New Report Sheds Light on Financial Health of Nonprofit Human Services Sector
Jan 22, 2018
Washington, D.C., Jan. 22, 2018—The Alliance for Strong Families and Communities and the American Public Human Services Association (APHSA) announced today the release of a new report on human services community-based organizations (CBOs), their economic and social impact, and the need to strengthen and preserve their critical role in promoting health and well-being and enabling all Americans to contribute fully to our communities and the national economy.
A National Imperative: Joining Forces to Strengthen Human Services in America was commissioned by the Alliance and APHSA and offers a cross-sector call to action to address the challenges facing CBOs, which play a vital role in the human services ecosystem, comprised of the nonprofit sector, government agencies, and the philanthropic sector. In fact, the study found that human services impact the lives of an estimated one in five Americans and CBOs account for nearly $200 billion in economic activity through the cost of delivering services. Despite that impact, both recipients of human services and society as a whole face significant risks if CBOs are not financially strong and delivering on their full potential.
The report, which is built on rigorous data analysis, surveys, and interviews, was conducted and written by Oliver Wyman and SeaChange Capital Partners and supported by a national advisory council whose members came from non-profit human services, government, the private sector, and academia. Funding for the project was provided by The Kresge Foundation and the Ballmer Group, with additional support from the Health Foundation for Western & Central New York, Mutual of America, Selective Insurance Company of America, and the US Chamber of Commerce.
According to Susan Dreyfus, president and CEO of the Alliance: “America’s community-based organizations are essential to our society because they provide the foundational supports that enable individuals and families to do well in life, including provision of health and mental health services, support for safe and enriching environments for learning and development, access to well-paying jobs, and opportunities to stay active and connected to our community as we age. Despite our sector’s potential to transform some of society’s most vexing challenges and have an impact on a wide range of systems including health care, education, and the judiciary system, there are significant constraints faced by CBOs. Solving these issues will require the united efforts of CBOs, policymakers, and our public sector peers to change business practices, including investments in technology and employees, adoption of risk management procedures, changes to outdated approaches to procurement and contracting, creation of actuarial soundness to rates, and modernizing of our regulatory environment.”
“Realizing the transformative potential of the human services sector is achievable when we have a full landscape view of the factors impacting the sector—both opportunities and challenges—and can work together to co-create solutions,” said Tracy Wareing Evans, CEO of APHSA. “This report provides important insights into how the broader human services ecosystem—including the public sector, policymakers, private funders, industry associations, and universities and think tanks—can help clear roadblocks and design new pathways that will help the sector build on its many strengths. These cross-sector partnerships are a key to assuring the sector’s financial sustainability and lasting impact in our communities.”
Among the key findings of the report is the critical role and value of human services community-based organizations in improving health outcomes and reducing health care costs by recognizing and addressing the social determinants of health. These include ensuring children are safe and live in supporting neighborhoods, can succeed in school and have strong and economically secure families; helping older adults maintain a high quality of life and stay connected to their communities; equipping people with disabilities with tools and resources so they can live their lives fully; building quality affordable housing; and providing crucial mental health and substance abuse services, particularly in the face of the current opioid epidemic. In addition, according to the report’s data, the human services CBOs have significant impact on local and state economies and the national economy through spending on wages, rent, fuel, and all the other inputs necessary to run their organizations and deliver services.
Despite these important impacts, the human services CBOs face a number of challenges to their financial stability, which will make realizing their transformative potential and contributions to a healthy society and strong economy difficult. Challenges include:
Many organizations are running persistent operating deficits, in part due to internal risk management practices, unfavorable contract terms that reimburse them less than the full cost of providing the outcomes being required, as well as a result of the current regulatory and legal environment.
Many organizations have few or no financial reserves, meaning that they are vulnerable to any fluctuation, even temporary, in their expected revenue and cost levels.
Many organizations face problems such as lack of access to capital for investment in technology and systemic barriers, which limit opportunities for data sharing and integration.
