How Can Delaware Sustain Its Nonprofits?
Local organizations are struggling more than ever to maintain funding and provide some much-needed services. What's to be done?
Clockwise from left: Peter Morrow of the Welfare Foundation, Michelle Taylor of United Way of Delaware and Sheila Bravo of the Delaware Alliance for Nonprofit Advancement.//Photo by Joe del Tufo
Leaders of most every nonprofit organization have a not-so-secret wish that someday they will strike gold with a grant application.
But anyone looking at the current financial shape of Delaware’s nonprofits would be hard-pressed to find even a silver lining.
Peter Morrow, who managed the charitable giving program at the DuPont Co. 40 years ago, is now president and CEO of the Welfare Foundation, one of Delaware’s largest nonprofits, puts it bluntly: “This is one of the most difficult fundraising environments I’ve ever seen.”
The reasons are many.
The federal government has cut, or threatened to cut, support to many nonprofits, most notably Planned Parenthood, the National Endowment for the Humanities, the National Endowment for the Arts and the Public Broadcasting Service.
To help make up a revenue shortfall of nearly $400 million, the state government cut grant-in-aid allocations to nonprofits by 20 percent this year, a little more than $8 million, and eliminated some contracted services provided by nonprofits that had been funded as line items in the budgets of individual agencies.
Corporate philanthropy has declined. CEOs and boards of directors are often under pressure from shareholders to maximize their bottom lines. In Delaware, the squeeze was exacerbated a few years ago by the demise of Hercules Inc. and the Wilmington Trust Co., as well as the acquisition of MBNA by Bank of America. With the shrinking (and recent merger) of the DuPont Co., Wilmington is without a major corporation headquarters in its downtown business district for the first time in more than a century.
Those factors combine to place more pressure on the state’s charitable foundations. They cannot magically generate more millions in grants, so they must be more judicious in their allocations.
Finally, charitable giving by individual Delawareans is surprisingly low. “Even though we have so many incredibly generous people, we rank in the bottom 10 in charitable giving,” says Stuart Comstock-Gay, president and CEO of the Delaware Community Foundation.
In 2013, the most recent year for which Internal Revenue Service statistics are available, adjusted gross income of Delaware taxpayers averaged $59,380, ranking 19th in the nation, but charitable contributions by taxpayers who itemized deductions ranked 45th, with donations averaging $3,971.
In this environment, nonprofits are stressed to maintain services to their constituencies while seeking dollars from an ever shrinking pool of donors.
“It’s like a hamster on a wheel,” says Cynthia Pritchard, executive director of Philanthropy Delaware, formerly known as the Delaware Grantmakers Association. “But we might have to get the hamster off and build a new wheel.”
The erosion of the nonprofits’ financial base is nothing new. The slide began in 2006, when Bank of America acquired MBNA, then the state’s leader in corporate philanthropy. The slide accelerated with the start of the Great Recession in December 2007. In those years, the Chrysler and General Motors auto assembly plants shut down, never to return, and the Delaware City refinery was shuttered for several years until a new operator was found (briefly). Good-paying blue-collar jobs disappeared, depriving nonprofits of a reliable base of middle-class individual donors while forcing displaced workers to rely more on nonprofits for social services.
“When the recession hit, we thought it would be temporary, but it became the norm,” says Michelle Taylor, president and CEO of United Way of Delaware.
This year’s cuts in state support, though hardly unexpected, pierced the last remaining illusion that someday, somehow, happy days could possibly return here again.
“I don’t think we’ll ever go back there,” says Taylor, who remembers what it was like when she arrived in the state 18 years ago. “I’d love to, but that’s not the reality.”
The reality, according to Morrow, Pritchard, Comstock-Gay, Taylor and others in Delaware’s philanthropic and nonprofit communities, is that the agencies and their funders must look at new models for both their operations and their revenue streams, and they must redouble their efforts at collaboration so they deliver needed services more efficiently. That means eliminating both gaps in services and duplicated or overlapping services.
“Are there simple answers?” says Comstock-Gay. “No.”
He is not alone in suggesting that this is an appropriate time for all of us to be asking big questions—questions so big that skeptics might suggest the answers could take years to find.
“What kind of society do we want?” he asks. “And what services should be provided, and who should be providing them?”
While such big questions might be debated indefinitely, smaller ones are crying out for answers. And soon.
“The reality is a smaller pot of dollars, so we have to look at a different way of obtaining funding,” says Tamera Fair, executive director of the Wilmington Hope Commission, which provides training to help ex-offenders find meaningful employment.
