Innovation

Innovation in Action

April 9th, 2010 by Joe Kriesberg

The other day I read about a new report by New York State Comptroller Thomas DiNapoli (with the help of the New York Council of Nonprofits) that found that 87 percent of nonprofit contracts with state government (of more than $50,000) were not approved prior to the nonprofits’ beginning their work. On average, new contracts were approved nine months after the contract start dates and renewals were five months late on average.  New York State is essentially relying on nonprofit organizations being so committed to their mission that they will risk their financial health to continue providing services without contracts. Indeed the entire system appears to depend on this commitment. 

The only thing about this report that might surprise CDC and non-profit leaders is the fact that a state agency finally documented the problem.  All mission-driven organizations confront this challenge all the time – how to balance money with mission. We must often complete substantial work on a project or program before receiving a fee or reimbursement and those payments rarely cover the full cost of delivering the service. Cash flow becomes a chronic challenge and organizations are unable to build up a health reserve fund. The resulting impact on fiscal health can be severe as the Non Profit Finance Fund recently documented in a report on CDC Fiscal Health that was completed as part of the Community Development Innovation Forum.  

Reversing these trends is a primary goal of the Community Development Innovation Forum. We have recently re-activated a group of stakeholders to develop recommendations for how the real estate development finance system can be reformed to better enable non-profit developers to achieve their missions in a financially sustainable manner. 

In the meantime, I have some very good news to report about a recent policy decision that moves us in the right direction. On April 6, at MACDC’s annual Lobby Day, Massachusetts Secretary of Housing and Economic Development Greg Bialecki, announced that he would forward commit $600,000 in FY 2011 funding for the small business technical assistance program so that he could double the size of recent grants to CDCs and other nonprofits and extend the term of their contracts by 6 months. By providing greater funding certainty and stability, the state will strengthen its organizational partners, promote longer term planning, enhance professional and program development and help leverage more private and federal money – without costing the state any extra money. 

 The Secretary’s announcement was in response to problems this program has had in past years when uncertainty about the state budget would cause substantial delays in the RFP and subsequent funding decisions. Groups sometimes had to wait several months into the fiscal year before learning whether they were going to be funded again and at what level.

 Secretary Bialecki’s creative solution was made possible by a generous commitment from Mass Development to provide $600,000 in funding to the program in FY 2010 and now FY 2011. Since these funds are not contingent on legislative approval of the state budget in June, the Secretary had the flexibility to think outside the box and create a solution that will benefit the state, the grantees and most importantly the small businesses that this program seeks to support. Now that is the type of Innovation that is worth celebrating!

Commenting Closed

CDC Fiscal Health - where are we, where are we going?

March 1st, 2010 by Joe Kriesberg

Last Friday, at an event hosted by the Boston Foundation, the Community Development Innovation Forum released a new study by the Non Profit Finance Fund that looked at the fiscal health of the CDC sector.

Bill Pinakiewicz from NFF, highlighted the key findings of the study, including:

* Taken as a group, the twenty-six organizations represented in the study have become financially more vulnerable from 2003 thru 2008.  That means that the financial challenges facing community development corporations predate the 2008 recession.

* Unlike private real estate companies, CDC financial performance was not demonstrably better during the hot real estate market in the middle of the decade due to program limits on rents and profits, leaving little cushion when the market collapsed in 2008.

* The study did not find a significant difference among small, medium and large CDCs in terms of recent financial performance.

* CDCs were impacted by multiple factors – homeownership projects that came on line as the market collapsed, rental developments that were stalled or yielded inadequate fees, existing portfolios that generate little to no net cash flow to the CDC, cuts in government, foundation and corporate funding, and rising costs. The study period also covers the first five years following the elimination of the state’s CEED program, which had provided flexible funding to CDCs for more than 20 years.

* While all of the participating CDCs provided audits that fully comply with GAAP there is clearly a wide variation in financial reporting practices across the field that make it difficult to aggregate and compare data among CDCs.

We then heard from a panel including Geeta Pradham from the Boston Foundation, Jeanne Pinado from Madison Park DC, Phil Giffee from NOAH and Paul Juraschek the CFO at JPNDC.  The panelists pointed out that not all CDCs are struggling financially and that the true financial health of a CDC can sometimes be hard to discern from consolidated financial statements that include real estate properties and the core organization. The panelists described some of the tough decisions that CDCs have had to make to deal with the financial stress, including shutting down programs and laying off staff. They also noted that small changes in the real estate finance system with respect to developer fees, cash flow distribution and other rules could significantly improve CDC fiscal health and stability. There was also broad agreement that more consistency in financial reporting and more opportunities for CFOs and Executive Directors to learn from each other would be valuable.

