We Can Never Beat Overhead By Ourselves, It’s Time To Merge!

When I saw a story on Non-Profit Quarterly about four Kalamazoo, MI non-profits entering a shared-services partnership, I immediately assumed it was confined to back office functions as I had written about before. However, that isn’t entirely the case. Moreover, the impetus for their partnership isn’t so much driven by a desire to save money as it is by the fact that funding entities won’t allow grants and donations to be used for administrative overhead.

The four non-profits, Boys & Girls Clubs of Greater Kalamazoo, Prevention Works, Urban Alliance and Big Brothers Big Sisters, didn’t form the shared entity, Hub ONE, just to handle their back office functions, Hub ONE staff will help people navigate the services offered by each of these groups. “With each organization working to combat an aspect of generational poverty, the partnership appears to be a natural fit.”

A three year, $8.3 million grant from the Stryker Johnston Foundation will largely support developing the infrastructure of this new shared services entity. Some of the money will also go toward staff development and retention–something that is actually the long term goal of the shared services model.

…Gail Pico notes that overhead caps stifle social progress by restricting funding for use in effective management (e.g. professional development, evaluation, and strategic planning), keeps direct-service employees in poverty, and discourages innovation by not permitting organizations to take risks in trying new methods.

Each member of Hub ONE has been negatively impacted in some way by overhead myths. For instance, many of their employees are eligible for the programs they offer. Consequently, the group asserts that much of their time is spent trying to hire and retain employees who are driven to leave the sector for better pay. Sielatycki hopes the new collaborative will free resources for member nonprofits to pay employees more competitive wages, thereby helping reduce turnover and its associated retraining and onboarding costs.

The title of this post is a reference to the merging robot motifs of cartoons like Voltron

Of course, what can be a threat to the folks in Kalamazoo and other places is when one organization prioritizes themselves over the whole. (offered more for entertainment than caveat)

Colorblind Grant Evaluation Measures Aren’t

There was an opinion piece on the Chronicle of Philanthropy website today by Antony Bugg-Levine, CEO of Nonprofit Finance Fund, discussing how the evaluative measures often employed by funders tend to discriminate against non profit organizations lead by, and serving, people of color.

He writes,

What I did not realize then was how colorblind application of financial assessment and funding practices can make it harder for organizations led by and serving people of color to get grants and make the most of them.

The problem often originates in the fact that these organizations don’t have access to networks of influence and financial resources that other organizations do.

So requiring dollar for dollar matches for grants or using rates of donations by board members as a measure of engagement and investment are difficult criteria for many non-profits to meet.

The same problem arises when using budget size as a point of assessment.

Determine grant size based on the value of the work rather than the current revenue of the organization: When you recognize the structural barriers that prevent many well-run and effective organizations from gaining traction, you come to see how distorted the link can be between an organization’s size and capacity. And the formal accounting rules that determine what counts as revenue make the problem worse. For example, pro bono legal advice from a corporate law firm counts as revenue. The many hours a volunteer spends reading to young people in a community center does not.

A better approach: Rather than creating rules that peg grants to a share of revenue, spend time understanding the value the work would generate and the full cost to undertake it.

Obviously, these evaluation measures don’t just present problems for organizations run by and for racial minorities. Many non-profit organizations run by racial minorities lack resources, but not every non-profit lacking resources is run by and for racial minorities.

Bugg-Levine provides a link to a guide recently issued by the Nonprofit Finance Fund which charts racially-based financial analysis and provides suggested alternatives.

There are some issues you might not immediately anticipate. For example, having access to a wealthy private donor allows organizations to take government contracts which tend not to cover full costs. Having the imprimatur of a government contract provides other funders with a greater degree of confidence in the organization, leading to better funding opportunities. But not having a relationship with a wealthy private donor makes it difficult to secure the government contract in the first place.

Another example identified in the chart is that:

Funders associate small organizations with community authenticity

Organizations will intentionally limit their revenue (often below $1 million/year) to remain eligible for “small organization” grants, because some funders will cut them off when they become larger. But, they still can’t make the leap to effectively compete against larger organizations for larger grants, given the dearth of funding options for organizations in the $750,000-$3 million/year revenue range.

