Can nonprofits survive?

FOOD FOR THOUGHT: Mikayla Anthes, Farm Fresh Rhode Island healthy foods/healthy families coordinator, and Raven Horn of Woonsocket, talk at a recent Thundermist Health Center event. / PBN FILE PHOTO/MICHAEL SALERNO
FOOD FOR THOUGHT: Mikayla Anthes, Farm Fresh Rhode Island healthy foods/healthy families coordinator, and Raven Horn of Woonsocket, talk at a recent Thundermist Health Center event. / PBN FILE PHOTO/MICHAEL SALERNO

Editor’s note: This is a condensed version of a story that originally ran in the Aug. 10 issue.

Matthew Netto, state director of the nonprofit Best Buddies Rhode Island, has an unwieldy job description.

To lead the charitable organization, part of a national group dedicated to support for people with intellectual and developmental disabilities, he manages fundraising, a one-person staff and interns, marketing, and community outreach, while working with a 24-member board of directors.

“That’s what the role of state and executive directors has evolved to,” Netto said. “You have to wear many hats.”

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It’s a situation more and more organizations find themselves in, says Jim Ryczek, executive director of the Rhode Island Coalition for the Homeless. Ryczek also does the work of a human resources manager, chief operating officer, chief financial officer and CEO. “Something has got to give,” he said.

This strain on nonprofit senior staff is just one more burden contributing to a looming leadership vacuum predicted in Rhode Island, based on a recent study of data by Third Sector New England, a Boston-based resource center for nonprofit organizations and foundations.

And that, coupled with cuts or level state and federal funding, a slow economic emergence from the Great Recession and a lag in volunteering compared to the rest of the country, presents Rhode Island’s nonprofit sector with challenges that can make it difficult to remain viable long-term, nonprofit leaders say.

Asked to articulate how best to tackle these challenges to leadership, mission and finances, former and current board and staff members as well as key funders offered a survival guide of insights and advice that nonprofits can use to stay in the game.

For all but the biggest nonprofits, they say, surviving in the increasingly competitive fundraising landscape will require adopting some major changes.

NONPROFIT GROWTH

The number of Rhode Island nonprofits has grown steadily, from 6,400 in 2003 to 7,730 today, according to data from Secretary of State Nellie M. Gorbea. The Great Recession forced nearly 300 nonprofits to close between 2007 and 2008, but there has been strong growth since then among tax-exempt charitable organizations.

Rhode Island defines nonprofits as break-even enterprises registering with the secretary of state’s office, but doesn’t distinguish between the charitable organizations that have to file for tax-exempt status with the Internal Revenue Service from 32 other types that range from individuals to condo associations to church groups.

Of the nonprofits represented in Gorbea’s data, the Rhode Island Foundation lists 3,749 tax-exempt charitable organizations, known as 501(c)3s, in existence as of mid-July. (The foundation relies on Guidestar.org, which gathers data about every nonprofit registered with the IRS.) That is an increase of more than 1,500 since 2010.

“This growth reflects some entrepreneurial spirit among Rhode Islanders, since during the recession there was increased need, particularly in human services,” said Jill Pfitzenmayer, vice president for the Rhode Island Foundation’s Initiative for Nonprofit Excellence, a division of the foundation that provides research and training initiatives. “As private- and public-sector jobs became more and more competitive, people may have been trying to start their own thing.”

Hez Norton, director of leadership and partnership initiatives for Third Sector New England, confirmed that across New England, compared with seven years ago, the number of nonprofits has increased dramatically. As of late 2014 there were 73,410 reporting nonprofits in New England, compared with 44,688 in 2008.

Norton had no comparable national data, and could only speculate as to the reasons. Besides the explosion in entrepreneurship, Norton said, “Funding themes change cyclically and it might be a response to that. And as state and federal funding changes with different administrations, there’s a huge need that nonprofits try to meet – that the government or private sector is not set up to meet.”

Norton also cited the impact of the recession, and said, “We know there are many more nonprofits doing more with less.”

LEADERSHIP VACUUM

Even as more charitable organizations come online in Rhode Island, the state’s nonprofit leadership ranks are thinning. In fact, it could reach a crisis point for the sector in the next few years. According to the Third Sector New England regional study released in June, 83 percent, or 47, of 57 nonprofit leaders surveyed intend to leave their organizations in Rhode Island within the next five years. Of that number, 23 percent, or 13, plan to leave in the next two years.

Rhode Island data show 63 percent of leaders and 61 percent of board members surveyed have no succession plans in place.

“We’re already starting to think about succession-planning [programming] in the fall, because we think this is important for nonprofits to think about and be aware of, and we want to provide tools and resources to help them,” said Pfitzenmayer.

Changing the traditional organizational model from board and CEO or executive director to a board and senior staffing team may be necessary for some, said Norton. That kind of structure would require more commitment from volunteer boards of directors, but it may be the only way to make sure an organization has the diverse skill sets among its leadership team that is required today.

Anne Nolan, former president and CEO of Crossroads Rhode Island, the state’s largest homeless-services organization, said holding annual conversations internally about possible promotions in case of emergencies or known transitions has worked at Crossroads. For example, the naming of Nolan’s successor, Karen A. Santilli, grew out of ongoing discussions when Santilli was still the organization’s chief marketing and strategy officer.

THE ROLE OF THE BOARD

Even with better planning, there is no question that board members need to be better versed in the finances of an organization and how they drive its mission. That then helps them ask the right questions so senior staff can manage a mix of philanthropic support and earned income, said Owen Heleen, chief strategy officer at the Providence Center.

