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Posted By Bob Ottenhoff on October 27th, 2011, in these categories: Economy | GuideStarIt took a trip to New York this week and an episode of The Daily Show with Jon Stewart for my opinions on the Occupy Wall Street movement to begin to gel.
Daily Show reporter John Oliver did a hilarious report from the frontlines of Zuccotti Park but with a very powerful message:
we may feel uncomfortable about what the demonstrators are doing and how they look, but they’re at least taking some action – ineffective as it may be.
What about the rest of us who may feel unhappy about today’s economic situation or some of the policies that got us here? What are we doing about it? In Oliver’s video, his group of so-called normal people, after complaining a little bit, went off to watch television and feed the kids. In other words, business as usual.
My purpose for being in New York was to join with several colleagues to help set up a new foundation. Ironically, we had to walk past Zuccotti Park several times and so we had a good chance to observe the whole scene. Our group is determined to have this new foundation be one that is committed from the beginning to harnessing the power of our entire portfolio for social good – not just the five percent part. No matter how much we give away in grants, we’ll need the help of financial institutions to invest our portfolio wisely and see it grow.
Vince Stehle, a regular columnist for The Chronicle of Philanthropy and vice president for programs at the Democracy Fund, reminds us, “America’s foundations have an enormous stake in the safe and equitable operation of the broader economy. Perhaps they should use their influence as investors to demand that financial institutions operate transparently and with high ethical principles. Foundations—society’s institutional investors in the public interest—have an unusual opportunity. They can make their demands heard on Wall Street. But unlike the protesters, they can do it in the board rooms of the big banks. They don’t have to stand out on the street in New York’s Zuccotti Park.”
Brad Smith, president of the Foundation Center, makes another point of reminding us how important wealthy individuals are to the revenues of nonprofit organizations.: “No matter how you slice it, philanthropy is driven by asset-based wealth; indeed, large organized philanthropy of the foundation variety is fueled by the top 1 percent of the population that holds 23.5 percent of national income.”
New York Times columnist Nicholas Kristof called the demonstrations a “primal scream” in a recent column. That’s not a bad description: chaotic, unfocused, goofy at times, but energized. David Ignatius, associate editor of The Washington Post wrote
that it is part of a “global spring” of discontent against elites across the world and a delayed reaction to the financial crisis. I like those descriptions better than The Wall Street Journal’s Daniel Henninger: “the park’s people have settled into a barely moving mass of down market grunge ‘occupying”’ a marijuana oasis.” At its core, people are asking some fundamental questions: what kind of society do we want the United States to be? How do we give people the freedom and incentives to grow wealth, build a strong and resilient economy, create new jobs and do it in a way that benefits the greater good?
And what are we going to do about it?
Posted By Bob Ottenhoff on August 11th, 2011, in these categories: Economy | GuideStar Patrick M. Rooney, Executive Director, Center on Philanthropy at Indiana University I had the good fortune of participating in a panel this past weekend at the Summer Symposium of the Giving Institute with two very smart observers of the nonprofit scene: Matthew Bishop of the Economist and the co-author of Philanthrocapitalism, and Patrick Rooney, the Executive Director of the Center on Philanthropy at Indiana University and the person who oversees the Giving USA Report.
Both of them had a lot to say about the impact of the mega-rich on philanthropy.
The presentations took place while Congress was still involved in its debt crisis demolition derby thriller. Bishop observed that this is a “moment of crisis” that is “testing whether there are enough people who understand how the world really works.” “Doing stupid things to ourselves,” he said, would end up hurting the world’s economy as well our own. He thinks the American political system is in danger of turning our economy into one like Japan’s, where we merely muddle through with little growth.
For the last few years Bishop has been tracking the super rich and their philanthropic activities – people like Bill Gates, Warren Buffet, and Ted Turner. He is generally upbeat about their work and how their money and their data-driven approach to decision-making can make a big difference in the nonprofit sector. He’s also upbeat in general about the prospects for the super rich and observed that in today’s world there is an “economy for the rich and an economy for the rest of us.”
