Illinois budget crisis impacting non-profit organizations — Part 4

When I started this blog series two weeks ago, I thought it might be a good idea to invite a few of my local elected officials (as well as former policy-makers) to weigh-in on the subject. Unfortunately, everyone has either declined or not responded except for Michael Noland, who is my state senator. I want to thank Senator Noland for taking the time to be thoughtful and responsive. (A copy of the senator’s guest blog can be found in the space below.)
For those of you who are coming to the party a little late, here is a quick summary. In Part 1 of this series, I shared survey results provided by United Way of Illinois along with other insights and perspectives . In Part 2, I talked to a non-profit executive director whose organization lost significant funding as a result of Illinois’ budget impasse and shared some surprising developments. In Part 3, I offered a few suggestions for Illinois non-profit leaders on how to tackle this issue inside their organizations as the crisis deepens.
I hope this four part series on the Illinois budget impasse and its effect on non-profit organizations has been information and engaging. Please share your thoughts in the comment box below. Here’s to your health! ~Erik

In February of 2015, the governor proposed his first budget to the General Assembly, a budget that would make harsh cuts to important services in our state. His message was a call to cut waste where at all possible. In 2015, I was hopeful that we would be able to work with the Governor to establish both a source of revenue and make responsible cuts to balance the state budget.
The Governor also submitted for the General Assembly’s approval what he referred to as his “Turnaround Agenda”.  The agenda was one that called for creating Right to Work Zones; an end to collective bargaining for teachers and state workers; reduced funding for education and health care and tax breaks for large corporations and the wealthy; all, clear non-starters for Democrats.
A year has passed and it has become clear to me that the Governor wants nothing more than to continue his standoff to push a “turnaround agenda” that is harmful to the people of Illinois and specifically to the working-class families I swore to represent.  And so, since June 1st 2015 Illinois has operated without a budget.
Over this time I have received numerus emails from citizens, heads of social service organizations, small business owners and others over the lack of a state budget and I continue to share in the anxiety and hardships that this places on my constituents and on our state. The result of this delay and uncertainty over the funding for our vital programs and services in Illinois is an inexcusable disaster that I do not go a single day without standing at the ready to negotiate a solution with the Governor and Republicans in the General Assembly.
The truth is, in Springfield, in the senate, we have passed numerous budget proposals since June 1st in attempts to address the budget impasse. The senate has fought for a budget for K-12, worked to secure the appropriation of federal funds, battled for funding for the Monetary Award Program to support our college students, attempted to grant funding to human services programs not covered by consent decrees and more. Most recently, the senate approved SB2059, which would appropriate 3.8 billion dollars in funds to various agencies, including social service programs and higher education. The fact remains that the Governor is simply unwilling to negotiate a budget that does not include multiple aspects of his harmful agenda.
Through all these legislative proposals the public must understand something very important that is often forgotten: the General Assembly does not have the power to distribute these funds. All we can do is grant the Governor the ability to do so. The Governor, as chief executive, directs staff to write the checks we have allowed him to write. This budget impasse is shaped by two main causes. The first and foremost is the Governor’s unwillingness to compromise and listen to the angry voices coming to him with legitimate concerns and crises.  These angry voices, our social services, colleges and universities and health care providers are asking to be paid for their services and the Governor, quite simply, refuses to write the checks for the money the state owes them.
However, the Governor is right about something that is impossible not to acknowledge.  We have a lack of revenue in Illinois. Elected officials that ignore this are simply kicking the can down the road, something I personally refuse to do. There are social service programs that simply cannot be cut, there are educational services and public safety programs that need more funding and to do this the state requires more revenue.  There is ample evidence that we, as a state, are more than capable of providing that revenue.  This is a discussion that needs to be happening in Springfield now and not later when the state is in even greater crisis than it already is.  As we now return for the second half of the spring session in the Illinois General Assembly, I look forward to working with members on both sides of the aisle to craft a state budget that meets the just demands of the good people we are sworn to represent.
Sincerely, State Senator Michael Noland (D-22nd)
noland sig

Illinois budget crisis impacting non-profit organizations — Part 3

illinois budgetEarlier this week and last week, I started writing about the State of Illinois’ budget crisis and how it is impacting non-profit organizations. In Part 1 of this series, I shared survey results provided by United Way of Illinois along with other insights and perspectives . In Part 2, I talked to a non-profit executive director whose organization lost significant funding as a result of Illinois’ budget impasse and shared some surprising developments. Today, I have a suggestion for Illinois non-profit leaders to mull over as the crisis deepens (and there is lots here for non-profit leaders from other states to chew on, too).
Frog in boiling water
We’ve all heard the story about frogs and boiling pots of water. Right?
Assuming that some of you haven’t any clue of what I’m talking about, here is a nice summary from Wikipedia:

“The boiling frog is an anecdote describing a frog slowly being boiled alive. The premise is that if a frog is placed in boiling water, it will jump out, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death. The story is often used as a metaphor for the inability or unwillingness of people to react to or be aware of threats that occur gradually.”