He has sat on five boards in the past three years, including Bannister House, the Audubon Society of Rhode Island and Program of All-inclusive Care for the Elderly.

“The board member’s job is fundamentally about asking questions and finding the most important questions to ask,” he said. “Board members aren’t driving the car; they’re really in charge of making sure the car can make the trip and has enough fuel to get there. It’s the executive director and staff that’s driving.”

FUNDING CHALLENGES

Dealing with unchanging federal and state funding over time as the costs of doing business rise has challenged many nonprofits, forcing them to develop more diverse revenue streams.

Patti Macreading, executive director of the Rhode Island Family Shelter, said her nonprofit’s financial struggles led to closing the shelter in early July, although it is still operating apartments for clients.

The nonprofit saw its overall funding drop from $500,000 to about $400,000 over a four-year period, which led to the laying off of the shelter’s entire 11-person staff and having seven residents relocated to other facilities.

The shelter’s plight is not uncommon, however, said David Caprio, president and CEO of Children’s Friend, which has a $25 million operating budget – about one-quarter of which is covered by funding from state agencies.

Often state contracts with nonprofits are funded at the same levels today that they were funded with when they started years earlier, Caprio said.

“That creates a big stress on the organization,” he said. “Donations can make that up, but I don’t believe that funding mechanism actually leads to the best quality of programming.”

Caprio would like to see performance-based contracts, in which measuring outcomes could help the state determine how to get the best investment for its money. But he admitted it is not clear who would lead such an effort. And under that scenario, some organizations would thrive while others who were not rewarded with funding would struggle. And only those organizations that measure outcomes would be able to survive in this environment.

The United Way of Rhode Island knows what kind of pressure to perform that funding scarcity creates. In its most recent three-year cycle, the UWRI got requests totaling $13 million each year, while $5.2 million a year was available to be given, said Adam Greenman, executive vice president of community investment.

Other nonprofit leaders noted that creating diverse revenue streams is an important way to remain fiscally sound. For example, The Steel Yard generates income from training programs to add to its private fundraising and corporate donations that support its mission to offer arts and technical training programs.

MINING THE BASE

For Douglas J. Rubenstein, board president of Animal Rescue Rhode Island in South Kingstown, developing a marketing plan helped boost the organization.

“Our mission is to rescue animals and find them good homes, but [we were] losing money on that,” he said. “You’re competing against two competitors: like organizations and also local organizations.”

As a South County-based organization, the nonprofit has about 3,000 donors, only 1,500 of whom are active. But a database search of pet owners and supporters of animal causes in that region revealed some 15,000 to 30,000 people.

That led the nonprofit to develop a plan to market itself not only within South County, but outside it, since a majority of people adopting animals are from outside South County.

As part of coming to that decision, Rubenstein recognized that the nonprofit had to “tell our story [and] create a brand.” One key step was to take South County out of its name to reflect its now broader geographic reach.

After looking at the revenue stream of $350,000 for 2013 and implementing the marketing plan, in 2014 revenue grew 10 percent to $385,000 for the year, Rubenstein said.

PARTNERSHIPS MATTER

Partnering with nonprofits with similar missions also enhances the chances of survival, can reduce duplication of services and be less taxing on staff and supporters, said AIDS Care Ocean State Executive Director Paul Fitzgerald. His nonprofit has partnered with AIDS Project Rhode Island on two late-summer fundraisers.

“Funders recognize that when two organizations are trying to raise the same dollars, they believe their dollars go farther [if they partner with each other],” he said.

Farm Fresh Rhode Island collaborates with Thundermist Health Center, hosting farmers markets at Thundermist facilities, an effort that helps fulfill both missions, said Sheri Griffin, co-director for community assets at Farm Fresh. Farm Fresh benefits by gaining a new market of shoppers that might not ordinarily use a farmers market, while Thundermist benefits by exposing its primary care patients to healthy food options, Griffin said.

“Collaboration is key,” said Greenman of the United Way. “[A nonprofit] may have a program that does one thing really well, but we do want them to think about how they can help clients they’re serving and connect them with other services and nonprofits that are doing those [other] things well.”

IT TAKES A COMMUNITY

Volunteers are also critical to many nonprofit operations, but volunteerism in this state is low compared to other states, said Bernie Beaudreau, executive director of Providence-based Serve Rhode Island.

Rhode Island’s rate of volunteering ranks 42nd in the nation; teen volunteering is 36th, and adults 65 and older are ranked 48th, according to the Corporation for National and Community Service’s annual volunteerism report, “Volunteering and Civic Life in America.”

If Rhode Island’s overall volunteer rate was as high as the rest of the New England states, an additional 49,299 volunteers would contribute 2.3 million hours of service per year.

Serve Rhode Island itself has a database of about 10,000 volunteers, but about 3,000 are active, compared with 5,000 about 10 years ago, he said. He blames the economy, which has made more people financially insecure and less able to contribute.

“Nonprofits have not had staffing to be able to manage volunteers,” Beaudreau added. “So, it’s kind of a Catch-22. If you don’t have someone available to design the work for volunteers, it’s not attractive to volunteers and not a sustainable situation.”

Netto advises nurturing volunteer relationships in person wherever possible.

“The strongest part of a nonprofit is mission-based volunteers, because they believe 100 percent in the mission and they’re attached to [it],” he said. “I can get 10 people to give me checks, and that’s great. But I want people fully invested in the mission, fully engaged in the programs, actively spreading the mission. It’s a very strong bond, and those are the people you’re going to rely on.” •

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