Frank Sietzen: A lesson to nonprofits with federal funds: Diversify

WASHINGTON (Map, News) - We don’t usually think of nonprofits as depending on federal funds, but many local charities count on federal monies to accomplish their missions. Like any sole-source operation, these groups can be imperiled by changes in federal policy, personnel shifts or tightening federal budgets.

The D.C. nonprofit Alliance for Healthy Homes nearly ran aground when a shift in agency management led to a disconnect with the U.S Department of Housing and Urban Development.

From 2003 to 2005, the 16-year-old organization, which campaigns against childhood lead-based poisoning, received $4 million in funding from HUD — roughly 50 to 75 percent of the Alliance’s budget. The money was allocated through a combination of earmarks embedded by friendly legislators in HUD’s annual budgets and through competitive proposals submitted to the agency.

But the HUD director responsible for their programs was reassigned last year and replaced with a person unfamiliar with the Alliance’s work. The new director did not follow the intent of the earmarks in the HUD bill and, with little warning, the Alliance lost all of its HUD money.

The Alliance filed a complaint with the Inspector General’s office and the IG eventually ruled that HUD had failed to follow the intent of Congress, said the Alliance’s Executive Director Robert Zdenek. By then, however, the revenue was lost and the Alliance’s budget devastated.

The Alliance is still trying to recover, but little of the earmarked HUD money has been restored and the group was unsuccessful in winning the several HUD RFPs to which it responded. Staff positions have been eliminated and most of the Alliance office closed. Those employees who do remain work from home as part of what has become a “virtual” organization.

So what are the lessons other non-profits can learn from the Alliance’s experience?

“Don’t get in the red,” Zdenek said. Do your planning using hard-headed budget projections that aren‚t based on best-case funding scenarios. He suggested diversifying funding streams and depending on government funding for no more than 20 or 25 percent the organization’s budget.

Even federal funding sources should be diverse, encompassing different agencies, programs and approaches to help survive change. As noted above the Alliance used to get a lot of its money through earmarks but that is changing.

“We’re also seeing a trend whereby Congress is moving away from using earmarks to fund organizations like ours,” Zdenek said.

Nonprofit sector leaders say the federal pie will continue to shrink, impacting charitable funding projects.

“Given our national policy priorities have focused on tax cuts and the war in Iraq, it should surprise no one that programs that invest in Americans are being cut,” said Chuck Bean of the Nonprofit Roundtable of Greater Washington.

“The truth is,” Bean said, “federal funding is very hard to replace unless the nonprofit has already begun the process of diversifying their funding streams before the cuts.”

Have information about area nonprofits? Contact Frank Sietzen at fsietzen@yahoo.com.