In the search for fresh revenue sources, Fair adds, “We have to get away from, ‘How can I get the most for my organization?’ and focus instead on using whatever money is available to serve the organization’s constituents more effectively.”
“The issues in our state are too big for any sector—too big for the state, too big for United Way, too big for the Delaware Community Foundation, too big for any industry or any single organization,” Taylor says. “To make a Delaware where people want to live, work and play, it will take collaboration, coordination and partnership, and common aspirations, common goals, common outcomes and joint accountability.”
Before figuring that out, nonprofits will have to figure out where they stand now, says Sheila Bravo, executive director of the Delaware Alliance for Nonprofit Advancement (DANA), which provides advocacy, training and research for 380 agencies in the state. Sometime this fall, “we will have a better sense of the impact” of the state’s cuts, she says.
Noting that three-quarters of the state’s nonprofits have annual budgets of under $1 million, she anticipates that “agencies will hobble along.” While some might find they don’t have the resources to survive, those that remain open “will have to consider consolidation” or reducing the services that they offer.
The next step, says Thère du Pont, president of the Longwood Foundation, should be “to have us all—funders, the corporate sector, nonprofits and government—talking about outcomes.” That means changing the focus of the conversation from how much money nonprofits think they need to carry out their missions to what they want to accomplish and how to get it done most efficiently.
One organization that has already made that transition is United Way of Delaware. It shifted in 2005 from being an organization that raised money through its annual campaign and distributed its income to member agencies to one that employs a “community impact model.” It focuses its support on programs that meet community needs in three key areas: increasing the number of children who are reading at grade level by third grade, supporting pathways to college and careers that lead to a living wage, and supporting families so they can become financially empowered. While each of those goals is quite specific, a broad array of programs is needed to help achieve each one, Taylor says. For example, it takes more than books and reading tutors to get kids to read at grade level. They also need a roof over their heads, nutritious meals and access to healthcare.
United Way does not provide those services directly, so it works with more than 100 “engagement partners,” community-based organizations whose work is directed toward those goals. Partners in its education initiatives include, among others, the state Department of Education, local school districts, the Rodel Foundation, Boys & Girls Clubs, community centers and New Castle County government.
Among the funders, the Longwood Foundation, founded in 1937 by Pierre S. du Pont, has moved toward an outcomes-based approach to its philanthropy. Its grant application requests a description of the outcomes the organization is hoping to achieve, a discussion of how a grant would improve its ability to create these outcomes, measurement of recent progress toward those outcomes, and an estimate of how much a grant would accelerate that progress.
In the past seven or eight years, Longwood has awarded about 250 grants, du Pont says. “I’ve seen the full range of results. Some don’t come anywhere near their outcomes, and some have tripled their outcomes.”
Applicants are getting better at describing what they hope to achieve with their grants, he says. In the past, an applicant might have said, “Well, I served 100 people today and I’m going to serve 200 tomorrow,” du Pont says, but an outcomes-based request should say, “Not only am I going to serve 200 people, but I’m going to change their lives,” then explain how that change would be accomplished.
More and more donors—both corporations and foundations‚ are taking a similar approach, Philanthropy Delaware’s Pritchard says. “Our organizations want to be strategic with their dollars. They want to see measurable change,” she says.
At the Delaware Community Foundation, Comstock-Gay expects the current squeeze to prompt “more questions from fundholders on where the biggest needs are and how to adjust their giving to have the greatest impact.”
That, in turn, puts more pressure on nonprofits to improve documentation in their grant requests.
Over the past two years, the community foundation has created DelawareFocus.org, a website chock full of statistical indicators on the state’s population, children, education, workforce and economy that nonprofits can use to document needs in the communities they serve. And Philanthropy Delaware is currently working with DANA on what Pritchard calls “resource mapping,” showing the locations of hospitals, senior centers, community centers, children’s agencies and the like. Such maps, she says, can help funders and nonprofits identify where there might be overlaps or gaps in services, as well as possibilities for neighboring agencies to collaborate.
Collaborations can occur in ways other than partnering in programming, says Charlie Vincent, owner of Innovincent, which provides consulting and marketing services to nonprofits. He notes that the Community Services Building in downtown Wilmington, once part of the DuPont office complex, is now home to an array of nonprofit organizations. Similarly, nonprofits could band together to purchase supplies or to secure printing, accounting or marketing services, he says.
The combination of tightened revenue streams and increases in collaborative efforts may well lead to more dramatic changes for some nonprofits: mergers and consolidations.
