Making Change: Unfinished Business

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Not long ago, the women’s Housing and Economic Development Organization (WHEDCO) was one of those social service organizations whose every step appeared to be a giant leap forward. Founded in 1991, it runs a host of programs to promote economic empowerment for poor people, particularly single mothers. Its culinary arts program put former welfare recipients to work in WHEDCO’s catering business, the Urban Horizons Food Company, and starred in a glowing profile in Mother Jones magazine this summer.

But like virtually every business in New York City, WHEDCO got a whack in the gut following September’s attack on the World Trade Center. The only physical damage was at its Bronx complex, where phones were knocked out for more than a month. But new trainees didn’t arrive for weeks, because the city’s welfare computers were down; for WHEDCO, which gets paid per head, this meant no new business. The restaurant and hospitality industry–the prime source of employment for its graduates–suffered enormous plunges in business, and an immediate surge in layoffs.

The worst was yet to come. In the weeks following, catering clients of WHEDCO’s Urban Horizons Food Company cancelled major orders–a vital cash source for the organization’s other operations. With no guaranteed revenue, Urban Horizons had to shut down. “So my heart doesn’t break, I’m calling it ‘retrenchment,'” says Executive Director Nancy Biberman. Now, the only work experience food service trainees get is vending lunches in a takeout kiosk at WHEDCO’s Bronx complex.

The catering income–a projected $180,000 for this fall alone–was so vital because WHEDCO’s financial troubles did not begin on September 11. In previous years, Biberman says, she could count on gradually escalating support from private foundations. But this year the group’s grant income actually declined, in conjunction with a 19 percent drop in the stock market. Two of WHEDCO’s funders backed out altogether.

And like many other organizations around the city that train the unemployed and underemployed to work, WHEDCO has found itself on the losing end of a new municipally funded scheme that doesn’t pays the group until it successfully places a client in a job–and doesn’t pay it adequately until that worker had held a job for six months or more [see The Great Training Robbery, May 2001]. Already, with the faltering economy, trainers had started to see clients coming back to them, laid off from their new jobs not long after they were hired.

The catering revenue made up for WHEDCO’s losses in its city job training subcontracts. The organization’s only other hope had been its ongoing effort to lobby Albany legislators for some supplemental cash.

By October, WHEDCO had laid off eight staffers, including some former welfare recipients who had risen up through its training programs. “We knew in December [2000] that this was going to be a horrific year for us,” says Biberman. “I don’t know how many whammies there are,” she says. “We got them all.”


In this grim season, few groups can count themselves whammy-free. Nonprofits are in a precarious position, and some, it’s now widely acknowledged, will not survive for much longer.

This is no mere spate of bad luck. Social service organizations are much like badly treated children: They are sustained by two partners in a combative marriage, and money is at the root of the conflict. Through an unwritten agreement, government and private charity split the responsibility for sustaining the social safety net. It’s an arrangement that allows elected officials to address profound needs even though they consider it politically dangerous–and private donors are perfectly happy to take the tax breaks that ensure their participation.

Not incidentally, the deal also keeps an entire sector of the economy going. According to the Department of Labor, 29,899 nonprofits in the state employ 2,171,509 people. In the city, nearly a million people work for nonprofits.

Combined, New York City and state spend $7.7 billion to employ nonprofits (and some for-profit companies) to carry out an entire realm of government work–in foster care agencies, settlement houses, hospices, senior centers and thousands of other enterprises that make up what’s known technocratically as human services. More elegantly, they’re the hands that help hold up the city, the extra legs that keep it running.

It’s no secret that public funding isn’t nearly enough to keep those organizations in business. Private money–from traditional charities, individual donors, fees for services, and, increasingly, business enterprises like WHEDCO’s–is the lifeblood that keeps their services and payrolls sound. The average New York human services agency that contracts with government takes in about 90 percent of its funding from public contracts, while the rest comes from private funding, according to the Human Services Council, a trade group.

All this is not a new phenomenon: Even through the New Deal and the Great Society, social service agencies–many founded in eras when public funding for their work was an alien concept–never lost their reliance on philanthropy.

Private delivery of social services has been an astounding bargain for government. “Government contracts with us because we’re cheaper,” says Human Services Council executive director Darwin Davis. “It’s been a longstanding complaint in the nonprofit arena that the government has never paid for the full cost of services.”

But the markdowns may not prove sustainable much longer. As it has in previous recessions, the private sector is proving less and less willing to chip in–something that has been happening ever since the stock market started turning down a year and a half ago. “We’ve been inundated by proposals from people we haven’t heard from in the past, saying that foundations X, Y and Z aren’t giving us money,” says Suzi Epstein, the program officer who oversees funding for employment training programs at the Robin Hood Foundation.

Some major philanthropies are trying to buck the trend, and Robin Hood is one of them. In mid-September, the foundation called together its grantees to find out what they needed to get through the coming months. In addition to establishing a new relief fund to assist individuals affected by the attack, the foundation has committed an extra $7 million to the work it already does: supporting organizations fighting poverty. WHEDCO got one such grant within a week: $175,000 to help make up for its losses.

