States’ continued belt-tightening threatens to squeeze charities
As states draft their budgets for the 2006 fiscal year, the battles taking shape have a distinctly different
tenor from those in the last several years, when deficits forced many state legislatures to make deep cuts in or eliminate programs that subsidize charities and the people they serve.
This time budgets are not nearly as tight, and some charity leaders see opportunities to restore money to programs previously cut. State spending is projected to rise by an average of 4.5 percent in the 2005 fiscal year, the biggest budget increase in five years.
Yet even as states continue to rebound from the recession, spiraling costs in programs such as Medicaid — the health-insurance program that is jointly financed by federal and state governments — may lead to cuts in state-government support, particularly in funds for health and human services.
A major concern for charity leaders is that dozens of states are considering tightening eligibility requirements for Medicaid and other programs that serve the poor — changes that often are made with little debate, even though thousands of people could be at risk of losing benefits.
“They’re throwing people off of these services in a way that doesn’t cut the whole program,” says Erica Greeley, director of strategic policy planning at the National Council of Nonprofit Associations, in Washington, which represents 39 state coalitions of nonprofit groups.
“It’s a change in the rules rather than a change in policy,” she says. “That sometimes allows the changes to slip by under the radar.”
Half the States Still Face Deficits
Even though states are doing better than in the past, more than half still have budget deficits, according to the Center on Budget and Policy Priorities, a Washington research group. Collectively, the deficits total more than $32-billion.
Though budgets in many states won’t be made final until summer, governors have taken aim at programs that pay for in-home care in Missouri, legal aid in Vermont, and child care in Minnesota.
Some charity officials say the worst news is coming out of Washington, D.C., rather than the state capitals. President Bush’s budget calls for reductions of $214-billion in “domestic discretionary” programs over the next five years.
Although the president’s budget detailed only cuts that would be made in 2006, the Center on Budget and Policy Priorities projects sharp cuts to programs that provide food, rental assistance, and child care to low-income families through 2010. “These are potentially the worst cuts in a decade,” Ms. Greeley says.
Another threat to charities is the growing popularity of ballot measures that would put strict limits on growth in state spending. Colorado’s Taxpayer Bill of Rights, perhaps the most restrictive law affecting state spending, has led to such sharp cutbacks in services that lawmakers hammered out a bipartisan deal this month to relax its provisions and allow greater spending over the next five years.
Charities that have already faced cuts in government funds worry that any additional cuts, even small ones, will mean reductions in services.
“There’s some real cutting into the meat of operations here,” says Lester M. Salamon, director of the Johns Hopkins University’s Center for Civil Society Studies.
In a study by the center last year of 236 charity officials at cultural and social-service groups, 52 percent said they had responded to economic weakness and government cuts by tapping reserves or selling property, and 56 percent said they had frozen salaries, cut benefits, or increased staff members’ hours.
“Nonprofits are trying their best to avoid cutting back on their service to clients, but they’re taking it out of the hides of their staff and the core resources of the organization,” says Mr. Salamon. “You can only do that for so long.”
No. 1 Threat
Medicaid has long been one of the fastest-growing items in state budgets, and efforts to control its costs are shaping up as the No. 1 threat to charity budgets this year.
In Missouri, which spends 31 percent of its budget on Medicaid (the average among all states is 22 percent), Gov. Matt Blunt, a Republican, has proposed tightening income-eligibility standards so that 89,000 low-income adults would no longer receive health-care benefits. Governor Blunt says the changes are needed to keep his proposed $19.2-billion budget for the 2006 fiscal year in balance.
Mark E. Stone, executive director of Services for Independent Living, in Columbia, Mo., says that about half of the 290 severely disabled people his charity assists through a state program called Personal Assistant Services would probably lose Medicaid eligibility as a result of the cuts.
That program pays for an in-home assistant, which can be a family member, to help with activities like bathing, dressing, and preparing meals.
Mr. Stone says most of the group’s clients are barely getting by with the state assistance, and he estimates that many of them will end up in nursing homes — at a greater cost to the state — as a result of the cuts.