I have no clue what the origins of this old story are, but I do know this . . .


boiling frog1Don’t want to take my word for it because you might have heard it from your grandfather or another beloved family member. No problem … I completely understand. Let me provide you with scientific proof. Simply click here, click here for more, and click here if you are in deep denial.  If you clicked all three links, I’m guessing you probably also believe a number of other grossly inaccurate things about other animals and suggest you the article titled “Critter Country: Wild Inaccuracies
So, what does any of this silliness have to do with non-profits and the Illinois budget impasse?

Your organization is like a frog!

In other words, your non-profit should (and likely will) jump out of the boiling waters of government funding if things get too hot. It is a simple matter of survival.
Question #1: When?
I’ve lamented too often — right here on this blog — that too many non-profit boards operate poorly. They don’t understand (and sometimes reject) their legally defined fiduciary responsibilities, focus their meetings obsessively on monitoring rather than governance, micromanage the organization and its staff, rubber stamp things (oftentimes very important things) that staff put in front of them, and my list can go on and on.
If anything in the last paragraph describes your organization’s board of directors, please hear me clearly . . .

You’re at risk!

In other words, you might just be on the road to proving all of the scientists, who said in the last section that “the boiling frog story is an urban legend,” are liars.
boiling frog2Your board is likely made up of smart people. If they aren’t being used (at a minimum) as a “sounding board” on the issue of government funding and what to do about it, then my suggestions are:

  • Stop business as usual in your boardroom
  • Start adding a 45 minute “generative discussion” agenda item to every one of your monthly meetings for the foreseeable future
  • Focus your discussions around various aspects of your government funding situation
  • Bring in guest speakers who know more than you do about state funding and your grants
  • Pose open ended questions and facilitate an engaging dialog where everyone is encouraged to share their thoughts and feelings
  • Don’t just have theoretical conversations … also pose action oriented questions (e.g. what are our options? what should we be doing?)

If you and your board can make this adjustment in non-profit governance, I guarantee you that . . .

It will be clear when it is time to jump out of the boiling pot!

Question #2: What?
boiling frog3Of course, the more difficult question for most non-profit organizations is “What to do about it?
If your organization isn’t reliant on government funding, the answer is easy . . . carry on and try not to gloat too much around your non-profit friends. For those of you who rely on modest (or perhaps significant) government money, then you want to keep reading.
If you and your board have decided the water is getting a little too hot, then here are a few suggestions:

  • Re-exam your non-profit revenue model
  • Explore other models (refer to previous section about generative discussions in the boardroom)
  • Make a group decision about which model (or hybrid model) is best for your organization at this time
  • Don’t try to turn the battleship all at once … choose one (or a few) things to “try on for size” and experiment with small aspects of your new revenue model (e.g. write a private sector foundation grant, engage a corporate partner, identify prospective individual donors and start a conversation with them; write a business plan for a potential social enterprise, etc)
  • Invest time, energy and effort in evaluation of every new thing you undertake and commit to nurturing a culture of improvement and excellence
  • Celebrate every success from top-to-bottom and side-to-side of your organization (no matter how big or small it may be)