The largest World Trade Center relief pool, the September 11 Fund, is also devoting a yet-to-be-determined portion of its $300 million in pledges to assist nonprofits directly affected by the attacks. By mid-October, more than a hundred applications had come in, and about $3 million had gone to nonprofits providing relief services, including mental health providers, immigrant aid groups and job referral agencies. Through Seedco, an organization that assists nonprofits with finance and management, the fund is backing an additional $2.15 million in zero-interest loans to nonprofits whose offices were closed or that lost substantial revenue in the chaotic weeks following the attack–when clients didn’t show up and city checks didn’t get cut.

“We think of nonprofits as delivering services, which absolutely they do, but they are also employers and a vital part of the city,” says United Way of New York senior vice president Lilliam Barrios-Paoli, who helped conceive the September 11 Fund along with the New York Community Trust. “Part of our stated goal was to help businesses in lower Manhattan which had been hurt and damaged, and nonprofits are small businesses that were hurt. We wanted to make sure they remained viable.”

But she is all too aware that not enough other major charities are making that a priority this year. Indeed, the September 11 Fund itself is being exceedingly careful, for both legal and political reasons, to limit its support to groups directly affected by the disaster or that are providing specific services to those who lost a family member or a job on that terrible day–a mission that could ultimately exclude nonprofits dealing with long-term ripple effects.

With help from the New York Regional Association of Grantmakers, Barrios-Paoli and the Trust’s Joyce Bove urged other foundations–and particularly the foundations’ influential trustees, who were proving eager to be heroes–that with more than $1 billion already committed to disaster relief in private funding alone, the bravest thing they could do is continue supporting the work they always have. “This is going to take a very great, immediate expansion of resources for nonprofits to deal with the crisis here,” agrees William Grinker, executive director of Seedco and former head of the city’s Human Resources Administration, one of the biggest sources of human services contracts. But he has no illusion that private relief money will be sufficient to keep the entire sector afloat: “I think it will take an infusion of government resources to bring nonprofits to the point where they can provide the necessary services,” says Grinker.


But right now, government couldn’t be less likely to fill the breach. The city and state are taking some measures to help nonprofits, including underwriting a $50 million low-interest loan program for small businesses. But that aid is an infinitesimal portion of the funding that Albany is poised to take away. Pending action on his controversial aid request to Washington, the governor demanded that legislators forgo much of the spending they planned for this year’s budget, including the entire $331 million that members spend on grants at their own discretion. In late October, the governor and legislative leaders had restored about two-thirds of that funding, with orders that essential human services and groups involved in relief-related work be first in line for the cash. With other cuts, the total loss to nonprofits is more than $200 million.

Meanwhile, the mayor has ordered city agencies to cut their budgets by 15 percent. If patterns from previous cutbacks hold true, the private agencies that contract with the city will take a disproportionate share of that hit.

Paradoxically, the funding crunch is coming at exactly the moment when nonprofits are the obvious place to turn for services that are now needed as urgently as ever. The city comptroller’s office predicts citywide job losses of between 5 and 6 percent of the workforce in the coming year–a development that will call for not only increased investment in job training but also new resources for emergency food, child welfare services and other measures that come between the poor and abject destitution. Lifenet, the referral network for mental health services, is convinced there simply aren’t enough trained professionals available to handle the demand for counseling. Eviction prevention, substance abuse, HIV education, asthma treatment, workers’ rights–all of these and more have taken on new and deeper dimensions since September 11. Calls to the state substance abuse hotline, for example, have reportedly increased 50 percent.

Organizations meeting some of those needs will have access to resources: The state Office of Mental Health, for example, has obtained $22.7 million for crisis counseling through the Federal Emergency Management Agency. Meanwhile, the city’s Human Resources Administration has been referring people who became unemployed as a result of the disaster to the agency’s welfare-to-work job placement programs. That could help the groups running these programs meet their elusive performance targets, assuming that finding long-term jobs for those who have recent work experience will be relatively easy. The state Department of Labor is likewise referring the unemployed to private organizations funded by federal Workforce Investment Act dollars. Job trainers have had talks with state and city officials about easing unrealistic performance standards, and these groups may also be able to access private relief money to assist displaced workers.

But groups unable to demonstrate a direct connection between their clients’ needs and the disaster are already having a difficult time proving they are essential. Particularly hard hit, and outspoken about it, are groups working with people with HIV and AIDS. Earlier this year, one charity–Broadway Cares/Equity Fights AIDS–announced that due to an unprecedented number of applications, it was postponing its annual grant awards by several months. Yet the charity donated $50,000 to the Twin Towers Fund, the city-run charity supporting the families of police, firefighters and emergency workers killed in the attacks. “When even an AIDS organization isn’t supporting AIDS groups, that’s a problem,” says Jackie Vimo, senior policy associate for the New York AIDS Coalition.

