In the nonprofit business, not all money is created equal
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Brian Schatz, CEO of Helping Hands (and chairman of the Hawaii Democratic Party), sketches out the problem:
“We try to build in administrative costs whenever we write a contract or a grant,” he says. “For example, we’re constantly adjusting the allocation of our salaries — my salary is paid from seven or eight sources. We try to do time studies to find out where our staff spends its hours. That’s a crucial point: The rigor with which we analyze our finances is impossible to achieve in a three- or four-person shop.”
The solution is for organizations to seek out more diversified forms of funding, particularly unrestricted funds. This calls for creativity and a fair amount of scrambling.
For example, Jan Harada, executive director of Palama Settlement, says that for her organization’s $1.8 million budget, she can tap a variety of sources. “We have a state contract for $250,000 a year,” she says. “In addition, we have grants that come to maybe $100,000 a year.” Perhaps more valuable, the center also has income from ground rent on property it owns across the street from the center as well as from renting the gymnasium and office space to other nonprofits. These rents provide an important source of unrestricted funds.
Clearly, not all nonprofits are fortunate enough to have these kinds of options. David Nakada, who, after more than 30 years at the Boys and Girls Club, may be the dean of Hawaii’s nonprofit community, readily acknowledges that smaller organizations sometimes simply can’t diversify. “Maybe their birth was done strictly through government grants,” he says. That, of course, leaves them at the mercy of each new administration. If, as now seems likely, the economy requires cuts up to 20 percent in government spending, how does a small nonprofit survive?
“When that 20 percent happens to be 80 percent of your funding, you get swept away,” Nakada says.
For many Hawaii nonprofits, contributions from AUW add up to a big chunk of their organizational support. In fact, AUW gives unrestricted grants to over 60 local nonprofits. As a percentage of their overall budgets, these AUW grants are often quite small — typically less than four percent, according to Baker — but, because those dollars aren’t tied to any particular program, they’re a much more significant part of the budget than the numbers would suggest. “They’re worth 10 times the regular dollar,” Baker says. “Because they’re flexible.”
This year, though, the AUW begins a long-planned shift in focus to five core service areas that will inevitably mean a loss of unrestricted funding for many long-time grantees whose work does not fit into one of those five areas.
One of the agencies losing its AUW funding is the Hawaii Association of Nonprofit Organizations (HANO), an intermediary organization that provides workshops and professional training for the nonprofit sector. “We’ve been a grant recipient since the beginning,” says its executive director, Lisa Maruyama. In fact, HANO long served as a kind of adjunct to AUW. But, because they offer no direct services, intermediaries like HANO are particularly vulnerable to a shortage of unrestricted funds. The loss of those unrestricted AUW dollars — nearly 40 percent of the organization’s budget — will pose a real challenge to Maruyama and her board. “For us, it’s about rethinking our model of sustainability,” she says.
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