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Forced Marriage

Financial Cloud Pushing Nonprofits To Merge

By Gregory Seay

June 29, 2009

Connecticut’s professional nonprofits, squeezed by falling donations at a time when demand for their services is rising, are feeling greater pressure to merge to survive.

Evidence is all around. New Haven-based Planned Parenthood of Connecticut has agreed to absorb its ailing Rhode Island health-screening affiliate.

ALSO-Cornerstone Inc. and The Connection Inc., two New Haven partners in recent years in providing supportive housing statewide for people with disabilities, will be one organization by yearend.

“There’s more discussions than ever before regarding collaboration and strategic partnerships, which includes mergers,’’ said Ron Cretaro, executive director of the Connecticut Association of Nonprofits.

Nonprofit executives worry the worst may yet lie ahead. The reason is the unsettled state budget, which dispenses billions of state and federal dollars annually to nonprofit contractors for drug, housing and mental-health counseling, and other human services. Without those payments to cover salaries, rent and supplies, they say, nonprofits face a bleak outlook.

“It’s going to cause entire programs to close or entire nonprofit operations to cut back or close, or find other solutions, such as a partner to merge with,’’ said Dave Davison, CEO of American Savings Foundation, a New Britain community chest.

Talk of merging, or at least sharing staffs and other resources, is nothing new for Connecticut’s estimated 7,000 professional nonprofits.

Unlike their commercial-sector cousins, professional charities are usually chartered to deliver food, health care, counseling and scholarships to the needy. Money for those missions comes either from an endowment, public funding, individual and corporate donations, or as grants from philanthropic institutions, such as United Way and the Hartford Foundation for Public Giving.

Yet this recession has been no less merciless to nonprofits. Shrunken investment returns on their endowments, along with dwindling donations, and rising demand for services have exposed organizations hobbled with weak managers, inefficient operations, and muddled missions, observers say.

Many charities, especially ones that rely on big funding organizations such as United Way, are finding the funding cupboard is lean.

“We have 5 percent fewer dollars to give out, so we had to make some really tough decisions,’’ said Susan Dunn, CEO of the United Way of Central and Northeastern Connecticut, the product of a merger several years ago.

United Way and other large funding organizations say they don’t push nonprofits to merge, but aren’t shy about asking one that is obviously struggling whether it has considered going that route.

American Savings Foundation tries to be either a “matchmaker’’ or catalyst for charities seeking to partner, Davison said. When a literacy volunteer group in Middletown opted to merge with a healthier counterpart in New Britain, the foundation awarded them a $15,000 grant to cover legal expenses.

Today, the Literacy Volunteers of Central Connecticut is a stronger servant to both communities, said Executive Director Darlene Hurtado. Its expanded territory also helps, she said, in pursuing grants and attracting volunteers and board members.

“It was a good decision,’’ Hurtado said of the 2007 merger.

Jerald Ross, executive director of ALSO-Cornerstone, which underwent a merger several years ago, is concerned that charity unions will be unrealistically viewed as the solution to a deeper, more complicated dilemma.

“I worry that mergers,’’ Ross said, “will be seen as an ‘easy out’ to coming up with the resources that are really needed to help people and strengthen our communities. Nonprofit mergers don’t save money, they increase effectiveness. In fact, to do them right, they cost money, at least initially.’’

If merging isn’t in the cards, nonprofits are eager for more collaboration. For example, the Middlesex United Way and United Way of Central and Northeastern Connecticut (UWCNC) plan to share a communications director to save money. The UWCNC affiliate, based in Hartford, also administers a database of online pledges shared between several United Ways in the state.

Nonprofits also are sharing back-office functions, such as bookkeeping and information technology, executives say.

The economy “has brought a sense of urgency’’ to conversations among United Ways and other nonprofits about sharing services, said Dunn.

Although charities can’t profit, they are businesses and should be run as such, said nonprofit adviser John Motley, former president of Travelers Foundation.

The partner in Hartford-based MotleyBeup said, some nonprofits that would do well to land a partner are often reluctant.

“There are some operations for which it makes all the sense in the world to merge,’’ Motley said, “but they just won’t do it.’’

Alice Fitzpatrick understands. Fitzpatrick runs the Community Foundation of Southeastern Connecticut, doling out $1.5 million a year in grants and scholarships ranging from $500 to $50,000 to students, museums, school districts and churches in 11 shoreline communities.

Her New London organization is weighing a merger with the Community Foundation of the Tri-County Area in Willimantic, serving the state’s northeast corner. Talks intensified following the departure of Tri-County’s manager.

The complexities are enormous, she said. Aside from sorting through overlapping administrators and boards of directors, expansion would impact the endowment and operating budget. Then there’s concern about a charity’s loss of local identity.

“If you live in Woodstock, would you want your checks to come to New London?’’ she said.

So, for now, both groups are moving deliberately. Their boards, she said, have agreed to split the salary of either a consultant or full-time employee who will analyze the philanthropic potential of a merger.

“We’re not going to jump in until we know more,’’ Fitzpatrick said.