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G I V I N G G U I D E 2015 www.HartfordBusiness.com December 15, 2015 • Hartford Business Journal 9 G I V I N G G U I D E 2015 The Three Legged Stool I n my high school civics class in the 1960s I was taught that the American organizational structure should be thought of as a "three legged stool." It is a simple metaphor: we stand collectively on three legs (or sectors), with each leg (or sector) responsible for the fulfillment of discrete tasks which are necessary conditions for the system to function. Optimal practical performance is achieved when each leg (sector) performs its tasks well and does not unduly interfere with the other legs (sectors) which are better suited for their tasks. Optimal practical performance is a derivative of the balance achieved when each leg is the same functional length. One leg of the stool is the private or businesses sector, which has responsibility for the creation and sale of goods and services profitably, and which produces employment, value and wealth. The second is the governmental sector which creates and enforces law and provides public services such as police, transportation, and fire protection. The third is the intermediate sector which fills the gap between the other two — consisting of nonprofit associations involved in everything from youth sports to churches and colleges, and (my topic) state funded human service nonprofits which attend to the disabled, the mentally ill, children and families, the homeless, and others in crisis. This discussion is relevant to the 2015 issue of the Giving Guide because there is a systemic imbalance in Connecticut caused by a governmental sector that has grown too large, inefficient, and expensive. The growth in the governmental leg has come at the expense of the other two and has brought us to a fiscal tipping point — a point at which a paradigm shift or realignment is necessary if balance is to be restored — a point at which the nonprofit and business sectors have a common interest in working together to right the ship. The story starts with a previous paradigm shift in the 1960s, when cultural changes caused the government to become directly involved in the delivery of social services — an area that had historically been the domain of privately financed nonprofit organizations. For example, the Department of Children and Families (DCF) was created in 1969, and the Department of Developmental Services (DDS) in 1975. State involvement brought tax revenue and resources to the table, and in Connecticut a two track service system evolved: existing and newly created nonprofits entered into fee for services contracts with governmental agencies under which the nonprofits were paid to provide services, and the state agencies administered the contracting system with the nonprofits while also providing services directly with their own personnel, a manner competitive with the nonprofits. This nonprofit-government duopoly worked well for a while, and the nonprofits naturally aligned with government because it provided their funding (with tax dollars) — which lessened or eliminated the burden of private fundraising. This arrangement caused many nonprofits to adopt a pro-tax and slightly anti-business political stance for reasons as obvious as they are unfortunate. However, the marriage started to hit the rocks in the early 1990s as government grew in the manner endemic to bureaucratic entities generally — accreting a centralized form of control over the nonprofit providers by turning their funding contracts into a form of indentured servitude, layering down duplicative administrative and regulatory requirements that kept governmental employees busy and nonprofits spinning their wheels, and, most importantly, reducing and then virtually freezing the amounts actually paid to the nonprofits under the fee for service contracts — to the point that for over a decade their employees have fallen well below the "living wage" standard frequently used these days — in contrast to the generous wage and benefit scales of state employees who do the same work and whose jobs sit safely deep within the belly of the bureaucracies. Let me give two examples of the problems government involvement in the social services arena has wrought. One is the Southbury Training School (a state facility) where 290 people with intellectual disabilities are cared for by 1,774 state employees at an annual cost per person of $262,000. Nonprofits could provide the same care at a fraction of the cost, and the money freed up could be used to help people on waiting lists and bring fairness to nonprofit wage scales. Second, in the 2015 legislative session the nonprofits were the victims of a bait and switch. The need for tax increases was sold to the public as necessary to maintain the social safety net, and the nonprofits lobbied hard to make this case only to have the new tax revenue soaked up by the liabilities on the state's underwater balance sheet — leaving the nonprofits standing in place and feeling foolish. The governmental leg occupies the space between an overtaxed and overregulated private sector and a starving and overregulated nonprofit sector. The nonprofit and the private sectors have a common interest not only in cutting the governmental leg back down to size, but in recognizing that each is an equally important pillar standing in support of a system that has fallen out of balance for the reasons stated. A vibrant private sector creating jobs and growth is as vital to us as a nonprofit sector that attends to human issues that will always be with us. Such is the nature of the paradigm shift we so sorely need. John Horak authors the Rule of Law column in the Hartford Business Journal and the views expressed in this article are his own. Reid and Riege has been committed to our clients' success and guided by their priorities since 1950. Whether closely held businesses, large financial institutions, individuals or corporations, all Reid and Riege clients receive undivided attention, access to integrated resources, and legal solutions crafted to meet their business or personal objectives. We focus on the quality of the services we provide, the results we achieve for clients, our adherence to sound legal and business ethics, and the contributions we make to our community. Reid and Riege has principal offices in Hartford and New Haven. JOHN M. HORAK One Financial Plaza, 21st Floor, Hartford, Connecticut 06103 | 860.278.1150 | Fax: 860.240.1002 www.rrlawpc.com Year Founded: 1950 Head of Company: Craig L. Sylvester Product or Service: Legal Services No. of Employees: 85 PROFESSIONAL ADVISORS