Agencies Innovate To Survive

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Duluth, Minn.—Two huge metal storage sheds went up on a chunk of empty land just off a highway here a few months ago, and they make a statement of sorts about the future of funding for youth programs around the country.

The sheds were built by Northwood Children’s Services, a 120-year-old agency that provides residential and day programs to emotionally and behaviorally troubled youth. Now Northwood is also in the storage rental business, hoping to bring in $50,000 a year by keeping people’s boats, automobiles and recreational vehicles in its sheds.

Northwood’s endeavor reflects how youth-serving agencies, confronted by new financial realities, are scrambling to change their funding mix by trying new ideas, dusting off old ones and intensifying tried-and-true methods.

“This isn’t just a dip, it’s a sea change,” Bob Jones, president of Children’s Aid and Family Services of Paramus, N.J., told researchers for a Johns Hopkins University study of economic changes facing nonprofits. “We can’t simply sit idly and hope it will go away.”

Many agencies are not; they saw trouble coming years ago and launched funding initiatives that may prove instructive for others today. No one is reinventing the wheel, but they’re finding ways to make less mainstream ideas work. Among them:

• Consortiums and collaborations – like Cornerstones of Care, based in Kansas City, Mo., in which several agencies created a nonprofit to manage common business operations and compete for grants together.

• More earned income – like the thrift shop and automobile donation business run by the Children’s Home of Easton, Pa.

• More government lobbying – such as Metropolitan Family Services of Chicago going after congressional earmarks, or Youth Service America hiring a Washington-based government affairs officer.

• Expanding philanthropy – such as Family Service of Greater Boston attracting more grants and donations by adding prenatal and geriatric care.

Producing Income

Michael Danjczek was hardly the first executive director of a youth-serving agency to try running a side business – in his case, a thrift shop – to make money for his nonprofit. And he was hardly the first to watch that business fail. “I don’t know how I sold donated clothing and lost money,” he says.

But Danjczek’s Children’s Home of Easton is at it again. Its thrift shop brings in $30,000 to $50,000 a year in profits. With an $8 million annual budget for his agency, “that’s not a lot of money,” he notes. “On the other hand, that pays for one staff position.” The Easton shop was one of several steps the children’s home has taken in recent years to diversify its income because of looming financial changes. “I see government funding going from 90 percent of my budget [now] to 50 percent in the next 10 years,” Danjczek says.

The home also runs a small car dealership, selling donated automobiles. And it joined with Family and Counseling Services of the Lehigh Valley to start a credit service that provides small loans to low-income borrowers.

Widely considered the role model of such for-profit endeavors by local nonprofits is the Idaho Youth Ranch. It runs 20 thrift stores, which sell everything from shirts and bicycles to boats and cars. It made $1.7 million in profits last year, according to CEO Mike Jones.

Such ventures, however, carry considerable risk and require a lot of manpower. At the National Human Services Assembly, President Irv Katz says, “We’ve been having more and more discussions among our members about strategies like earned revenue approaches.” But rather than starting for-profit companies, the national agencies that belong to the assembly are looking at ways to make more money through such means as selling publications or providing insurance for their affiliates.


In two reports on nonprofit funding this year – “Stressed but Coping,” by the Johns Hopkins Center for Civil Society Studies, and “Holes in the Safety-net,” from the California Association of Nonprofits – more than half of the nonprofits surveyed had turned to collaborations and partnerships to cope with financial stress. In Missouri and Pennsylvania, some youth-serving agencies saw the stress coming in the late 1990s and formed collaborations that observers now point to as models.

In 1997, several agencies in Kansas City, Mo., saw financial trouble on the horizon because of changes in such things as how the state funds mental health services. They knew they could save money if they merged some of their business tasks, such as grant-writing, but they didn’t want to merge.

“Each of the agencies has a long history of service to the county, and a separate identity,” says Doug Zimmerman, president of one of those agencies, Ozanam, a residential and day treatment program for adolescents.

So they conducted what Zimmerman calls “a virtual merger.” They created a nonprofit called Cornerstones of Care, which carries out business functions – such as human resources and contract compliance – for five agencies. Four of them are residential treatment programs; each primarily serves youth who differ from the others by age or severity of need. Each agency pays a fee that’s pro-rated according to its use of the management functions, Zimmerman says.

Cornerstones also applies for grants for the group, because in some cases the members can offer more services collectively than they can individually. Zimmerman cites a recent $200,000, three-year grant for physical education and nutrition services from the U.S. Department of Education.

A similar alliance is ServiceNet Inc., in which five child welfare agencies have banded together to help the city of Philadelphia quickly place children with just one phone call – to them. The agencies find placements among themselves for referred youth within 24 hours and provide a continuum of services so that the youths can remain with those agencies. Each agency contributes about $10,000 a year to the operation, according to Danjczek, whose Children’s Home of Easton is one of the members.

