An Interview with Rick Cohen, Chief Communications Officer with the National Council of Nonprofits:
No one, it seems, likes a government shutdown, yet these disruptions continue to happen. Whether for political gains or genuine concern over financial management, presidents and congress reach impasses that stop the legislation necessary to fund the operation of some or all government agencies.
According to Tom Murse of the ThoughtCo.com, there have been 21 shutdowns or partial shutdowns since 1976, and the current one threatens to be a record-breaking event. But no matter how long or short, one thing is certain. Government shutdowns hurt us all. “While few last very long, all government shutdowns result in increased costs of government and inconvenience for many citizens,” said Mr. Murse.
One of the hidden groups affected by these conflicts is the nonprofit industry. Tangicloud met with Rick Cohen, Chief Communications Officer for the National Council of Nonprofits, to discuss how nonprofits are affected and what they can do to weather the political storm.
HOW NONPROFITS & THE GOVERNMENT WORK TOGETHER
In a government shutdown, Rick estimated that the largest group of nonprofits affected would be those in Human Services– organizations that help with housing, food, job training and placement, and domestic violence. However, it is likely that the entire nonprofit industry will have some negative impact from the current political climate.
“An average one third of our nonprofit revenue comes via services that are performed on behalf of the Government,” said Rick. “Many of these services are operations the government sees as vital to the community yet are not provided directly to constituents. They are addressed through contracts and grants to nonprofits.”
WHEN THINGS GO WRONG & GOVERNMENT SHUTDOWNS HAPPEN
When a shutdown occurs, that funding can be delayed. However, Rick explained, unlike a commercial business, a nonprofit cannot raise prices or turn people away when funding dries up. Too many people depend on the services they receive for basic needs.
“Take the example of a road paving company. If the government stops paying it the company stops paving and can move on to other opportunities. A nonprofit cannot stop serving the people they’re there to help,” said Rick.
NONPROFITS ASKED TO DO MORE WITH LESS
Complicating the situation, just as government funding begins to dry up as a consequence of a shutdown, nonprofits are turned to by those who’ve been furloughed or asked to work without pay for help. This is the classic nonprofit situation of being asked to do more with less support.
“Everyone thinks that when something like this happens, they can turn to their local nonprofit for help,” Rick said.
To make matters worse, many of those furloughed or non-paid workers are normally contributors to the nonprofit sector, but obviously they cannot contribute when they have no pay. The result is that the nonprofit receives late or fewer fees from government grants, a reduction in donations from individuals, and an increase in service requests.
Rick said that in this situation, a nonprofit is like the person who’s being pulled too far in every direction. One arm is stretched to make the limited funds they have work for the current needs, while the other arm is being stretched even further when the pool of those in need of support grows larger with each passing day. Some of the programs most likely to have long term negative effects will be such programs as SNAP, and Violence against Women.
SUGGESTED ACTIONS FOR CONTROLLERS AND CFOs
At times like this, Rick suggested that nonprofits should be able to turn to a “rainy day fund.” Unfortunately, according to a 2018 survey of almost 3,400 nonprofit leaders conducted by the Nonprofit Finance Fund, 50% reported that they had three months or less of cash on hand to operate their businesses.
“At times like this a nonprofit can’t decide to go out and raise funds to make up for shortfalls from the government,” said Rick. “And it’s hard to get a line of credit. There’s also no certainty that getting backpay is forthcoming either.”* He said he remembered the great recession of 2008 when Executive Directors of nonprofits were known to put a second mortgage on their own homes just to keep operations going. He’s hoping for a quick end to the shutdown in order to avoid that kind of drastic action now. Here are some suggestions controllers and CFOs should be taking now in order to keep their finances afloat:
- Review what portion of your budget comes from the government, and when the government payments are expected into your bank accounts. Get in touch with your contact now, if you haven’t already, to confirm where things stand. Use that information to plan for potential hard times.
- Whatever can be put on pause, do so. Can you make those office supplies last a little longer? Can you put off buying that new computer until a brighter day? Advanced planning is critical now.
- Your restricted funds must remain segregated and used for the purpose designated at the time of the donation. However, you can contact those who donated for a specific purpose in the past and either ask for permission to redirect the funds or even ask for additional generosity on the donor’s part. Be sure to start your note or conversation with a thank you before you explain the immediate needs.
If you’re managing a nonprofit and have ideas for other dollar-stretching ideas, please share them below.
One last suggestion - contact your government representative (including the president) today! Let them know that a shutdown hurts us all and it’s time to reach a compromise.
* Since our interview with Rick Cohen the congress and president have passed a bill to give backpay to furloughed government workers. Whether or not late grant payments will be paid is unclear.