Many Charities Report Success in Coping With Fiscal Challenges

Many nonprofit organizations managed to increase revenues last year, despite daunting fiscal challenges caused by a lackluster economy and cutbacks in government support, according to a new report.

But the groups’ costs rose even more, prompting many of them to scale back some programs and take steps to broaden and diversify their support. On average, costs grew by 5.3 percent and revenue by 4.6 percent.

The report is based on a national survey of 236 organizations conducted late last year by the Center for Civil Society Studies at the Johns Hopkins University, in conjunction with seven national umbrella organizations. The survey, which is part of the center’s Listening Post project to sample various trends in the nonprofit world, involved groups recruited in five cultural and social-service fields: museums; theaters; community and economic development; children and family services; and elderly services and housing.

The survey findings are a counterweight to reports of panic and runaway crises in the nonprofit world, said Lester M. Salamon, the center’s director. While more than half of the organizations did report experiencing severe or very severe levels of fiscal stress last year, more than three-quarters of the groups said they had been somewhat or very successful in coping with that stress.

“These agencies are struggling, but they’re also responding very energetically and effectively to the pressures they’re under,” Mr. Salamon said.

Mr. Salamon acknowledged that the findings could be skewed because organizations volunteered to participate in the study. He said he and his colleagues would also survey a randomly selected group of organizations so they could compare the results with those provided by the volunteers.

Compensation Increases

Growth in wages and benefits fueled much of the cost increase, but other factors included liability insurance, which rose by 10 percent or more at 43 percent of the organizations.

Groups that participated in the survey adopted a range of belt-tightening measures. Nearly three-quarters of them imposed a hiring freeze, 56 percent froze salaries or cut benefits, and 52 percent took out loans or tapped into their financial reserves in an effort to balance their books.

“It’s been a tough two years,” noted Betsy Webb, curator of collections at the Pratt Museum, in Homer, Alaska, which participated in the survey. “For the first time ever we’ve had to draw down our reserve funds.” The museum has also been ruthless about cutting costs, she said. “We didn’t even buy paper clips last year in order to retain our small staff” — eight full-time and seven seasonal or part-time employees.

Nearly three groups in four spent more money on fund raising. Some 69 percent of them sought new foundation support, 64 percent bolstered efforts to seek money from individuals, 63 percent did more marketing of services for which they charge fees, 56 percent imposed or increased the fees they charge for such services, 55 percent stepped up appeals for corporate gifts, and 47 percent sought new government support.

Among all groups in the survey, 49 percent reached out to potential new supporters, 44 percent added new programs, and 25 percent expanded their geographic reach, while 36 percent pared back their programs and 28 percent eliminated some of them.

The Ella Sharp Museum, for example, a local history museum and visual arts center in Jackson, Mich., has bumped up against the limitations of focusing on serving a small community about midway between Detroit and Kalamazoo. “We need to position ourselves to be more of a regional entity,” in hopes of increasing memberships beyond the current level of about 1,300, said Jeanne Donado, vice president for development.

The museum’s budget has continued to grow, but because it has trimmed staff to the bare bones, Ms. Donado said, “we are severely constrained in retooling or repositioning programs, and in developing new programs to meet the emerging needs of the community.”

Theaters have been hit particularly hard; 37 percent of those in the survey reported very severe stress, more than any other category. Many are still struggling to recover from a sharp dropoff in patronage dating from September 11, 2001.

“We can’t afford to do plays that are not likely to be commercial draws, with larger casts,” said Jeff Elwell, executive artistic director at the Nebraska Repertory Theater, in Lincoln. The theater has also condensed its production season to save money, and is hiring fewer actors by asking some of them to take roles in more than one play in their repertoire.

Advantages of Hard Times

Yet officials at some of the nonprofit participants said that tough times could confer benefits as well. Financial hard times have prompted more groups to add programs (44 percent) than to eliminate them (28 percent), and more to accelerate program innovations (20 percent) than to slow such innovations (17 percent), according to the survey.

“Those of us who had to face some tough business decisions are tighter and more focused,” said Bob Jones, president of Children’s Aid and Family Services, in Paramus, N.J.

His organization has cut its staff and budget by 10 percent, after reducing salaries across the board in 2002. Last year, salaries were restored to their former levels, and the staff this year is getting a 3-percent raise.

“We focused on our core strengths and competencies, and eliminated some programs that weren’t at our core,” Mr. Jones said. “It was a painful two years, but we’re healthier as an organization.”

Ms. Webb, at the Pratt Museum, confirmed that experience. “I have observed that difficult times spur innovation,” she said. “Times are hard, but we’re doing even more.”

The report is available on the Web site of the Center for Civil Society at the Johns Hopkins University’s Institute for Policy Studies: http://www.jhu.edu/listeningpost/news.