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Local Nonprofits Brace For Impact Of Sequestration

Joshua Silavent - Staff Writer

March 12, 2013 – The $85 billion in spending cuts this year as part of sequestration impacts nearly every federal agency and department, from the defense sector to public health programs. However, there has been little talk about how nonprofits will be affected, perhaps because there is an assumption that these organizations act independently of government.

In fact, nonprofits, particularly those providing core social services like feeding and sheltering the homeless, are more reliant than ever on federal, state and local governments as demand for services has risen sharply since the Great Recession hit. The Urban Institute reports that in 2009 some 30,000 nonprofits had more than 200,000 government contracts and grants worth about $100 billion. Therefore, nonprofits providing mental health, substance abuse, domestic violence, foster care and other critical services are likely to feel the pinch of sequestration.

“That’s where I would expect the bulk of the cutbacks to be,” said Daniel Stid, a partner at The Bridgespan Group and co-author of the report, “The View from the Cliff: Government-funded Nonprofits Are Looking Out on Steep Cuts and an Uncertain Future.”

Stid told the Business Journal that mission-driven nonprofits – those that provide core social services – typically bend over backward to maintain their level and quality of care, often deferring operations maintenance, from salary to capital expenses. This trend is likely to continue, and Stid said it is imperative that nonprofits understand that less government assistance is the new norm.

With this in mind, Stid said nonprofits need to “reconnect and re-establish ties” with local philanthropists and other charities. Moreover, these organizations need to find ways to deliver the same quality of services at a lower cost, or higher quality at the same cost. “Any enterprise that is prospering is always thinking, ‘How do we deliver the same or better value at lower cost?’” Stid said. “That’s not a bad thing. Too many nonprofit organizations hold that push for productivity at arm’s length.”

To better understand how social services providers, including those that receive no government funding, are faring in light of sequestration, the Business Journal reached out to several local nonprofits to get their take.

Salvation Army – Southern California

“The specific program by program impacts are a little bit fuzzy still, but I think we stand to lose close to $945,000, which is a lot of money when we pinch every penny that we’ve got anyway,” said Maj. Sherry McWhorter of the Southern California branch of the Salvation Army, which serves five counties including Los Angeles and Orange. The branch receives about $18.5 million annually in government funding, according to McWhorter.

The reason for the uncertainty lies in the fact that the Salvation Army receives some grants directly from the federal government, while others are passed through the state, county and municipal level. McWhorter said that basic services like food service and clothing drives would not likely be impacted much. However, she is concerned that emergency food and shelter programs supported by the U.S. Federal Emergency Management Agency could be cut significantly. She also expects youth centers and residential programs to be greatly impacted.

McWhorter said demand for services has increased about 30 percent annually in recent years as the nation’s economy tanked and job losses piled up. That trend is likely to continue as a result of sequestration. “We’re going to see increases in demand for basic services,” she added.

Compounding the spending cuts is the fact that the Salvation Army has seen less private charitable support from individuals and businesses in recent years. “Of course, we need everything we can get,” McWhorter said.

Meals On Wheels Long Beach

Though the popular Meals On Wheels program in Long Beach does without government assistance, it will almost certainly see its demand for services increase as federal spending cuts hurt other social services providers. “There’s no doubt about that,” said Operations Director Bill Cruikshank.

Cruikshank said it is imperative that private donors continue to support Meals On Wheels, particularly in tough economic times and as the service provider launches new programs. “We’re trying to do more,” he added, including in-home fall prevention assessments and pet therapy visitation programs.

Long Beach Rescue Mission

Though the Long Beach Rescue Mission receives no federal support, charitable giving has remained relatively flat in recent years even as demand for services, particularly from the 18-24 age demographic, has increased about 20 percent, said interim CEO Robert Probst.

The rescue mission also has been forced to leave vacancies unfilled in recent years as operating and services costs have increased. Sequestration makes budgeting for the future “a little bit more uncertain,” Probst said.

Probst made it clear that despite the challenges, the rescue mission’s quality of care only gets better and better. “That’s because we have a great, committed staff,” he added.

Olive Crest

Because Olive Crest, which provides mental health, foster care and other services for at-risk youth, receives federal support passed through the state, “We’re not sure how sequestration is going to affect us,” said Bill Bedrossian, MSW, executive director of the Los Angeles County chapter.

But the hit is likely to be substantial, as 60 percent of funding comes from federal dollars. “It could have a massive impact on our ability to continue services at the same level,” Bedrossian said, adding that child welfare support, adoption and foster care services could be hit hard.

Moreover, Bedrossian said demand for services has “never been higher,” with the largest increases coming in the last 12 months or so. “I imagine that over the next several years that’s just going to continue to grow and increase,” he added.

Bedrossian said Olive Crest is actively committed to diversifying its revenue streams to include more private and corporate dollars, as well as better connecting the public to its mission through increased volunteer roles. Additionally, Bedrossian said partnering with other social service organizations, perhaps sharing resources and institutional knowledge, is critical in tough economic times and likely to increase in the coming years.

Retirement Housing Foundation

The Retirement Housing Foundation (RHF), based in Long Beach, operates 170 communities in 27 states, Washington, D.C., Puerto Rico and the Virgin Islands, providing affordable housing for more than 18,000 residents, primarily seniors and low-income families. It receives federal funding through the U.S. Department of Housing and Urban Development, though these subsidies have dried up in the past two years, said President and CEO Dr. Laverne Joseph. He added that he doesn’t expect it to come back now “with this kind of budget difficulty the nation has.”

The impact of sequestration, both in the short- and long-term, is unclear. “We don’t know how that’s going to affect us directly,” Joseph said, “but obviously we can’t keep these buildings operational for less than what it costs to pay the utilities.”

Joseph identified two reasons for the increase in demand for services, which he said is apparent in the long waiting lists for senior housing operated by RHF. First, simply, is the stagnant wages in the middle class over the last two decades. Second is what he calls the “age tsunami” of baby boomers entering retirement. That’s why Joseph said it’s actually in the government’s best interest to provide affordable housing assistance for this demographic, primarily because doing so saves money on healthcare and other social services costs.

“Decisions in government are not always made on the basis of logic,” Joseph said. “If it were logic, we wouldn’t have a shortage of affordable housing in this country.”