be resolved. Then a lady came up to me as I was walking out and insisted that “there is more than enough money—we just need to stop spending it on war and start spending it on kids!”

I actually agree with them. We should increase taxes to pay for the cost of the government we are using, and we should radically reallocate the money that we are currently spending on three wars on the other side of the world and the military establishment needed to fight them in order to resolve the glaring inequities that are widening at home. But alas, as we have just witnessed, these viewpoints do not begin to hold sufficient sway among the leaders of both parties whom we have elected to represent us, and I doubt they will anytime soon as we head into an election year.

I am struck by the parallels between the visceral negative reactions of the nonprofit leaders who buttonholed me after I spoke at the conference with those of the progressives who, at that same time, across town in the White House and on Capitol Hill, had to hold their noses as they finalized legislation that raised the debt ceiling and cut $2 trillion more in discretionary spending without raising any additional tax revenue. As Richard Cohen noted in the Washington Post yesterday, conservatives are now the ones pushing for sweeping changes, while progressives have become conservative, fighting to defend the social programs established by the likes of Franklin Delano Roosevelt and Lyndon Johnson. But this fight has become a desperate rear guard action. As Cohen wrote, “Ever since the New Deal, the Democrats have been the party of programs. They spend money, and now there is really no money to spend.” To make things worse, the mounting costs of Social Security and Medicare – the entitlement programs that progressives have cemented in place as bulwarks against those determined to reduce the role and cost of government–as well as the interest payments to serve our growing debt are increasingly eating away at funding for the discretionary programs designed to support the poor and disenfranchised.

Hence my trip to Washington to speak to the nonprofits the federal government is no longer funding.

I saved my notes–something tells me I will be giving this talk again.

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