June 26, 2006
The funding crunch | The number of Maine nonprofits has risen 35% in five years, but some say that expansion is unsustainable
By Nancy Rosenbaum
At least once a week, someone calls Scott Schnapp at his sunny Portland office overlooking Congress Street to seek advice about starting a nonprofit. Schnapp, who is executive director of the Maine Association of Nonprofits, says he mostly cautions these well-meaning individuals from establishing new organizations and instead encourages them to partner or collaborate with existing groups. "It's probably too easy to start a nonprofit," says Schnapp. "But they've started something they can't go anywhere with."
The problem is, in an environment in which funders embrace new ideas but typically dislike supporting them in perpetuity, keeping a nonprofit's coffers full can quickly become an uphill climb. Competition for that funding has gotten tougher in Maine due to an increase in the number of nonprofits seeking support. Between 2001 and 2006, the number of registered 501 c-3 public charities in Maine filing 990 forms with the IRS grew from 1,807 to 2,442 ˆ a 35% spike, according to the National Center for Charitable Statistics. Those figures only account for charitable institutions with revenues of $25,000 or more that are legally mandated to report their earnings to the government. When you factor in smaller groups like Little League teams, PTAs or religious congregations, NCCS data indicates that as of January 2006, Maine had 4,982 registered 501 c-3 public charities compared to 4,178 in 2001.
At the same time the number of nonprofits has been expanding, federal, state, and municipal budget cuts have eviscerated public dollars, particularly for health and human service programs, say nonprofit managers. Jim Pierce has been feeling the pain of these cuts lately. Pierce is executive director and CEO of the Brunswick-based Independence Association, which provides support services to people with developmental disabilities. His organization's $7 million operating budget is entirely contingent on government grants and contracts, and these funds have mostly stayed flat while the cost of doing business has steadily climbed. "The problem is that we're not getting more dollars. Take the cost of fuel: We have 13 group homes. We have 19 vehicles because there's no public transportation in Brunswick," says Pierce. "Those kinds of costs have caught up and squeezed us."
With a swelling roster of nonprofits chasing after a limited supply of funding dollars, some in the field say it's only a matter of time before Maine's charitable sector confronts a watershed moment. Already, Maine has seen a handful of mergers between nonprofit organizations, such as the merging of the YMCA and the YWCA in Bangor in 2004 or Peabody House and the AIDS Project in Portland in 2002. But short of organizations joining at the hip, which seldom seems to happen in Maine, how will organizations adapt? Without a change in the funding environment, some may have to shut their doors while others retool their operations in the face of increased competition, according to Schnapp. Whatever the eventual solution, it's likely that many nonprofits in Maine will be forced to make some kind of decision in the near future.
For his part, Pierce says he's trying to decide whether to continue trimming his budget, or to significantly change his organization's structure and funding model. The Independence Association has never hired a development director, nor has it ever tried to attract dollars from non-government sources. Pierce says he would consider widening his fundraising net, but expressed caution about putting any eggs in the basket of private philanthropy. "A lot of those dollars are time limited," he says, and he fears donor money won't sustain his organization over the long haul.
The view from the funding side
The philanthropic market that keeps the nonprofit sector running has experienced its own trajectory of steady growth in recent years. In 2003 (the most recent year for which data are available) Maine philanthropic groups gave $62 million in grants, compared to $16 million a decade ago, according to Janet Henry, president of the Maine Philanthropy Center. Likewise, the Maine Community Foundation, which manages contributions for a constellation of individual and family donors across the state, reports that its assets nearly doubled over the last five years, from $100 million to $187 million. Last year, the foundation awarded $16 million in grants, compared to $6 million in 2000. "We're getting a lot more requests than we were five years ago," says president and CEO Henry Schmelzer. "We're also making more grants."
This might sound like good news for the nonprofit sector, but echoing other sources, Henry noted that the growth has been offset by the loss of government dollars and contracts. And Henry says that contrary to popular perception, individual donors, not foundations, make up the biggest slice of the giving pie in Maine ˆ a disheartening fact considering Maine ranks 49th out of 50 states in average individual giving, according to the 2005 Generosity Index report produced by the Catalogue of Philanthropy.
