Minnesota government shutdown has lessons for all nonprofits

By Katy Snyder, JVA Consulting

The state of Minnesota just got walloped. While other states were enjoying their Fourth of July festivities, Minnesotans were just coming to terms with the total government shutdown that had gone into effect on the Friday, July 1. Campers at state parks jam-packed with vacationers in advance of the holiday weekend were told last Thursday their vacations would be cut short—they were asked to leave by 4 p.m. that day. In the intervening days, dozens of state parks, which have become virtual ghost towns after the majority of rangers were laid off, have been severely vandalized. All state rest areas are closed and road construction on state roads has come to a screeching halt.

For those of us in the nonprofit world, however, the scariest part of the situation is what has happened to human and social services, and the nonprofits that often deliver these services. The state grants over $1 billion a year to more than 1,900 nonprofits to deliver services to the state’s residents, according to a Star Tribune article. There is also the question of whether groups who receive federal funds that must pass through the state government will receive payments. Many nonprofits that rely on state funds to help the state’s most vulnerable residents have seen their funding stop and now, according to a MinnPost article, many nonprofits that have dug into cash reserves to continue to serve their clients don’t know if they’ll be reimbursed once the shutdown ends. For some, such as the Minnesota AIDS project, cited in the MinnPost article, state and federal payments amount to over $70,000 a month, a huge sum to have to take on, especially if the organization does not get reimbursed. The group had to lay off or reduce the hours of 47 of its 57 employees, greatly reducing its capacity to deliver services. While the organizations and other may be granted a reprieve—Minnesota Governor Mark Dayton recently submitted a petition to court that would deem more services, including HIV/AIDS services such as those the AIDS project supplies, as critical—a decision has yet to be made.

In addition to the 22,000 government employees who were automatically laid off on July 1, nonprofits are now having to follow suit, laying off their own workers at the same time they are grappling to serve their clientloads, some which have increased as government services like child-care subsidies have been cut off. It remains to be seen who will pick up the slack, although some volunteers have begun to step in, such as a group that recently began offereing free local nightly meals in a Minneapolis park for those who have lost access to other food sources.

Some help available

Nonprofits do have some options. The state set up a “Special Master,” a former chief state Supreme Court justice who was appointed to hear the cases of organizations and individuals who feel that the services they provide are critical, and therefore state dollars to fund them should be reinstated. The Minnesota AIDS Project has already petitoned the Special Master, as have other groups representing the deaf and blind, mental health groups, and those that provide counseling to Native American women. It was reported today that the Native American women’s group had funding for several of their programs reinstated.

Some groups, like the United Way, are allowing grantees to receive early payments on grants to make ends meet. According to a CBS article, 30 organizations have already accepted advances on grant funds from the United Way. And the Minnesota Nonprofit Assistance Fund has set up a $2 million loan fund that nonprofits can apply to to get funds to make their payrolls for up to six weeks.

The takeaways

Luckily, total state government shutdowns are relatively rare—only five other states have shutdown in the last nine years, and all were for shorter periods than the Minnesota shutdown. Still, the increasing distance between Republicans and Democrats across the country increases the potential for these types of situations to become more common. Being prepared means taking steps that will also help your nonprofit weather other uncertainties, like the fluctuating economy and funding landscape. Some tips:

Diversify your revenue: As tempting as it may be for nonprofits that provide human and social services often funded by government funds to rely solely on federal and state contracts, it is not wise. Having a diversified funding base that includes government, individual and corporate donors is not just best practice, it’s good business for all nonprofits, and it will ensure that you can keep providing services in the event of an emergency.

Build your cash reserves: At JVA Consulting, we usually recommend nonprofits have at least three months of cash in reserve. If you carefully manage your money throughout the year, you can start to sock away money to build up your reserves, giving you the security to carry on your services should you lose government contracts or private grants.

Cross train employees: What would you do if your organization had to make sudden staff cuts? While it’s hard to think of any of your employees not being essential, the fact remains that you may, at some point, have to make cuts, be it due to losing a grant or something like a government shutdown. Make sure your employees have at least minimal knowledge of what their coworkers do in the event that you have to pare down.

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