If you got this far and still find yourself scratching your head over the idea of different non-profit revenue models, then you need to click-through and read a Bridgespan white paper titled “Ten Nonprofit Funding Models“. I also highly suggest clicking on and reading every hyperlink embedded in the white paper.
If you don’t believe your organization can do this without help, then I have some good news. There are countless non-profit consultants (myself included) who are available for hire.
Stop listening to stupid people
boiling frog4I’ve heard state funders (e.g. foundations, United Ways, etc) say loudly and clearly, “The state cannot expect funders to fill the gap created by the State“.
I do NOT believe foundation leaders and United Way professionals are “stupid people“. However . . .
I have heard some people (in fact some are even dear friends of mine), amplify the cautionary words of foundations and United Ways and then twist them by concluding “private sector philanthropy” cannot fill the gap. It is these folks to whom I urge you to please stop listening.
The reality is that foundations, corporations and United Ways only account for 20% of the $358 billion of charitable giving. The remainder of the pie (a huge whopping 80%) comes from individuals either directly or through bequests.
Moreover, charitable giving is only 2% of our country’s GDP.
The pie can be increased. There is room to expand and grow. Foundation leaders and United Way professionals never said private sector philanthropy couldn’t be the solution (or at least a big part of the solution). They were simply say that politicians need to stop telling voters their organizations will fill the gap.
Are you a doubting Thomas? If so, then I have a proposition for you . . .
Add this topic to your board agenda. I think it makes for an awesome generative discussion. If you’re an Illinois non-profit organization and you’re looking for someone to speak in your boardroom on this subject and facilitate a generative discussion, then please contact me because I would be willing to consider it.
Next up in this blog series?
I’ve sent emails to a handful of politicians and policymakers who I trust and respect. I’ve invited them to share their thoughts on this subject. If any of them respond, then I’ll publish those next week.
In the meantime, please use the comment box to share your thoughts and experiences on the Illinois budget impasse, the impact you’re seeing on the non-profit sector, your thoughts on what organizations should be doing about it, or anything else that is top of mind regarding the state of government funding (federal, state or local) and those trends. We can all learn from each other.
Here’s to your health!
Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Illinois budget crisis impacting non-profit organizations — Part 2

illinois budgetI ended last week with a post about the Illinois budget impasse and how it is impacting non-profit organizations. I promised to continue posting on this subject this week from a few different perspectives. Today’s post comes from a real non-profit organization who is challenged by the events in Springfield. However, I warn you upfront this story might not necessarily end the way you think it would. (Note: I’ve also withheld the names to protect the innocent)
After publishing the first post in this series, I decided to hit the road to get a better feel for the crisis. I got in my car and drove a few hours away to sit down for lunch with a non-profit CEO to get their perspective. This organization’s annual budget is slightly more than $1 million with multiple locations in their community and a fairly big staff.
Here is what I expected to (and indeed did) hear:

  • The state budget crisis has resulted in a drop of approximately $200,000
  • The shortfall in funding is large enough to be felt and hurt
  • There was a staff reduction
  • The initial cuts focused on administrative staff and systems, and the remaining cuts had to come from program staff and front line operations

starvation2Here is what I didn’t expect to hear:

  • Program staff re-invented how they work together (obviously out of necessity), and there is more cross-training and shared responsibilities & job functions in this organization’s workforce
  • Board members rallied and contributions from these individuals increased
  • Board members did more than just write a bigger check, some of them got more involved in the organization’s fundraising events and campaigns
  • The organization is raising more money from its fundraising events and campaigns today than it was prior to the state budget impasse
  • The impact on this organization’s clients doesn’t seem to have been as big as they feared with many of them still showing up and getting served
  • Without state mandated grant reporting requirements hanging over the organization, there is less outcomes measurement occurring (obviously this is one place staff had to look at reallocating hours to absorb the cuts)

Before I continue, let me clearly say this is simply one example. It may or may not be representative of the larger Illinois non-profit sector. I also recognize that organizations of different sizes are likely being impacts and responding differently and in proportion to their abilities/capacities. The reality is that we won’t have a handle on the bigger picture for many years when it is too late to make any adjustments.
As I contemplated my lunch conversation, I came to a number of conclusions (some of which are likely premature) including:

  • the non-profit sector is resilient
  • many non-profits are flexible enough to evolve-change-adapt in a very short period of time
  • non-profit professionals are incredibly talented (more so than what many people give them credit for)
  • while many people like to complain about their board’s lack of engagement, the reality is that the right people sitting around the boardroom table make a difference every time regardless of good times or bad times
  • there isn’t just one revenue model that works for all non-profit organizations, and those who are committed to evolving their business plan / revenue model can do so if they put their mind to it

Before you accuse me of putting too much lipstick on this pig, let me say I’m very worried about organizations like the one I’m writing about today. While they may have survived the initial earthquake, they are worse off today to survive the after-shocks.
Because many of their initial cuts came at the expense of organizational capacity (aka org muscle).  For example, even though the board initially surged to partially fill the funding gap, the organization is less capable of supporting these efforts on an ongoing basis as a result of their budget cuts.
starvation1Believe it or not, this phenomenon has a name. It is called the non-profit starvation cycle. If you have a little time today, I encourage you to click-through to read the scholarly article on this subject from the Stanford Social Innovation Review and do a little Googling around yourself. You will be surprised with what you find.
It is very possible this organization and countless others like this one in Illinois could be on a very long road that leads to outcomes such as:

  • increased collaboration
  • more strategic alliances (e.g. back office operations)
  • mergers
  • bankruptcy