Still, compared to other states, Maine's philanthropic sector is pint-sized. Massachusetts, for example, has just more than 4,000 registered private foundations compared to Maine's 488, according to 2006 data from the NCCS. And while Maine has seen an increase in small, family-run foundations, these groups tend to award small grants that "are not going to save an organization that's in great trouble," explains Henry.
Some of the big foundations in Maine also are making changes that can also be tough on the growing number of nonprofits. Owen Wells serves as president of the Libra Foundation, whose assets of $220 million make it the largest private foundation in the state. While requests to Libra have held steady at about 400-500 a year, Wells says the foundation has become "more selective in what we do." That's because Libra spends about $10 million of its annual $12 million-$16 million grantmaking budget on a small portfolio of charitable programs the foundation administers directly, such as a statewide summer camp program that serves 4,000 children. As the cost of these programs has risen, the foundation has had to limit what's available to give away to other groups. Wells says that when it comes to individual organizations, the foundation now disburses grants in the range of $5,000-$10,000. In 2005, Libra awarded 49 grants compared to 113 in 1999.
Adding to the tight funding environment, Wells says Maine's philanthropic sector has been hobbled by a steady erosion of homegrown companies, whose owners traditionally maintained a steadfast commitment to local philanthropy. In his former post as chairman of the board of the Portland Museum of Art, Wells remembers the results of the museum's capital campaign to create a new building in the early 1980s. "If you go into the vestibule and look at the corporations that contributed to that [campaign], they're now gone," says Wells, referring to businesses such as Maine Savings Bank, Benoit's Clothing and Porteous Mitchell & Braun. "You're not seeing the same kind of support from the national chains. The people who were calling the shots were people who lived in our communities."
The rise in the number of nonprofits in the state means the executives at Maine-based companies are being wooed with even greater intensity. Ed Clift, CEO of Merrill Merchants Bank in Bangor, says he gets seven or so charitable requests a week; earlier this spring, he received three solicitations in a single day. Clift says he typically tries to donate something to each charity that asks, even if he writes a check for a much lesser amount than what's being requested. "We fix a budget each year ˆ what we can afford to give back," says Clift. "But here I am now and it's not quite mid-year and I'm just about ready to use up my budget already."
Last year, Merrill Merchants Bank received about 64 direct solicitations, and funded 54 of those with grants in the range of $250-$5,000. Clift wonders if he should streamline the bank's contributions, but says for now he plans to continue giving smaller sums to a large number of organizations. "Maybe it's not the appropriate way. Maybe [it's better to] focus on the ones that push your buttons and let the rest of them go," says Clift. "But I think they're all so worthwhile I try to support them as much as I can."
Janet Wyper, director of community relations at L.L. Bean, says the company has seen a 35% increase in charitable requests over the last decade. (Not all solicitations come from Maine, though; Bean's international brand attracts a healthy flow of e-mail and phone requests from customers all over the United States.) The company's charitable giving budget is determined as an annual and undisclosed percentage of its net profit ˆ last year Bean allocated $2.5 million for charitable causes ˆ and Bean mostly donates to conservation and environmental stewardship groups in Maine and nationally.
But the company likes to support the same organizations year in and out, and it takes on new major grantees sparingly. That means Wyper spends a lot of her time saying "no" to people ˆ and managing these rejections is a delicate matter. "Unlike the Ford Foundation, we're consumer driven," says Wyper. "We don't want them unhappy with the company."
Reshaping Maine nonprofits
Faced with such a funding environment, some say it's inevitable there will be a shakeout in Maine's nonprofit sector. While that might not mean the rapid extinction of charitable organizations, the sector may look and act differently in coming years.
To that end, Portland-based Common Good Ventures helps nonprofits develop stronger finances by encouraging managers to view their organizations in many ways like a for-profit business, paying close attention to finances, operational efficiency and market factors. Perhaps a more widespread adoption of that perspective would have tempered the recent expansion of Maine's nonprofit sector. Kristin Majeska, president of Common Good Ventures, says she's noticed a perception among funders that there's too much duplication among Maine nonprofits. "Their sense is that nonprofits don't examine what else is being offered before they start a new program," Majeska says. "In the for-profit world, you would carefully examine the competition before you get into a space."
This overlap may actually be the downside of the passion that typically inspires nonprofit managers to enter the sector in the first place, says Majeksa. "Occasionally [passion] can lead to myopia: We do it this way. We must exist," she says. "There's a lot of personal investment."
