Changing Gears

This week, Changing Gears is looking at how nonprofits are faring in the aftermath of the recession. Right about now, you might be asking yourself, “What exactly is a nonprofit?  And why should I care?”

Nonprofits are groups that exist to advance a public good.  Think not-for-profit hospitals, colleges, food banks or child welfare groups.  Many nonprofits are public charities and many seek tax-exempt status. People who work in the nonprofit sector often speak about the “social compact” between nonprofits and government.

They see nonprofits as doing the work of government, partnering to deliver things like social services, often at a much lower cost. Now, a lot of nonprofits have lost resources at the same time that the need for their services has grown.

For example, many human service providers rely on government grants and contracts to stay afloat.  But from city halls to the halls of Congress, governments are slashing budgets. To fill the gap, nonprofits often turn to private donations and bank credit. But they can run into trouble there too. During the course of reporting these pieces, we learned that some banks are reluctant to extend credit to organizations whose primary debtor is the government. Government just isn’t seen as the reliable partner it once was. Owning real estate doesn’t get these groups as far as it once did either.

In addition to serving a lot of people, nonprofits employ a lot of people. According to a study from Johns Hopkins University, 1 in 10 Michigan workers was employed by a nonprofit in 2009. That made the nonprofit sector the fourth largest industry in the state at the time, in terms of employment.

Open Books founder Stacy Ratner (Niala Boodhoo)

So stay tuned as we bring you two stories from the nonprofit world.  I’ll report on a substance abuse program so badly strained by late government payments that it lost its accreditation. And my colleague Niala Boodhoo tells the story of a literacy group called Open Books. That organization is trying to tackle the problem of illiteracy in Chicago, where more than one out of every three adults can’t read well enough to fill out a job application. And Open Books is doing this without any government funding – in fact, they’re trying to become completely self-sustaining. It’s a page from the new world of social enterprise, which is blurring the line between the for-profit and not-for-profit world.

By the way, it’s not all bad news from the nonprofit world.  Many nonprofits with well-diversified funding streams have weathered the storm and continued to provide services without incurring damaging debt levels.  Moving forward, though, everyone seems to agree – diversification is the name of the game.