Nation’s Human Services Agencies In Financial Trouble

More than 218,000 human services community-based organizations (CBOs) collectively have the economic impact equivalent of the airline industry yet many are potentially skating on thin ice.

Roughly 1 in 8 are technically insolvent and barely one-third have the reserves to cover less than one month of expenses but they are critical to the economy and will become even moreso as they serve an aging population and address issue such as the opioid crisis.

A National Imperative: Joining Forces to Strengthen Human Services in America,” released today by the Alliance for Strong Families and Communities (ASFC) and the American Public Human Services Association (APHA), identified five “North Star initiatives” aimed at addressing issues critical to society and the economy:

  • Commitment to measure long-term outcomes;
  • Investment in capacity for innovation;
  • Development of new operating models;
  • Development of new financial policies and practices; and,
  • Regulatory modernization.

ASFC is a network of more than 400 human services CBOs and APHSA is an association of more than 300 state and local health and human service agencies.

The report was principally developed and written by management consulting firm Oliver Wyman and SeaChange Capital Partners, a merchant bank focused exclusively on nonprofits. The research analyzed more than 200,000 tax filings by some 40,000 human services CBOs. In addition to the tax filings, an online survey drew responses from 177 human services CBOs and 40 government agencies.

The project was designed to assess the financial health of human services CBOs, identifying underlying causes that lead to financial vulnerability, and to propose ways to make them stronger, ultimately providing a path to make CBOs more sustainable. Funding was provided by the Kresge Foundation and the Ballmer Group, with additional support from the Health Foundation for Western & Central New York, Mutual of America, Selective Insurance Company of America, and the United States Chamber of Commerce.

Public opinion often misperceives CBOs as small, volunteer driven charities and while 80 percent of them do have budgets of less than $5,000, said Dylan Roberts, a partner at Oliver Wyman. That may be true of small CBOs, he added, but it underestimates the complexity on the large end, where the largest 3 percent account for 50 percent of the sector’s total service provision, with budgets of $10 million or more, he said. There’s also a misperception about how they are funded as much of it comes from public government agencies through contracts and Medicaid, in addition to philanthropic funding and investment income, spending $200 billion per year – equivalent to the airline industry.

“It’s a very big bucket of economic activity,” Roberts said. “It’s getting spent on things like salaries for social workers, fuel for vehicles, office supplies, flowing through to communities in which CBOs operate,” he said.

It’s important not to just focus on size but how important services are to community and the residents that receive them, according to Roberts, as 1 in five Americans use CBOs. For example, nearly 47 million Americans rely on food banks and almost 700,000 children pass through the foster care system each year.

In some cases, organizations don’t have the financial reporting tools to realize they’re in crisis until it’s too late. And any surprise expenditures like a roof leak or an expected contract that falls through puts an organization into financial crisis, rarely addressing things like scaling business optimally, investing in IT infrastructure, or innovating and developing new services.

The initiatives laid out are ambitious, Roberts conceded but they are “absolutely feasible and achievable.” The main impediment, he said, is the collective will to act on them.

Just about everything recommended in the report has been implemented or is in the process of being implemented somewhere in the country, according to Roberts. “We don’t think any one of these is a silver bullet or easy but incredibly inspired to see success in pockets around the country,” he said.

APHSA President and CEO Tracy Wareing Evans said they’re in conversation with Social Finance to develop a national laboratory of sorts for contracts and procurement reform.

“We have not attempted to estimate the dollar investment required to achieve these North Stars but it will be considerable,” the report stated. Just building financial reserves equivalent to three months of cash expenses for all human services CBOs that do not currently have that level would require a capital infusion of more than $30 billion.