But some organizations are looking beyond their own missions and seeing how they might take advantage of overlapping or complementary services, as was the case with the recent merger between the Portland-based Institute for Civic Leadership and Portland-based The Board Network. Ellen Grant, ICL's executive director, insists the merger was mission-driven ˆ given that both organizations were working in the area of civic leadership ˆ and not motivated by financial challenges. "Both organizations were solid financially," says Grant. "We really believed that together we could accomplish more than separately. Separately we were competing, and if we worked together we could do more."
An organizational marriage, however, doesn't necessarily come cheap. Grant points out that the merger of ICL and The Board Network created new costs to shoulder ˆ from hiring organizational development consultants to renting new office space and buying furniture. As a merged organization, ICL's annual $500,000 operating budget will be slightly less this year than what each organization was spending as separate institutions, says Grant.
Even so, Grant predicts other nonprofits may eventually follow in ICL's footsteps, but says "there's going to need to be some incentives for that and some real support" because mergers require a huge investment of time and resources. Still, Maine's distinctive cultural heritage and vast geography may continue to present roadblocks to consolidation. "We're a parochial state," says Wells from the Libra Foundation. "In small towns they don't want to give up the local fire departments. Look at the cost of a fire truck and yet it sits there 90% of the time."
Short of merging, some organizations are choosing other significant changes to handle the competition for funding. Portland's YWCA, for example, recently announced its decision to sell its 50,000-square-foot building on Spring Street, which includes a pool and fitness center. The organization had been struggling financially for a long time, says executive director Paula Valente, and the building sale could be a catalyst for bigger changes. "When you go through a drama [such as this was] for us, it's an opportunity to look at everything you're doing, how you're doing it, who else is offering similar services," she says. "In many respects taking this step for us is a rare opportunity to put all that on the table."
Right now, Valente and the YWCA's board don't know how the organization's programming will take shape outside the confines of a brick and mortar structure; for now, she's staying focused on creating a budget for the upcoming fiscal year that's "realistic and achievable."
Schnapp of MANP regards decisions like the YWCA's as "courageous," saying it's time for many more nonprofits to take a close look at their operations and the state's funding environment and consider what might seem like radical options. Despite the potential benefits of a growing nonprofit sector, the sector as a whole, he says, must sharpen its business savvy and answer some tough questions. "[Organizations] are patching big gaping holes with Band-Aids," says Schnapp. "The leadership needs to step into that conversation and say 'Are we impacting the mission here or are we just surviving?'"
The problem is, in an environment in which funders embrace new ideas but typically dislike supporting them in perpetuity, keeping a nonprofit's coffers full can quickly become an uphill climb. Competition for that funding has gotten tougher in Maine due to an increase in the number of nonprofits seeking support. Between 2001 and 2006, the number of registered 501 c-3 public charities in Maine filing 990 forms with the IRS grew from 1,807 to 2,442 ˆ a 35% spike, according to the National Center for Charitable Statistics. Those figures only account for charitable institutions with revenues of $25,000 or more that are legally mandated to report their earnings to the government. When you factor in smaller groups like Little League teams, PTAs or religious congregations, NCCS data indicates that as of January 2006, Maine had 4,982 registered 501 c-3 public charities compared to 4,178 in 2001.
At the same time the number of nonprofits has been expanding, federal, state, and municipal budget cuts have eviscerated public dollars, particularly for health and human service programs, say nonprofit managers. Jim Pierce has been feeling the pain of these cuts lately. Pierce is executive director and CEO of the Brunswick-based Independence Association, which provides support services to people with developmental disabilities. His organization's $7 million operating budget is entirely contingent on government grants and contracts, and these funds have mostly stayed flat while the cost of doing business has steadily climbed. "The problem is that we're not getting more dollars. Take the cost of fuel: We have 13 group homes. We have 19 vehicles because there's no public transportation in Brunswick," says Pierce. "Those kinds of costs have caught up and squeezed us."
With a swelling roster of nonprofits chasing after a limited supply of funding dollars, some in the field say it's only a matter of time before Maine's charitable sector confronts a watershed moment. Already, Maine has seen a handful of mergers between nonprofit organizations, such as the merging of the YMCA and the YWCA in Bangor in 2004 or Peabody House and the AIDS Project in Portland in 2002. But short of organizations joining at the hip, which seldom seems to happen in Maine, how will organizations adapt? Without a change in the funding environment, some may have to shut their doors while others retool their operations in the face of increased competition, according to Schnapp. Whatever the eventual solution, it's likely that many nonprofits in Maine will be forced to make some kind of decision in the near future.
