HispanicBusiness

By training, Dan Pfarr is a social worker. By necessity, he's become a sharp-penciled business manager.

As executive director of the Bridge for Youth in Minneapolis, Pfarr, 46, has watched demand for his nonprofit's services grow by 20 percent while funding has dropped by 25 percent. The Bridge for Youth provides crisis hotlines, youth-and-family counseling and emergency shelter for kids ages 10 to 17.

Revenue dropped after cuts in state and local government contracts and a couple of major donors found other good causes to support.

"I'm not a woe-is-me kind of person," said Pfarr. "I grew up on a big family farm, and the harder it got during the farm crisis in the early 1980s, the harder we worked and the smarter we tried to work. We hung on to the farm, but we kind of had to redesign things to survive. And that's what we're trying to do here."

Payroll is down to 38 from 50 in 2009. Pfarr cut his direct reports from six to three.

"We're trying to match up to the marketplace," he said. "And if we need 100 more beds for homeless youth, my answer may be that we're just going to have to do more prevention work with families. Beds and buildings are really expensive."

There has been no economic recovery for many small nonprofits. From the top down, cost-cutting and consolidation have become the survival strategies of choice in the nonprofit sector. The recession, a weak recovery and state and federal budget cuts have only accelerated the trend.

While the largest 34 social service agencies in the Star Tribune's survey of 100 nonprofits saw revenue rise by an average 13 percent in 2010, most street-level agencies did not.

"The small organizations, those with less than 10 employees, some of those did go out of business," said Jon Pratt, executive director of the Minnesota Council of Nonprofits. "And some went from a few employees to all volunteers."

The once-separate United Ways of Minneapolis and St. Paul merged about a decade ago, for example. The Minneapolis and St. Paul YMCAs, which have merged back-office and administrative functions for several years, will formally merge into one Twin Cities nonprofit with the retirements of their respective CEOs.

United Way now has a "merger" fund to help small agencies examine potential merger partners, and about 20 nonprofit mergers have occurred over the past three years.

"Our request to nonprofit boards and executives is: 'You must begin rethinking your business model and what changes might you begin to make to be relevant, stable and healthy in this new environment,' " said Frank Forsberg, United Way's senior vice president of change and innovation.

He points to the recent merger of the former Family & Children's Service and Reuben Lindh Family Services into the Family Partnership as an example of two financially challenged agencies that emerged stronger as one. The Family Partnership was named 2011 "agency of the year" in the midsize category by the national Alliance for Children and Families.

Human services funding has been hardest hit at the state and county level. That translates into less money per client at the nonprofits that deliver the service.

"Government just doesn't cover the full cost of delivering the service," said Kate Barr, a former commercial banker who heads the Nonprofit Assistance Fund. "If they pay you 80 cents to cover a homeless kid, it costs a buck."

The nonprofits that seem to make government funding work for them have more size and ability to cover the unfunded portion, Barr said. "Lutheran Social Services and Catholic Charities, for example, have the 'brand,' and more heft and a supporter network."

Meanwhile, high unemployment continues to drive demand. Social service providers, from homeless shelters to food shelves, report record demand.

Sarah Caruso, head of the Greater Twin Cities United Way, said: "Our intent and ability is to not replace those public dollars. It is to leverage and accelerate high-performing programs that help move people out of poverty. Over the next three to five years, this will be important work for our sector."