“I’m telling legislators, look at this individual now, and then come back in one year after they’ve lived in a nursing home, and see what you have created,” Mr. Stone says.
With Republicans in control of both houses of the General Assembly, critics of the Medicaid cuts say that they are fighting an uphill battle. Grass Roots Organizing, a Mexico, Mo., advocacy group this month led a march to the governor’s mansion denouncing the cuts. In February, the group piled crutches and wheelchairs in a Dumpster set up in the Capitol Rotunda to protest Governor Blunt’s comment that Medicaid was “wasteful.”
“I don’t understand how providing health care to our most vulnerable residents is not a priority for this governor,” says Robin Acree, the group’s executive director.
In California, Gov. Arnold Schwarzenegger, a Republican, also has targeted the state’s Medicaid program, known as Medi-Cal, as part of his effort to balance the budget. His proposed budget for the 2006 fiscal year would require Medi-Cal patients who are above the federal poverty level to pay premiums, among other changes.
Health Access California, an advocacy group in Oakland, estimates that the governor’s plan would force more than 100,000 people off Medi-Cal rolls.
Kenneth Larsen, director of public policy for the California Association of Nonprofits, says the governor’s proposal could lower Medi-Cal payments to nonprofit providers even as more low-income patients turn to those agencies for help.
Many of the charities are already stretched thin because of previous budget cuts. A study conducted last year by the California Association of Nonprofits and the Human Interaction Research Institute found that cutbacks in both government and private revenues had taken their toll on many “safety net” nonprofit groups in California.
Almost 41 percent of the 741 health and human-services nonprofit organizations in the study reported that their revenues were down from the previous year. Fifty percent had postponed new hires, 42 percent had imposed salary freezes, and 39 percent had laid off staff members.
“In general, things haven’t gotten better” since the report was published, Mr. Larsen says. “And there’s the potential they could get worse.”
Changes in Day Care
In Minnesota, Gov. Tim Pawlenty, a Republican, has proposed $70-million in cuts over two years for day-care subsidies for low-income families. That comes on top of $86-million in cuts in during the 2003 session. The state in 2003 doubled the amount a family must pay for care, enacted stricter income requirements for families, and stopped providing extra money for people who wanted to send their children to accredited preschool programs. Now Governor Pawlenty wants to extend a freeze on reimbursement rates for another two years.
Chad Dunklee, president of the Minnesota Childcare Association, which represents 250 centers, says his own chain of 51 providers (eight of which are nonprofit) has seen the number of students who receive state assistance drop by 25 percent since 2003.
The average gap between what the state pays and what Mr. Dunklee charges is $3,000 per year. A recent study found that even the for-profit centers in Minnesota were earning a profit of only $11,000 per year.
“Families want our programs, but they can’t afford the rate,” Mr. Dunklee says. “And we can’t afford to care for families at far below market rates.”
Economic Arguments
Given the tight budgets in many states, charities are often couching their requests for support in economic terms.
In North Carolina, which is facing a $1.2-billion budget gap, arts advocates hope to persuade the General Assembly to restore $2-million in grants to support county arts councils and large organizations by arguing that the increased funds will help fuel tourism in the state. The arts grants were eliminated during a budget crisis in 2001.
The increase would raise the state’s arts spending to more than $7-million. The Brevard Music Center, which operates a summer institute and festival in western North Carolina, would see its grant increase from $52,000 to $70,000. That’s only about 2 percent of Brevard’s $3-million budget, but the money would be used to advertise the festival, and probably would increase the number of tourists who stay in local hotels and eat at local restaurants, says John Candler, the center’s president.
“We’ve done a good job of educating legislators that the arts are worthy of their support — not only for the softer values, but also because it’s good business for the state,” Mr. Candler says.
Following the November elections, Democrats now control both houses of the Assembly, which is stirring optimism among arts advocates in the state.
“Two million is a huge amount of money to the arts organizations in this state, but it’s nothing in the overall budget,” says Karen Wells, executive director of Arts North Carolina, an advocacy group in Raleigh. “We just need to do our work and make it clear that the folks at home want this.”