For his part, Pierce says he's trying to decide whether to continue trimming his budget, or to significantly change his organization's structure and funding model. The Independence Association has never hired a development director, nor has it ever tried to attract dollars from non-government sources. Pierce says he would consider widening his fundraising net, but expressed caution about putting any eggs in the basket of private philanthropy. "A lot of those dollars are time limited," he says, and he fears donor money won't sustain his organization over the long haul.
The view from the funding side
The philanthropic market that keeps the nonprofit sector running has experienced its own trajectory of steady growth in recent years. In 2003 (the most recent year for which data are available) Maine philanthropic groups gave $62 million in grants, compared to $16 million a decade ago, according to Janet Henry, president of the Maine Philanthropy Center. Likewise, the Maine Community Foundation, which manages contributions for a constellation of individual and family donors across the state, reports that its assets nearly doubled over the last five years, from $100 million to $187 million. Last year, the foundation awarded $16 million in grants, compared to $6 million in 2000. "We're getting a lot more requests than we were five years ago," says president and CEO Henry Schmelzer. "We're also making more grants."
This might sound like good news for the nonprofit sector, but echoing other sources, Henry noted that the growth has been offset by the loss of government dollars and contracts. And Henry says that contrary to popular perception, individual donors, not foundations, make up the biggest slice of the giving pie in Maine ˆ a disheartening fact considering Maine ranks 49th out of 50 states in average individual giving, according to the 2005 Generosity Index report produced by the Catalogue of Philanthropy.
Still, compared to other states, Maine's philanthropic sector is pint-sized. Massachusetts, for example, has just more than 4,000 registered private foundations compared to Maine's 488, according to 2006 data from the NCCS. And while Maine has seen an increase in small, family-run foundations, these groups tend to award small grants that "are not going to save an organization that's in great trouble," explains Henry.
Some of the big foundations in Maine also are making changes that can also be tough on the growing number of nonprofits. Owen Wells serves as president of the Libra Foundation, whose assets of $220 million make it the largest private foundation in the state. While requests to Libra have held steady at about 400-500 a year, Wells says the foundation has become "more selective in what we do." That's because Libra spends about $10 million of its annual $12 million-$16 million grantmaking budget on a small portfolio of charitable programs the foundation administers directly, such as a statewide summer camp program that serves 4,000 children. As the cost of these programs has risen, the foundation has had to limit what's available to give away to other groups. Wells says that when it comes to individual organizations, the foundation now disburses grants in the range of $5,000-$10,000. In 2005, Libra awarded 49 grants compared to 113 in 1999.
Adding to the tight funding environment, Wells says Maine's philanthropic sector has been hobbled by a steady erosion of homegrown companies, whose owners traditionally maintained a steadfast commitment to local philanthropy. In his former post as chairman of the board of the Portland Museum of Art, Wells remembers the results of the museum's capital campaign to create a new building in the early 1980s. "If you go into the vestibule and look at the corporations that contributed to that [campaign], they're now gone," says Wells, referring to businesses such as Maine Savings Bank, Benoit's Clothing and Porteous Mitchell & Braun. "You're not seeing the same kind of support from the national chains. The people who were calling the shots were people who lived in our communities."
The rise in the number of nonprofits in the state means the executives at Maine-based companies are being wooed with even greater intensity. Ed Clift, CEO of Merrill Merchants Bank in Bangor, says he gets seven or so charitable requests a week; earlier this spring, he received three solicitations in a single day. Clift says he typically tries to donate something to each charity that asks, even if he writes a check for a much lesser amount than what's being requested. "We fix a budget each year ˆ what we can afford to give back," says Clift. "But here I am now and it's not quite mid-year and I'm just about ready to use up my budget already."
Last year, Merrill Merchants Bank received about 64 direct solicitations, and funded 54 of those with grants in the range of $250-$5,000. Clift wonders if he should streamline the bank's contributions, but says for now he plans to continue giving smaller sums to a large number of organizations. "Maybe it's not the appropriate way. Maybe [it's better to] focus on the ones that push your buttons and let the rest of them go," says Clift. "But I think they're all so worthwhile I try to support them as much as I can."
