GOP Push to Cut Spending Worries Nonprofits

Leise Jones

After working for more than three decades to end youth and family homelessness, Sparky Harlan started to consider setting a date for her retirement.

Then the November election happened.

“Now I am like, I am not setting any date because, frankly, if I have to be here for eight years, I am going to be here for eight years to make sure we don’t lose the gains we have made,” said the 64-year-old chief executive of the Bill Wilson Center in California’s Santa Clara County, which provides housing and mental-health services to runaway and homeless minors and young adults.

For Ms. Harlan, it’s a matter of cold, hard numbers. Some 90 percent of her organization’s $19 million budget comes from government sources at the federal, state, and local levels, including $6 million in Medicaid payments for mental-health care. With Republicans soon to be in charge of Congress and the White House, she’s concerned about the money her organization relies on.

Particularly vulnerable to budget-cutting, she worries, could be the Runaway and Homeless Youth and Trafficking Prevention Act, which provides $600,000 a year in support for the Bill Wilson Center. Conservative Republicans sought for years to defund the program because of language pertaining to LGBTQ youths, but the Obama administration successfully fought those efforts.

“That one is up on my radar,” she said of the legislation. “A lot of the little mom-and-pop runaway programs around the country are funded by this. So they would be all at risk.”

Big Changes

The leadership changes unfurling in the nation’s capital are making nonprofit leaders across the country students of the Washington political process in ways some say they hadn’t been in years. The attentiveness is especially acute among those who get a big share of their revenue in the form of government contracts and grants.

The stakes for these groups are huge. Public charities reported $1.7 trillion in revenue in 2013. Fees for services and goods from all levels of government, including federal Medicare and Medicaid payments and government contracts, accounted for 24 percent of revenue, according to an analysis conducted by the Urban Institute’s Center on Nonprofits and Philanthropy. Government grants made up another 8 percent, with research universities and medical and health-care organizations dominating the list of groups getting the biggest government grants.

When nonprofit hospitals and higher-education institutions were excluded from the analysis, fees for services and goods from government sources accounted for 38.6 percent of public charities’ revenue. Government grants made up 14.1 percent.

Another study by the Urban Institute’s Center on Nonprofits and Philanthropy that focused on government support for human-service organizations and was published in 2010 found that government agencies had about 200,000 contracts and grants with 33,000 human-service organizations. Nearly two-thirds reported that government dollars were their largest revenue source.

Republicans’ budget plans are vague at this point, and it will be a few months before the appropriations process begins in earnest. But there is no doubt that Republicans aim to slash nonmilitary discretionary spending, including many programs that benefit low- and moderate-income people such as food stamps, rental vouchers, job training, Head Start early-childhood education programs, and Pell grants for poor college students.

Last year, House Republicans introduced a nonbinding budget plan to cut $3.7 trillion over 10 years from programs for low- and moderate-income people, according to an analysis by the Center on Budget and Policy Priorities, a liberal-leaning, poverty-focused research center in Washington. However, Republicans have typically been unable to enact cuts anywhere near as deep as their budgets propose, even when they’ve had a member of their own party in the White House.

‘Hand Wringing’

Kathleen McDonald, director of development and communications at Lynn Economic Opportunity, an anti-poverty community-action group in Massachusetts, said there is a lot of collective “hang wringing” among her colleagues and peers. They are reasonable anxieties, she said, “knowing we are looking at a much more conservative leadership. With more defense spending comes less domestic funding.”

LEO, as the nonprofit is known, has 120 employees and an annual budget between $10 million and $11 million. It operates four child-care sites, including federally funded Head Start programs. Nearly all of its funding comes from government grants and contracts originating from sources including the Department of Health and Human Services and the Department of Agriculture. LEO also serves as a pass-through entity for about $6 million in heating assistance dollars for the poor and elderly.

Robin Reynolds

Ms. McDonald said she takes comfort in the fact that the mission of LEO and one important stream of revenue, the federal Community Services Block Grants, have historically had bipartisan support. She said she believes LEO is well represented by its local representative in the House of Representatives and both of the state’s U.S. senators, relationships she and colleagues will continue to foster.

Two years ago, recognizing that LEO is vulnerable to government shutdowns and changes in administration, it began to seek support from private foundations, Ms. McDonald said.

“In my grant applications since the election, I have most certainly pointed to the unknown ahead of us in terms of what we can rely on from our government,” she said.

Her worries about the leadership in Washington extend beyond the nonprofit’s budget. There could be major ripple effects from parts of the Trump agenda that would hit the immigrant families LEO serves hard.

“If undocumented immigrants are removed from the community, then there is a trauma that spreads across neighborhoods that starts to build a case for more mental-health support, more low-income child-care access, and for a higher demand for services,” Ms. McDonald said.

Seeking Opportunities

To be sure, not everyone is looking with trepidation at the forthcoming Congressional appropriations sausage making. Dom Betro, chief executive of Family Services Association in California’s Riverside and San Bernardino counties, said deep across-the-board cuts in federal spending would impact his $25 million budget — as much as 80 percent comes from government sources in any given year.