Larger agencies have already done some regional consolidations. For example, the Blood Bank of Delaware became the Blood Bank of Delmarva and the state’s unit of the Multiple Sclerosis Society has been folded into a Greater Delaware Valley chapter.
“It’s going to be survival of the fittest,” Vincent says.
“No organization has a right to exist. If you’re doing a poor job, you don’t deserve to continue to do a poor job,” Comstock-Gay says. Yet, “directors of nonprofits do not like to merge, and [most] boards are not prepared to ask this question.”
Several years ago, one prominent Delaware business leader urged a group of Wilmington community centers to consider merging, but the idea went nowhere, says Morrow of the Welfare Foundation.
Funders may see situations where it appears that a merger of nonprofits could be beneficial, du Pont says, “but we’re not in a position to force it.”
Of course, funders could withhold grants, he says, “but you don’t want to kill new ideas either.”
“It’s a double-edged sword,” Pritchard says. “There’s an opportunity for funders to drive strategic thinking at nonprofits, but you don’t want to get into telling them how to do their business.”
Advocates for nonprofits agree that three keys for survival in this changing environment are strong management, fidelity to the organization’s mission and proof of positive outcomes from essential programs.
And, they say, nonprofits must work to develop new revenue streams.
Pritchard and Bravo suggest making a greater effort to secure grants from major national foundations such as Mott, Kresge, Kellogg and Robert Wood Johnson, but they acknowledge that larger nonprofits in larger states may be able to demonstrate greater needs than Delaware nonprofits might show.
Du Pont suggests paying more attention to the “earned income” model, citing Habitat for Humanity’s ReStore, which sells donated building materials, household appliances and furniture, as an example.
“Everybody buys stuff for their homes, and Habitat has it. They only have the cost of labor because all the items are donated,” he says.
ZipCode Wilmington, the boot camp for computer coders funded largely by regional financial services businesses, is another example of an earned income nonprofit, one that meets the need for information technology specialists for the banking and credit card industries in the state.
“They don’t all work, but that doesn’t mean you shouldn’t try,” du Pont says, “especially if your alternative is to go to government and corporate sources that are all in decline.”
Vincent encourages nonprofits to work together on fundraising through his Delaware Charity Challenge, a series of athletic events throughout the year in which participants seek pledges from friends and family, much as they would for a charity walk or run. He tries to group nonprofits with similar interests—children’s causes or animal rights, for example—then the organizations compete to see whose team not only wins the race but also raises the most money. In these examples, Vincent would also recruit a toy store or a pet shop as the primary sponsor, and the business would provide a bonus prize to the top team.
The Charity Challenge relieves the nonprofit’s staff of the time and effort involved in running a fundraiser, which allows its workers to concentrate more on the agency’s mission, he says. In a little more than two years, the events have raised more than $113,000 for 50 nonprofits.
Comstock-Gay, du Pont and Vincent cite another option, social impact bonds, sometimes referred to as “pay for success.” The concept is somewhat complex, but the basic idea is that private investors lend money to governments to fund programs that, if successfully delivered, will generate long-term savings. Investors get their money back, with interest, if an independent evaluator certifies that the program has achieved the promised result.
“It’s been done in a number of states,” Comstock-Gay says.
The best-known was an experiment that failed—a program to reduce recidivism among youths at New York City’s Rikers Island Prison. Goldman Sachs loaned the city $7.2 million to fund the program, and Bloomberg Philanthropies guaranteed $6 million of the loan, reducing Goldman Sachs’ risk. If the program reduced recidivism by 8.5 percent, Goldman Sachs would have gotten all of its money back; if it reduced recidivism by 10 percent, Goldman Sachs would have earned anywhere from $500,000 to $2.1 million. The program didn’t meet its goals, so Goldman Sachs took a loss.
While the experiment didn’t work out, du Pont sees this approach as a win for two reasons: Private investors put up the money for the test, and, when it failed, it was shut down rather than forcing the government to pick up the tab for a program that wasn’t working.
Though it may seem ideal to have a major investor back such a program, du Pont says it would be possible to open up a bond issue to individual investors, allowing Delaware residents to put up $500 or $1,000 to test an idea they support, with the prospect of a financial return.
The ideas are there. What’s next, the experts suggest, is for the stakeholders from all the sectors—donors, nonprofits, government and business—to get together and figure out what works best. And that list, Taylor notes, omits one important sector: the community. All too often, she says, decisions are made top-down, with the haves deciding what’s best for the have-nots.
“There has to be more of a together perspective,” she says. “It’s all one community. At the end of the day, we’re all interconnected.”