MACDC, LISC and other partners in the Innovation Forum intend to follow up the study by renewing our efforts to improve the real estate finance system, to begin implementing Strength Matters in Massachusetts, to expand peer learning opportunities among CDCs, to support collaborations, mergers, and other ways to improve operating efficiency, and to continue researching trends to determine whether we are making progress in the coming years.

The structural flaws in the way that real estate is financed make it difficult for mission driven organizations to succeed, and this report underscores that point. Real estate development is a high risk economic activity and the affordable housing financing system makes it difficult for that risk to be adequately rewarded for mission driven organizations while not shielding them from the negative consequences of failure. It is also clear that the way all non profits are financed creates inherent challenges, including government contracts with little overhead, private philanthropy that is highly restricted and a lack of unrestricted operating funds that allow nonprofits to invest in organizational infrastructure, capacity building, research and development, and innovation. 

To me, a core problem is that too many funders are looking to simply buy services from nonprofit organizations at the lowest possible price and too many nonprofits play into this game at their own financial peril. Instead, we need more funders to think not just about the immediate program or project, but how their investment in that program or project will help the organization achieve lasting, sustainable community impact over the long term.

Commenting Closed

Welcome to my new blog!

January 21st, 2010 by Joe Kriesberg

After a couple of years of cajoling and encouragement from friends and colleagues, and a few months of my own contemplation and procrastination I have decided to venture into the blogosphere. My hope is to offer some ideas, information, and insights that will be of interest to community developers and their partners in Massachusetts and perhaps around the country. I welcome your feedback and comments as I hope this blog becomes a vehicle for sparking conversation and debate about key issues in our field.

Right now I am reading a very interesting book called Start Up Nation: The Story of Israel’s Economic Miracle by Dan Senor and Saul Singer. I started reading the book because I am in Israel for the rest of January with a Jewish Community Relations Council (JCRC) delegation of non-profit leaders. We will be meeting with our counterparts in Boston’s sister city of Haifa and around the country, including some affordable housing advocates. I’ll be writing more about that later.

But right now I am really enjoying this book. While it is providing me with good context for my trip, it also has very relevant lessons for the work we are doing in Massachusetts with our Community Development Innovation Forum. You see, it turns out that Israel is the world’s leader in innovation and entrepreneurial activity – especially in the high-tech, biotech and smart energy fields.  The authors explore the cultural and environmental factors that support so much innovation. According to the authors, it flows from such factors as a lack of hierarchy, a willingness to challenge conventional wisdom, a propensity to argue, debate, question and challenge authority, and an ability to see failure as learning step toward success rather than a reason to quit. In short,  it requires “chutzpah!”  Innovation has also been spurred by necessity (lack of natural resources, constant threats, economic and political isolation in the region) immigration, universal military service, and a strong commitment to education.   Entrepreneurialism is produced “when people can cross boundaries, turn societal norms upside down, and agitate in a free market economy … to catalyze radical ideas.”  The biggest obstacle to such innovation it turns out is “order. A bit of mayhem is not only healthy, but critical.”

Of course, there must be some balance. Israeli entrepreneurs benefit from “stable institutions and the rule of law,”  but also from Israel’s “nonhierarchical culture where everyone in business belongs to overlapping networks produced by small communities, common army service, geographic proximity and informality.”

When we are at our best, I think the community development field shares many of these attributes and characteristics. But I do worry that sometimes  we are afraid to challenge conventional wisdom, our own customs and practices, or powerful authorities, including funders and government officials. There may be a tendency to think that all of us should do the same thing or pursue the same solutions. We are often quick to judge and criticize those who try things differently. Too often we are afraid to acknowledge something has failed and when we do see failure we may see that as a permanent taint rather than a learning opportunity. In our desire for scale, efficiency, and an orderly delivery system, will we stifle the very innovation we need to achieve our ambitious goals?

My own sense is that we are all going to have to get more comfortable with disruption, confusion, disagreement, failure, and a bit of chaos if we are serious about creating a culture of innovation in our field. 

What do you think? Do you want to argue with me about that? Either way, post your comment!

Commenting Closed

Pages

Subscribe to Innovation