December 10, 2018
Rule of Law

CT nonprofits at a major crossroads

John Horak

With the election in the rear-view mirror, and the 2019 legislative session on the horizon, the state's privately governed social-service organizations are at a fork in the road.

They have a choice: 1. Accept the dismal financial reality in which they operate; or 2. Find a new way to advance proposed governmental/labor reforms that would improve their reality, the social safety net, and the state budget.

We should urge the nonprofits to make choice No. 2, but when doing so recognize that they are David relative to the government/labor union Goliath standing between them and the reforms.

Even worse, in our narrative, David's sling is empty — meaning that nonprofits have been peddling as fast as they can, but their reform efforts have stalled for lack of the resources to take on Goliath. They need outside financial and leadership assistance to move the ball forward.

We should find a way to provide the assistance.

Here's the backstory: Connecticut has, and pays for, two social-service "safety nets." It only needs one. State government, through the departments of Disability Services, Mental Health and Addiction Services, Children and Families, and others, provides social services at a high cost, and the independent nonprofits provide the same services at lower cost and equal quality.

The reforms in question are based on the principle that taxpayer dollars should be allocated for maximum efficiency. This means that the high-cost governmental agencies would get out of the services business and put the services out to competitive bidding among the nonprofits. The state would buy social services from the nonprofits under a bona fide bidding/contract system much like it buys goods and other types of services.

This is where Goliath steps back into the story.

The government agencies and labor unions have resisted and will resist any reforms that diminish their number and power — and they have so much power over the nonprofits' finances, boards, licensure, budgets and administration that the nonprofits cannot push too hard for reform because, as the saying goes, you can't bite the hand that feeds and regulates you.

The power over the nonprofits is breathtaking. It emerges from a combination of things, including the nonprofits' near total reliance on funding from the governmental agencies in question; contract provisions that allow the agencies to reduce funding mid-contract; and a requirement that the nonprofits transfer any operating surpluses back to the state. The power also arises from the state's authority to license, regulate and audit nonprofit operations (audits can be punitive), and labor union operatives know the nonprofit pressure points.

You bite Goliath's hand at your peril.

It breaks my heart to see how our nonprofit social-services "industry" has been mistreated and brought to this unfortunate fork in the road. I hope that they make choice No. 2, and my recommendation is that they do so in the form of a very specific business/reform plan with hard projections of expense, goals and personnel needs, and that they then shop the plan to two sources to seek support: the state's many grant-making charitable foundations, and the members of our business community.

The grant-making foundations should support their nonprofit sector brethren to help keep the nonprofit sector vibrant generally, and because it would improve the depth and breadth of the safety net. The business sector should throw in its support, if for no other reason than to improve the state's budget (and tax) outlook; and perhaps it could provide some corporate talent and leadership from outside the sector that can bite the hand in question without concern about repercussions.

This would be a multimillion-dollar effort that might take years to bear fruit, but it is an alternative worth discussing given the bleakness of choice No. 1 and the fact that the reforms in question are exactly what we need to help get the state's finances back in order.

John M. Horak is the director of TANGO Nonprofit Education and Consulting. His opinions are his own.

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