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Inflation poses potentially major challenges for nonprofits and their budgets

The United States is currently experiencing the highest measured inflation rate since the early ’80s, although it may have moderated a bit recently. We see this in our business—all of our many software-as-a-service (“SaaS” in tech nomenclature) subscriptions have gone up by at least 10% in the past six months, our costs for consumable supplies and equipment have also risen, and anyone who’s been to the used car lot, supermarket, etc., sees it in their daily lives. Still, while there are many articles on inflation in the media, I’ve yet to read one that discusses the significant and deleterious impact of inflation on nonprofits. I was the Executive Director of the Hollywood-Wilshire Fair Housing Council in the late ’70s, and then a full-time grant writer, so I experienced first-hand hyper inflation. Back then, we learned quickly that budgets had to account for inflation, and inflation expectations affected everything we did.

As we’ve written many times, most nonprofits depend on only four revenue streams, no matter how big or small the nonprofit: grants, fee-for-service contracts / third-party reimbursements, fund raising / donations, and, for a few, membership dues. A tiny number of nonprofits have endowments, but, if you’re Princeton or the Met, you don’t really have the problems and challenges normal nonprofits do. Inflation will negatively all of these streams:

  • Grants: Inflation will have the biggest impact on grants. When a nonprofit gets a grant award, the award is based on the proposed budget, and the proposed budget may be modified somewhat during the contract negotiation process. Still, the grant will be a fixed amount, either annually or for the budget period, and grant contracts rarely, if ever, include a Cost of Living Adjustment (COLA) provision. If the grant is, for example, $500,000 annually for five years, and inflation runs at 5% per year, the last year of the grant is going to be much harder to implement than the first.* While it’s usually possible to get approval to move money among budget line items, you can’t go to your program officer and say, “Hey, we now have to pay our Outreach Workers $20/hour because they can make $18/hour at McDonalds” or “our rent went up by $500/month” to get relief. You’re stuck (or a similar, six-letter word that starts with “f” and ends with “ed”). Because inflation has been low, most nonprofit Executive Directors and Boards have never experienced rapid inflation. Not much can be done with existing grants, but in writing future grants, it’ll be critical to propose budgets and services taking into account anticipated inflation. Since an estimated 10% of the American economy is conducted by nonprofits, multiply the impact of inflationary thinking by thousands of nonprofits. The Federal Reserve had to raise interest rates to 20% in the early ’80s to break the inflationary cycle, and that could happen again.
  • Fee-for-Service Contracts and Third-Party Reimbursements: Unlike grants, fee-for-service contracts for things like foster care, home healthcare, some substance abuse treatment, etc., typically reimburse nonprofits at a specific rate for services rendered, which are often capitated (“per head”) or a fixed price for a unit of service rendered. Like grants, such contracts will not usually have built-in COLA provisions. If the contract is based a capitated rate or unit of service provided, inflation will quickly screw this up. A nonprofit may be able to renegotiate contract rates, since in cases where specialized services are provided (e.g., foster care), the contracting agency may need the nonprofit more than the nonprofit needs the contract. Third-party reimbursements, like Medicaid for FQHCs, are even more problematic, as these cannot not be renegotiated and there will be a lag before rates catch up with inflation, if they ever do.
  • Fund Raising / Donations: Let’s say tickets for your nonprofit’s annual “Gala” have been $100 for the last five years. Due to inflation (e.g. venue rent, food, celebrity honorariums/goody bags, etc., cost increases), you may need to charge $150 to net enough money to make the exercise worthwhile. Some number of your supporters will be priced out, if their own wages or investment income aren’t keeping up. Back in my Fair Housing days, most of our fund raising involved overpriced tickets to plays and concerts, Christmas card sales, etc., and, as inflation went up, we netted less and less money. The same is true for donations; as folks’ real incomes are depressed due to inflation, they’re likely to donate less and the amount they donate will be worth less to the nonprofit. Essentially, this becomes a downward spiral, which caused me to start writing more grants to keep the Fair Housing staff on board and the lights on.
  • Membership Dues: A few nonprofits like environmental organizations or Boys and Girls Clubs, are able to charge membership dues. Like with fund raising and donations, however, inflation will make these agencies need to raise their dues to preserve their “buying power,” but dues increases will likely run into resistance from their members. Many members also likely cancelled during the pandemic; Jake had a YMCA gym membership that he cancelled in April 2020 and never restarted. Inflation erodes real incomes as people’s salaries buy less stuff and wage increases typically lag inflation increases. So, membership dues are easier to cut from a family’s budget that say new school clothes for the kids.

Nimble nonprofits will plan for inflation now, just as smart countries planned for pandemics before the pandemic hit. A good strategy is to seek grants that offer “walking around money.” These are grants for nebulous, rather than specific, services and in effect can be used to support other staff and indirect costs. It’s also important to get a Federally Approved Indirect Cost Rate or include a de minimus indirect rate (10%) in your grant budget, if the RFP allows this. Nonprofits will want and need grant revenue that isn’t tied to providing specific services.

Nonprofits that don’t realize the world is quickly changing due to inflation will be in for a rude awakening. As Bette Davis says in the wonderful 1950 comedy All About Eve, “Fasten your seatbelts, it’s going to be a bumpy night.”


* While one can include COLA increases in grant budgets (e.g., 3% annual salary increases), this doesn’t help, because the maximum grant amount is usually fixed. Furthermore, complex budgets violate Seliger + Associates’ basic advice to use the KISS (Keep it Simple Stupid—or “Sally” if you want to be nice) method in grant writing when possible.

