Doubling Up

Sheila Dobson, 55, grew up with so much poverty, neglect, and family tragedy that her own alcoholism and mental illness weren’t effectively treated until she was well into her 40s. At different times, Ms. Dobson turned to Ingraham, a charity in Portland that offered her crisis counseling and residency in a therapeutic facility. “They

SURVIVAL STRATEGIES Consider a merger to improve service or efficiency when an organization is in good health. Begin planning before financial conditions reach the crisis stage. Go slow, and build trust with potential collaborators before deciding on a full merger. Continue to mesh organizational cultures after the merger.

saved my life,” she says. “They didn’t give up on me when I was ready to give up on myself.”

What Ms. Dobson says she liked most is that the organization never lost the spirit created by the volunteers who ran it for years, even though it long ago grew into a professionally managed and operated charity.

“It’s more like a friendship than a client to a provider — it’s wonderful,” says Sheila Dobson of her relationship with Ingraham therapists.

So, Ms. Dobson was concerned when she learned last year that Ingraham was pursuing a merger with Youth Alternatives, a child-welfare charity. The merger was precipitated by the retirement of Ingraham’s chief executive and was pursued as a way to improve efficiency during a period of tightening finances. Longtime clients like Ms. Dobson worried that the merger might doom Ingraham’s personal touch.

“It’s natural to think something would be lost,” she says. “Ingraham had a reputation, a wonderful reputation. So did Youth Alternatives. But it’s still a change, and any change can be hard.”

‘A Bigger Opportunity’

Ms. Dobson is among those who are now grateful for the merger, which was completed a year ago. The partnership, which joined the two groups under the name YAI Youth Alternatives Ingraham, combined two $12-million charities into a single $23-million organization that runs therapeutic boarding homes and telephone services for people in need of help, as well as offering child-rearing education, counseling, and psychiatric services. Ten administrative jobs were trimmed, resulting in a full-time combined staff of 350. But all programs were retained during a period of severe cuts in state financing, notes the organization’s president, Michael J. Tarpinian.

“There are [other] programs that are shutting down,” says Mr. Tarpinian, who was chief executive of Youth Alternatives before the merger. “Our ability to maintain the same level of services and bring some added value is very important. We are able to do it because we merged and were able to consolidate infrastructure and reduce costs.”

Both Ingraham and Youth Alternatives received most of their money from the state and federal governments. As recently as 2006, Maine was ranked among the top five states for mental-health services, judged by the quality of care, effectiveness, and availability of services, according to a scorecard published by the National Alliance on Mental Illness. But sustained budget cutting in state government has put that ranking in jeopardy.

“We’ve been flat-funded for many years,” says Joseph Brannigan, executive director of Shalom House, a mental-health-services provider in Portland. “Every economy has been accomplished. Reserves have been reduced or eaten up completely. These agencies are pretty nearly on the ropes.”

Maine’s economy has been hit by the current downturn — the state posted a 5.4-percent unemployment rate for the month of July, just behind the national rate for that time period of 5.7 percent, according to the U.S. Bureau of Labor Statistics. But the squeeze on mental-health services has been pressing for years; advocates point to a 2002 pledge by Gov. John Baldacci not to raise taxes, and the diversion of state money to fulfill commitments to increase state aid to local education, as reasons for the cuts.

Compounding the money crunch has been the state’s transition to a managed-care payment system, which requires clients to get multiple permissions to receive mental health, substance abuse, and group-home services. Managed care is intended to limit care to what is necessary, but it can also force providers to invest in expensive technology upgrades to track clients and services more closely, and can lead to more frequent denials of requests for aid.

“From what we’ve seen in other states, it has been a way to reduce costs. It means people aren’t getting the services they need,” says Cynthia P.B. Fagan, vice president for administration at Sweetser, a charity that provides homes and services to children and families with emotional disturbances, mental illnesses, behavioral disorders, and learning disabilities.

Sweetser has been forced to close eight of its 10 clinics and six therapeutic group homes, and trim about a quarter of its jobs because of cuts in state financing.

Last year, two regional mental-health-care providers — Richardson Hollow and Protea — closed. Protea was shut down after being acquired by Sweetser, which also inherited and subsequently shut down many of Richardson Hollow’s programs after the organization’s closure. For Sweetser, says Ms. Fagan, “it’s getting increasingly difficult to even break even in services we provide.”

At Ingraham, leaders were anxious about the advent of managed care and continued belt tightening at the Statehouse in Augusta. It didn’t help that the organization got hit with a $1.2-million back-payments bill resulting from the state’s transition to a new Medicaid billing system.

Ingraham had set aside money to square accounts, but the back payment was larger than anticipated. For an organization with tight cash flow and no significant endowment, the back-payments bill “was a catalyst for the merger,” says Joe Everett, chief operating officer at YAI, who previously served as Ingraham’s assistant director of operations.

