Sep. 24, 2020 7:00 am

Today’s state budget blues will bring tomorrow’s nonprofit woes

“Cuts in social service nonprofits will decimate a system that is already too fragile,” says Donna Cooper, the executive director of Public Citizens for Children & Youth (PCCY).

At a recent ACLAMO event, attendees were tested for COVID-19, completed the Census form, received backpacks filled with school supplies, and were able to pick up fresh vegetables and emergency food.

(Photo from ACLAMO's Facebook page)

This year was horrific for nonprofits’ bottom-line.  That is the good news. The bad news is that next fiscal year may be much, much worse.

State funding is the financial anchor for many of the commonwealth’s nonprofits, according to Anne L. Gingerich of Pennsylvania Association of Nonprofit Organizations (PANO). With nearly 13 million workers still unemployed and social distancing hurting business and transportation, all 50 states are facing serious revenue shortfalls.

Pennsylvania is no exception and is facing an almost $5 billion loss in state revenue through June according to the Independent Fiscal Office (IFO). This is an optimistic figure that doesn’t account for a possible second wave of shutdowns if coronavirus spikes again this fall.

It is in this environment of profound uncertainty that nonprofit executive directors are working to rebuild financial security for their organizations.

And this is what Nelly Jimenez-Arevalo is describing when she says simply, “This is a mess.”

Nelly Jimenez-Arevalo.

She is the executive director of Acción Comunal Latinoamericana de Montgomery County (ACLAMO). The nonprofit is based in Norristown and serves Latinx and other low-income residents, providing them with educational, social services and health access programming.  Jimenez-Arevalo estimates that one-third of her annual budget is from state funds.

“I am always concerned about state funding. Right now COVID is hard for everybody with all those expenditures that we didn’t foresee. But I think the hardest year is going to be fiscal year 21-22,” she predicted.

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Donna Cooper.

“Clearly the healthcare sector and the education sectors are at risk,” said Donna Cooper, executive director of Public Citizens for Children & Youth (PCCY), an advocacy organization.

“Sadly, all nonprofits in the cultural and tourism sector will take a back seat and have to be braced for cuts. And we know SEPTA is at great risk (because) there are so few riders. Childcare is at risk,” Cooper said, briskly ticking off troubled sectors.

“My take on it is that these foundations who created COVID relief funds don’t have fountains of multiplying dollars. And more people are out of jobs and they are scared. All of that drains the fountain. Money is not going to come as quickly as it did in the beginning (of the pandemic). A lot of people donated in the beginning when they saw an urgency but donations are beginning to dry up. People don’t see that urgency and that will impact nonprofits. That’s going to be a challenge” Jimenez-Arevalo added.

Moreover, the options for climbing out of the hole range from bad to awful. The state can cut services, raise taxes or borrow money.

“Cuts in social service nonprofits will decimate a system that is already too fragile,” said Cooper.

Marc Stier.

The most comparable economic disaster is the Great Recession but Marc Stier, director of the Pennsylvania Budget and Policy Center, recalled “We handled 2008 exactly the wrong way and Pennsylvania was one of the last states to recover.”

By cutting the budgets of health and human service programs, he said, Pennsylvania prolonged its recovery period.  Stier was also opposed to borrowing because it means paying today’s bills with tomorrow’s revenue, which could create a budget crisis in the future.

Instead both Stier and Cooper are advocating corporate tax increases to fill any gaps. “Easily 70 percent of corporations in Pennsylvania do not pay taxes,” Cooper said.

"Easily 70 percent of corporations in Pennsylvania do not pay taxes."
Donna Cooper

However, conservative think tanks, like the Commonwealth Fund, argue the state’s  economic diversification and flat tax structure is a key ingredient in the state weathering the present crisis.

In May, the Pennsylvania legislature approved a five-month temporary budget that did not call for new taxes nor did it call for program cuts. Instead funding for nonprofit organizations maintained level through November 30.

The temporary budget gave elected officials time to assess the full economic impact of COVID-19. Cooper said that the current fiscal year’s revenues “have not been as bad we thought, but we don’t know what it means for next year. For example, the biggest source of (sales tax) revenue are car sales and they are vey depressed.”

Anne Gingerich.

Gingerich of PANO is also monitoring two bills calling for additional nonprofit financial support. One is a $100 million COVID-19 Nonprofit Assistance which would provide grants up to $50,000 for losses directly related to COVID-19 that occurred between March 6 and September 30, 2020. A companion bill is requesting $200 million for nonprofit human services —the Nonprofit Economic Emergency Delivery (NEEDS) grant which passed unanimously in the state senate last week.

Many predict that the full force of COVID has yet to hit.

“I’m I worried that some of the nonprofits are not going to survive,” Jimenez- Arevalo said. “I am being very strategic about (fiscal year) 21 -22.  You can’t get so caught up in the immediate problems that you don’t think about strategic planning. We need to stop and think about what we want to do to make certain our programs emerge from the pandemic.“

Four things executive directors can do now

  • Communicate with their boards about the budget, revisit the strategic plan and discuss what funding cuts would mean for their organization. Don’t shy away from the difficult conversations.
  • Talk with your donors — foundations as well as individuals — and make them aware of your financial situation and what it means for carrying out your organization’s mission.
  • Look for areas of possible savings as a result of the pandemic, contact vendors and try to renegotiate services where possible.
  • Partner with other agencies to advocate for the nonprofit sector as opposed for an individual agency. Stay up-to-date and monitor the legislative budget process.

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