The very rich are part of a global economy that is experiencing annual growth increases of five, six, and seven percent. For the rest of us, dependent primarily on the American economy, we can expect high unemployment, no family income growth, and no likelihood of a government stimulus to prime the pump.
For most of us, he estimated, it will take us seven years or so to recover from the Great Recession and get back our assets back to where we were before, and there isn’t much
 Matthew Bishop, US Business Editor and New York Bureau Chief, The Economist we can do to change that fact. He believes this slow recovery will put pressure on nonprofit organizations to be much more effective and efficient, with much higher donor demand for proving results. On the bright side, he thinks it possible that these difficult times could result in a greater time of innovation experimentation.
Patrick Rooney went through the Giving USA numbers – pointing out a drop of 13 percent in giving from 2007-2009 and a small two percent increase in 2010. He observed that any growth is welcome but with an annual growth rate of two percent, it will take approximately seven years or so for giving to return to 2007 levels.
Rooney pointed out that 87 percent of giving comes from individuals or family foundations. In 2010, this resulted in $212 billion in contributions. The wealthiest three percent of American households are responsible for two-thirds of charitable giving. Just as Bishop thinks the rich have a good chance of getting richer, Rooney thinks the nonprofit sector is going to look increasingly for the wealthiest Americans to provide additional support.
If GDP growth continues to slow, as it did this last quarter, we may have no choice. Martin Sandbu of the Financial Times estimated the other day that if the economy had grown as fast in the first half of the 2011 as it did in 2010, it would have produced $225 billion more in goods and services than it actually did. The best way to increase philanthropic contributions is to hope for a growing economy that lifts all boats.
You can find key results from our recent 2010 Nonprofit Fundraising Survey and more on the importance of individual contributions here: http://www2.guidestar.org/rxg/news/publications/2010-nonprofit-fundraising-survey.aspx
Posted By Bob Ottenhoff on July 5th, 2011, in these categories: Economy | Public PolicyI think it’s time to change which kind of organizations are eligible for a tax exemption.
Two reasons have brought me to this conclusion. One, I don’t think it is good public policy to be providing tax exemptions – and providing donor tax deductions – for organizations that provide absolutely no charitable benefit. Big football bowls come to mind. (Check out the recent Arizona Republic article regarding the Fiesta Bowl and its efforts to save their tax-exempt status.) College booster clubs are another. Nonprofits formed by corporations simply to advance the corporation’s promotional goals, or those that provide a person with a convenient tax shelter. It’s not hard to come up with quite a few examples.
Secondly, as an American citizen, I’m concerned about the federal budget deficit and am persuaded that we need to make some painful adjustments before things get worse. It will require everyone working for the common good, rather than for ideology or party. That probably means slowly raising the eligibility for Social Security and Medicare based on income and age. A recent Washington Post article reports that the huge Defense Department budget is also being considered by both parties for cuts.
I am also persuaded that a significant opportunity exists in cutting back on “tax expenditures.” These are tax deductions – or loopholes – that lower tax obligations, thereby reducing the amount of revenue going to the Treasury. In recent weeks, we’ve seen the battle over whether ethanol should continue to receive a $5 billion deduction and whether the oil industry should receive a tax credit for new drilling. General Electric was recently in the news because it paid no taxes last year thanks to credits and deductions. Many corporations now employ a platoon of lawyers and accountants to find – or lobby for – deductions that can lower corporate taxes. It is estimated that elimination of tax expenditures could bring hundreds of billions in revenue to the Treasury.
In order for this to be as fair as possible, and not just driven by lobbyists and powerful PACs, every idea to reduce the budget should be on the table for consideration – including some that may affect the nonprofit sector. Rather than change the limits on the amount that one can deduct on personal income taxes, as the Obama administration is proposing, I would impose a “social benefit” requirement before an organization could achieve tax exemption. It would have the added benefit of reducing some of the confusion the public now has about charitable status and the meaning of being a nonprofit.
I know it won’t be easy but I think it’s worth a try. Perhaps we could consider it the nonprofit sector’s contribution to balance the budget.
What do you think?
