Commentary: Bringing cities back | Michigan Radio

Commentary: Bringing cities back | Michigan Radio

By Jack Lessenberry

The other day I got a note from Fred Leeb, who spent a little over a year as Emergency Financial Manager in Pontiac until the middle of 2010.  He started thinking a lot about this problem when he was running Pontiac. Leeb was a natural choice for the job; he was a recognized expert in turning troubled nonprofit businesses around. While he was in Pontiac, he managed to balance the budget and lead the city to an upgraded bond rating.

Eventually, he got tired of fighting with local politicians, and returned to the private sector. But while in Pontiac, he had a dream he never got to see become reality.

He wanted to see the government turn Oakland County’s capital city into a demonstration laboratory. He had this vision of bringing a hundred of the nation’s top turnaround experts to Pontiac, and giving them a ten-year assignment to reinvent the economy.

Leeb called his concept BIG -- for Business Innovation and Growth. He never did manage to interest the government in his program. But he’s been thinking about this ever since.

He’s now concluded that it would be virtually impossible to bring enough taxpaying new businesses and residents to any troubled city, if you focus on getting them one at a time.

There will always be too many better options -- especially since cities like Detroit and Pontiac cannot provide the kind of services and retail shopping upscale residents are going to want.
The chicken-and-egg dilemma is that they can’t provide quality of life services until they get enough residents who can pay for them -- but the residents are unlikely to come unless the services are already there.

Since leaving the pressure of running Pontiac day-to-day, Fred Leeb has been doing more research and is more convinced than ever that he is on to something. He notes that Quicken Loans’ Dan Gilbert moved nearly 2,000 employees to Detroit to help build the critical mass needed to revitalize downtown.

On a smaller scale, Cornell University and Technion, an Israeli technological institute, are plunging hundreds of millions into an attempt to transform a section of New York City’s Roosevelt Island. Mayor Michael Bloomberg believes this may generate up to $23-billion in economic activity over the next thirty years.

The other day, Leeb noted approvingly, former NBC news anchor Tom Brokaw joined those saying that what’s needed is a national jobs program, one on the scale of the Marshall plan that helped rebuild Europe after World War II.

Fred Leeb hopes that if President Obama is reelected, he will turn his attention to such a plan, possibly with the money saved from winding down the wars in the Middle East.

There are those who say that given the deficit, America can’t possibly afford to do anything like a huge jobs program. Leeb is anything but a spendthrift. But when he looks at Pontiac or Detroit, he thinks that the real question may be: How can we afford not to?   

Jack Lessenberry is Michigan Radio’s political analyst. Views expressed in the essays by Lessenberry are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.                  

OTHER VOICES: Time to reinvest in nonprofit leadership | Crain's Detroit Business

OTHER VOICES: Time to reinvest in nonprofit leadership | Crain's Detroit Business

August 26, 2012 8:00 PM

OTHER VOICES: Time to reinvest in nonprofit leadership

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Mark Davidoff

We often refer to the bedrock beneath Detroit as the foundation for what has been built here. I suggest that in addition to the geological bedrock, Detroit is supported by a foundation of nonprofit cultural, business development and human service organizations that collectively are just as substantial -- and maybe even more important to the structure and stability of our city.

As strong as this foundation has been historically, it is time to reinforce it, or we risk its instability at a time when there is still so much to be accomplished.

Like the minerals and compounds that make up the ground we stand on, the nonprofits of our community are also formed with key ingredients. The most important is the partnership between the professional and volunteer leaders -- from entrepreneurs and philanthropists to executive officers of our region's most important companies. Serving in a top position in any of these organizations has always been rewarding and sometimes challenging, especially so during this difficult economic period.

These pressures make it even more difficult to balance the responsibilities of management and the board of directors. These lines need to be clear, especially when dealing with "bet the house" issues. If the professional and volunteer leaders of a nonprofit don't know where their responsibilities begin and end, the stability of their organizations could erode.

The leaders are passionate about their cause and are committed, but unfortunately boundless passion doesn't pay the bills. The constant struggle of mission vs. margin is a potential battleground for volunteer and professional leadership. Professional leadership often assumes a responsibility for accomplishing the mission, at all costs, while boards find the need to establish boundaries and limits. This partnership can work only if all parties have a sense of empathy, drive from a perspective of stewardship and consistent critical thinking.

We've all been through a rough period, and we must now reinvest in these relationships and further develop a collective vision.

Boards of directors should honestly assess their effectiveness. They should review the nature and tone of board communication to assure the board is being provided information with maximum transparency. Foster an atmosphere of collaboration in the boardroom, where leaders can openly and respectfully debate issues.

Nonprofit leaders should establish an executive compensation committee so there will be consensus on objectives for measuring performance.

Finally, let's undertake a mission evaluation to assure that the energy expended is properly focused on our region's most critical needs.

The intensity of the environment has strained us all, and it's a good time to practice empathy, recommit to stewardship and clear our minds for the next round of critical thinking.

Mark Davidoff is Michigan managing partner at Deloitte LLP.

Nonprofits are Now Too Critical to Fail--Are Mergers a Solution?

http://origin.library.constantcontact.com/download/get/file/1101086242761-21/StrategicRestructuringArticle070212.pdf





By Fred P. Leeb, Fred Leeb & Associates and the Nonprofit Management Group

Nonprofits are Now Too Critical to Fail

In 2010, 46.2 million people were in poverty according to the U.S. Census Bureau.   Of those, 15.7 million or 22% of the children under 18 were in poverty.  The total number of people in poverty had worsened significantly in 2010 to 15.1%, up by 2.6 percentage points from 2007*. 