This fall, some major corporate supporters backed out of a fundraiser for Bailey House, which operates residences for people with AIDS; in total, executive director Regina Quattrochi expects a 25 percent decline in her organization’s private funding this year. Len McNally, who runs the New York City AIDS Fund under the New York Community Trust, points out that AIDS donations were already in decline before September 11–his own fund’s income dropped by 14 percent in just one year. He recently advised groups seeking the fund’s support to prepare for big cuts in their own budgets. “We talked about the general climate for AIDS fundraising over the next 12 to 24 months,” he explains. “That’s where many organizations are hearing they’re losing support.”

AIDS organizations also rely on revenue tied to the number of visits clients make, primarily from Medicaid; those have seen a clear decline. Quattrochi is leaving open positions unfilled in an attempt to slash costs. But like other advocates for people with AIDS, she predicts that recent events will lead to higher rates of infection and a greater need for services.

Even the bombing of Afghanistan will have consequences. If predictions hold and the U.S. becomes glutted with heroin smuggled from the war zone, it could prompt a surge in new users seeking an inexpensive high. Alternatively, if military action prompts a shortage, sending the price of heroin up, it is more likely existing users will choose the cheapest route: injection.

A connection between a social need and the disaster is no guarantee of relief funding, because many problems will take some time to appear. Before September 11, the Housing First campaign had pushed hard to get tax revenues from the World Trade Center and Battery Park City slated for affordable housing. Now, Coalition for the Homeless senior policy analyst Patrick Markee also worries that investment in immediate relief will take the place of addressing the enduring needs of city residents.

“Our waiting room is insane,” says Markee, noting that the number of homeless families has already reached record levels, driven by exceedingly high housing costs. The coalition is now bracing itself for a wave of evictions, as unemployed people find themselves unable to pay the rent. Predicting such a calamity is hardly a partisan agenda–at a recent Carnegie Corporation disaster-response meeting, Mayor Giuliani’s number-two lawyer, Larry Levy, also expressed worry that the city will soon see a rise in homelessness.

“When is it going to hit?” Markee asks rhetorically, adding up unsustainable rent-to-income ratios, swelling unemployment figures and eviction law timetables in his head. “Probably not for another year.”


Not every nonprofit is facing financial mayhem as a result of recent events. In fact, some have found unprecedented focus for their efforts–and with the disaster, demonstrated the capacity of nonprofits to mobilize during a crisis in ways that government and for-profit businesses can’t. NPower New York, a year-old organization providing computer training and other services to nonprofits, found itself serving as an influential intermediary for tens of millions of dollars in relief donations from technology companies. The first call was from Microsoft, one of NPower’s founding partners, asking the group to identify $5 million worth of technology needs among nonprofits disabled by the attack.

More companies soon followed Microsoft’s lead, confident that their contributions would be in capable hands. In fact, the companies quickly refused to deal with anyone other than NPower. Through the group, Intel supplied technology to New Jersey’s relief center in Liberty State Park. And when the city opened its relief center on Worth Street, it was NPower again that coordinated the delivery of piles of computers and networking equipment. “It opened on [a] Wednesday,” recalls NPower New York executive director Barbara Chang. “They called us on Monday, saying, ‘Get this going!'”

But other groups seeking to assist in relief have found themselves frustrated. With guidance from the New York Community Trust, WHEDCO had sought to use its idled catering kitchen to prepare food for relief workers, only to be informed by FEMA that the Salvation Army and Red Cross had exclusive contracts to supply food. (FEMA Voluntary Agency Liaison Ken Curtin says that the city Department of Health made the decision to restrict food service to the two charities.) “This very modest food operation we proposed, it would have allowed us to keep staff people, and we could have delivered for under $2 a head. But I can’t get a foot in the door,” says a vexed Biberman. “We are laying off people who are doing this work, who are becoming additional casualties.”

Other organizations are also already laying off employees or reducing staff hours, because, they say, years of inadequate government payment for their services have left them with no margins for unexpected cash shortages. “You have to understand how precarious all of our positions have been for the past seven or eight years,” says Kathy Masters, general counsel for the Brooklyn group CAMBA and vice-chair of the New York City Employment and Training Coalition. She says that while she supports performance-based contracts in principle, without improved compensation for job training programs CAMBA will have to lay off staff and shut down its initiative training refugees.

While sympathetic to nonprofits’ plight, Barrios-Paoli appears resigned that times will be tough for them. The September 11 Fund, she emphasizes, cannot help groups with problems that predated the disaster. Nonprofits “are caught between an economy that’s problematic and a city and state that are putting resources that might arguably have gone into other things into [disaster relief],” says Barrios-Paoli. “They are going to have to figure out how to survive.”

But Masters, like Quattrochi and others, thinks it’s high time for government to settle its accounts–and “bailout” is a word they’re using a lot these days. “We’ve been subjected to a business model, and the city and state want us to act like businesses,” says Masters. “I’d like to act like the airline business, thanks very much.”

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