Hartford Business Journal

28 Hartford Business Journal • August 21, 2017 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL Mandate relief must accompany municipal-aid cuts I n an awkward press conference earlier this month, Gov. Dannel P. Malloy stood side by side with the top lobbyists representing Connecticut's cities and towns, who haven't been shy this year voicing their displeasure with the Democratic governor's proposed cuts to municipal aid. Mayors and first selectmen, of course, would like to be held harmless in Connecti- cut's ongoing budget battle, but that should not and cannot happen. For years, munici- palities have avoided funding cuts while taxpayers have shouldered two major tax increases and state government has been forced to trim costs. It's time for cities and towns to pay the piper. Few realize it, but municipal aid is the single largest state expenditure, accounting for about a quarter, or more than $5 billion, of the annual state budget, according to Malloy's office. Most of that money funds education ($4.1 billion) while the rest under- writes local governments. If lawmakers are going to realistically avoid another tax hike, which seems less likely these days, they will need to take money out of that pot of gold. So, while much criticism and blame for the state's budget crisis has been focused on the cost of state government's workforce, we must take a deeper look into the spending of cities and towns. The issue, however, is not black and white. Blindly cutting municipal aid without loosening draconian mandates and labor laws will be counterintuitive, giving munici- pal leaders little wiggle room to shave costs and forcing local taxpayers to shoulder the burden in the form of higher property taxes. That would be another negative blow to the state's business climate and encourage more people to pack their bags for greener (or warmer) pastures. Malloy has proposed cutting municipal aid by $476 million this fiscal year, mainly by shifting teacher pension costs from the state to local governments. Malloy also would shift more local funding away from wealthier communities to poorer ones. While we agree with the governor's cuts, they must be accompanied by true and meaningful municipal regulatory relief. Local governments, like the state, are ham- strung by generous and stringent union contracts that must be curtailed or renegotiated if we are to find true financial savings. For example, it can be difficult to regionalize and consolidate the costs of certain services because employees are protected by collective bargaining. There are also plenty of costly state mandates cities and towns are forced to comply with that must be reformed. Municipalities have long argued for curtailing the state's prevailing wage law, which requires municipalities to pay a certain level of wages and benefits on new construc- tion projects. In January, during the very early days of this year's prolonged budget debate, Malloy did offer some reforms. For example, his initial budget proposed to increase the prevailing wage threshold for the first time since 1991 to $1 million for new construction and $500,000 for remodel- ing and to eliminate the requirement for superintendents in small school districts and communities. Those are meaningful first steps, but we haven't heard much about them actually becoming reality. A major challenge, of course, is that teacher and municipal labor unions are a major and influential special interest at the state Capitol. The state should reduce funding to municipalities but that burden shouldn't simply be transferred to local property taxpayers. Municipal leaders need and must be given more flexibility to manage and control their costs. n OTHER VOICES CT nonprofits must re-think business models By Sondra Lintelmann-Dellaripa W hat would you do if you saw an accident was about to happen? Would you step in and try to stop it? Would you warn someone ahead of time? You probably would. And what do we do with accidents that have happened? We use them as lessons learned, warning signs for others on the road of life. For some Con- necticut nonprofits, the warning signs of the risk of gov- ernment funding reliance did noth- ing to hamper them from their untimely demise. For decades, industry experts raised the red flag on government funding, but many nonprofits ignored the warnings, some defiantly believing that the warnings "did not relate to their services or mission." Fast- forward to July 2017, when it was reported that Connecticut's governor warned 26 nonprofits to stop providing services as state funding cuts were most likely in their future. What's that sound you hear? It's the person closing the door of their nonprofit for the last time. G o v e r n m e n t funding is detrimen- tal to a nonprofit's health. As far back as 2004, research has shown that govern- ment funding is "high risk, low return," with one study finding that the probability of organizational death for nonprofits receiv- ing public funding was 155 times that of organizations not receiving pub- lic funding. Research has also consistently shown that funding streams are not mutually exclu- sive and reliance on one stream can be to the detriment of the others. For instance, under the often studied "crowding-out" hypothesis, the relationship between government funding and private funding is believed to be negative. Some studies have shown that for every $10,000 a nonprofit receives from government funding, individual donors give $7,500 less. In addition, the nonprofit wholly reliant on government funding may choose to not pursue (or pursue less vigorously) other forms of income diversi- fication if it perceives government funding will remain steady. This last finding is relevant to the problem at hand for Connecticut nonprofits. The myopic vision nonprofits have when it comes to state and federal funding and their lack of focus on private funding is frustrating to say the least. Not only are nonprofits at risk of losing government support, many other Connecti- cut nonprofits may see cuts in their corporate funding now that the demand to save failing nonprofits is even greater. A failing nonprofit with viable and needed services will cer- tainly win out in the donor equation over a healthy stable one. The result throws all non- profits into the danger zone for sustainability. For nonprofits, the move away from the government welfare of contracts and grants, toward individual donors is not an easy one. The transition takes time, strategy and resources. But the results are almost guaran- teed. It's been proven that individual giving is where the money is. Even within a weak economy, individual charitable giving saw a 2.7 percent increase in 2016, as cited by Charity Navigator. They also noted that with the exception of three years — where a decline was noted (1987, 2008 and 2009) — individual giving has increased in current dollars every year since 1976. Nonprofits have simply not planned for sus- tained individual giving. Adding further com- plications is the fact that a nonprofit looking to create or maintain a legislative earmark must develop skills in political advocacy to develop the necessary support. It may hire executive directors or find board members with expe- rience in this area rather than experience in other areas, such as individual giving. When disaster strikes, such as is happening in the state of Con- necticut's budget, non- profits might employ efforts to raise dollars from their individual donor base through an emergency appeal letter or special event as a temporary solu- tion. But that tactical effort doesn't equate to sustained and reliable individual donor giving. A sustained approach requires a strategic plan, one that relies on the correct determina- tion of a nonprofit's market domination (yes, nonprofits have terrific competition), the identification of the organization's value and worth, the identification of their donor audience, and planned actions for the cultiva- tion and solicitation of their donor base. This is a strategic process that requires expertise, resources and most importantly time. Spending time in developing an individual donor base is an investment that comes with substantial, long-term, reliable and method- based results. That's more than can be said for state and federal funding. Sadly, many Connecticut nonprofits, as well as others across the nation, didn't make this investment in their own future. Nonprof- its should run, not walk, away from govern- ment funding as a main stream of revenue, and invest in the future that holds the financial key to sustainability — individual giving. n Sondra Lintelmann-Dellaripa is president and principal consultant of Middletown- based Harvest Development Group LLC, which serves nonprofits, social ventures, and government agencies nationally. HARTFORDBUSINESS.COM POLL Should the state of CT eliminate its tax-free week to save money? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Is expanding the state-run CTtransit bus service from Hartford to Storrs smart policy? 50.9% Yes 49.1% No Sondra Lintelmann- Dellaripa ▶ ▶ For nonprofits, the move away from the government welfare of contracts and grants, toward individual donors is not an easy one. The transition takes time, strategy and resources.

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