For Minnesota's largest nonprofits, a rebuilding year

At Torre de San Miguel Homes on the working-class west side of St. Paul, dozens of grade school kids gather after school to complete their homework with the help of volunteer tutors in sessions that often conclude with card games.

Later, their parents gather to improve their English, study for citizenship or work on employment-related skills.

A few miles away, at Garden Terrace Apartments in Little Canada, 91-year-old Vivian Henningfield still walks for exercise, volunteers in the gardening club and makes homemade get-well cards for neighbors who aren't feeling well.

These low-income kids and the senior citizens are part of a growth business. It's called CommonBond Communities, a 41-year-old St. Paul-based nonprofit that's also the largest affordable-housing developer and property manager in the Upper Midwest. CommonBond has 5,300 apartments and townhouses that serve 9,000 residents from Minneapolis-St. Paul to suburban Maple Grove and Lakeville.

Like many nonprofits in the state, CommonBond struggled during the Great Recession but has rebounded thanks, in part, to the Federal Reserve's policy of keeping interest rates low to spur economic recovery. Lower rates have allowed CommonBond and others to refinance existing debt, extend loan terms and rebuild.

After several years of backing and filling, the growth story is spreading among Minnesota's biggest nonprofits. Overall revenue at Minnesota's 100 largest nonprofits rose 4.2 percent to $47.36 billion in 2011 from $45.4 billion in 2010. And for the second consecutive year, revenue growth came across-the-board in all four categories -- health care, social services, education and art and culture. That's a sign that nonprofit organizations have continued to grow after the recession years of 2008-09, when revenue rose only at health care nonprofits.

"Now it's post-recession management," said Jon Pratt, executive director of the Minnesota Council of Nonprofits. "These organizations are paying close attention to their business models and revenue streams. This sort of savvy economic development is new in the last 10 years. And some of the creative ones have grown very fast in the last few years."

Meanwhile, demand for affordable housing has soared. CommonBond has nearly 5,800 families and individuals on its housing waiting list, a number that has hovered around an all-time high since the recession hit in 2008.

"We don't have to advertise," CommonBond CEO Paul Fate said. "The number of people in Minnesota paying more than half their income for housing has doubled since the recession. That's an indicator of people under economic stress."

'Study buddy'

John Berg, a retired Wells Fargo bank executive and co-chairman of the CommonBond capital campaign, emphasized that the organization's success is linked to its "more-than-housing" model. The nonprofit spends $4 million annually on its Advantage Services program, which provides kids with on-site tutoring help; residents with job skills training; and fitness and health classes and activities that help senior residents stay healthy, independent and out of nursing homes.

School kids who participate in CommonBond's "study buddy" program with trained volunteers for 90 minutes a week boast a 90 percent high school graduation rate -- far higher than the Minneapolis and St. Paul public school average.

"It gives people hope, a stable home near a school and sometimes increased skills," Berg said. "Everybody deserves that. That's why my wife and I are involved."

(CommonBond posted $50.1 million in consolidated revenue in 2011. But only a portion of its overall revenue gets reported on the organization's form 990 as "tax-exempt" revenue, which explains why the nonprofit did not make our Nonprofit 100 list. CommonBond formed a separate, taxable nonprofit business that includes its property management and development units, which generate most of its revenue.)

Other nonprofits taking advantage of cheap money include:

Project for Pride in Living (PPL), which in June merged one of its subsidiaries with Rebuild Resources, a St. Paul-based nonprofit that helps recovering men and women rebuild their lives through employment programs. To make the merger work, PPL officials took a close look at all the contracts and loans it was taking on.

Steve Cramer, PPL president and executive director, said the nonprofit was able to refinance a $500,000 loan Rebuild Resources had taken out against one of the properties.

Shattuck St. Mary's, a private college preparatory school in Faribault, opened Fayfield Hall, its new science, technology, engineering and math building in the summer of 2011. The building was named after lead donor and Shattuck alum Bob Fayfield, founder of Banner Engineering in Plymouth.

Greg Engel, chief financial officer of Shattuck St. Mary's, said the school was able to finance the new building through donations and tax-exempt debt. "Being able to borrow this money so cheaply, we were able to do a little more than we thought we were able to," Engel said.

The school is currently working with the Bank of Montreal on a mix of partially taxable and partially tax-exempt borrowing through the city of Faribault. That money was used to refurbish a vacant campus building into the "WeCreate Center," which opened Oct. 1st.

"From our standpoint, the really low debt [cost] has become a godsend," Engel said.

Lifeworks Services helps people with disabilities through employment programs and customized support services. It operates eight facilities, seven of which are leased. But Lifeworks owns its newest facility in part because of the low-cost financing.

"We found out we were able to increase from a 10,000-square-foot leased facility to an 18,000-square-foot owned facility," said Lifeworks President Judy Lysne. "And our costs are actually lower on an operating basis."

A look at the categories

Health care nonprofits, including insurers like Blue Cross and Blue Shield and health care providers like the Mayo Clinic, accounted for 92 percent of the revenue on our 2011 list, the same as in 2010.

Education groups, including private colleges, universities and prep schools, account for the next-biggest portion with about 5 percent of revenue. Social services and arts and culture nonprofits account for the remaining 3 percent.

Health care and education organizations traditionally are the most recession-resistant types of nonprofits, in part because demand for their services tends to remain steady and they can pass along costs by raising fees and tuition.

