What the Government Shutdown in Minnesota Means for Nonprofits and Communities

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On Wednesday afternoon, NPQ’s Ruth McCambridge talked with Jon Pratt of the Minnesota Council of Nonprofits and Kate Barr of the Minnesota-based Nonprofit Assistance Fund to get a sense of what a Minnesota state government shutdown would mean for nonprofits and what the two organizations are doing to prepare groups for what is expected to be weeks of life in limbo. As we spoke there was an emergency briefing occurring in Duluth, one of a statewide series of seven. The briefings covered not only contingency planning but advocacy.

Gov. Mark Dayton (Democratic Farmer Labor Party) and the state legislature have been in a stand-off about whether new revenue should be added to help resolve a $5 billion defecit. Governor Dayton supports new revenue and the legislature does not. The shutdown is due to begin today and advocates fear it may extend for as long as 8 to 10 weeks. Everyone had been waiting for a decision by a state court judge to be passed down. The decision laid out what the essential services were that had to be preserved during the shutdown. Nonprofits in various fields had lobbied hard for services in their particular fields to be considered essential, and therefore to continue receiving funding

Our conversation begins with the judge’s decision, and quickly moves to take on the larger issue of the impact of this shutdown on nonprofits – guidance for nonprofits in the state, special loan funds to bridge the shutdown, and the role of the media during the run-up to the shutdown.

Ruth McCambridge: So, what does the decision say?

Jon Pratt: Well, point 31 on pages 10 and 11 says that numerous Minnesota nonprofit organizations have filed to intervene in the proceedings and be deemed a core service.  The court concluded that “Neither the good services they [nonprofit organizations] provide nor the fact that they may cease to exist without state funding is sufficient cause to deem their funding to be a critical core function of government and to overcome the constitutional mandate in Article VI.” I think what this is saying is that nonprofits had made a categorical argument and the judge is rejecting the category.

Kate Barr: The Judge did appoint a special master Retired Chief Justice of the MN Supreme Court Kathleen Blatz, which is actually a terrific choice and they will continue to pay school districts and then critical core functions, basic custodial care, public safety – a pretty limited list.  Benefit payments and medical services to individuals and, it appears, to medical providers.

Jon Pratt: Yes.  So, and this was an earlier issue where many providers have been instructed to continue providing services but with no guarantee that they’ll be paid.

Kate Barr: But the State Department of Human Services has been out and about telling providers in no uncertain terms that under the terms of their contract that they are required to continue to deliver services.  It’s an absolute Catch 22.

Jon Pratt: And, the problem is that many of these contracts are coming to an end.  So it’s almost like a triple problem, which is 1) you’re not going to get funding to provide the service right now; 2) you’re not sure that you’ll be reimbursed and 3) you don’t even know if you will have a contract going forward because in the future, you may be dramatically reduced or even eliminated and that’s subject to negotiations between the legislature and the governor.

Ruth McCambridge: So many groups will be in limbo. Can you just talk a little bit about what you guys have been doing to help people prepare for this moment if it happens tomorrow or the next day?


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Kate Barr: The briefings we’ve held have had 3 components. The first component is where we’re at in terms of the budget – both in terms of how we got here and also what’s going on now. Then, secondly, Jon [Pratt] has been doing a kind of a basic primer on crisis communication and then we’ve been doing a piece on management or contingency planning. So, we walk people through the “what ifs” they need to consider. So, for school districts, it was a timing question, not really ‘will you get paid’ but ‘when?’ Whereas, some may lose contracts altogether.  But then there’s this other in between limbo – if there’s a shutdown for two or four weeks, will there be retroactive payment for any services provided?  And, that’s an uncertainty. So, cash flow, short-term budget loss, long-term budget loss. So, you have to do different plans for each of those.  So, the question always is what is your risk and then how do you plan?  How do you plan cash flow?  Well, if you’ve got reserves you do one thing. If you have a line of credit, then you have to either reduce your expenses or find a way to accelerate other payments and then on the budget side, it’s basic budget stuff.  What do you cut?  How do you cut staffing?

Ruth McCambridge: How would you gauge risk in a situation like this?  It’s seems like it’s a shot in the dark.

Kate Barr: When we did the first [briefing] over at Neighborhood House, I sensed that there was anxiety in the room when we started and it was 80 times worse when we ended.  Because I think that, especially early on, people came to the briefings thinking that we were going to tell them here’s the deal. And, instead, the answer to every question was well, we don’t know. You have to assess your own risk. And it kind of depends on the duration [of the shutdown].  If this is a week, then if you’ve got a two or three-month reserve, you’re good.  If this is six weeks, then a two or three month reserve doesn’t do you much good.  But the other question is, Are you willing to risk your reserves if you’re not going to get reimbursed?

Ruth McCambridge: Are you giving people a breakdown of who is most at risk in this situation?  Do you do that at all?  Do you tell people what to look at to gauge their level of risk?

Jon Pratt: Well, this is where they need to know their own stream of funding.  So, one of the questions is, were you in the last budget bill passed by the legislature?  It may be a predictor of whether you’ll be in the final solution.

Kate Barr: Right, because we do have a governor’s budget proposal and we do have a legislative budget that was passed. So, they can look and see. If they were cut out of one of those, I think that they have to prepare for long-term loss. If they were held fairly harmless in there or they have primarily federal money that may be delayed because it flows through the state it is just a matter of timing.

