Recession Forces Non-Profits To Merge, Close: WSJ

Among the victims of the recession have been non-profit groups, many of which has as their mission helping, among others, victims of the recession.

The Wall Street Journal reports that non-profits that relied on the kindness of strangers in order to house the homeless, feed the hungry or provide educational opportunities for low-income students have themselves fallen on hard times.

An excerpt:

Hearth, a Boston-based nonprofit, has a mission of helping people like Yvonne Rock find housing and medical care.

Ms. Rock, a 59-year-old former mental-health counselor, has been diagnosed with terminal lung cancer and can no longer work. After nearly a year on Hearth's waiting list for an apartment, she still has nowhere to live.

But Hearth is badly in need of charity itself. The group lost $325,000 in government contracts last year, laid off five employees and cut managers' pay. Its plans to add housing units are stalled because it hasn't been able to raise the final $600,000 from private donors to qualify for matching government funds. Yet Hearth is receiving more applications for housing than it can process.

"We've had funding cut after funding cut, and we never know when the next shoe is going to drop," says May Shields, Hearth's chief operating officer.

The story is the same across the country. The once-booming nonprofit sector is in the midst of a shakeout, leaving many Americans without services and culling weak groups from the strong. Hit by a drop in donations and government funding in the wake of a deep recession, nonprofits—from arts councils to food banks—are undergoing a painful restructuring, including mergers, acquisitions, collaborations, cutbacks and closings.

"Like in the animal kingdom, at some point, the weaker organizations will not be able to survive," says Diana Aviv, chief executive of Independent Sector, a coalition of 600 nonprofits.

 

But before you whip out the violins, the WSJ reports that there's an upside to what would appear at first blush to be a fairly bleak picture: some non-profits that, to begin with, were weak, poorly focused or ill-managed will wind up closing their doors, clearing the way for stronger non-profit groups.

"There were too many poorly performing nonprofits," says Paul C. Light, a professor at New York University's Wagner School of Public Service. "There were very many niche nonprofits devoted to small slices of a problem and they needed to be merged."

With growing demand for a declining supply of donation dollars, some donors are arguing that there are too many organizations providing similar services. Merging or collaborating may allow them to more effectively solve the problems they aim to address.

That's the thing about recessions. While they cause a tremendous amount of pain for millions of people who lose jobs, homes and more, they get rid of a lot of the excess padding that gets added to an economy during the boom years.

In the financial services sector, that meant clearing away tens of thousands of people in the mortgage business when home prices and sales collapsed. The same is happening in the non-profit sector as people who help the needy now themselves lose their livelihoods.

While the need to undo redundancies in the non-profit field makes rational sense, however, that obviously doesn't make these cutbacks go down any better for the employees of non-profits or their clients facing a world of hurt.