The report identifies five “north star” initiatives designed to put CBOs on the path of financial stability while improving population health and well-being, increasing economic productivity, and lowering social costs over time. These initiatives will unlock new sources of strategic capacity building and will help the sector achieve greater financial stability and flexibility that will lead to improved outcomes and greater sustainability. Taken together, they will contribute to a more stable human services ecosystem and ultimately, a healthier, more productive and prosperous American society. They include:
Commitment to Outcomes—Efforts should be focused on a common set of widely used outcomes with flexibility and accountability. Funding should be targeted to outcomes and results rather than outputs or services delivered.
Capacity for Innovation—The human services sector must develop its capacity for innovation through better data sharing and analysis, technological strategies and knowledge and leadership exchange. Public and private funders also need to recognize the importance of the capacity for innovation and the need to support that through funding.
Strategic Partnerships—CBOs must look for opportunities for deeper partnerships, mergers, affiliations, and networks with other human services CBOs and related systems. Grants from public and private funders should include allocating financial resources toward partnership, merger, and network development.
- New Financial Strategies—CBOs and their board of directors must look to develop more robust finance and financial risk management capabilities, including scenario planning, recovery and program continuity planning, benchmarking and self-rating, reporting, and disclosure.
- Regulatory Modernization—Regulators at all levels should engage with community based human services organizations in a review and reform of CBO regulation, particularly in the area of litigation risk, which has become a serious issue for CBOs.
“Both of our organizations share the belief that the nation’s human services ecosystem is a cornerstone to building a strong, dynamic, and healthy nation,” noted Wareing Evans. “Through our combined efforts, we hope to improve the effectiveness of our organizations and the systems that support them and ensure that all Americans are provided with the opportunities to live well and reach their full potential.”
“By working together in partnership across human services community-based organizations, philanthropy and government we can address the issues raised in the report and focus on achieving better outcomes for all people and communities. Strengthening the financial health of human services community-based organizations is not just a financial imperative, but a moral one as well. The health of CBOs contribute to the sector and its ability to help individuals and families achieve their full potential and contribute to society as a whole,” added Dreyfus.
The study was conducted over a 12-month period and included the following components:
Extensive research and analysis including interviews with key stakeholders and industry observers across the ecosystem.
A broad survey of human services CBOs and public sector organizations to provide context and to surface trends and common issues and concerns.
Analysis of tax returns of human services CBOs to provide a clear picture on their overall financial health.
Establishment of an advisory council of national and community experts to review the findings and provide feedback on the direction of the initiative.
Development of the final report that synthesizes and clearly presents the challenges and opportunities of the sector to be distributed to stakeholders across the sector.
For more information, visit: A National Imperative: Joining Forces to Strengthen Human Services in America.
About the Alliance
The Alliance for Strong Families and Communities is a strategic action network of thousands of committed social sector leaders who through their excellence, distinction, and influence are working to achieve a healthy and equitable society. We aggregate the very best sector knowledge and serve as an incubator for learning and innovation to generate new solutions to the toughest problems. We accelerate change through dynamic leadership development and collective actions to ensure policies and systems provide equal access and opportunity for all people in our nation to reach their full potential through improvements in health and well-being, educational success, economic opportunity, and safety and security. Go to alliance1.org for more information.
About the American Public Human Services Association
The American Public Human Services Association (APHSA) is a bipartisan, nonprofit membership organization representing state and local human service agencies through their top-level leadership. Through our member network and three national Collaborative Centers, APHSA seeks to influence modern policies and practices that support the health and well-being of all children and families and that lead to stronger communities. APHSA connects its members to national policymakers and human-serving organizations across a wide circle of stakeholders in the health and human services sector, as well as key partners in education, housing, employment and others. APHSA also helps members build more capacity for their teams through access to our professional education and development conferences, technical expertise, publications and our Organizational Effectiveness practice. To learn more about APHSA please visit http://www.aphsa.org.
About SeaChange Capital Partners
SeaChange Capital Partners is an investment bank focused exclusively on the nonprofit sector and is itself a nonprofit. SeaChange’s mission is to improve nonprofit effectiveness and efficiency by making grants, loans, and investments, by providing advisory services, and by “making markets” within its network. SeaChange’s principal asset is a network of foundations, individuals, nonprofits and public entities that trust it to make strategic grants and investments, provide advice and analysis, synthesize and flow information, and manage potential conflicts of interest.
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across nearly 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 4,500 professionals around the world who help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies. For more information, visit
http://www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.