Ingraham also was facing new expenses: to finance deeper investments in training and cover the cost of replacing the organization’s “clunky” electronic records system with one that was up to the sophisticated requirements of managed care. “We realized the hill was getting steeper,” says Tom Dunn, a financial-services consultant and Ingraham board member.

The retirement in December 2006 of Jane Morrison, Ingraham’s executive director, who had led the charity for 17 years, precipitated a wider discussion of the group’s future. Instead of pursuing a replacement immediately, Ingraham opened talks with like-minded organizations to explore possible collaborations.

“From a stewardship view, there was a bigger opportunity” than hiring a replacement leader, says Mr. Dunn, who served as interim executive director after Ms. Morrison’s departure. “Didn’t we owe it to ourselves to look at it?”

No Urge to Merge

Consolidation of state-financed services has been a hot topic in Maine for years, but the idea has yet to catch hold with the state’s 5,560 charities.

A survey conducted this spring of 25 executive directors of nonprofit organizations in Cumberland County, which includes Portland, found that 21 respondents fail to regularly consult with other nonprofit groups to maximize collaboration and avoid duplication of services.

Those figures do not surprise Ellen Grant, executive director of the Institute for Civic Leadership, a group that merged with another Portland charity in 2006.

She believes charitable work can instill a devotion to mission that can blind people to their common purpose with allied organizations.

“Mergers are so antithetical to nonprofit culture,” asserts Ms. Grant.

In the business world, she says, “it’s all about numbers,” but in the nonprofit world, people’s identification with particular programs makes them protective of them and leads them “to see all the differences why they can’t merge.”

Ingraham advertised for merger proposals and received six, including pitches from Sweetser, Shalom House, and Youth Alternatives. Mr. Dunn says the organization settled on Youth Alternatives for both practical and intangible reasons.

The organizations were about the same size, with a shared approach to clinical services, but their missions were complementary rather than closely matched.

“There was some overlap, but not a lot,” Mr. Dunn says. Preservation of services and Ingraham’s mission were priorities, he says.

The merger opportunity came at a ripe time for Youth Alternatives, which had also been exploring ways to become more efficient as finances tightened, says Mr. Tarpinian.

“We wanted to know what it would take, not only to survive, but to thrive,” he says.

The organization had recently invested in new software to meet the more sophisticated data requirements of managed care, but the expense made much more sense for a larger organization, he says.

“There were efficiencies and economics of scale that would benefit us if we got to a certain size,” says Mr. Tarpinian.

Ingraham’s and Youth Alternatives’ boards and staffs worked together for months in advance of the merger, getting acquainted with each other’s operations and organizational cultures. (Donors were also kept informed about the merger’s progress.)

Many of the key people involved at both organizations had been steeped in collaboration techniques through training sessions and consulting provided by the Institute for Civic Leadership and Common Good Ventures, a nonprofit group in Brunswick, Me., devoted to improving organizational effectiveness.

“To their credit, Youth Alternatives was very sensitive,” says Mr. Dunn. “They said all the right things and have acted the right ways since. They really stepped up. The care in meshing operations seems to have paid off.”

Outsiders also say the merger appears successful. “I have not heard any negative complaints,” says Brenda Harvey, Maine’s commissioner of health and human services. “It seems to be working quite well.”

Fund-Raising Fallout

YAI still receives 70 percent of its budget from state and federal contracts, but the favorable response to the merger from private donors and foundations has raised hopes that they will increase their share of the organization’s support, according to Sarah Johnson, vice president for development at YAI.

She said several donors contributed additional money to facilitate the merger and others congratulated YAI on taking steps to avoid duplication of services.

Since the merger, fund-raising revenue has increased 1.5 percent, she says, even though the combined development staff is smaller. YAI also hopes two promising new programs — awareness training about the connection between animal cruelty and child abuse and a more sophisticated approach to protecting endangered children — will “open new funding sources we were not able to access,” says Ms. Johnson.

The state’s cost cutting has continued since the merger. Early this year, Governor Baldacci announced a new round of spending reductions to close a $190-million shortfall in the state’s $6.3-billion, two-year budget.

The cuts were softened following a massive Statehouse rally March 12 organized by advocates for the poor, the disabled, the mentally ill, and others. Among those in the crowd that day were Mr. Tarpinian and Ms. Dobson.

Reflecting on the latest round of cuts, Mr. Tarpinian says he is glad he is part of a larger organization. Had the two charities not merged, “we would be hurting right now,” says Mr. Tarpinian. “I would feel much more vulnerable.”

Those sentiments were echoed by Ms. Dobson, who thinks the merger was “the right thing to do because of the economy.”

If it had not occurred, she says, “I think there’s a good chance Ingraham could have failed. I don’t think that would have been good.”