Saving an agency by shrinking it

Lissa Jones knows how to make tough choices. As executive director of Minneapolis-based African American Family Services, Jones concluded in 2004 that the small provider of chemical and mental health services needed to restructure around its strongest programs, cut costs and strengthen its balance sheet.

If she and her reconstituted board had not, the 33-year-old agency would probably be out of business. As it is, the future looks leaner. And not every nonprofit is going to survive what promises to be a leaner future.

Jones has reduced reliance on government grants from 83 percent to 63 percent of revenue, thanks to new initiatives launched as the state and county cut funding for preventive-health and other self-sufficiency programs. She also started to cull ancillary programs, reduce employment and sell unnecessary assets to steady the once-listing African American Family Services (AAFS). Her agency recently qualified as a state-licensed mental health clinic, which has helped drive private revenue.

The Minnesota Council of Nonprofits reported last week that about half of the organizations it surveyed this month said revenue and fundraising will be down in 2008 while more than 40 percent report greater demand for services.

These outfits run food shelves from Brooklyn Center to Eden Prairie, operate low-cost clinics for the growing ranks of uninsured working poor, provide nurses and meals to the homebound elderly, supervise after-school programs for low-income kids and help their parents earn night-school diplomas after their day jobs as child-care workers, roofers, restaurant workers and nursing assistants.

"Our hearts are invested in the mission," Jones said. "At the same time, we have to balance the budget. We depend on the goodwill of the public and on good legislation that helps us complete our mission. This is the toughest job I've ever had and the most sleepless nights."

It costs less than $3,000 to get an AAFS client -- often an alcoholic or drug-dependent young person -- through an attitude-adjusting, outpatient 12-step program and into a job. That means less crime and fewer $50,000-plus annual tours in state prisons. Regardless, prevention programs, often delivered through low-cost nonprofit agencies, are expected to take big government cuts in 2009.

Personal experience

Like many of us, her family has been affected by drug and alcohol abuse. She speaks glowingly of former addicts and alcoholics who no longer steal or harm family members with their behavior. They are healthy people, better parents, neighborhood stalwarts and taxpayers.

Jones, who was paid about $100,000 this year, can testify before legislative committees and can drive home the importance of mental health treatment to executives and funders, some of whom have had corporate stays at treatment centers costing tens of thousands of dollars. And there's always time to spend 30 minutes with a group of young people who are just beginning to understand the joys of sobriety, personal empowerment, good decisions and why it is wrong to create a child outside of a committed, long-term relationship.

After she took the job, Jones invited some inactive board members to resign and recruited others who contribute more in terms of time, expertise and fundraising. Jones succeeded a longtime executive who was overwhelmed with a valiant, but futile, fight with cancer. The former director had raised funds to buy and refurbish a mansion that would serve as model treatment center.

But that strategy was too costly. Jones and her board bit the bullet, and sold the money-sucking mansion about $1 million into a remodeling job. They also sold two smaller facilities, which AAFS now leases, including a modest headquarters and outpatient treatment center in the Whittier Neighborhood of south Minneapolis.

Jones, 40, a Minneapolis native, has more energy, wisdom and range than many seven-figure executives, particularly the ones from the finance factories that helped plunge our country into what may be the worst economic mess since the Great Depression.

"AAFS had spent a large portion of its budget on operating and maintaining facilities rather than client services," said Kate Barr, CEO of Nonprofits Assistance and a veteran small-business banker. "Lissa and the board decided to consolidate operations, trim the budget [and create a $600,000 reserve fund] and improve financial management. Lissa questioned old operating assumptions. She was able to analyze the program structure and costs and restructure while also strengthening programs and service to the community."

An outsourcing strategy

Jones & company dropped a couple of long-standing youth programs and have come to rely on other partners to provide housing, job training and other services for the agency's clients and their families.

"If we are going to convince someone that they can have a better, sober life, [then] we have to equip them with new tools," she said. "The thinking has to change. Secondly, we just can't put them back in the same neighborhood where they were drinking or doing drugs. We have to help with stable housing and hope for the future."

Project for Pride in Living, one of the area's largest providers of job training, youth services and low-cost rental housing to immigrants and the working poor, expects to hit its fundraising goal for 2008. But CEO Steve Cramer said recently that his board has authorized use of reserve funds to plug what could be up to a 5 percent revenue shortage in 2009. Cramer has restrained expenses by consolidating jobs and leaving some positions vacant.

At Lutheran Social Service, a $79.5 million organization, CEO Mark Peterson said the organization made its budget in the fiscal year ended in October thanks to belt-tightening that started last winter.

"We laid off about 75 of our 2,400 people last fiscal year," Peterson said. "That's largely due to the closing of three [Minnesota] youth group homes in Owatonna, Crookston and Detroit Lakes, largely because [their] respective county governments weren't making referrals because they didn't have the revenue. That hurt.

"I'd love to have $3 million more to help people manage mortgage foreclosure, bankruptcy and debt counseling. We're good at it. I wish we could do more. There is tremendous demand for those services today."

Jones, meanwhile, is hopeful but not cocky. She has delivered what her board believes is a better-running agency that is adaptable to the times.