Navigating Tough Trade-Offs in the Era of Scarcity

Demand for social services is outpacing the ability of our traditional financing sources to keep up. So how should we balance the need to pay for services now versus the need to invest in adaptation for sustainability?

This question has no easy answers. Well-meaning and thoughtful people will disagree, weighing philosophical, analytical, and emotional arguments differently. But the premise is well documented: We are entering a new “Era of Scarcity,” as aptly coined by Mario Morino in the subtitle of his book, Leap of Reason: Managing Outcomes in an Era of Scarcity. And as a result of this Era of Scarcity, perhaps no other question is more crucial to those of us who work to sustain and improve our social-service system.

With the support of the Bank of America Charitable Foundation, Nonprofit Finance Fund’s fifth annual State of the Sector survey captures this dilemma through the voices of 5,983 nonprofit leaders from across the United States. For the first time, fewer than half were able to keep up with this demand last year and even fewer anticipate being able to keep up next year. Organizations providing “lifeline services” have it worse: Almost two-thirds cannot keep up.

Coping with demand can mean turning people away. And this is incredibly difficult for nonprofits to do. Says one survey respondent: "Homelessness is on the rise, and youth homelessness is increasing daily. In order to maintain the integrity of our program, we must turn students away once we reach our maximum capacity. It is a challenge daily to know that you may be leaving a teen on the street due to funding limitations.”

Meanwhile, government support continues to decline, leading many to believe that programs for the public good are experiencing long-term disinvestment. Of the 47% of respondents with state or local support or contracts, 86% said those funds failed to pay the full cost of services. As one respondent describes the situation: "The social safety net has been gradually chipped away for decades. Nonprofits, private donors, and volunteers simply cannot fill the yawning chasm between services needed and government support currently provided. We and our network of member agencies are strained beyond capacity. The neediest families continue to need more, while further cuts in government support are inevitable."

Constantly teetering on the edge of financial safety, many organizations are trapped in a reactive mind-set. Sudden costs or unexpected losses—like a broken boiler, delayed payments, or an economic downturn—can send these organizations into a tailspin. And chronic financial stress takes its toll over time, fundamentally changing the way organizations manage finance. For many respondents, cash-flow challenges and years of barely breaking even force them into incredibly short-term decision-making: "It's a rush to open the mail every day to get payments to the bank," says one survey respondent.

One obvious path would be to invest in solutions that could reduce long-term demand, often with substantial savings to society. This is the path promised by the pay-for-success movement. But to organizations facing short-term funding crises, this path can appear distracting at best and even scary. An executive director cannot invest the time and money to build the capacity to enter into pay-for-success contracts when she is spending her day struggling to deliver quality services, pay vendors, and make payroll.

So how do we enable a healthy balance between short-term and long-term thinking and investment in the social sector? A few grant makers are beginning to join this conversation, though many foundation boards have trouble “diverting” resources from pressing short-term needs. Survey respondents find it much more comfortable discussing program expansion with grant makers than the essentials of long-term financial health. And few government agencies are willing to support investments in adaptation when they are cutting budgets for short-term service delivery.

Some nonprofit leaders are taking a hard look at how their organizations do business, recognizing that systemic change is critical to meeting demand and achieving sustainability. They are innovating to increase efficiency through tough programmatic choices, to access new kinds of support, to prove their impact, and to collaborate. But they can do so only when standing on the safe ground secured with long-term financing that gives them the “luxury” to think beyond short-term survival. And with demand rising and government retreating, that safe space is very hard to find.

While ideas abound, no one knows exactly how we build the organizational and systemic adaptation that can succeed in the Era of Scarcity. But we know we cannot begin to lay the foundation for a better approach to addressing social needs until we confront the hard decisions ahead of us.
 

Author: Antony Bugg-Levine, CEO, Nonprofit Finance Fund