Posted By Bob Ottenhoff on March 31st, 2011, in these categories: Economy | Government | GuideStar | GuideStar.orgIt’s time for executives of high performing organizations to begin thinking about what the new economic normal will mean for them. Too many nonprofits are operating off of business models created in the 1960’s. Those models had several components that are no longer sustainable. For starters, after non-stop growth in total donations, the nonprofit sector experienced a significant dip in 2009 (Giving USA) and I wouldn’t be surprised if we saw a further decline in 2010. At the very least, growth will be much slower in the years ahead than it has been in previous decades. At the same time, investment income has declined to historically low levels affecting foundation endowments and organizational endowments alike. Finally, there is the nonprofit sector’s traditional dependence on government grants and contracts, for nearly a third of total revenue. This is a source already in decline and likely to plummet before it stabilizes.
Here in Washington the federal budget news gets crazier every day. We are now operating the federal government in increments of several weeks at a time. Forgot about long range plans and strategy – a month is now an eternity. And the fight is about our current fiscal year, the one ending September 30! Still to come are debates over next year’s budget and all the big structural issues.
Our government budget problems are way too big for anyone or organization to think they won’t be adversely affected in some way. At least that’s the way I hope it happens -spreading the pain around to everyone -not just to those without PACS and lobbyists.
This includes nonprofits. For starters, we should expect some changes in the tax deductibility standards. Expect many government service fees to nonprofits to continue to be under stress or eliminated altogether.
Tim Delaney, President of the National Council of Nonprofits, has an excellent paper published in the Nonprofit Quarterly http://www.councilofnonprofits.org/news/national-council-news/tim-delaney-state-threats-nonprofits, detailing the pounding nonprofits are taking from government. He reports that governments are abusing contract relationships with nonprofits by not paying full cost of work, changing contracts in mid-stream, paying late or not at all, adding unnecessary complexities, and adding new fees. He’s been urging nonprofits to fight back – with lobbying, advocacy, and the tough tactics applied in the business world, and not take it any more.
But in a recent presentation at the Bradley Center, Gene Steurle, a wise veteran tax analyst, who has an excellent blog called The Government We Deserve, reminded us that currently the federal government is spending $31, 000 for every American each year and bringing in only $19,000 in revenue – not counting various tax deductions and loopholes. This is a path he suggests that will undermine our country’s security and not something we can avoid any longer. In 2009, for the first time in American history, he said, every dollar in the federal budget was committed before the fiscal year even began – thereby required elected officials to cut the budget or add to the deficit if they wanted to add any additional spending. Our only way out of this mess he suggested is to raise taxes, cut spending, and limit deductions and loop holes. Nonprofits are going to need to share in this sacrifice.
We’re about to enter a period of a “giant re-set” – a phrase first used by the National Governor’s Association.
What should leaders of high performing organization’s be doing?
- For starters, get involved. We are about to enter a period of debate about reallocating how we spend our federal and state government resources. We need to be fighting for solutions that preserve desperately needed public services and invest in our collective future. Expect those with other approaches to be fighting too.
- Take a serious look at your organization’s business model. Are you taking steps to diversify your revenue streams? And are you being honest with yourself about the long term picture for your current plan?
- Think big. You’ve probably already done the easy belt tightening over the last few years in order to respond to the Great Recession. What’s to come may be even worse for some nonprofits. A friend of mine running a state association is facing a total zeroing out of his state support – a third of his revenue – and is now exploring a regional approach to back office functions. He’s thinking big. Today’s challenge could in fact end up being liberating – freeing us to think about our organizations and resources in brand new ways.
Posted By Bob Ottenhoff on March 14th, 2011, in these categories: Economy | General | Government | GuideStarWe’ve learned a lot over the last month about the power of social media to bring down tyrants and corrupt governments in Tunisia and Egypt and mobilize people in Yemen, Libya, Bahrain, Iraq, Algeria, Morocco, Jordan and Oman. It’s been thrilling to watch how Facebook and Twitter, in particular, have helped to encourage thousands of people to take action.
