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July 10, 2023 Focus: Nonprofits

Higher minimum wage is latest challenge for cash-strapped nonprofits

PHOTO | CONTRIBUTED Barry Simon is the CEO and president of Oak Hill, Connecticut’s largest provider of services to people with disabilities, which had to cancel its overnight camp program this summer due to staffing shortages.
By Norman Bell, Hartford Business Journal Contributor

The culmination of Connecticut’s five-year march to a $15-an-hour minimum wage should have been a moment of celebration in the nonprofit community.

Instead, reaching the milestone June 1 has become a bittersweet reminder of the perils of long-term strategies and the fragility of the nonprofit community itself.

Nonprofits are “straining” with a child-care crisis looming, said Glenn Dowd, a partner with Day Pitney whose employment law practice includes several nonprofits.

Program cuts, longer wait times, administrative changes including possible layoffs and benefit cuts, even wholesale mergers of smaller nonprofits all are on the table, said Mary Kay Curtiss, principal with CliftonLarsonAllen, whose accounting practice focuses on nonprofit clients.

Back in 2017, when the legislature agreed to the gradual movement of the hourly minimum wage upward from $10.10, it seemed a progressive triumph that promised a better life for thousands of low-income Connecticut families.

But a lot has changed across those years — the COVID pandemic, economic shutdown, massive layoffs, government-relief efforts, the rise of remote work, the Great Resignation, unprecedented political divisions, supply chain problems and disruptive inflation.

The $30,000-a-year income that not long ago seemed like a living wage is no longer viable. Major employers like Walmart and McDonald’s have blown past the minimum wage in their search for workers.

The minimum wage applies to fewer and fewer jobs beyond seasonal positions.

Caught in the backwash of the economic and social changes are the nonprofits themselves.

The rise in the minimum wage has not diminished the demand for social services provided by nonprofits, but it has put the squeeze on nonprofits’ ability to hire staff.

As CEO and president of Oak Hill, Connecticut’s largest provider of services to people with disabilities, Barry Simon has a front-row seat for the resulting chaos.

His 130-year-old organization operates Camp Hemlocks in Hebron, which provides outdoor experiences for 200 to 300 people with disabilities each summer.

This season, however, there will be no overnight camping due to staffing shortages.

PHOTO | CONTRIBUTED
Disability services nonprofit Oak Hill operates Camp Hemlocks in Hebron, which provides outdoor experiences for 200 to 300 people.

Oak Hill also operates 70 group homes for people with disabilities.

Simon estimates a total of 50 beds are empty across the Oak Hill network, again a victim of staffing shortages.

And that’s a separate issue from worker pay, which fueled a recently settled strike by Oak Hill unionized staff affiliated with SEIU 1199.

At the heart of the matter is the inelastic nature of the revenue stream fueling nonprofits, Simon explained. Unlike many businesses, nonprofits can’t pass along rising costs to their clients.

“We’re rate takers, not rate makers,” Simon said, pointing the finger squarely at the state, which is Oak Hill’s largest client. “For every $1 in extra cost, we collect 40 cents in extra revenue.”

That’s not a sustainable model, said Simon, who wonders how long those empty beds can be seen as temporary before he has to consider permanently closing some facilities.

Oak Hill balanced its budget this year by tapping $5 million from its endowment.

The whole nonprofit ecosystem “has been on fire for years,” he said, adding it’s “a systemic issue.”

Last year, Channel 3 Kids Camp’s 140-acre Coventry property was put up for sale for $4.3 million, after the nonprofit decided it couldn’t continue operations. The camp said its traditional operating strategy “of running on more than a 50% fundraising model” was no longer viable.

The camp property remains on the market.

Meantime, Priya S. Morganstern — Connecticut program director of the Pro Bono Partnership, which provides free business advice and legal services to nonprofits — said while the higher minimum wage may be creating budgetary issues for some nonprofits, the biggest challenge she hears from clients is hiring and retaining qualified staff.

“In particular, there is a real shortage of people who can step into leadership positions, as executive directors are stepping down,” Morganstern said. “That is the real struggle.”

Lobbying for changes

Gian-Carl Casa, CEO and president of the CT Community Nonprofit Alliance, sees much of the same picture.

“Donations can’t possibly be enough to sustain us. Only the state can do that,” he said.

He points to a national “imputed pricing” model that puts the rising costs for nonprofits at 16% last year. He contrasts that to the 2.7% boost recently authorized for most nonprofits by the legislature for each of the next two fiscal years.

Programs serving those with intellectual disabilities received 7% annual increases.

Casa’s group was at the forefront of lobbying efforts this year that included budget hearing testimony from 170 witnesses, and a rally that brought about 1,200 nonprofit leaders and advocates to the Capitol.

The alliance stressed that the nonprofit sector employs 115,000 people — 7% of Connecticut’s workforce. Nonprofits pay almost $4 billion in wages and another half-billion in spending for goods and services.

In addition to increased funding, the industry lobbied for a host of structural changes, including implementation of study recommendations that suggest having nonprofits take over state-run group homes would save taxpayers millions of dollars.

Casa and Simon agree legislators have the facts in front of them but failed to pull the trigger on authorizing more funds amid all the competing interests at the state Capitol for limited resources.

Simon reiterated his offer to host any of the decision makers willing to come and work a full shift in one of Oak Hill’s group homes.

“They need to see the complexities of the job and the dedication of our staff,” Simon said.

So far, there have been no takers.

Dollars in short supply

Still, short term, the problems are not being felt uniformly across the nonprofit sector.

Corrianne Chipello, executive director and CEO of Camp Courant, reports the program opened June 26 with a full staff and full roster of 750 campers. But that doesn’t mean it was easy, she said.

The competition for the scarce supply of lifeguards was particularly stiff.

Her fear is that nonprofits like Camp Courant will slip off the public’s radar because they’ve been delivering for 129 years.

“Every dollar impacts the kids,” she said.

Eric Harrison, president and CEO of United Way of Central and Northeast Connecticut, hears concerns from a broad spectrum of nonprofits across the 52 townships under his purview.

He echoes Curtiss’ sense that administrative expenses are in the bull’s-eye as nonprofits struggle to wring more mileage out of their budgets.

There is a broad sense that technology — particularly artificial intelligence — could bring some savings, as could remote work. And, a wave of consolidations may be right around the corner.

He also echoes Dowd’s warning that a crisis is looming, and urges the state to take a fresh look at a child tax credit.

But, as hard as nonprofits work to save pennies, the big dollar fix remains in changing the way the state thinks about nonprofits, industry advocates said.

And that’s a fight the industry is readying for the next budget cycle in 2025.

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