Charities' plight: Economy may force some to close

Thursday, August 12, 2010

Local charities are struggling to survive under current financial conditions and government decisions. Meanwhile, the disadvantaged pay the price.

On paper, many charities seem to have relatively stable financial records. But their black or barely red bottom lines hide a common denominator. Stability has come at the cost of borrowing money, laying off employees and cutting programs, leaving the needy with even less.

“There’s no question about it,” lamented Horizon House chief executive officer Jim Monterastelli, “this is the worst fiscal situation we’ve ever been in.”

The reasons are numerous. Illinois Valley residents and businesses have little extra money to donate. The local unemployment rate hovers between 11 percent to 14 percent, swelling the number of people in need. Financial burdens such as tax increases, new federal entitlement programs, Illinois’ steadily increasing minimum wage, and state lawmakers who cut future funding and renege on paying promised funding in a timely manner are all pushing charities into a fiscal abyss.

Many charitable leaders won’t say it publicly, but they whisper that if the economy continues to slide, smaller charities may not survive, bigger organizations will continue cutting services, and there will be fewer programs for the disadvantaged to turn to for help.

Understanding charities

Many people think of charities as a local food pantry; a building full of goods, perhaps one full-time employee and a handful of volunteers. It has very low overhead and survives on charitable donations. Just drop off some canned goods and the needs of the disadvantaged will be met.

But this is the exception, not the rule.

Charities and non-profits are similar to private businesses because the needs of the poor are far more complex than a Campbell’s soup donation. Highly-trained and educated people are needed to help clients; organizations have financial concerns such as building costs, taxes and making a monthly payroll, all while balancing their budgets on precarious government subsidies.

The most established local charities such as Horizon House should be able to weather the current economic storm.

But being a small non-profit, like most others in the Illinois Valley, the income tax break awarded for their non-profit tax status is hardly enough.

Take United Way of the Illinois Valley as an example.

In 2004 and 2005, the United Way received more than $500,000 in gifts, grants, contributions and membership fees. According to their 2008 tax files, that crucial revenue has steadily plummeted to $315,000 annually. That’s nearly a $200,000 revenue loss, or 40 percent, over a five-year period.

Decreasing payroll donations are the biggest culprit. United Way relies heavily on employees who mark the box authorizing a monetary donation be taken out of their paychecks. But as jobs dry up locally, so do those donations; and the United Way’s ability to properly distribute funding to local charities.

“Fewer people can be served if we don’t have money to give to those agencies that serve them,” said Andrea Walters, executive director of the United Way of the Illinois Valley.
Meanwhile, the number of needy is increasing.

U.S. Census Bureau has no recent estimated poverty data available for the Illinois Valley. But local food pantries can be an indicator of local financial conditions.

Illinois Valley Food Pantry, for example, gave food donations to 7,161 people during the months of March, April and May. That’s 28 percent, or more than one food donation for every four people living in La Salle, Peru, Oglesby and Utica. Last year was 25 percent.

With need increasing and in-kind donations falling, there are still more fiscal hurdles for charities to leap.

“I think it trickles down from the government,” Walters said. “They’re cutting funding for social services and that creates a lot more needy people because we can’t get them the help they need.”

Compassion fatigue

Small charitable organizations such as Illinois Valley Center for Independent Living, an organization that assists people with disabilities, are suffering due not only to state budget cuts, but also Springfield’s willingness to renege on its funding commitments.

Two IVCIL clients, one who is an amputee with several other health problems and the other with Parkinson’s disease, were able to move out of their respective nursing homes after IVCIL found them Homebound Healthcare, which agreed to cover their in-home care.

But last week the Homebound office in Princeton notified IVCIL that it would have to immediately drop funding for the two clients because the state was not paying the agency what it had promised. Without funding for personal living assistants, the two clients would have no ability to live on their own.

“We really had to scramble (to find alternative care),” said IVCIL community reintegration coordinator Rachael Mellen. “It was the state of Illinois that put this agency in this position. We really didn’t know what to do with these folks. It was unprecedented.”

Mellen said IVCIL’s two clients felt vulnerable and asked for anonymity.

Fortunately, IVCIL was able to find their client’s alternative help. But frustration with the way state government is being run continues, Mellen said.

Funding nightmares

IVCIL is 93 percent state-funded. So when the state balked at fulfilling its funding commitment near the end of this fiscal year, executive director Donna Joerger had a lot to worry about.

The state determines how much funding an organization will receive largely by how much grant funding it used the prior year. For example, the state grants IVCIL about $480,000 annually. If IVCIL spends only $400,000, the state will only grant the non-profit $400,000 the following year.

But here’s the rub: IVCIL never received all of its funding from the state this year. So in order to keep its current funding stream at $480,000, IVCIL had to cut employees and borrow about $25,000 from a private bank at an interest rate of less than 10 percent.

This gives IVCIL the appearance of a healthy balance sheet and the state believes it spent all of its $480,000.

“They perceive it as if you didn’t need the money so we’re cutting your budget,” Joerger said. “In reality, they didn’t pay us what they said they would, which forced us to borrow money and cut some employees in order to keep the doors open. We were lucky, too, because we were rejected by most banks because we have no collateral and banks are very unwilling to loan money to non-profits.”

The state’s unwillingness to meet its funding obligations has also struck Horizon House, one of the Illinois Valley’s largest and well-established charities. It too helps improve the lives of people with disabilities.

All non-union staff took a five percent pay cut, union employees are at an impasse with management over having to contribute more for their health care plans, the state spent much of this year owing Horizon $1.5 million, and it’s had to cut managers, direct care workers and others.

“I’m tired of whining, but there’s a lot to whine about,” said CEO Jim Monterastelli.

However, despite the monetary burdens the organization has endured the staff is high-spirited. Rather than focus on their weakening bottom line, Monterastelli and Horizon House director of development Carol Fesco would prefer to guide the conversation toward ongoing improvements such as its stronger self-advocacy program or how their clients are becoming more philanthropic.

“We could say poor us, poor social services, but there will never be enough money in Illinois to do everything we’d like to do,” Fesco said.

More burdens

The passage of massive government entitlement programs such as federal health care and the state’s increasing minimum wage has caused charities such as Youth Service Bureau to cut back hourly employees, lay off entire positions and cancel programs.

When minimum wage is raised, charities, as is the case with businesses, find it more difficult to make payroll and provide services. The passage of federal health care, which has a list of new and increased taxes within the bill, has only made the problem worse, said YSB fiscal manager Dave Conrad.

“All of the financial experts we’ve talked to have said the federal health care bill (Affordable Care Act) is going to hurt really bad at first, and then it’s an unknown,” Conrad said. “It will force costs up which makes it hard to plan for anything and keep people employed. We just look at our budget every month and hope.”

In addition, Illinois lawmakers cut 27 percent of state funding to YSB in the past two years, forcing YSB to cancel programs and services, eliminate three full-time positions and six part-time positions, and reduce three full-time positions to part-time.

“We have staff at that (minimum wage) level and it makes it difficult to keep them when they raise the minimum wage,” said YSB executive director Dave McClure. “They deserve the wage, but it’s gone up $2 in the past few years. We just can’t keep up.”

McClure said the cuts they’ve made so far have been supplemental programs to YSB’s main mission. And while he expects funding cuts and difficult government policies to continue, he remains optimistic about YSB’s future.

“We try to think everything is fine in the Illinois Valley, but we have a lot of people making very modest incomes so it doesn’t take much for their lives to go to hell,” McClure said. “We’ll do whatever it takes to keep our doors open and survive. We don’t know what we’ll have to do to do that, but we will.”