Nonprofits anxious as United Way shifts focus
Charity is reviewing how it doles out $50M in aid
The United Way of Greater Houston said it will narrow the focus of its giving to local nonprofits, raising the possibility that some groups will be left out after the charity completes a comprehensive, two-year review of the hundreds of organizations it funds.
The reviews, launched in November, have put more than $50 million under consideration and left Houston-area nonprofits uncertain about whether they are going to make the cut.
“The honest answer is that we don’t know,” said Sarah Raleigh, CEO of the Montgomery County Women’s Center, a nonprofit that provides aid to survivors of domestic violence and sexual assault. “Until a funding application comes out, you never know exactly if the way they’re going to be looking at funding a
program is going to match up (with your organization).”
United Way of Greater Houston is adopting a new strategy that hones in on a single issue — helping working, low-income families achieve financial stability. The change comes when United Way and other charities are facing declining donations and revenues.
Charitable giving is down across the country, the result of re-written tax laws and donor preferences. In Houston, donor fatigue after Hurricane Harvey and a slump in the energy sector, which accounts for nearly twothirds of the charity’s corporate and employee giving, have also contributed to the decline.
Every local organization that typically receives an annual grant from United Way of Greater Houston is under review to see if their programs fit into the new strategy. The reviews will determine which are funded in 2022.
“Let’s face it: Some programs may not fit as part of our new direction,” said CEO Anna Babin, who announced last spring her intent to resign in March. “It’s going to be a difficult thing. But we will work on a transition plan on how to taper down investments.”
Financial challenges
United Way of Greater Houston, which had $72 million in revenues last year, maintains that its initiative, named “Second Century Vision” for the organization’s centennial in 2021, is not a costcutting program. Babin said she hopes the same amount will be available in 2020 and 2021.
But revenues have fallen at the United Way of Greater Houston since 2014, with the exception of fiscal year 2017, when donors significantly increased giving to help the region recover from Hurricane Harvey. In 2018, the organization’s revenues resumed their slide, and the organization had a deficit of more than $30 million as its expenses jumped by more than $14 million from the previous year due to Harvey recovery efforts.
“So many people upped their gifts during Harvey,” Babin said. “They had nothing in their budget to increase their giving the next year.”
But it’s not just the local United Way that is struggling to keep donors enthusiastic, experts said. Donor preferences have changed to favor specific causes and organizations that can prove impact, rather than to large organizations that disburse money, resulting in new strategic challenges for umbrella groups such as United Way, said Maggie Kurnyta, a program analyst for Charity Navigator, a charity evaluation organization.
The 2017 tax law also curtailed tax incentives for Americans to give to nonprofits by reducing the number of people who itemize their deductions, resulting in declining revenues across the sector.
United Way Worldwide, the parent organization headquartered in Alexandria, Va., had a $12.7 million deficit last year. Across the nonprofit sector at large, revenues were down 4.6 percent in the first nine months of 2019 compared with the same period in 2018, according to the Fundraising Effectiveness Project, which tracks and evaluates growth in fundraising for nonprofits.
Houston’s United Way is projecting a $60.1 million budget to spend on grants for the fiscal year 2019, Babin said, down 23 percent from fiscal 2018, when it spent $77.9 million in the aftermath of Harvey. Approximately $9.7 million of spending on grants in 2019, or 16 percent, is allocated to signature services: the 211 Texas/United Way 24/7 helpline, area service centers, NonProfit Connection, which supports the organizational capacity of area nonprofits, and the United Way Community Resource Center, which provides meeting spaces for area nonprofits.
That leaves $50.4 million in grants undergoing the strategic review.
“Philanthropy is a competitive arena,” said Steve Stephens, CEO of Amegy Bank and a board member of the United Way of Greater Houston. “Donors now have higher expectations about the best use of their resources.”
Put to test
The new investment strategy for United Way of Greater Houston breaks funding into three categories: aid for unexpected challenges, services that help families and individuals achieve financial stability, and programs that are unique pilots or demonstrations related to financial stability for low-income families and individuals. An organization’s program must meet the definition for at least one category to apply for a grant. Each must also conduct a self-assessment of the program’s compatibility and pass a review to prove financial and organizational strength.
Many leaders of organizations that receive funding on an annual basis said the change has been rolled out to them slowly, so they weren’t taken by surprise, and some have adapted as a result. The Montgomery County Women’s Center, for example, beefed up programs with financial literacy initiatives. Raleigh, the CEO, said the center, which typically receives a little more than $400,000 from United Way each year, added a financial case manager to the staff to counsel clients.
Others, such as the Salvation Army, which typically receives between $1.2 million and $1.3 million from United Way each year, believe the change might be an opportunity to apply for more grants from United Way because their initiatives fit with aiding families achieve financial independence.
“Each of our programs really seemed to align,” said Major Zach Bell, area commander for the Greater Houston Salvation Army. “We don’t necessarily see ourselves needing to change our approach with the United Way.”
CEOs on their way out
Houston’s United Way operates independently from the national organization. But other affiliates have also cut costs and implemented new strategies in recent years, according to local news reports and nonprofit strategy experts
— and many of their CEOs have also resigned.
There are more than 1,100 independently-run local United Way organizations. More than 120 affiliate CEOs stepped down between the start of 2018 and April 2019, according to an analysis by the Nonprofit Times, and that number has increased since then, local media reports suggest. In Texas, CEOs of local affiliates in at least eight cities (Fort Worth, Victoria, San Angelo, Tyler, Corpus Christi, San Antonio, Round Rock and Houston) have resigned in the last two years.
Babin said she was not resigning due to the new strategic direction (she helped lead it), nor the financial losses.
“My husband is already retired, and I want to spend some time with him and my grandchildren,” said Babin, who has led the organization for 14 years. “So, it is the right time.”
Babin’s last day will be March 31, the end of the organization’s fiscal year, unless a new CEO has not been appointed yet.
The vision to thrive
The new focus will be modeled after the organization’s THRIVE program, which was launched in 2008 and connects nonprofits to partner on providing services for working, low-income families to help them become financially stable and independent. The United Way estimates that the program has generated more than $1 billion in economic impact in its first 10 years by helping to improve the financial circumstances of Houston-area families.
Most important to whether a program will be successful in getting funds from the United Way will be whether it serves “ALICE” (asset-limited, income-constrained and employed) families, who cannot afford basic household necessities. According to a study by United Way, 40 percent of Greater Houston households are either considered “ALICE” or below the federal poverty level.
“United Way is in a position to address that in a way that no one else is,” said John Gremp, former CEO of FMC Technologies and board member of the United Way of Greater Houston. “I would hate to go to a donor without a story. People like focus.”