Helping Prisoners
Several states are considering increases in spending on programs that help prisoners make the transition back to society once they have served their time.
Incarceration costs are now the fourth-largest item in state budgets. (Medicaid is second.) The hope is that money for so-called re-entry programs can reduce recidivism rates, and thus, long-term costs.
Connecticut passed legislation last year to spend $7-million helping prisoners make a successful re-entry into society.
Some of that money has gone to nonprofit-run halfway houses. Edward Davies, executive director of Isaiah 61:1, a halfway house in Bridgeport, says the change allowed his organization to add a new house and increase the number of residents from 42 to 60.
“When people go through our programs and don’t return to prison, there are geometric savings later on,” says Mr. Davies, whose group receives 89 percent of its $1.48-million budget from the state.
The legislation also appropriated $500,000 apiece to two cities with high crime rates, Hartford and New Haven, to assist released prisoners in becoming productive members of society. The New Haven dollars were channeled through the Community Foundation for Greater New Haven, but ultimately will be put in the hands of a local charity with expertise in helping former inmates.
This year, Connecticut’s legislature is considering a bill that would create a Prisoner Reentry Commission charged with reinvesting any savings achieved through a reduction in the prison population into re-entry and community-based services and programs.
“This represents a sea change in Connecticut’s approach to these issues,” says William W. Ginsberg, president of the Community Foundation for Greater New Haven.
Susan N. Dreyfus, chief operating officer of the Alliance for Children and Families, in Milwaukee, sees a way for other kinds of charities to benefit from the growing interest among states and the federal government in services for former prisoners. She says she is urging her organization’s members to explain to their state legislators how programs that involve family members of former prisoners can help the former inmates readjust to society.
“There’s opportunity here,” Ms. Dreyfus says. “Our agencies are very well suited to partner with states to decrease the recidivism rates that clearly drive state corrections budgets.”
In New Jersey, advocates for the mentally ill say concerns about growing prison populations helped them make the case for increased funds for mental health, even at a time when the state faces a deficit of more than $4-billion.
Acting Gov. Richard J. Codey, a Democrat, has proposed $40-million in new mental-health funds. While the governor’s wife, Mary Jo, has publicly acknowledged that she suffers from severe depression, mental-health advocates say he was also persuaded by economic arguments.
“His commitment has obviously been lifelong, but also we feel strongly that advocates have made a case over the years for the importance of funding mental health,” says Debra L. Wentz, chief executive officer of the New Jersey Association of Mental Health Agencies. “It’s a moral obligation and it makes good fiscal sense. It keeps people out of hospitals, out of prisons and jails, and from becoming homeless.”
Governor Codey’s budget would double the number of screening centers, adding about 160 new master’s-level clinicians; create a new system of postpartum-depression screening for uninsured mothers; and provide rebates of up to $20,000 in loans for college graduates who work at a mental-health or social-service facility that receives state funds.
Democrats control both houses of the Legislature, so Governor Codey’s proposals are likely to receive solid support, even though Republicans have balked at another portion of his budget, which would suspend property-tax rebates.
Vermont Charities
At the other extreme, charities that provide legal services for the poor in Vermont are bracing for cuts. Gov. Jim Douglas, a Republican, has made revamping the state’s Medicaid program, which has a $70-million deficit, his top priority. To do that, the governor has said cuts will be needed in other areas.
“His letter to me basically said, ‘We have to fund entitlements — sorry,’” says Eric Avildsen, executive director of Vermont Legal Aid, who wrote to the governor protesting the proposed cut. The charity, which has an annual budget of just over $1-million, is attempting to fend off a proposal to cut the state’s legal-aid program by 50 percent.
Mr. Avildsen says he may have to lay off seven lawyers if the cut passes. For now, however, he’s still holding out the remote hope that he can work with legislators in both houses of Vermont’s General Assembly to keep the funds in place.
“I’m down in Montpelier dogging the halls,” he says. “But legislators do have to balance the budget when all is said and done. There will be lots of strong statements of support that may not translate into votes.”
Suzanne Perry contributed to this article.
