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8/26/2009
SYSTEM IN CRISIS: IMPACT OF THE STATE BUDGET STALEMATE
Regional Survey of Southeastern Pennsylvania
Nonprofit Health and Human Services Agencies
August 11-20, 2009
Background
Despite the requirements of state law, the Pennsylvania General Assembly and the Governor have failed to approve an operating budget for the Commonwealth for the fiscal year beginning July 1, 2009. While the budget proposal submitted by Governor Rendell maintains funding for most health and human services supported with state funds, and while the House of Representatives has approved the Governor’s proposal, the Senate has proposed an alternative budget that makes severe and historic reductions in state support for services for vulnerable Pennsylvanians.
Much of the funding spent by counties and municipalities for the safety net of services originate from the state government or from the federal government and awarded to agencies through the state. Because of the lack of a state budget, most health and human services agencies have not received new state contracts (even for services mandated by law such as child welfare services) and many have not received local government contracts as well. Also, some state and local agencies have been unable to pay for services delivered in the prior fiscal year as well,.
To get a better sense of the impact of the lack of action by the state’s political leadership on adopting a human needs budget, United Way of Southeastern Pennsylvania conducted an informal survey [See Appendix A] of 505 nonprofit agencies operating in the Southeastern Pennsylvania area. While not a scientific survey, the results are a reasonable indication of the challenges facing nonprofits in continuing to provide services at a time when their major funding is being held because of the lack of a political consensus to support them in Harrisburg.
There were six general questions asked in the survey, relating to assessing the impact of the lack of a state budget on several broad categories of agency operations – services, staff, and payment of payroll taxes and other obligations. Respondents were also asked to list their top five state and local contracts and the amount that the state or local government is currently in arrears on the contracts.
Survey Participation
505 agencies answered questions in some aspect of the survey. The geographic distribution of the respondents is as follows:
The informal survey received responses from a wide range of nonprofit organizations that rely primarily on government funding, including childcare and youth development programs, housing and homeless services, workforce development programs, domestic violence, mental health and substance abuse services, and health care organizations.
Results Summary
Major results of the survey include the following:
- The agencies reported that the state or local government owes approximately $114 million as a result of not being reimbursed for services delivered. This means that these agencies have, using their reserves or loans, “fronted” the Commonwealth $114 million to keep whatever services that they are still providing available in their communities. Most agencies (57%) reported depleting their reserves, savings or endowments to keep the agency open; 33% indicated that they are using their credit lines. Credit lines for nonprofits are in most cases guaranteed by contracts; however, only 36% of agencies reported that the contracts on which they were reporting had been fully-executed by a government agency.
- Almost 1/3 (31%) of the agencies responding reported that they had no sources of money remaining to help them through this crisis period. These agencies reported that they either had no credit line, savings or endowment to use to continue to deliver services, or had exhausted those sources of funding. Of these agencies, 41% indicated that they had begun to reduce or eliminate services and layoff staff.
- Almost 1/3 (33%) of the agencies responding reported that they were continuing to deliver services using funds drawn from credit lines or other loans. Of these organizations, nearly 69% reported that the have had to delay payments to vendors and nearly 79% reported that they have had to delay payments for supplies.
- Overall, 45% of the agencies responding report that lack of government reimbursement for services has hindered their ability to provide regular paychecks to their employees. 7% of respondents reported that they have been unable to maintain their payments of payroll taxes to the federal, state and local government – which usually results in severe fines and penalties accruing from the date at which the first deadline for payment is missed.
- Overall, 27% of agencies responding reported that they had already initiated staff layoffs, and another 20% indicated that they would have to do so if reimbursements are not received by September 30th. Only 27% of agencies reported that the lack of reimbursement has not yet impacted their ability to deliver services.
- Half of the agencies responding reported falling behind in payments to vendors. 41% of agencies responding indicated that they had fallen behind in mortgage or rent payments; 51% in paying for utilities; 57% in paying for telephone, internet access and other communications services. 62% of agencies are delaying payments for maintenance and repairs, 25% for food for their clients and 25% for client transportation.
Conclusion
These data indicate a severe and unprecedented crisis for the ability of the system of nonprofit health and human services to provide services for vulnerable people in our region.
The crisis is not only immediate for the individuals and families left without social supports during the worst recession since the Great Depression. Agencies throughout the region have had to exhaust their savings, endowments and credit lines to remain open during the stalemate – meaning that even when the state resumes reimbursements for services, most will have undermined their own financial safety net with little hope of a quick recovery. Also, since most agencies are paid on the basis of services they have already delivered, they may receive lower reimbursements than originally planned for when the state resumes payments.
Altogether, these challenges threaten the very infrastructure of the hundreds
of agencies directly impacted by the state’s failure to pay and the systems
of care that thousands of Southeastern Pennsylvanians rely on.
Pennsylvania’s charitable organizations are a major economic force in
the region and the Commonwealth. The Pennsylvania Association of Nonprofit
Organizations reported that Pennsylvania’s nonprofits employ 1 out of
every 9 full-time workers in Pennsylvania. That’s over 600,000 in Pennsylvania – more
than half of them in the Southeastern Pennsylvania region.
A report issued last year by United Way showed that the annual budgets of just the 550 agencies that participated in a United Way funding competition in 2008 had budgets totaling over $2 billion; some estimates project that nonprofits in southeastern Pennsylvania spend over $6 billion annually.
According to some economists, nonprofit expenditures have a greater effect on the economy at the state and local levels than hotels, legal services or restaurants, because most of their spending is for wages and rents, which stay in the local communities across the state.
While nonprofits are not in the business of financial gain, they are still businesses in every other sense -- they employ people, they take in revenues, they produce goods and services and contribute in significant ways to Pennsylvania's economic stability and growth.
In addition, nonprofits generally reduce the tax burden on individuals and businesses by providing charitable services that would otherwise be provided by government.
The losses being suffered by regional nonprofits and their employees also means lost revenues to state and local governments through levies such as income taxes, property taxes, occupational taxes and reduced sales for a variety of businesses from retail to home sales,” Michal said.