But these social movements have been essentially leaderless. Years of political repression has pretty much stamped out any meaningful civil society in these countries.
So what happens now? How does social media help build civil societies and democratic governments? I don’t have an answer, but it’s going to be a lot harder for social media alone to actually build institutions. I can see it playing a role in mobilizing people to vote or assessing public opinion. But who will play the role of writing laws, creating institutions, and developing political parties? It seems to me that will still need to be done the time-tested, old-fashioned way with people sitting in a room and hashing out the details.
The U.S. government seems to be pondering this question too. This Sunday’s POST (March 6) reported that the U.S. will spend about $250 million this year in Egypt for economic assistance, job training and education, health and pro-democracy assistance. I assume other efforts are under way in other mid-east countries, although not at this level.
At the recent Tech Soup Global conference I learned about another government effort from Noel Dickover , who works for the U.S. State Department where he leads an effort called “ediplomacy Civil Society 2.0.” The Project is discussed by Fast Company here: http://www.fastcompany.com/1703889/state-department-convenes-tech-conference-for-ngos-in-latin-america. Here is a little bit from the State Department web site: http://tech.state.gov/profiles/blogs/what-is-civil-society-20.
At the Tech Soup conference, I also spent some time with Beth Kantor. In her blog she writes about her recent visit to Beruit participating in a program to teach social media skills and help empower individuals to build more participatory and pluralistic societies.
It’s good to know these efforts are underway. But my central concern remains: can social media be as effective building new institutions as it is in tearing down old corrupt ones?
I’d like to hear your thoughts.
Posted By Bob Ottenhoff on December 30th, 2010, in these categories: Economy | Fundraising | Government | GuideStar | Nonprofit PracticeI spent some time yesterday preparing for an upcoming radio interview on nonprofit trends for 2011 with Lindsay Nichols of the GuideStar team. We identified three big issues that we think we will influence much of what goes on in the nonprofit sector in the year ahead:
- The economy: GuideStar released a report in late November that suggests that the free fall from the Great Recession is over, but the recovery is still uneven – with
 the speed and extent of the recovery depending on the geographic location, size, and type of the organization. Meanwhile, demand for nonprofit services, particularly vital social services, continues to increase.
- State and federal government financial issues: I recently wrote a blog about how nonprofits are being affected by drastic budget cutbacks in government budgets. Since then there have been a number of frightening reports predicting we could see a number of government bankruptcies this year. With government being the largest source of nonprofit revenue, this situation could get a whole lot worse before it gets better.
- Technology: No surprise to those working in the nonprofit sector: technology continues to change, modify and transform how we raise and donate charitable contributions. Network for Good recently published a new study about just how vital online and mobile giving has been to the nonprofit sector lately, with particular success seen after disasters such as Haiti or 9/11. At the same time, Apple has denied nonprofits to accept donations via their apps, which is causing some major discussion in the field. I recently blogged about this topic as well: http://ceo.guidestar.org/2010/12/15/apple-has-it-partly-right-nonprofits-should-be-vetted/.
Aside from these three major environmental trends, there are two other issues slowly evolving that could end up having a huge impact on the sector in 2011:
- IRS tax-exempt status revocations: As a result of the Pension Protection Act of 2006, there are about 400,000 nonprofits in danger of losing their tax-exempt status because they have failed to file annual returns with the Internal Revenue Service (IRS) for fiscal years 2007, 2008, and 2009. GuideStar has distributed multiple press releases about it, the latest in October. This will be a HUGE game-changer in 2011.
- Tax implications: Bloomberg Businessweek recently interviewed Dan Moore, GuideStar’s Vice President of Nonprofit Programs, as part of a story on how estate tax changes may affect charitable giving. In addition, when President Obama and Congress begin tackling the federal government deficit next month, look for the charitable deduction to be up for serious debate. Both of these two tax issues could have a major impact on how and when people donate to charity.
It will, as always, be an interesting year!
Posted By Bob Ottenhoff on November 4th, 2010, in these categories: Economy | GuideStar | Public Policy What would you do if someone gave you $4 billion dollars with only one requirement: that it is spent on promoting civic engagement, providing voter education, and encouraging efforts to get out the vote? That’s the amount of money experts are estimating was spent on Tuesday’s election campaigns. And what did we get in return?