Aiming at Government

When youth-serving agencies in San Francisco feared last spring that upcoming city budget cuts would include youth programs, Coleman Advocates for Youth co-sponsored a rally where hundreds of youth and adults demanded that youth services be spared. The mayor and four members of the board of supervisors spoke to the crowd.

That kind of advocacy doesn’t happen often enough, say advocates such as Steve Culbertson, CEO of Youth Service America. He’s talking not just about demonstrations, but about consistent, behind-the-scenes lobbying.

He says too few nonprofits – reportedly as little as 5 percent – “have any kind of legislative education programs, where they go out and fight” for the government to support what they do.

A growing number of organizations are fighting.

Two years ago, Culbertson says, YSA hired its first full-time legislative and government affairs officer, who is based in Washington. In the Hopkins study, 56 percent of the nonprofits reported “increasing advocacy at the local, state or national level” in an effort to forestall cuts in services. In the California survey, 52 percent of the agencies reported that recent financial strains prompted them to increase their advocacy for funding, and 28 percent of them to join an advocacy coalition.

But despite budget deficits, Culbertson notes, “There’s still a lot of money in the government.” Federal earmarks are growing particularly attractive to youth agencies.

Getting earmarks via the Illinois congressional delegation is “part of our survival strategy” launched about eight years ago, says Richard Jones, CEO of Metropolitan Family Services of Chicago. His agency has received a half-dozen earmarks in recent years, and got word last month that the 2005 federal budget includes a $100,000 earmark for serving disadvantaged youth, through the U.S. Office of Juvenile Justice and Delinquency Prevention.

A few years ago a group of multiservice agencies banded together to create the Residential Care Consortium, using their combined resources to lobby for earmarks and apply for grants. Because each of the consortium’s nine agencies is from a different state, the group can focus on different congressional members, rather than always lobbying the same one.

Its first earmark, of $1.2 million, was to help youth transition from residential care to independent living, says Danjczek, whose Children’s Home of Easton is a member of that group, too. He says the group is slated for an earmark in 2005 of at least $1 million for before- and after-school programming.


For many agencies, the key to financial security lies with the public. “The majority of money in this country is given away by individuals, not by foundations,” Culbertson says.

The Hopkins study found that 8 percent of the nonprofits surveyed had expanded their private fund-raising efforts in response to the financial strains of the early 2000s.

Big Brothers Big Sisters of the Twin Cities is one of them. Among its newer strategies: soliciting five-year pledges from individuals.

Other agencies, however, do see opportunities for more foundation support, especially if they expand their services. That’s what Family Service of Greater Boston has done in recent years.

“Looking at the tea leaves,” says CEO Randal Rucker, “we will need to bring in more philanthropic dollars, because of the shrinkage of federal and state dollars.”

Rucker says that’s why his agency has expanded services in opposite directions –back to prenatal care and forward to geriatric services, such as home-based health care.

Rucker says the agency has also worked hard to adopt “best practices” programs that have been evaluated, such as a transitions program for adolescents that focuses on matters like self-esteem and conflict resolution. “That is attractive to donors,” he says. “People like to invest in things that are proven to work.”

He says that over the past three years, philanthropic contributions to his agency have risen about 8 to 10 percent a year, and now account for about 9 percent of the $9.5 million annual budget.

For still others, the key is in corporate partnerships that go beyond the traditional grants awarded by the philanthropic foundations of corporations. “An emerging strategy is having a corporation sponsor a given program of an agency,” says Katz at the National Assembly.

He cites the United Way’s “Success by 6” program, an early childhood health and development effort that has been backed largely by Bank of America, which in 1998 made a five-year, $50 million commitment.

In the long run, says Peter Goldberg, CEO of the Alliance for Children and Families, the field needs entirely new models for long-term sustainability. “We have to figure out some new financing models for human service delivery,” he says. “We desperately need something that is the metaphorical equivalent of Fannie Mae for human services.”

It’s not exactly clear what that would look like. Until it is, Northwood Children’s Services has some space available in its shed. See related story.


Steve Culbertson, CEO Youth Service America Washington, D.C. (202) 296-2992 Michael Danjczek, Executive Director Children’s Home of Easton Easton, Pa. (610) 258-2831

Paul Gemeinhardt, President Cornerstones of Care Kansas City, Mo. (816) 508-3600

Peter Goldberg, CEO Alliance for Children and Families Milwaukee, Wis. (414) 359-1040

“Supporting Minnesota’s Youth: The State of the State’s Youth Development Funding” Minnesota Council on Foundations (612) 338-1989

“Stressed but Coping: National Organizations and the Current Fiscal Crisis” Listening Post Project, Johns Hopkins Institute for Policy Studies (410) 516-4363

“Holes in the Safety-net: Study of Funding Cutbacks and Safety-net Nonprofits in California” California Association of Nonprofits (213) 347-2070