Of course, only time will tell. In the meantime, please use the comment box to share your thoughts and experiences. Do you have other stories from the front line that might help us focus the picture and give all of us a better forecast picture? We can all learn from each other.
In my next post, I will focus more on revenue models and private sector fundraising as a response for Illinois’ non-profit sector.
Here’s to your health!
Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Illinois budget crisis impacting non-profit organizations — Part 1

illinois budgetLast week I had the privilege of attending a Fox West Philanthropy Network meeting where Jack Kaplan, Director of Public Policy & Advocacy for United Way of Illinois (UWI), reported on survey findings about the impact of the state’s budget impasse on the non-profit community. It should come as no surprise to anyone the longer this budget crisis drags on the worse it becomes for the state’s non-profit sector.
If you have time to read the white paper summarizing UWI’s survey, then click here. If you’re on the run today, here are a few of the highlights (or should we say “low-lights“):

  • The number of organizations that have made cuts to clients served as a result of the state’s budget impasses has more than doubled since July 2015
  • Nearly half of respondents reported making cuts to services, programs or operations as a result of the budget impasse
  • The number of respondent that reported making cuts to services increased dramatically from the survey conducted in July 2015 to the one conducted in January 2016
  • Of those agencies responding, 49% said they’ve tapped into their cash reserves
  • Of those agencies responding, 26% said they’ve had to access their line of credit
  • Of those agencies responding, 27% said they’ve laid off staff
  • Of those agencies responding, 5% have “skipped” a payroll

As I soaked in all of this survey data, I came to the following conclusions:

  • The longer this budget impasse lasts, the more programs are likely to be cut
  • The longer this budget impasse lasts, the more staff are likely to be laid off
  • The longer this budget impasse lasts, the more likely it is that agencies will cannibalize themselves — undercutting their organizational capacity — and do long term damage to their infrastructure and ability to come back from this crisis (read more about the Nonprofit Starvation Cycle in the Stanford Social Innovation Review)
  • The longer this budget impasse lasts, the more likely organizations will lose their most valuable and talented staff, who I suspect are currently looking for alternative employment
  • The more programs that are cut, the more clients will go without necessary services, which will have a long term effect on our communities (e.g. increased homelessness, increased crime, decreased student test scores, etc), which ultimately always leads to increased public expenditures down the road (e.g. increased taxes for policing, increased taxes for prisons, increased taxes re-open state institutions that were closed for cost savings when those services were shifted to the non-profit sector decades ago, etc)

I admit all of these conclusions are “my opinion” and none of us will know the real truth until the damage is done and smarter people that I are doing research years from now on the impact of the Illinois budget impasse. However, my intuition tells me I’m not too far off with these thoughts.
In addition to these thoughts, I’m also left with a number of questions such as:

  • When did so many Illinois non-profit organizations get so reliant on state government funding? And how can we avoid this from happening again in the future?
  • As is the case with most crises, there are really bad things that happen but there are usually unexpected good thing that come from the experience. I wonder what may rise from the ashes?
  • When will the budget impasse finally get resolved? (Note: I’ve heard some people predict Illinois won’t have its next budget until November 2016 or possibly even the beginning of 2017. Just for the sake of perspective, the last budget expired on June 30, 2015.)
  • What will happen to FY 2016 state contracts that were issued to non-profits “in lieu of appropriation” if the state never passes a FY 2016 budget and simply skips to passing a FY 2017 budget?

Lots of opinions and many more questions. I suspect many of you are in the same boat. Please use the comment box to share your thoughts and experiences.
If you want to learn more about the Illinois budget impasse and its potential impact on non-profit organizations, then I suggest the following:

  • If you are interested in diving into the survey data, I encourage you to click the link I provided earlier in this post to the United Way of Illinois survey summary.
  • If you want to review the PowerPoint slides that Jack Kaplan used for his presentation to the Fox West Philanthropy Network (FWPN), I uploaded them to one of my cloud drives and you can see them by clicking here.
  • Carol Gieske, who is the President of the Elgin Area Chamber of Commerce, shared an easy to understand infographic she secured from Illinois Comptroller Leslie Geissler Munger that illustrates the severity of the Illinois budget crisis. The infographic explains the budget issues as if your home finances were in the same position as the State of Illinois. I also uploaded this document to one of my cloud drives and you can see it by clicking here.

Next week I plan on publishing two more blog posts on this subject. While they are still coming together, one of the posts will summarize a discussion I had with an organization who has been significantly impacted by this crisis (of course, names will be changed to protect the innocent). The other post will likely focus on what organizations might consider doing to weather the storm. Who knows … there may even be a fourth post if things get too long. Stay tuned!   😉
Here’s to your health!
Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847