According to Scott Allard of the School of Social Service Administration, University of Chicago, assistance from nonprofits is even more critical in today’s down economy because the needs are greater but,

“Economic hard times also cut into tax revenues and cause governments, especially at the state and local level, to reduce funding.   Because poor people lack political clout, social service programs are among the first places governments look to cut spending.” 

“Services are mainly funded by government grants and contracts, but typically delivered to millions of people through local community-based nonprofit organizations. Programs for low-income Americans currently spend somewhere between $150 and $200 billion annually from both public and private sources. For every dollar spent on cash assistance, the United States spends about $15 to $20 on social service programs. Americans prefer to help the poor this way – through community-based nonprofit organizations that stress personal contact.”

One Million Nonprofits Control Large Financial Resources

Nonprofits have become an essential part of the fabric of our communities.  The number of registered tax-exempt public charity nonprofits has grown to over 1 million, increasing by 59% from 1999 to 2009. A little over one-third of those (approximately 368,000 with more than $25,000 in gross receipts) filed a tax form 990 with the IRS.  These public charities reported over $1.4 trillion in total revenues and $2.5 trillion in total assets in 2009, according to the National Center for Charitable Statistics (NCCS).

The great majority of these organizations are very small--83% or 304,000 of these registered public charities had revenue of less than $1 million in 2009.  Therefore, they accounted for total revenue of only $60 billion or 4% of the total (an average of $197,000 per organization).  Only approximately 13% (about 49,000) of the public charities had revenue of between $1 and $10 million and 4% (about 14,000) had revenue over $10 million.  These latter two categories (approximately 63,000 public charities) accounted for 96% of the total revenue in 2009.

Revenue of Registered Public Charity	Number of Organizations	Average Revenue Per Organization	Total Revenue	Revenue Percentage of Total	Total Assets
Less than $950,000	304,000	$197,000	$60 billion	4%	$197 billion
$1-9.9 million	49,000	$3,135,000	$155 billion	11%	$338 billion
$10 Million or More	14,000	$83,207,000	$1.186 trillion	85%	$2.0 trillion
Total	367,000	$3.8 million	$1.4 trillion	100%	$2.5 trillion

According to the IRS Business Master File for March 2012, there were about 18,000 public charities in Michigan alone that filed a tax form 990 (those with revenue greater than $50,000).  These charities had revenue of approximately $43 billion and assets of $67 billion.

Precarious Nonprofit Financials

Though nonprofits as a whole control large financial resources, many are operating on razor-thin margins.  According to the Nonprofit Finance Fund’s 2012 State of the Sector Survey, 56% of the 4,607 nonprofit respondents surveyed in 2011 were operating at deficit or breakeven levels.  In addition, 9% had no cash on hand, 16% had only one month of cash and 32% had 2-3 months.   The conclusion of the Survey was that the,

“Nonprofit Finance Fund’s fourth annual survey of nonprofits nationwide reveals that rising service demand is overwhelming a sector still coping with a brittle economy and a barrage of funding cuts.  While there are hints that some organizations may have navigated through the worst of the recession, the ever-increasing need for services suggests that our communities have not. The 4,607 respondents tell a story of a sector still stretched thin, with organizations feeling distant from their funders and boards, and staff facing more work with less money and fewer benefits to take home. This is a wake-up call to funders, government, board members, advocates and all of us who care about the critical work nonprofits do to build a just and vibrant society. The recession may be over, but the nonprofit financial crisis is not.” 

Merger as One Tool to Increase Operating Efficiency

Many people have recommended for many years that nonprofits consider merging as one method to improve their organizational effectiveness.  Some of the more common reasons for merger strategies are as follows:

1. Increasing the quality of programming and producing better outcomes
2. Gaining vertical or horizontal integration--providing a better continuum of service to clients; being able to address more complex issues; gaining efficiencies and economies of scale
3. Expanding the geographic or demographic reach of the organization; responding to the increased demand for services
4. Growing more quickly via merger instead of building internally
5. Reaching critical mass and being more visible in the community
6. Selecting the best board members from both organizations to strengthen the organization, improve fundraising capability and leadership, access key relationships, and gain more expertise
7. Competing more effectively for grant funding and major donors (with a larger organization)
8. Reducing the cost of duplicative administrative operations (e.g., finance, human resources, accreditation, fundraising, IT, etc.)
9. Reducing facilities costs
10. Obtaining and affording high-quality talented staff and training programs
11. Building on the best attributes of both organizations while pruning the weakest attributes
12. Diversifying and expanding the sources of revenue to reduce the risk of being dependent on only one or two major sources of funding, some of which fluctuate widely and regularly pay late.

If there are many good reasons for nonprofit mergers and acquisitions, why does it seem as though there is a lot of discussion in the nonprofit world only about the softer approaches to these issues: collaborations, alliances, joint ventures, partnerships, resource sharing and joint programming?  Many obvious questions come up, such as:

• Are these discussions often really just a veil to cover up the lack of desire to push for the more fundamental changes that are needed? 
• Why aren’t nonprofits using the terminology of the business world—takeover, merger, outsourcing, acquisition—to achieve their goals of improving services and operating for the benefit of their clients (particularly now when competition for dollars is fierce and resources must be used most efficiently)? 
• Why does there appear to be no sense of urgency? 
• Aren’t there stakeholders in the nonprofit world who have a vested interest in pushing for fundamental change? 

These questions will be answered in our next article in this series entitled “Who Cares About Nonprofit Finances?”


* [Poverty thresholds for 2010 were $11,344 for one person under 65, $14,602 for a two-person household, $17,552 for a three-person household with one child under 18, and $22,113 for a four-person household with two children under 18.]