Somewhere out there in the fictional Freedom County USA, the human services sector is in danger. Many nonprofits have less than a few week’s worth of cash on hand and tens of thousands of people are at risk of losing vital services.
The problems of this fictional place however mirror the real world America where a new report outlines problems similar to those faced by New York nonprofits – not enough money to keep up with the demand for government-funded services. The accounting math shows that the average community based organization (CBO) is losing money at a time of looming austerity at the federal and state levels.
It comes down to two dueling forces, according to one CEO quoted in the report, commissioned by the Alliance for Strong Families and Communities, and the American Public Human Services Association.
“We’re stuck between a rock and a hard place,” the unnamed CEO says in the report. "The government funds us like a charity, but expects us to run like a business.”
And the business side of this $240 billion sector is increasingly slipping into the red, according to this analysis of 40,000 federal tax filings from 2013-16. One out of eight of these CBOs are already insolvent and 30 percent of them have cash reserves that would last just a few weeks. Half of all CBOs furthermore regularly operate at a loss, threatening the overall stability of a sector that serves one out of five Americans, according to the report.
In Freedom County, as in other places this fictional community reportedly represents, four factors are behind these dangerous trends in the human services sector:
Constraints imposed by government contracts
Constraints imposed by private philanthropy
Regulation and the legal environment
Bad financial risk management capabilities among CBOs
But what to do?
The report details five broad approaches to tackling these issues. Increased accountability from organizations would force them to more proactively prove the efficacy of their programming while reducing waste, but also requires more investment in the sector. An emphasis on innovation likewise would modernize the sector, streamline operations and develop networks among organizations.
This would help CBOs better pool resources through partnership at both the administrative and programmatic levels. Financial management practices need to better manage risk and government regulations need to be modernized in order to meet the needs of 21st Century human services, according to the report.
Once all five of these approaches have been pursued, all can start to become well again in Freedom County – at least in theory.
The biggest change of all that would have happened in this ideal future is the recognition of the place that human services CBOs should have in any community, big or small, fictional or real, the report states.
“Most importantly, the residents of Freedom County embrace the need to invest in the human services ecosystem as crucial to lifting up their communities and providing the means for a happy, productive, and successful life for all,” reads the report. “To the residents of Freedom County, the human services system is as much a part of their critical infrastructure as their roadways, their water pipes, and their schools.”