Nonprofits cause big economic benefit — Report shows Alaska organizations need to adapt to meet challenging climate

By Jenny Neyman

Redoubt Reporter

Dennis McMillian is part economist, part biologist and part Revolutionary War figure as he reaches out to nonprofit organizations in the state.

“I actually spoke to almost every chamber and every rotary in Alaska (in) 2010, 2011, like Paul Revere, trying to prepare people,” he said.

McMillian is the retiring president of the Foraker Group, formed to support nonprofit organizations in Alaska. He spoke to the Kenai and Soldotna chambers of commerce Wednesday in Kenai. Foraker has been tracking and analyzing data about Alaska’s nonprofit sector, and in 2010 saw trouble on the horizon.

A funding crisis was looming. The state’s nonprofits were overly dependent on governmental grants, in a federal climate that was clamping down on earmarks and Bridge-to-Nowhere-type projects, and in a state where a disproportionately large percentage of the budget is supported by a price-volatile commodity.

“We started preparing the nonprofit sector back in 2010-2011 that the day of $100-a-barrel oil was not going to last forever,” he said.

At the same time, there were simply too many nonprofits in the state to be sustainable — one for every 100 Alaskans, whereas the national average is one for every 200 Americans. Not only does that create competition for resources when money is no longer flowing as freely as it had in boom times, but there are only so many people willing and able to run nonprofit boards.

“Our best guess is there’s probably 20, 22 people to find nine or 10 good people to serve on every board in Alaska. That’s not sustainable. So we call that the crash of the herd. We just said the population is too dense for the ecosystem and that we were not going to survive,” he said.

So McMillian took the message on the road, advising nonprofits to find a new way to swim, before these factors caused them to sink.

“Three years ago I sounded an alarm, every way I knew how to do it. I screamed at the top of my lungs. And guess what? People actually listened. There’s this tendency to think, ‘Well, we’re not going to act until it’s too late,’ kind of like we did with our state budget. Well, it seems to me that our nonprofit sector are the most progressive business leaders in the state, because they heard this data three years ago and did it,” he said.

The number of nonprofits in the state decreased from 7,000 in 2010 to 5,700 by 2013 with a trend toward partnerships and mergers, McMillian said, pointing out the combination of the Kenai Chamber of Commerce and Kenai Convention and Visitors Bureau as a local example.

Nonprofits also are diversifying revenue sources. Governmental funding has decreased, yet charitable donations have increased, thanks in part to more targeted campaigns for donations, like the Pick.Click.Give. program, and organizations which seek to keep assets in the state, like the Kenai Peninsula Foundation. More importantly, nonprofits are making more of their own money.

“And if we look at all nonprofits around America, the 501c3s, half of their revenue is generated through earned revenue. Which is kind of a shock to people. They think, ‘Oh, it’s all supported by charity, what I give out of my pocket.’ Nah. That’s a very small percentage of what supports charity. It’s business that supports charity. Not businesses, but the smart business acumen of people who run nonprofits,” he said.

McMillian made the case that the health of the nonprofit sector is vital to the state as a whole.

“The nonprofit economy is huge here, and has a huge impact on everybody,” he said.

In a large swath of the state, from Bethel though Fairbanks, out to Nome and in parts of Southeast, half the workforce in employed by nonprofits. On the Kenai Peninsula it’s 18 to 19 percent, exceeding the state average of 12 percent and national average of 10 percent.

According to Foraker’s most recent economic impact report, nonprofits provide 39,000 direct jobs in Alaska, and impacts many more jobs — hiring attorneys, lawyers and the like. The 39,000 jobs have an impact on 63,000 jobs in the state, he said. And the $1.7 billion in salaries and wages has a $2.5 billion impact on the state’s economy. The nonprofit sector spends $4.4 billion directly, and impacts another $2.1 billion (in spending to utilities, credit unions, etc.).

“For $6.5 billion, that’s 13.5 percent of state’s gross domestic product. That’s huge. Very few industries can say they have that much impact on the economy,” McMillian said.

And it’s more than just economics.

“We are the people that build community, we’re the people that make the community healthy, we’re the people that keep it healthy, and the nonprofit sector is incredibly diverse,” he said.

But it takes charitable support to keep nonprofits going, even with their earned revenue. The national average of charitable giving is 3 percent of the household income. In Alaska it’s 2.7 percent, though there are areas that rise above that, particularly rural communities like Delta Junction, Tok, the North Slope, Bethel, Nome and Dillingham. Middle-income households tend to have the highest percentage of giving, with households earning $200,000 or more giving the least percentage. On the Kenai Peninsula, the average percent of giving to household income is 3.5 percent.

“Out of urbanized areas, you’re about the most generous,” McMillian told the Kenai audience. “You guys give a lot of money in this community, and you need to be proud of that, but that’s also why you have this incredible quality of life. There is a total connection between generosity and quality of life in a community. People saying, ‘I love living here,’ and people take care of each other. That’s not an accident, that’s a strategy. It’s your culture of what you do.”

But peninsula nonprofits are feeling the pinch, too. Lisa Roberts, executive director of the United Way of the Kenai Peninsula, said she’s seen the trends about which McMillian warned.

“The support from the community is awesome. We have an awesome, generous community here that we live in. But, definitely, I have felt donations drop. And the thinning of the herd. I’ve got my board, but I can say that if we lose one, it’s hard to replace them,” Roberts said.

The umbrella organization, which raises funds to distribute to member nonprofits, such as senior centers and the food bank, said that much of its donations in the past have come from corporations matching employee contributions. That, in particular, is declining.

“Corporate donations are definitely going down. It just seems like as time marches on things are being done differently, I think, in the big corporations. I feel like there are so many changes in the corporate world that maybe they’re feeling the bite of the recession, as well,” Roberts said.

In response, the United Way is changing its funding model — and its 2014-15 donation campaign is going on through the end of April — to focus more specifically on education, income and health-related programs. It’s part of the survival-of-the-fittest message from McMillian. The nature of the funding beast is changing, so each nonprofit animal needs to adapt, or else crash with the rest of the herd.

“We’re not going to have the corporate matching dollars, I think, we’ve seen in the past, so we’re going to have to come up with other ways to make that revenue,” she said. “… We’re looking at doing some things differently. We’ll have to, in order to succeed.”


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