Well, let Edward Luce of the Financial Times sum it up:
In no other profession would Americans rank inexperience higher than experience. And in no other pitch would the advertising so badly distort the underlying product.
Such is the combination of America’s deep-rooted political folklore with a year in which incumbents of any kind are even more toxic than usual.
One additional casualty in the past 10 weeks, however, has been the prospect of any serious debate about America’s future – a year when the country particularly needed to evaluate its narrowing options.
Whether quantitative easing works will be central to America’s economic future. No mention has been made of it on the campaign trail.
Nor has anybody thought it worth raising Barack Obama’s deficit commission, which is due to report on December 1. The question of how the US should tackle its mounting national debt has been relegated to a bunch of Punch and Judy bumper stickers that bear as little relation to its fiscal reality as astrology does to astronomy.
The same applies to infrastructure, education, immigration – pretty much anything that touches on America’s future competitiveness: “Literally clueless,” stands as an apt summary on the hustings.
Then there is the matter of whether Americans should be fighting and dying in the “graveyard of empires”.
A month from now, General David Petraeus will issue his report on Mr Obama’s surge in Afghanistan – a critical milestone in a war that America could well be losing.
Again, the debate over AfPak has been notable by its absence. If your candidate pretends he has never been to Washington, there is little chance he will betray a grasp of central Asia.
There was a moment two years ago when Mr Obama promised to revive American democracy as a model for others around the world – the kind of place that can send a man to the moon.
Right now, however, it is not even a model to itself. Mr Obama must be looking forward to the distractions awaiting him in Asia.
I’m not against protesting previous decisions, or being so mad I can’t take it anymore, or throwing the bums out – that’s all part of a vigorous democracy. But a little more serious discussion of important issues would be nice. Here’s my modest proposal to get started: What if we banned negative, slickly produced commercials and required candidates to actually appear – and speak a few paragraphs – in each of their commercials? Not only would it force candidates to think about something to say, we might actually learn what’s on their mind (or not).
Posted By Bob Ottenhoff on October 26th, 2010, in these categories: Economy | Fundraising | GuideStar | Nonprofit PracticeWhen I first started writing this blog about the BBC, I had the world’s economy on my mind. But then a controversy over Juan Williams erupted adding a new twist.
With our economy stuck in neutral, it’s been interesting to follow the policy debate raging over what to do about it. Some pundits are encouraging another government stimulus plan in order to help prime the pump of development; others think the last plan was a horrible mistake and have turned it into a potent campaign target. It seems likely that gridlock will prevail and we’ll get neither more stimulus spending nor any significant changes in government spending.
Meanwhile, in the United Kingdom, the Conservative party leadership has proposed a massive cut in government spending of $127 billion over four years. The Wall Street Journal termed the U.K. a “global test case in the argument of choosing austerity over stimulus to repair the economy.”
One of the cuts that caught my eye is the one to the British Broadcasting Corporation (BBC). In return for a deal that guarantees a continued license fee for the next six years, the BBC agreed (or caved to government pressure, as the New York Times put it) to a freeze on its income and the assumption of new expense obligations previously handled by the government. The license fee obligates TV watchers to pay nearly $230 for every household with a color television set. The New York Times estimates that the license fee brings in $5 billion per year, and makes up nearly all of the BBC’s budget. The Guardian estimates that new additional costs and the license freeze will mean in effect that the BBC will experience a 16 percent cut in real terms.
The guaranteed revenue stream has helped the BBC become the best public broadcaster in the world and one of the world’s most powerful media companies, public or private. So although any cut is painful, the BBC has successfully fought off commercial competitors and critics who wanted to see the fee reduced or eliminated, as well as ensured itself six years of predictable revenue─not a small feat in a world of financial chaos.
Unlike the BBC, American public broadcasters rely primarily on voluntary contributions and local support for the bulk of its revenue. Our federal government contributes a measly $400 million or so for the entire system of over 1,000 public radio and TV stations. Most state governments provide some type of support, although these appropriations are under fierce attack at the moment in many places.
