News Column

Giving Pause

May 2005, HISPANIC BUSINESS Magazine

Joel Russell

Joshua Estrin
Joshua Estrin

There's a little less charity in the Hispanic nonprofit sector these days. Competition for a diminishing pool of grant dollars led to a 3 percent decrease in expenditures among the Hispanic Business Top 25 Nonprofits in 2004, the first decline in the five-year history of the directory. In response to this trend, organizations have streamlined operations and restructured just like for-profit businesses.

"The last two or three years have been very challenging," says Edmundo Hidalgo, COO of Arizona-based Chicanos Por La Causa (CPLC), the number 4 organization on the list which reported a 43.3 percent decrease in expenditures last year. "For a while we thought the economy showed signs of improvement, but right after this past election we started to have concerns about the large national deficit and its effect on these types of programs."

"Most nonprofits are subject to the vagaries of government. If government has new initiatives, you see dedicated funding going to those services. If states are running deficits, you see the contraction of grant dollars and contracts," explains Lillian Rodriguez-Lopez, CEO of the Hispanic Federation, an umbrella organization that obtains corporate grants for 85 human-service nonprofits. The federation ranks number 25 on the Top 25 directory; its expenditures increased 34.4 percent last year.

"Many times the feds release block grants to the states, and when the state cuts money to the county, the county cuts money to us," says Jose Rodriguez, executive director of El Concilio/Council for the Spanish Speaking. "We experience the same valleys and peaks as other companies."

At for-profit companies, lower budgets usually follow a slump in demand, but among Hispanic nonprofits, demand continues to increase for services like health care and job training. The gap between traditional funding sources and service demand explains the drop at CPLC, for example. The organization's domestic violence shelter was turning away 1,400 families each year, so it obtained a grant to build a large new facility. But when funding to run the facility ran out, CPLC had to close 30 percent of the beds.

One consequence of shrinking money is a trend toward consolidation. Mr. Hidalgo says CPLC has absorbed a number of smaller nonprofits that either got themselves in financial difficulty or were squeezed by government budget cuts. Raymond Ocasio, executive director of New Jersey-based La Casa de Don Pedro, predicts a "consolidation that will match funding levels to allow a select number of organizations to be sustained over time."

"As dollars decrease, people look for organizations that can deliver. We see ourselves well positioned even though there are dwindling resources," says Mr. Ocasio, whose organization reported expenditure increases of 43 percent to rank number 12 on the Top 25 Nonprofits directory.

A less-drastic form of consolidation involves a cooperative approach toward grant writing. Increasingly, Hispanic nonprofits are banding together to obtain federal or corporate money. Organizations such as the Hispanic Federation, SER Jobs for Progress National (number 5 on the directory), and National Council of La Raza (number 7) illustrate this strategy.

The Hispanic Federation specializes in capacity-building grants that help organizations develop infrastructure "so they'll have stability and won't suffer from sudden changes in funding," says Ms. Rodriguez-Lopez. Unfortunately, when organizations lose a program grant, they usually react by cutting staff and in the process lose their infrastructure investment. "Even nonprofits need to manage their growth," she advises.

"An organization that is grant-driven and not mission-driven is looking for trouble, and the impact on the budget is much like a company that budgets without effectively accounting for fluctuations in the market," says Joshua Estrin, a nonprofit expert and founder of the consulting firm Concepts in Success. "What all nonprofits must understand is that their 501(c)3 status is simply an IRS label and does not mean they need to function from a model that is really any different than a traditional for-profit entity."

Rather than simply imitating for-profit companies, many nonprofits now operate for-profit subsidiaries in real estate development or health care. Mr. Rodriguez say El Concilio plans to open a clinic, billing the state Medi-Cal program and private insurers just like its for-profit competitors. Mr. Hidalgo notes that CPLC's for-profit operations generate 60 percent of the organization's total revenue (money not included in Top 25 directory figures). Mr. Ocasio at Don Pedro also operates a for-profit construction company.

Grants also have evolved to become more like private-sector contracts. So-called fee-for-service or performance-based grants force nonprofits to operate more like a business. In the past, an organization provided a service, and the government reimbursed the costs. Now the nonprofit must produce a desired result. For example, instead of just training a person in a job development program, the nonprofit may have to get the person a job and make sure he or she stays there for a time before receiving full compensation. According to Mr. Ocasio, the new system introduces an element of risk management to nonprofit programs.
To offset the loss from grant money, nonprofits may charge their constituents fees for services. El Concilio has a cooperative deal with a credit union to offer check-cashing, money-order, and wire-transfer services. The co-op will charge below-market fees to offset costs of the program.

The project points toward the convergence of corporate and nonprofit agendas in the Hispanic market. "The services that are desperately needed in the community are financial services: first-time home-buyers, credit education, banking anything that will make a more knowledgeable consumer," says El Concilio's Mr. Rodriguez. "A lot of financial institutions and investment companies have talked to us about programs because they know [Hispanics] are their future market."

Looking forward, the Hispanic Federation's Ms. Rodriguez-Lopez sees corporate foundations giving fewer grants but of longer duration. The strategy seeks to build long-term relationships with a limited number of nonprofit groups that address needs relevant to the corporation's business. "It represents a shift in the way corporations fund philanthropy," she says. "Even in our niche, it's not an easy sell. It's just that there is a group of people in corporate foundations in New York that see it, and I'm grateful for that."

What they see is a maturing Hispanic market that has growing social and economic needs. Profiles of three of the Top 25 Nonprofits on the following pages focus on some major needs and solutions. "The needs are pretty consistent," laments Mr. Hidalgo from CPLC. "From year to year, a particular program may be sexy to the media, so it attracts attention. But the need doesn't go away just because the media go away."


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