Janet Wyper, director of community relations at L.L. Bean, says the company has seen a 35% increase in charitable requests over the last decade. (Not all solicitations come from Maine, though; Bean's international brand attracts a healthy flow of e-mail and phone requests from customers all over the United States.) The company's charitable giving budget is determined as an annual and undisclosed percentage of its net profit ˆ last year Bean allocated $2.5 million for charitable causes ˆ and Bean mostly donates to conservation and environmental stewardship groups in Maine and nationally.
But the company likes to support the same organizations year in and out, and it takes on new major grantees sparingly. That means Wyper spends a lot of her time saying "no" to people ˆ and managing these rejections is a delicate matter. "Unlike the Ford Foundation, we're consumer driven," says Wyper. "We don't want them unhappy with the company."
Reshaping Maine nonprofits
Faced with such a funding environment, some say it's inevitable there will be a shakeout in Maine's nonprofit sector. While that might not mean the rapid extinction of charitable organizations, the sector may look and act differently in coming years.
To that end, Portland-based Common Good Ventures helps nonprofits develop stronger finances by encouraging managers to view their organizations in many ways like a for-profit business, paying close attention to finances, operational efficiency and market factors. Perhaps a more widespread adoption of that perspective would have tempered the recent expansion of Maine's nonprofit sector. Kristin Majeska, president of Common Good Ventures, says she's noticed a perception among funders that there's too much duplication among Maine nonprofits. "Their sense is that nonprofits don't examine what else is being offered before they start a new program," Majeska says. "In the for-profit world, you would carefully examine the competition before you get into a space."
This overlap may actually be the downside of the passion that typically inspires nonprofit managers to enter the sector in the first place, says Majeksa. "Occasionally [passion] can lead to myopia: We do it this way. We must exist," she says. "There's a lot of personal investment."
But some organizations are looking beyond their own missions and seeing how they might take advantage of overlapping or complementary services, as was the case with the recent merger between the Portland-based Institute for Civic Leadership and Portland-based The Board Network. Ellen Grant, ICL's executive director, insists the merger was mission-driven ˆ given that both organizations were working in the area of civic leadership ˆ and not motivated by financial challenges. "Both organizations were solid financially," says Grant. "We really believed that together we could accomplish more than separately. Separately we were competing, and if we worked together we could do more."
An organizational marriage, however, doesn't necessarily come cheap. Grant points out that the merger of ICL and The Board Network created new costs to shoulder ˆ from hiring organizational development consultants to renting new office space and buying furniture. As a merged organization, ICL's annual $500,000 operating budget will be slightly less this year than what each organization was spending as separate institutions, says Grant.
Even so, Grant predicts other nonprofits may eventually follow in ICL's footsteps, but says "there's going to need to be some incentives for that and some real support" because mergers require a huge investment of time and resources. Still, Maine's distinctive cultural heritage and vast geography may continue to present roadblocks to consolidation. "We're a parochial state," says Wells from the Libra Foundation. "In small towns they don't want to give up the local fire departments. Look at the cost of a fire truck and yet it sits there 90% of the time."
Short of merging, some organizations are choosing other significant changes to handle the competition for funding. Portland's YWCA, for example, recently announced its decision to sell its 50,000-square-foot building on Spring Street, which includes a pool and fitness center. The organization had been struggling financially for a long time, says executive director Paula Valente, and the building sale could be a catalyst for bigger changes. "When you go through a drama [such as this was] for us, it's an opportunity to look at everything you're doing, how you're doing it, who else is offering similar services," she says. "In many respects taking this step for us is a rare opportunity to put all that on the table."
Right now, Valente and the YWCA's board don't know how the organization's programming will take shape outside the confines of a brick and mortar structure; for now, she's staying focused on creating a budget for the upcoming fiscal year that's "realistic and achievable."
Schnapp of MANP regards decisions like the YWCA's as "courageous," saying it's time for many more nonprofits to take a close look at their operations and the state's funding environment and consider what might seem like radical options. Despite the potential benefits of a growing nonprofit sector, the sector as a whole, he says, must sharpen its business savvy and answer some tough questions. "[Organizations] are patching big gaping holes with Band-Aids," says Schnapp. "The leadership needs to step into that conversation and say 'Are we impacting the mission here or are we just surviving?'"
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