Even an organization’s accounting method can be a source of bias. The indication that the organization employs accrual based accounting vs cash based accounting  favors better funded organizations that have the resources to pay for accrual accounting services because,

If an organization is using cash-basis accounting, which counts money when it is received or spent, rather than when it is earned or billed, their finances appear less stable. This can lead to suspicion about the soundness of their leadership and overall financial health, and create a perception that making a grant to this organization is riskier than if they were using accrual accounting

Not Words, But Deeds

Last week Doug Borwick wrote a blog post saying it wasn’t enough to tell people that the arts have value in their lives.

As I started reading his post, I agreed with this sentiment because we have long acknowledged the argument that the arts are good for you isn’t really that compelling for people. I have talked about how the arts shouldn’t be viewed as a solution to all sorts of problems a number of times before.

But there is also the basic experience we all have growing up being told that food/medicine/classes/experiences are good for us. We roil when forced to consume such things under the eye of parents and authority figures and often happily reject them when provided the freedom of choice. Sometimes we come back to them with appreciation, but other times the bias is so ingrained, we resist any opportunity presented to engage with these things again.

As Borwick’s post continued though, the situation became a little more complicated in my eyes. He quotes the former CEO of National Assembly of State Arts Agencies, Jonathan Katz about how little stock people put in empirical evidence about art.

Neither professionals [or community leaders] in the relevant disciplines nor the general public put sufficient stock in . . . studies to alter policy. This disinclination to believe is rooted in unexamined assumptions that the arts do not touch the lives of more than a select few.

Borwick continues, (his emphasis)

In other words, people do not believe the stories or the studies because they don’t believe they can be true. For many, the arts are so inconsequential, so void of impact on their own lives, any proof of their power is literally unbelievable.

So whether you are trying to convince people of the merit of the arts or the value of your organization or you are simply trying to get them to attend your events, there is a profound chasm of disbelief to be overcome. The way across this divide is not by words. It is action alone that will work. Being perceived as valuable must be earned by doing things that make us so. If we have to tell people we are valuable, we’re not to them.

Now to echo my friend Carter Gillies, just because you can measure something doesn’t mean what you have measured is relevant. We all know that the amount of revenue something garners has no relationship to the artistic value or quality of that thing.

But what Borwick is saying means that regardless of whether you are providing accurate data derived of the most rigorous methodology possible or not, people won’t believe the evidence if it doesn’t align with their personal experience. (Which granted, doesn’t just apply to the arts and also contributes to things like the current political divide in the U.S.)

So in the end, it is actions that enter someone’s experience, including that of individuals they value, that will serve as proof of the value of arts/culture/creativity.

Cons Of Starting An Endowment

Recently there have been some conversations around my organization and town in general about whether it is worthwhile to try to bolster an existing endowment. People have mentioned that there has been a trend away from establishing endowments in recent years. I started wondering what the thinking behind that was and what the alternatives might be.

It just so happens Non Profit Quarterly reprinted a piece that talks about the pros and cons of establishing and endowment.  On the con side is the issue is the idea that you are locking up money the organization could use now and disbursing it in the future when the same dollars don’t buy as much. Thirty years ago it may have seemed really attractive to learn that the organization would be receiving $25,000 a year from the endowment. In 1989 that could cover the salary for a position, but that money doesn’t go as far today. (Though there are plenty of places offering $25,000 as a salary.)

Current needs is the one that at least one of your board members will bring up, and is very possibly the reason why your board will vote not to have an endowment. “Why should we put a million dollars in a bank account when we can use that to serve a million more lunches?” Or buy a hundred thousand more books. Or facilitate a thousand more adoptions. Or renovate the façade of the theater. Many nonprofits are in dire need of more money, and most can at least think of an immediate way to use more….Some people go so far as to say it’s not ethical to lock money in the bank when there are so many necessary ways to spend it now. Before you know it, you have bad press and declining donations—and you wish you’d never thought of raising an endowment.

You may look jealously upon organizations receiving large payouts from their endowments, especially universities, but by and large these groups have a staff that is actively managing an endowment. A staff is required to grow an endowment to the size it yields enough to support your activities. But you need to have started with a large enough endowment to support a staff in the first place.

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