Is America’s not-for-profit industry the next bubble to burst?

It very well may well be. Consider this:

There are approximately three million not-for-profit organizations operating in the U.S. today — who knew we had so many problems? — and no fewer than A LOT of them are in some way reliant on the government teat, if you’ll pardon the expression. Not-for-profits large and small receive state and local government funding streams to operate, and the lakes feeding those streams have run dry.

Many, if not most, of these organizations perform important functions, but how many of them provide services that are essential — truly essential?   Those that don’t better begin adjusting their funding models. Government money is no longer there, and the drain caused by underfunded public employee pensions on state and local resources has only  just begun.

You can’t blame the not-for-profit industry for getting hooked on government money. For the past couple of decades, access to it has been cheap and easy. The dealers were local politicians who couldn’t have been happier to provide annual streams of revenue to worthwhile organizations with  politically connected boards. It was a win-win situation, with a cause and an annual cocktail party attached to it, that everyone could feel good about.

I first caught a glimpse of how the process works in the late 1980’s. I was working for a senior New York state senator and attending a local police precinct meeting on his behalf. The issue du jour was guns in schools — there was a rumor that a gun had been seen in a local classroom. Parents, understandably, were upset. What to do?

I raised my hand. “Can we set up an anonymous tip line at the local precinct house?  One where students can call in gun sightings with their identities protected, a 1-800-RAT, if you will?”

The idea went over well (better than the name did), and I said I could probably arrange the funding through my office. I figured if my boss wouldn’t pay for it, I would. How much could an old phone and answering machine cost?  I was sure the phone company would spring for the number for the PR value.

“But wait”, I was interrupted by a well-meaning representative for a powerful and sprawling  local community organization. “Before you do anything, let us put together a proposal. We can probably run this thing.”

A week went by and nothing. I called and said I couldn’t wait any longer; I was submitting a budget of $150 to my boss (turns out we needed an old desk, too.) The local not-for-profit rep pleaded for one more day.

The next morning I was hand delivered a half-inch thick proposal. The annual price tag: $150,000. I can’t recall what all the money was to go for, but it included: a full-time staff member to man the line; a full-time counselor who would work in the local schools, and a part-time statistician who would analyze the data and issue big fat reports on it. 1-800-RAT was turned into 1-800-JOBS, all with the best intentions I’m sure.

Had this plan gone through — my boss and the police precinct commander shot it down in a hail of laughter – I think we could have logged this one in the non-essential column. Or at a minimum, in the this-can-be-done-a-hell-of-a-lot-more-cheaply column.

There are great no-profits out there. I have proudly served on the boards of several of them.  But, again, how many are essential?  That’s what we invariably will find out in the next couple of years.

Meals on Wheels, “yes”.  1-800-JOBS “no.”

This is going to hurt badly in New York.  We are the Mecca of 501c3 corporations, and so many of them are umbillically reliant on a state and local government.  Those governments are now so broke, though, that our new Democratic governor is being cheered for proposing (unspecified) cuts in education and health care, the super-electrified third rails of politics.

Not a good sign for goo-goo groups with squishy missions.