Last week’s firing of Juan Williams has brought some angry calls by politicians urging the elimination of federal government support. What these critics fail to understand is that American public broadcasting is primarily a collection of locally controlled and financed institutions, with relatively weak national organizations. This is both a strength and weakness. It is nearly impossible to destroy public radio because of its de-centralized nature. But the challenges in cobbling together funding from many local sources within a membership organization context─unlike the BBC’s license fee─means it will never have the domestic or international influence that the BBC enjoys.
Since there is no chance of a national license fee, the decentralized approach is not our only alternative─it may indeed be the best way to serve a country as diverse as ours.
Posted By Bob Ottenhoff on October 22nd, 2010, in these categories: Donors | Economy | Fundraising | GuideStar | Nonprofit Practice Here at GuideStar we try hard to listen and learn from people working in the nonprofit community. Every day GuideStar is in contact with hundreds of people like you at nonprofit organizations through emails and phone calls, answering questions, giving tips, and helping you meet the challenges of your important jobs. Another way we try to stay on top of issues is through our economic surveys which we share with the sector. Now, we are expanding our approach through a unique partnership. This week we launched a new economic survey in partnership with the Association of Fundraising Professionals, Blackbaud, Inc., the Center on Philanthropy at Indiana University, the Foundation Center, and the National Center for Charitable Statistics. By partnering with these institutions, we’re reaching out to new participants, expanding the audiences that will see the results, increasing the survey’s overall impact—and cutting down on the number of surveys you’ll be asked to take this fall.
We invite you to be part of this inaugural survey by answering the questions at the 2010 Nonprofit Fundraising Survey website: http://www.nonprofitfundraisingsurvey.org/. The survey will take about five minutes of your time. The questions in this month’s survey are about changes in giving. A summary of responses to date will be visible as soon as you hit “submit,” and you can go back later to check again. Data collected will be reported in the aggregate, with no reference to individual participating organizations. Results will be published jointly by the participating organizations throughout the year, with further analysis to help guide you and your colleagues in this new era for fundraising.
On another note, last week, the Chronicle of Philanthropy reported that charitable giving to the nation’s 400 biggest donor-funded nonprofits fell 11 percent in 2009, the steepest drop since the Chronicle began tracking those numbers 20 years ago.
The United Way and the Salvation Army, which saw decreases of 4.5 percent and 8.4 percent respectively, actually got off relatively easily. Other top 10 organizations like the Y (17.2 percent) and Food for the Poor (27 percent) reported much bigger drops. Experts don’t expect charities, which are as battered by the recession as any other industry, to do much better in 2010 than they did in 2009; most fundraising directors say they’re expecting growth of just 1.4 percent over last year.
These results track with GuideStar’s own most recent economic survey, released in August, which showed that 40 percent of respondents saw a further decline in contributions in the first five months of 2010 compared to the first five months of 2009. At the same time, a majority (63 percent) saw an increase in demand for their services. As I said before, there’s no doubt that the nonprofit sector continues to face an incredibly difficult philanthropic environment
One academic researcher responded in the Chronicle that our interpretation of the survey results was too bleak. Here is our response which was published Sunday in the Chronicle:
In a letter to the editor (“The Nonprofit World’s Finances Are Not as Bleak as a New Study Suggests,” September 23), Lester Salamon commented on GuideStar’s 2010 Economic Survey, taking us to task for what he felt was an overly grim picture of the effects of the economic downturn on the charitable sector.
We at GuideStar stand by our interpretation of the data resulting from our economic survey. While we are pleased for each nonprofit that has moments of good news, the data is clear in its conclusion that many continue to face great challenges, and most have a long way to go to achieve the success they experienced before the recession.
One important aspect of our findings with which Mr. Salamon disagrees is the impact of the decline in charitable giving. Although it may be statistically correct that “such giving accounts overall for only about 12 percent of nonprofit revenues,” when you start to actually look at individual organizations, you see a different picture.
