Nonprofits are calling it the perfect storm: Government, foundations and private donors are all cutting back on their support for social services. But no nonprofit agencies are quite as petrified as community-based groups founded in the last couple of decades. Many have grown up dependent on a few government contracts for their survival. For those groups, many of which are minority-run, additional sources of funding–endowments, gala fundraisers, revenue-generating businesses–are practically nonexistent. “Large organizations can survive, barely,” says New School University urban policy professor Dennis Derryck, co-author of a Center for New York City Affairs study of how nonprofits in the city are faring after September 11. “For smaller agencies, God have mercy on them.”

Nowhere is this more crystallized, and more complexly drawn, than in the field of child welfare. That’s because of some very good news: The number of children in foster care has declined to just 24,500, down from 41,500 only seven years ago. The Administration for Children’s Services will be phasing out contracts with an unspecified number of the 42 private agencies it currently pays to provide foster care casework and related services. ACS has “determined that the decline in the number of kids in foster care is not a short-term phenomenon,” says Jim Purcell, executive director of the Council of Family and Child Caring Agencies, a trade group. The city agency has a ready tool to help it decide which agencies will get the boot: For the last three years, ACS has been evaluating their performance by measuring how quickly and effectively they move children into permanent homes.

But the rating system, known as EQUIP, has produced a very uncomfortable result. In a system where about 95 percent of kids in foster care are black, Latino or Asian, only a handful of the contract agencies are led by people of color and based in the communities the kids come from. In 2001, the last year for which scores are available, these agencies were clustered in the lower half of the rankings for foster boarding houses.

ACS Commissioner William Bell, who declined to comment while downsizing discussions continue, faces quite a dilemma. Should he go out of his way to preserve agencies rooted in communities of color, while letting go of white-run agencies that score better? Or should ACS adhere strictly to performance evaluations and lose the diversity of providers that city and state officials have worked so hard to achieve?

Bell has a personal stake in the situation: He started his career at one of these agencies. In the late 1980s, the number of kids in foster care had tripled in just two and a half years, and babies born with drugs in their bodies were languishing in hospitals. Many so-called boarder babies were African American, and the state turned to black and Latino community-based organizations to develop desperately needed foster homes.

Miracle Makers, then a day-care center run out of a church basement in Bed-Stuy, was one group that stepped up. Purcell, then a member of the state team that helped launch the new minority-run agencies, remembers Miracle Makers founder Willie Wren as a “force of nature.” The agency was so anxious to help it started putting kids into foster care before it was licensed to do so. Says Purcell, “The state license was not important to them. Getting babies in good places was.”

Not every new group survived. Some “crashed and burned,” as Purcell puts it, from management, program or fiscal problems. Five carry on.

The Coalition for Hispanic Family Services is one survivor. The Bushwick-based foster care and family services organization boasts an entirely bilingual staff and involves extended family in care and planning. It has only about $1 million in assets and annual revenue of $6.7 million, $3.7 million of which comes from its foster care business. “We’ve got a lean and mean infrastructure,” says Executive Director Denise Rosario. “We had our first fundraiser two years ago that myself and my assistant put together, just the two of us. It takes the wherewithal of the staff that I have to do everything.”

Cuts in public funding have already forced the coalition to reduce its HIV/AIDS work. When it comes to foster care, Rosario’s not sure what to expect. On EQUIP’s ranking of 42 foster boarding home providers, Rosario’s group is 11th from the bottom.

ACS evaluates details like agencies’ paperwork and training programs, but the main focus is on outcomes: how quickly they move kids out of foster care and back to their families, how fast they secure adoption for kids who can’t go back, and how many children end up back in foster care soon after returning home or being adopted. On two of three counts, the coalition does fine. “We have a very low rate of re-entry into the system,” she explains. “For adoption, we’re very close to 100 percent. On the other hand, it takes us a little longer to get the kids out.”

Policy analysts say ACS needs to weigh consumer satisfaction, too. “EQUIP is really good in many ways,” says Andrew White, director of the Center for New York City Affairs. “But one thing really lacking is a survey of clients and older foster children. It lacks qualitative elements that would measure what these organizations are strong in–culturally competent services and neighborhood relationships.” EQUIP also may put agencies with small staffs at a disadvantage: Many big agencies have an employee whose job it is to compile data and ensure the agency complies with guidelines. “Like any standardized test, EQUIP can be manipulated by agencies that have the resources to do that,” says White. “That’s not to say it’s a bad thing, but you’ve got to know what you’re dealing with.”

No one would deny that service providers should be scrutinized by the city that’s paying them. But Rosario wants officials to appreciate the assets groups like hers offer. Their services come reasonably cheap, fueled by sweat equity and a deep commitment to service. Says Rosario, “We’re operating with one arm tied behind our back, doing it out of love for our community, families and the culture that we come from.”