A Budget Challenge on Three Fronts

Is Michigan a Nonprofit-friendly state and why does it matter? This is our sector’s most important question as we face a three-front fiscal crisis. The three fronts are the budget shortfalls at the federal, state and local levels; challenges in government contracting and granting; and skyrocketing need levels that have not been seen for some time.

Michigan’s current projected budget gap for FY 2012 is $1.8 billion, placing us in the top 20% of the 45 states projecting shortfalls. The Recovery Act Funds are drying up now with the reduction of the $98 billion invested from FY 2009 to FY 2011 to a projected $6 billion for FY 2012. The U.S. Senate is debating on whether to cut $4.7 billion or $57 billion from the current budget for the remaining six plus months of this fiscal year. That debate is largely seen as setting the stage for how the FY 2012 debate will be waged as the Congress and President declare each others’ budget as unrealistic. These budget challenges combined with the stresses placed on nonprofits through the proposed repeals of Michigan tax credits make the public/private partnerships difficult for nonprofits to continue.

An increasing number of nonprofit organizations with federal, state, and local contracts report a strained government partnership. Some report that governments are failing to make payments for services performed under contracts, forcing the organizations to make painful cuts to programs, services and staff. In light of the budget cuts in revenue sharing and other public sources, local government agencies are withholding reimbursements, rescinding agreements altogether, or imposing other financial burdens that harm nonprofits. This challenging relationship is exacerbated by the fact that generally government contracts simply don’t cover the full cost of providing services. This is proven in our own look at the Michigan landscape.

MNA data reveals that 45% of nonprofits experience delays in scheduled government payments. In addition, when organizations were asked to identify specifically where the delay in government funding was occurring: 39% reported delays at the local level, 26% reported delays at the state level, and 16% reported delays at the federal level. We also found that 49% reported raising less financial/in-kind support in 2009 compared to previous years. Beyond budget cuts, nonprofits struggle to provide vitally needed services to a growing population with more constraints and few resources.

The final conspirator is the growing levels of need. Let’s agree to set aside for the moment the effects of the recession including the job loss, record foreclosure rates, and persistently high unemployment rates. There are other huge issues including the unpaid pension and healthcare liabilities on the state’s books. Michigan has a growing need with the aging of the Baby Boomers and the now projected decline—not stagnation, but decline—of population growth and thereby working taxpayers. While Michigan’s 1.9 million who depend on Medicaid are spared the budget axe in Governor’s Snyder’s FY 2012-2013 budget proposal, they are still expected to grow in numbers at an alarming rate that may exceed our ability to provide them healthcare coverage. This will lead to more elderly, children and vulnerable populations looking for help elsewhere, especially local mission-driven nonprofits concerned with the health of our communities.

These are reasons we should care. As a sector, we should begin to call for policy makers to build a fertile landscape for an effective, engaged, relevant and understood nonprofit sector. We need to demand that the state’s policy climate be supportive of the sector that is one of the leading economic engines, employs one in ten workers, and includes the assets our state will need to lead to our economic transformation—education, healthcare, arts & culture, and environmental stewardship. These are the reasons that every Michigander needs to call for Michigan to be a nonprofit-friendly state. It’s what will be at the forefront of our reinvention.


Submitted by Kyle Caldwell, president and CEO, for the Michigan Nonprofit Association.

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