Charitable revenues, when viewed in the aggregate, are dominated by a relatively small number of very large health-care providers, universities, employee-benefit trusts, and the like that derive most of their revenue from program services. For the 4,102 respondents to the GuideStar survey that gave us sufficient information to track back to their Form 990 filings, the median dependence on charitable contributions was 44 percent; for those with annual revenues under $5-million, about a third of respondents depended on charitable giving for 75 percent or more of their revenues.
There is another aspect of the GuideStar survey, however, that is difficult to convey in numbers. There were 7,014 usable responses, and nearly 3,000 of the respondents made comments about how their organizations were doing.
Although 69 percent of survey respondents reported that their 2010 budgets had increased or stayed about the same, this is not necessarily an unalloyed sign of good health. Consider these typical comments from organizations that didn’t cut their budgets in 2010:
“It was better than 2009, but not as good as 2008. We do feel that we’re no longer in free-fall.”
“Cash flow continues to be the problem. We will survive but we may have to cut programs and positions.”
“We have increased revenues by about 50 percent but most is one-time stimulus funding and will not likely continue.”
“Due to decrease in donations, we had to rely on credit to continue operating and now we are in debt.”
“We are struggling financially due to the decrease in contributions.”
“We are operating out of our reserves. We have about six months left and we will fold if no money comes in.”
To be sure, not all the comments are negative, and many of them show resilience as old organizations learn new strategies for raising funds. But the overall tenor of the comments from organizations we are in direct contact with suggests a sector that is nervous and uncertain about what the future holds.
If we report that things are better than they are, the individuals and institutions that are in a position to help may not step up to the plate.
We hope you find these surveys helpful as you make your plans for the remainder of 2010 and 2011. One of the characteristics I like best about my nonprofit colleagues is their optimistic, can-do attitudes. We are resilient and determined. This continuing economic downturn is difficult, but not impossible. What makes us stronger – and more creative and innovative – makes us better. Good cheer to all.
A few weeks ago, I had the pleasure of renewing a high school friendship with Jonathan Bradford. I thought his work with a nonprofit organization in Grand Rapids, Michigan, was so fascinating that I wanted to share it with you. Not only is he making great progress against formidable odds, his story reflects the challenges many nonprofits face today.
Bob: What does ICCF do?
Jonathan: The Inner City Christian Federation (ICCF) is a not-for-profit housing development and housing service corporation. Our chief products fall into two primary categories: The finance and production of affordable rental or owner-occupied units and the provision of housing counseling and education services that enable people to realize housing success thereby go on to pursue broader life goals. A bit more detail:
- Real Estate Development – ICCF has developed about 515 units of housing, nearly all of it single family detached. We arrange the financing using various combinations of financing from local banks and investors or loan/grant programs available from all levels of government. We then construct the building(s) most often ourselves because we are a state-licensed residential building contractor. For larger multi-unit projects we may go out to larger commercial contractors. We are also a U.S. Department of Housing and Urban Development (HUD) and Michigan State Housing Development Authority (MSHDA) certified property manager, so we also provide property management of our rental units.
- Housing Counseling and Education – Whether for our own residents who are in or going in one of our properties, or for clients referred by one of several other non-profits or local banks, we provide a broad array of learning opportunities around topics related to home maintenance and home management. For example these include classes on plumbing repair, furnace maintenance, or landscaping on the one side and family budgeting, and insurance/tax matters and parenting on the other. We also operate a five unit emergency shelter for homeless families. This is a building that we designed and constructed about 21 years ago to provide 30 day crisis intervention shelter for families. Because it is not a dormitory model and has instead five fully furnished and equipped efficiency apartments, it was the first shelter in Michigan that was designed to enable adolescent and adult males to stay with their families. Until five years ago, a common demand profile would run at 50 to 75 cases per year and many of them would be in some way related to the borrower having too much debt (i.e., over-leveraged). In the most recently completed fiscal year we saw about 780 families and roughly 80 percent of them were at risk of losing their houses because of economic interruption: loss of employment, overtime pay, bonuses, or more rarely divorce or death of bread winner.