But he doesn’t think such cuts will happen.

“I have been around long enough. I was here when Reagan came into office, and they said, ‘Oh this is the death of the nonprofit sector,” Mr. Betro said. “You know what? The sector has grown.”

The Family Services Association runs 12 childcare centers, community centers for seniors and youths, and nutrition programs. It also operates two housing corporations. Mr. Betro said he likes what he has heard from Donald Trump about bringing better business practices to government.

“If we are going to talk about outcomes and creating impact, maybe it is time for some different models of how we address human and social needs in community,” he said. “I don’t know that this administration has that in mind. I hope they do.”

He said he is particularly hopeful that the new administration might spur change in how federal agencies and departments like Housing and Urban Development award money for things like combating homelessness. Mr. Trump has nominated one of his rivals for the Republican nomination, Ben Carson, to be secretary of HUD.

“The way they do their budgets and formulas are like 40 years old. There are some efficiencies and changes that could be really positive if they truly start to look at these things in new and different ways,” Mr. Betro.

It is possible that some sources of government funding might shrink, and some nonprofits may have to stop offering certain services, Mr. Betro said, but he believes other opportunities will arise in other areas.

“I don’t know what happens when Dr. Carson goes to HUD. Will he look at the same things I have seen and say, ‘Are you kidding me? This is the way you do a budget?’ I don’t know. But there is that chance, and I am going to remain hopeful and seize whatever opportunity evolves.”

Hunting for Cuts

Ron Haskins, a senior fellow at the Brookings Institution and a public policy expert, said that now that they have won control of the White House and Congress, Republicans are politically beholden to two things: doing away with Obamacare and cutting taxes. They would like to do it without adding all those costs to the deficit and will hunt for savings elsewhere in the budget.

Mr. Haskins, named last year by House Speaker Paul Ryan as co-chair of the Commission on Evidence-Based Policymaking, said he has a hard time imagining Republicans passing legislation that would eliminate money for programs that do things like protect vulnerable children.

He predicts cuts and or shifts in federal spending under Republican leadership will be more detrimental to nonprofit hospitals and medical facilities than to social-service groups. Mr. Haskins pointed to Republican proposals to shift Medicaid into block grants with spending caps that many argue would force states to cut benefits and coverage.

“Depending on what they do with Obamacare, that could be a double whammy,” Mr. Haskins said. “People who know a lot about health care are really afraid that there are going to be big problems if they repeal and don’t replace.”

There is “no way in the world” that a nonprofit hospital executive could hope to make up for reductions in government spending by, say, raising more private donations, Mr. Haskins said.

“The worst thing in many ways is the unknown,” he said. “That is one of things that is different with this current situation. You just don’t know what it is going to happen.”

Uncertainty is a constant for nonprofit leaders, said Paul Carttar, co-founder of the nonprofit consulting firm Bridgespan Group, and the current climate is no different.

“Nonprofit leaders are always anxious about their forward-looking fundraising prospects,” he said. “They are, and they should be. The nature of trying to build support for any given initiative is daunting.”

Leaders will do best by remembering that supporters of all kinds want to give money to organizations that prove that what they do has significant value. That usually works, according to Mr. Carttar.

“The best you can do is really ensure that your organization is as robust and high impact as possible, and then effectively make your case,” he said.

Last Resort

Patricia Del Monico, executive director of Harbor Regional Center, which provides a broad range of services and care for 13,000 developmentally disabled in Southern California’s Long Beach area, said she is reading daily briefings on appointments and possible spending proposals in Washington.

This fiscal year, which runs through June, the nonprofit has a budget of more than $200 million, Ms. Del Monico said, nearly all of it is from government sources. Hers is one of a network of 21 such regional centers in California whose services are statutorily mandated by state law, giving the organization some level of protection — they have to be paid for, whether by the state or the federal government, unless lawmakers change the law. Still, she said, she is paying close attention to what happens to Obamacare and to the possibility of Medicaid being made into block grants.

“Many of our clients who are on the lower income levels are relying on the Affordable Care Act for health services,” Ms. Del Monico said. “If those services are not available to them through their insurance, then we as payer of last resort will be looked to for that as well.”

The nonprofit executive has been in her position since 1978 and has seen her share of political and funding upheaval. In the wake of the 2008 economic recession, for example, the network of 21 regional centers of which she is a part lost $1 billion in funding. During that period, she found herself standing in front of her staff and reassuring them that whatever the political and economic climate, she didn’t believe lawmakers would abandon the disabled and that the mission would carry on. Since then, funding lost during the recession has been restored, she says.

Ms. Del Monico cautioned it is too early to speculate about how potential spending cuts might trickle down to organizations like hers but added that she and her peers will be ready to marshal a response.

“One thing I have learned in my too many years is to not overact and to wait and see what happens,” Ms. Del Monico said. “But I am not sure things are well thought out in Washington at this point or that there is a long view to some of these proposals that are being made. And that does concern me.”