Now, after its bank has cut its credit line twice and withdrawn
a promise to support a critical bond offering, the organization
is worried about whether it can pay its employees this month.
''I spend a good part of my day every
day just trying to manage cash flow,'' said Johanna Richman,
chief financial officer at SCO, which provides services to
children with developmental disabilities.
SCO is one of hundreds of charities
caught in the credit crunch as skittish banks reduce their lines
of credits or cut them off entirely at a time when the need for
their services is climbing sharply, nonprofit leaders say.
''While nonprofits are working
feverishly to accommodate increased demand, they are facing
severe financial constraints that are threatening their ability
to go on, much less expand their services,'' said Diana Aviv,
president and chief executive of Independent Sector, a nonprofit
trade association.
Almost three-quarters of nonprofits in
the United States receive some type of government financing,
according to new research by the School of Social Service
Administration at the University of Chicago, and about half of
those count on that aid for at least half of their budgets.
As a growing number of states delay
payment, nonprofits must rely on lines of credit to help them
get by. In Illinois, the state is running as much as 150 days
late in making reimbursements, and California has told
nonprofits to expect i.o.u.'s in lieu of payment starting next
month.
''You can just imagine a nonprofit
walking into a bank with this tattered envelope from Sacramento
saying that some day the state government will pay it,'' said
Thomas Peters, chief executive of the Marin Community Foundation
in Marin County, Calif. ''How's a bank to make a loan against
that promise?''
The Marin foundation has been providing
emergency and short-term grants to keep organizations like SCO
alive, but Mr. Peters said it could not meet the demand for such
money.
Independent Sector has asked Congress
to have the federal government make payments for social services
directly to nonprofits, rather than funneling the money through
state governments, as is the current practice. It is also
seeking a $15 billion bridge loan program for nonprofits that
can no longer tap banks for short-term loans.
Nancy Biberman, president of the
Women's Housing and Economic Development Corporation, or Whedco,
which provides services like child care and low-income housing
in the Bronx, endorsed the idea of a bridge loan fund.
''We don't see any economic recovery
money that's clearly flowing into poor communities,'' Ms.
Biberman said. ''Infrastructure projects are not really where
it's at when basic survival is at stake for so many people.''
Whedco has just finished building what
it calls the largest low-income ''green'' housing development in
the country. The project was financed with a $39 million loan
from a major bank.
Last summer, New York City committed to
provide $2 million more to the organization to underwrite
additional amenities at the site, but the bank's risk managers
turned down its request to increase the loan by that amount
because Whedco did not yet have the money in hand.
''They were essentially challenging the
full faith and credit of New York City,'' Ms. Biberman said.
Moreover, in December the bank froze a
$500,000 reserve fund held to guarantee interest payments, even
though the project was 95 percent complete. ''That's our
money,'' Ms. Biberman said, adding that, at most, Whedco would
owe the bank 10 percent of that amount when it completed the
project in the next few weeks.
The inability to access the reserve
fund has forced Whedco to ask some vendors to extend payment
terms, a juggling act many nonprofit leaders are now performing.
Despite such complaints, Ms. Biberman
and other nonprofit leaders declined to identify their banks for
fear of further souring relations with them.
Keith Leggett, a senior economist at
the American Bankers Association, said banks were applying the
same tighter credit assessment standards to nonprofits as they
were to businesses. ''Donations and gifts are down, and that
affects nonprofit creditworthiness,'' he said, adding that
''diminished or delayed payments'' from state and local
governments were also having an impact.
Chicago Commons, a social services
group with an annual budget of $17 million, was lucky to have a
$700,000 line of credit at ShoreBank, which is known for its
support of community-based nonprofits, when the state of
Illinois fell $2.5 million behind in its reimbursements in
December.
''If we hadn't had that credit line,''
said Dan Valliere, the executive director, ''we would have
missed payrolls, which probably would have meant service cuts.''
Nonetheless, the agency is postponing
repairs to its facilities, including a new roof for a day care
center.
This month, the state borrowed $1.4
billion to pay for services provided last summer and in the
early fall, which reduced the amount it owed Chicago Commons by
about half. Mr. Valliere said the organization used the money to
pay down its credit line and catch up with some bills, ''but the
comptroller's office told us not to get used to this.''
Moreover, Mr. Valliere said that use of
the credit line was likely to increase the organization's
expenses by as much as $30,000, money that could be used to pay
an employee or buy a new roof.
''Try getting a donor to pay your
interest expenses,'' said Paul S. Castro, executive director of
Jewish Family Service of Los Angeles, which racked up roughly
$70,000 in interest costs while California legislators wrangled
over the state budget.
Now, the bank has told Mr. Castro that
it will not allow any withdrawal from Jewish Family Service's $3
million credit line without collateral -- and it does not
consider the promise of state payment sufficient collateral.
''That's a real burden for us,'' Mr.
Castro said. ''All we really have as assets are contracts with
the public sector.''
At least that bank is willing to
negotiate. SCO's bank simply informed the organization one day
that it would not provide a $12 million letter of credit needed
for a bond offering for a new school for disabled children and
renovations on other facilities.
That forced the organization to borrow
that money from its credit line, which the bank has cut to
roughly $16 million, from $25 million.
Kids Hope United, a nonprofit offering
services in different states to support needy children and
families, recently sought bids from 11 banks to handle virtually
all of its banking needs. Seven declined to even make a
proposal, ''including two that have been taking me to lunch for
years hoping for business,'' said David McConnell, the
organization's chief financial officer.
''There's a triple-witching effect,''
Mr. McConnell said. ''You simply have less money to run
operations and the government is paying more slowly than ever on
top of that, which means you need the bank's money more, and
that makes banks more nervous about lending it to you.''