Bob: I understand you have a for profit subsidiary. How does that work?
Jonathan: Yes, in 2003 we launched a mortgage brokerage called Providence Home Mortgage (PHM). Using our own capital or that which was lent to us at very advantageous rates, we started PHM as an antidote to proliferation of predatory lenders in our community. PHM is just a broker. That means we are doing the leg work for larger lender/servicer companies who in turn represent larger investors. We are to larger lenders what a local Chevy dealer is to GM. In our nearly seven years of operations, we have had three strong years, two marginal years and two bad years; overall we have not broken even yet. Clearly a large part of the reason for that is the housing finance crisis of the last 3+ years. We are rather proud of the fact that we have been able to weather this storm thus far.
Bob: How important is government revenue to you and what has happened to it the last few years?
Jonathan: At any given time we have at least 10 different “purchase of service” contracts going with the City of Grand Rapids, Kent County, the State of Michigan, or the Federal Government (mostly HUD). Most years these contracts will comprise about 45 percent of our revenue. So you see it is very important.
Over the last five years it is safe to say our government contract revenue has increased a good 30 percent. Nearly all of this is related to the foreclosure crisis. We receive funding from two different sources for foreclosure counseling and three sources for the acquisition, rehab, and resale of formerly foreclosed houses.
Bob: What do you see as your biggest challenge in the next few years?
Jonathan: There are at least two. The first and biggest challenge is to stabilize philanthropic revenue thereby enabling us to continue to attract and retain top talent. The world of housing is so volatile and constantly challenging right now such that this will continue to be a daunting task. The second challenge is much more nebulous: As is the case in many cities, there is a significant “back to the city” movement in Grand Rapids. In broad urban planning conceptual terms, this is most welcome because economic diversity is key to long term urban health. Indeed, ICCF wishes to be a part of this effort, but we are committed to doing so in a manner that ensures the interests of current residents are protected while also creating genuine value and attractiveness that will benefit all.
Bob: How do you measure success?
Jonathan: In the fact that ICCF places as much emphasis on high quality real estate development as on services that empower our residents toward new levels of independence and accomplishment success measurement comes in two forms. In real estate we must accomplish the construction or reconstruction of the building(s) in a manner that the market accepts, i.e., it is sold or rented with minimal delay at a price that covers our costs net of grants and/or tax credit equity, etc. True success also demands that we design and construct the building(s) in a manner that is truly respectful of both the resident and the neighbor or passer-by. This in turn requires care in aesthetic design, energy efficiency, and construction quality. Success in services to our residents and clients is fundamentally about their realization of goals that we have helped them set. It could be to retain the house they already have, or acquire a better house at a lesser cost than their current arrangement. It could also be the gaining of skills that will help them better maintain and retain their house or quite simply live for a short time in a place more safe than a the basement of an abandoned house or under a bridge.
 Jonathan Bradford in front of ICCF's headquarters
Bob: In this picture you are standing in front of a pretty fancy building. Is there a story here?
Jonathan: There are actually several stories here. The building is the former D.A. Blodgett Home for Children which as of September 2007 became ICCF’s home. It was built in 1908 as an orphanage. In 1948, when foster care had replaced institutions for the care of children, the building was given to a private physical rehabilitation facility called Mary Free Bed Hospital. Because of the polio epidemic in the 40’s and 50’s they needed more space. They actually removed the entire facade of the building and grafted four different ugly utilitarian additions on the front of the original building nearly obscuring its extraordinary neo-classical Italianate beauty.
When Mary Free Bed left the building for a new facility in 1976 it was home to a few small businesses for 12 years or so. In 1988 it was abandoned and in the early 1990’s was briefly considered as a site for a charter school. After being left to rot for 16 years the City of GR issued demolition orders in mid-2004. We acquired it late that year and persuaded the city to give us a year to raise the funds and put a historic rehab project together. We started demolition of the 1950’s additions in January 2005. After a total recreation of the original facade and a historically considerate adaptation of the interior into offices and classrooms we moved in just in time for the big housing implosion of the fall of 2007.
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