October 11, 2013

Shutdown Plays Havoc With Federally Funded Nonprofits

WIC food programs and social service providers suffer

Even if the White House and Congress reach agreements soon on the government shutdown and the debit limit, the debacle has already taken a toll on many nonprofits that depend on federal funding.

This week, for example, the federal Women, Infants and Children food program was set to start cutting off food to low-income mothers and children, according to The Chronicle of Philanthropy.

United Way Association of South Carolina president Timothy Ervolina told The Chronicle that the $100 million allocated to the WIC program in his state had run out. Even if the 28 local United Way offices spent all the money they raised — some $60 million — the organization could not meet that need, he said.

Other nonprofits that receive federal funds to deliver social services were also affected. Donors sometimes took up the slack.

The Fisher House Foundation stepped in to replace $100,000 in federal death benefits for military families, and another 1,200 people pledged $160,000 to support those families, The Chronicle reported.

In another expression of generosity, the philanthropists Laura and John Arnold came to the rescue of Head Start programs in six states, some of which had had to close because grants usually issued Oct. 1 were not forthcoming. If funding is restored, the Arnolds’ $10 million donation will be considered a no-interest loan and be repaid by the state programs, The New York Times reported.

Philanthropists often increase their charitable giving in times of crisis. In the current situation, however, a majority of nonprofits don’t have large donors who can cover their shortfalls.

A survey by the Nonprofit Finance Fund showed that 56% of nonprofits have three months or less of cash. “That’s running pretty thin, if you could only see out that far,” Norah McVeigh, the group’s managing partner, told The NonProfit Times. She expected many organizations to be hurt by the shutdown.

McVeigh noted that nonprofits typically have low reserves because of the way in which they’re funded. Larger groups with budgets of $20 million or more tend to have more cushion. But human services providers that are typically paid by the government do not. “All those folks are vulnerable,” she said.

David Thompson, vice president of public policy at the National Council of Nonprofits, told NPT that the Oct. 1 start of the fiscal year is also when some federal contracts with nonprofits begin. When sequestration loomed earlier this year, some states waited until they could be certain how much money they would receive before signing contracts; a January 2013 contract might have been delayed until June, for example.

“The same thing applies with a shutdown,” Thompson said. “State and local governments don’t know what, if anything, the federal government will pay, so they hold off on nonprofits.”

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Check out Head Start, Meals on Wheels Among Programs Bruised by Budget Impasse on ThinkAdvisor.

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