Nonprofits ask state to restore 3% funding cut
‘There seems to be a misunderstanding of what a 501(c)(3) designation is ...’
A deficit hole left from state budget cuts earlier this year is stretching the financial limits of nonprofit organizations, despite Indiana state officials later determining such drastic cuts were only cautionary and not needed.
“This is a major issue, because of the financial loss of our 3% margin, which is why it is so critical for the state to take another look at the state budget and return this 3% margin back for nonprofit organizations around the state, including Campagna’s needs,” said Elena Dwyre, CEO of Campagna Academy in Schererville.
“By eliminating that 3% from our budget, it amounted to around $300,000 of lost funding, which we have had to try to find another way to make up for, during our budget year.”
Campagna Academy, which was founded as Hoosier Boys Town in 1947 by the Rev. Michael Campagna, a Catholic priest, is a residential care facility for youth in need, both boys and girls, ages 10 up to 21, with therapeutic services and intervention, including substance abuse treatment, 24-hour psychology and psychiatric and nursing care.
“There are so many other nonprofit organizations around the state who are facing the same budget gap because of the state’s oversight not reinstating this 3% margin, such as agencies including licensed child care placement, foster care agencies and others who play a key role in this continuum of care,” said Dwyre, who is responsible for a census of 140 youth on campus and more than 300 employees in addition to volunteers.
“There seems to be a misunderstanding of what a 501(c)(3) designation is as we try to emphasize why nonprofits need to be treated the same way as the for-profit agencies.”
The 3% margin rate was suspended for 2021 due to concerns in late 2020 about the potential for disastrous state revenue shortfalls due to the COVID-19 pandemic.
Indiana residential treatment and foster care agencies are paid individualized rates for their services by the Department of Child Services. Those rates are based on costs the agencies incurred two years previously
for services to children and families. The rates are enhanced by an annual cost of living adjustment, but some costs submitted by an agency are disallowed, resulting in some agencies having rates that do not cover their actual costs.
“Discussions between the Indiana Department of Child Services and nonprofit organizations about reinstating operating margins are ongoing,” Rep. Julie Olthoff, R-Crown Point, said. “If there are funds available in DCS’s budget, I would like to see operating margins restored for nonprofit organizations. IARCA and similar groups provide much-needed support to young Hoosiers during incredibly difficult times, and these partnerships with the state help us better serve our most vulnerable. I wholeheartedly support these nonprofit providers and I am appreciative of the services they provide to those in need.”
Per Indiana Administrative code, the rates for residential treatment and foster care agencies that are for-profit community businesses are also enhanced by a small profit margin. In the last decade, that margin has resulted in the benefit of a 7% increase in rates for these for-profit agencies. Until 2020, nonprofit residential treatment and foster care agencies did not benefit from this similar margin. These agencies had to rely on community donations to make up shortfalls in their budgets to invest in the future. By 2019, many agencies were in risky financial positions that included nearly exhausted lines of credit.
Chris Daley has served as executive director of the Indiana Association of Resources and Child Advocacy for three years and represents more than with 120 agency members statewide, including Campagna Academy. He serves in the role of advocate for children and organizations to have the resources they need despite the recent state funding cuts.
“After years of IARCA members requesting an operating margin, DCS Director Terry Stigdon announced that one would be added to rates for nonprofit agencies in 2020,” Daley said in an interview from his office in Indianapolis.
“Agencies had planned to use this small rate adjustment to invest in personnel, infrastructure and innovation. However, once the pandemic hit in early 2020, the margin was used to help agencies cover the unanticipated costs associated with keeping children, families, and staff safe from COVID19.”
Then, in a letter in late 2020, Department of Child Services informed nonprofit residential treatment and foster care agencies that the brand new operating margin would be suspended in 2021 due to fears of a state revenue shortfall because of an anticipated economic crash resulting from COVID-19. In that letter, agencies were informed that the operating margin would be revisited if the state revenue projection improved. However, the profit margin for for-profit agencies was not suspended because it is required by the Administrative Code.
Daley said as updated state revenue projections showed a more positive economic picture starting in early 2021, IARCA and member agencies have been urging the Executive Branch to have the operating margin restored.
“This isn’t because these agencies are asking for skilled individuals at unreasonable salaries,” Daley said.
“We are talking about the same wages, or even as incredible as it sounds given the responsibilities these individuals have, even less of a wage than what a fast-food chain restaurant might be paying right now. Restoring this money is an easy lift for the state to do. We just need the state budget agency to recognize this money need and allow the Department of Child Services to give this money back.
He said the State Budget Agency is looking at the issue but has not yet authorized DCS to spend the approximate $5 million restoration for what the operating margin would cost on an annual basis.
“We are asking everyone to reach out to the State Budget Agency and make clear that you support restoration of the operating margin for nonprofit residential treatment and foster care agencies, emphasizing that you believe all agencies should be able to invest appropriately in personnel, infrastructure and innovation,” said Dwyre, explaining her organization is now entering their nine month minus the cut state funds.
“Because our rates are set by a cost report created two years in advance, which currently is 2019 numbers, it makes it impossible for us to afford any kind of increases for our employees as we encounter the same hiring crisis faced around the state and around the country trying to find employees right now. Not having enough staff means we’re jeopardizing the safety of these youth, who are among the most vulnerable children in our state.”