They really need to understand the ultimate source of their funding.  I think that it’s been interesting too in the two and a half weeks since we started the briefings that we were initially hearing a lot of nonprofits that were planning to maintain their services and use reserves and kind of just put off the hard decisions are now looking at what to cut or reduce. They are thinking about how to either lay off staff, reduce hours,  or shift to be able to survive over this period.

We work with one organization here that serves people with developmental disabilities in a kind of one-on-one case management approach and they’re not going to be able to do that. They don’t have reserves to do that. But, they’re going to have a once a week group meeting just to continue the relationship and to maintain a way for their clients to continue to have some group interaction. And, they’re just going to do that basically on their own time. They won’t get paid for that because that’s not part of their contract.

Ruth McCambridge: Kate, you run a loan fund for nonprofits. What’s going to be your approach to providing loans? Will that change at all during this period?

Kate Barr: Yeah. We actually are doing a special program because we have about $15 million in capital and we’re pretty much tapped already because of some cyclical needs of charter school loans so we managed to pull together $2 million of short-term, one-time, call-in favors capital from one foundation and two banks. So, we have a $2 million pool to make cash flow loans.

Ruth McCambridge: How are you going to gauge the risk in making those loans?

Kate Barr: It’s all the same question.  It’s what’s the funding source?  How likely do we feel that it’s going to get paid? And, how much are we willing to take a risk on the organization?  So, it’s lending. It’s assessing risk. Right now we have 45 applications totaling a little over $3 million.  So, we think we will probably approve $2 million worth of loans.

Ruth McCambridge: Are those anticipatory loans? 

Kate Barr: They’re loans for cash flow during a shutdown and of the ones we’ve approved, two of them were to healthcare providers that are community clinics or community mental health agencies where their primary source of funding is medical assistance. So, they will get paid some money. It’s a matter of when.

Ruth McCambridge: Rght. Are there any other sources of loan money for various kinds of organizations?

Kate Barr: Well, it would be, of course, the banks but what we’re hearing from the banks is that this may be largely dependent on a pre-existing good relationship. I know of one organization that serves people with developmental disabilities where their bank actually doubled the line of credit temporarily. This is a rock solid organization. But I know of a couple of other banks that are really, really getting a little nervous about this and they’re not sure that they’re going to advance on lines of credit – even those nonprofits already have. This is not a situation where you go and call your bank and say I know you’ve never met me, can I have a line of credit and by the way, my primary source of funding is about to shutdown.

Ruth McCambridge: Can you talk about what you are doing at the public policy and public information levels?

Jon Pratt: Sure! Part of our dilemma is we don’t want to avoid the shutdown at any cost because just signing a deal now that has horrendous cuts is not really in the state’s interest. And, so, trying to keep a two-track message of yes, shutdown would be harmful, and at the same time we need a reasonable budget that is a real solution is important.

The public needs to be informed of the possible losses that might be incurred in both cases. There’s a rally at the state capital [Thursday morning] and organizations have been working all year long to make the case that revenue has to be part of the solution and you need a balanced approach to the budget, it can’t be by cuts alone. But, it sort of mirrors this national deadlock over how much and to what extent does government provide services that communities need.

Kate Barr: Another interesting thing to observe about all this is how the news channels have been kind of part of it, how they have participated and it’s been interesting that at the very end of May, immediately then there was conversation about what would happen if we had a shutdown but almost all of the attention was about state employees being laid off and state employees.  And that generates a certain amount of interest but not frankly very much from people because it appears that most people in the state don’t really care about people who work for the state.

It’s really been about the last two and a half weeks that the attention has shifted first to, So what would happen to nonprofit organizations? But then I think really valuably shifted then to, What’s going to actually happen to people but also what’s going to happen in other places? So, there is an article about how it’s going to affect banks and how it’s going to affect hospitals and things that people just relate to differently. So, banks said, well, you know, we can’t make loans if we can’t file our collateral interest with the secretary of state, so we would stop making loans.  That has a whole different headline value than nonprofits are going to be in trouble or poor people aren’t going to get served. I mean, frankly, it just does.

And that has really been driven by our nonprofit media. It’s been public radio and then some of our online nonprofits like MinnPost and others. So, the Minneapolis Star Tribuneand the St. Cloud Timeshave actually also covered it pretty well. But, it’s just been the last ten days that it’s really been about how it’s going to actually affect people in the state. There’s a great piece today in the Star Tribuneabout a person who lives in a group home for severely autistic people and how he would have to move back in with his parents, who can’t handle him. That has a different impact.

Jon Pratt:  I think MCN has been quoted in everything from Time and CNN to the Huffington Post but, it’s always this dual message that yes, this shutdown would be disruptive but Minnesota must always remember this a longer-term more basic question – we need a balanced solution that fairly raises revenue to continue essential services.

For more information on what you can do visit the Minnesota Council of Nonprofit shutdown website.

  • Harmon Burstyn

    What a dilemma. Have nonprofits become too dependent on government contracts and not going after grants and contributions? Have they not pursued mulitple revenue streams?
    Time to look at collaborations, mergers, dissolving.

  • Alanna Hendren

    Many community non-profits have other sources of revenue besides the government, but most people don’t understand that non-profits do work on the government’s behalf just like Halliburton, IBM and a host of other private-sector companies who contract with various levels of government. The difference is that most non-profits do this at a loss, which has to be made up with alternative sources of revenue. These non-profits are delivering services that politicians take credit for, not for their own self-aggrandizement and profit. This is another example of the survival of the fittest – and by definition the non-profit sector is less economically ‘fit’ than any other. No worries though, because only the vulnerable typically need their supports and, well, we are talking survival of the fittest…