Social services agencies and arts group are more vulnerable to economic downturns, in part because they rely more heavily on contributions and government grants, which have fallen in recent years.

As a group, the 35 social services nonprofits we surveyed spent 98.7 cents on expenses for every $1 of revenue they brought in. That marks a big improvement from both 2009 and 2010, when expenses exceeded revenue at social services agencies.

Arts and culture groups also have struggled with declining contributions, as many cash-strapped donors give less or divert contributions to organizations that address basic needs such as food, clothing and shelter. Arts groups on average spent 98.2 cents on expenses for each $1 of revenue, an improvement over last year when the group spent $1.05 for each revenue dollar.

Employment steady

Despite the Great Recession, employment in the nonprofit sector has shown slow-but-steady growth, according to the Minnesota Council of Nonprofits. In 2011, the council reported 298,744 nonprofit workers -- many of them in the health care sector -- up about 2 percent over 2010. Nonprofits of all kinds accounted for about 11.5 percent of Minnesota's workforce in 2011.

The majority of charitable giving in Minnesota comes from individuals, the council reports, and individual giving rose 3.4 percent from 2009 to $3.8 billion in 2010.

"This was the first increase in individual giving levels since 2007," the council said. But "overall individual giving remained 14 percent lower than its high of $4.4 billion in 2007."

Nonprofits that have sizable endowments also have seen their investment portfolios fluctuate with global markets since 2008. For accounting purposes, investment gains and losses are counted as revenue.

Because of state law and regulatory policies, HMOs and most hospitals in Minnesota are incorporated as nonprofits. As a result, health care nonprofits dominate the Nonprofit 100 survey, accounting for 53 of the top 100 organizations in 2011.

We looked at 59 health care organizations for this year's survey, including large and small health care systems, senior care organizations and blood and organ donor organizations. In 2011 their combined revenue was $43.7 billion, a 4 percent increase over 2010. Expenses for the group rose faster, up 4.6 percent to $42 billion.

At Blue Cross and Blue Shield of Minnesota, the largest nonprofit on our list, revenue rose 2.5 percent to $9.25 billion after falling nearly 1 percent in 2010. At No. 2-ranked Mayo Clinic, revenue rose 3.6 percent to $8.5 billion. No. 3-ranked Medica saw revenue jump 7.4 percent to $4.37 billion.

Revenue at the 35 Minnesota social service organizations surveyed increased 5 percent in 2011. Meanwhile, overall expenses rose just 1.8 percent for the year, an improvement over 2010 when expenses jumped 12 percent.

Revenue fell year-over-year at 11 of the 35 social service organizations surveyed. That's up from seven in 2010.

Meanwhile, nine social service nonprofits spent more than they generated in revenue last year, down from 13 a year go.

Second Harvest Heartland cemented its position as the state's biggest social services nonprofit with revenue of $106 million, up 15.6 percent over 2010. The hunger-relief organization has grown rapidly in recent years, in part because, as the economy had soured, more philanthropic resources were directed to basic needs such as food. Second Harvest also has moved beyond distribution of shelf-stable groceries and now delivers more higher-margin produce and refrigerated and frozen products to its clients.

"The value is there, but it's not all cash," said Pratt of the Minnesota Council of Nonprofits.

Revenue at the Greater Twin Cities United Way rose 4.4 percent to $92.5 million.

Second Harvest, United Way and Lutheran Social Service of Minnesota -- the state's three biggest social service agencies -- each generated more revenue than expenses in 2011 after spending more than they took in 2010.

Revenue among the 33 education nonprofits in the survey rose 5.7 percent in fiscal 2011. Expenses for the group rose 3.7 percent. Contributions jumped 3.4 percent in 2011 after dropping 1.4 percent in 2010 and 8.5 percent in 2009. Revenue rose at 27 institutions and fell at six.

The biggest revenue decliner was Northstar Education Finance, a student loan financier, where revenue dropped 20 percent to $142.4 million in 2011. Northstar, which settled a class-action suit with some of its borrowers in 2010, has seen revenue fall steeply in recent years as the student loan industry evolved. As recently as 2009, the lender posted $226 million in sales.

Most of the colleges and universities have a May or June year-end, and the most recent data are from the year ended June 30, 2011. Fortunes improved mainly due to the improved stock market returns at organizations with large endowments.

Revenue jumped 16.4 percent at No. 1-ranked St. Thomas to $328.5 million. Other notable gainers include Concordia College, up 21 percent to $125 million; William Mitchell College of Law, up 19 percent to $38 million and St. Paul Academy and Summit School, up 25 percent to $28.8 million.

At the 13 arts organizations we surveyed, revenue collectively rose 6.7 percent to $467.7 million, while expenses rose a modest 2.9 percent to $439 million. Overall contributions declined 2 percent. Six of the 13 organizations saw revenue declines in 2011.

At No. 1-ranked American Public Media Group, revenue soared nearly 15 percent to $132.6 million. The organization provides financial and administrative support for Minnesota Public Radio, Fitzgerald Theater Co. and Southern California Public Radio.

Other notable gainers include Minneapolis Society of Fine Arts, where revenue rose 18.5 percent to $44.3 million; the Guthrie Theater Foundation, up 44.3 percent to $29.9 million; and Children's Theater Co., up 43.8 percent to $11.7 million.

(Both the Minnesota Orchestra and the St. Paul Chamber Orchestra are involved in labor disputes with their musicians, who have been locked out, causing the cancellation of their concert schedules, which will affect 2012 financials.)