May 2020 – Editorial
by Harald Breiding-Buss
The Rainy Day has Arrived!
The outlook for community funding for the next few years is not good.
Because of the lockdown closures of venues that operate gaming machines, there will be at least 80m in community funding less from these sources in 2020 alone – some estimates are as high as $120m. Investment returns have not only plummeted, but are negative, meaning the investment assets used to generate income from for some large funders (such as Rata Foundation or Foundation North) and a myriad of smaller charitable funders are reduced, and distributions will have to be reduced accordingly in future years, even if contingency funds are used now.
The outlook is not good for private donations, business sponsorships and similar sources either. A larger share of private donations can be expected to go overseas, as international charities will ramp up aid efforts in poorer countries, who are yet to be hit fully by the pandemic. Those staying in New Zealand will increasingly have to go to direct poverty relief such as food banks. At the same time, pay packets will be smaller, unemployment higher, and there will simply be less money around from private sources.
Less funding dollars available means more competition for those dollars. However, the need for those dollars is not equal.
Many community groups are operating on extremely tight budgets with very little, if any reserves. For these groups, any reduction in funding may mean reducing services – or even having to wind down. The volatility of funding has meant that those groups, who could have built at least moderate reserves to protect themselves at least somewhat from unexpected funding shortfalls, have better chances of survival. Yet others, however, have built ample reserves. Many groups have had a bit of a windfall from insurance payouts after the Christchurch earthquakes, for example, which has then partly been used to buy investments or investment property. Some charities have structured their operations in a way that those assets are ‘protected’ – i.e. they are vested in a different trust usually with the purpose of managing them as a growing investment.
Nobody likes dipping into reserves, and seeing their overall financial position being eroded. However, charities and other not-for-profits are not meant to accumulate wealth. They are meant to apply their resources to their purposes. If these investments are meant to protect from future adversity, this adversity has arrived.
The health of the not-for-profit sector in times of this unprecedented funding shortfall will depend a lot on whether the wealthier groups show solidarity by applying those reserves, instead of joining the fray to fill the budget holes with higher or more grant applications, or using their networks to get first dibs on funds. New Zealand charities hold $40 billion in assets, and most of them are held by only 15% of organisations. Almost half of those assets are in property. While this figure includes about $2-3b held in assets by funders, who use the investment returns for ongoing community funding, the balance remains a staggering amount of wealth held by a relatively small group of charities. Investing only 1% of those assets back into the community would more than make up for any funding shortfall we can expect from the current crisis.
I would hope that managers and committees in community organisations will look at their balance sheets in these times, and assess whether they can use some of their reserves and accept deficits in 2020 and 2021 without frantically trying to protect their financial position and outcompete other groups. And likewise I would hope that funders will look hard at those balance sheets, too, and assess who can do with a little less, and who can’t.
In other words, I would hope that we really get though this together in deed, not just in word.
Managing Shrinkage
December 2024 – Editorial
By Harald Breiding-Buss
Some not-for-profits we are working with, especially in the social sphere, have seen their government funding slashed or completely halted in the last year or so. Government has even reneged on already signed multi-year funding for some organisations, not honouring commitments made and entered into in good faith by the community organisations.
That government can take away what government gives should be no news to anybody, but the idea of your organisation going backwards would not sit well with most people. Some of this is psychological: our society is so much based on the principles of ‘growth’ and ‘success’ that the idea of downscaling reeks of failure and is outright depressing. And people’s first instinct is often to not give in, and to resolve to make up the shortfall from other sources, to avoid that fate at all costs.
This may be realistic, but probably is not, and this is where we meet another mental barrier prevalent in our society: the idea that lack of success is lack of effort, and that we can do anything if we only put our mind to it.
There is, of course, nothing wrong with trying to keep the show on the road as is, but it needs to be accompanied by a solid risk assessment that takes into account a worst-case scenario, rather than be based on hope and determination only. If there are staff, their protection needs to be paramount: the organisation cannot run out of money before they are paid what they are due. Everything else would be disrespectful to the contribution they made and simply unfair. This means there may have to be cuts to working hours and/or positions now, while this can be done in an organised fashion, rather than having to tell staff later that they won’t be paid this week, because money has run out.
If the organisation turns out to be successful in accessing new funding sources, those cuts can be reversed, and services reinstated. But if not, you have given staff time to get used to new realities, find another job, and you ensured the survival of the organisation, even if smaller than before.
It is also very important to be upfront with staff and give them opportunities to find solutions with you. Put the numbers on the table and be honest about the prospects. Chances are someone will come up with something helpful, and otherwise you’ll run the risk of fostering staff grievances, which is the last thing you need at that time.
It is frustrating for me to see when organisations do not act in these kinds of situations. Occasionally, I see Trustees or senior staff give ‘loans’ to tick the organisation over until the next funding comes in. Of course, that next funding, if it comes, won’t be able to pay back the loan, and the organisation is likely trapped in a debt cycle for the rest of its usually short remaining lifespan.
If what an organisation is doing is worth doing, and at least some funding is available, our communities are better off if that organisation continues on a smaller scale, rather than lose it altogether.