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Unicorn Spotted in the LA Times: A Large Nonprofit Gives Back Huge Federal Grants

In the 280 or so years I’ve spent grant writing (grant writing years should be considered as dog years because of endless deadlines and dumb RFPs), I don’t believe I’ve ever come across a nonprofit that voluntarily gave back significant federal grants.

Faithful readers will know that I use the term “unicorn” for anything I find exceedingly unlikely in the fun-filled world of grant writing (see, for example, “No Experience, No Problem: Why Writing a Department of Energy (DOE) Proposal Is Not Hard For A Good Grant Writer“). I nearly choked on my daily ration of Chemex-brewed coffee on Saturday morning when I spotted this “unicorn” story by Alexandra Zavis in the LA Times: Homeless shelter to drop government-funded programs. How can this be?

The Union Rescue Mission (URM) is a giant homeless services provider in L.A. It is obviously a faith-based organization (FBO). Remember that there are two kinds of FBOs. The first kind gives you a bowl of soup when you’re hungry, and the second kind gives you a bowl of soup when you’re hungry but makes you listen to a sermon before you get the soup. URM is presumably the second kind, which means it is not directly eligible for government grants because it intertwines service delivery with religion.

The first kind of FBO is often eligible for government grants, and we often work for those FBOs. To get around the pesky problem of grant eligibility, URM apparently set up another nonprofit, EIMAGO, to serve as the grant applicant and recipient for federal grants. This is not unusual. EIMAGO is described in the article, however, as a secular “subsidiary” of URM. Nonprofits don’t usually describe affiliated organizations as “subsidiaries,” preferring “affiliate,” “partner,” etc., to preserve at least an appearance of independence and deflect the impression that the “subsidiary” exists only as a grant conduit.

Leaving aside the relationship of URM and EIMAGO, the article says that Alan Bates, URM President and apparently spokesperson for EIMAGO, says that they (URM or EIMAGO?) can no longer operate government-funded programs because the costs are not fully covered and it takes months to get paid:

Bales said the Christian mission has been using private donations to supplement the government contracts operated by its secular subsidiary, EIMAGO. “In the last six or seven years, we have subsidized those operations about $4.5 million because we never get enough money from the government to operate the programs as they should be operated,” he said.

But, Bates also goes on to say that “no one would be forced onto the streets because of the decision.”

Let’s do a small Gedankenexperiment or “thought experiment” to test the logic of the article.

1. URM/EIMAGO exist to help the hungry and the homeless.

2. Joe is hungry and homeless and needs three hots and a cot, as they say in the shelter biz.

3. URM/EIMAGO gets $100/day in federally derived grant funds to take care of Joe, and the money comes from the Los Angeles Homeless Services Authority (LAHSA, which is the primary homeless grant spigot in LA County), FEMA, Department of Veterans Affairs, HUD, or another government agency.

4. For whatever reason (extra piece of mystery meat in the stew, designer blanket, one too many case managers, etc.), URM/EIMAGO spends $105/day taking care of Joe, meaning they have to get Harry to donate $5 to URM/EIMAGO to keep Joe fed and housed.

5. URM/EIMAGO says its too tough to get $5/day out of Harry to supplement the $100/day from Uncle Sam to take care of Joe, so they are going to reject the $100/day from Uncle Sam.

6. Without $100/day from Uncle Sam, how much will URM/EIMAGO have to get from Harry to take care of Joe?

$105/day. If you grasped this point, you are quicker on the uptake than the reporter. Without the federal grants, URM/EIMAGO is either going to serve a lot fewer Joes or will need to find a lot more Harrys. This is why I’ve never run across any large profit that would voluntarily cancel federal grants—or any grants for that matter. URM/EIMAGO is a unicorn.

In addition to pointing out the logic problem presented above and highlight an unusual unicorn story, this post is really intended for those nonprofits who want to become “multi-program, multi-funded agencies,” and particularly nonprofits that aim to supplement project grants, general purpose grants and donations with contracts for capitated services (e.g., most homeless services, primary health care, substance abuse treatment, foster care, etc.). For these grantees, which provide a service for some agreed upon per head/per day/per visit/per whatever fee, the capitated payments, like other grant funds, are often fungible (Jake covered fungible grants last year in “Supplementing Versus Supplanting Grant Funds: Examples from the Rural Housing and Economic Development Program and the Capital Fund Recovery Competition Grants“).

In the case of a soup kitchen, you could ask: which dollar bought the carrots in the stew that Joe is eating? The LAHSA grant, the Department of Veterans Affairs Grant, the donation from Harry? Nobody knows. For that matter, Joe is fungible. If he’s a veteran, the agency can claim him on their Vets grant, if he’s an ex-offender, he could be tallied on their Department of Justice grant, if he has a substance abuse challenge, he could be covered by a CSAT grant, or, ideally, all three.

One of the unspoken realities of running large nonprofits is that clever multi-funded, multi-program agencies can often pay for services for a particular individual more than once, sometimes intentionally and sometimes by accident. Funders don’t seem to care, as long as this is never stated in grant proposals or reports and reporters are too naive to inquire.

I don’t know anything about URM/EIMAGO other than what I gleaned from this article, as we’ve never worked for either organization. To forestall the potential lawyer inquiry, I am not making any accusations about either organization, which I am sure are great service providers. The situation described in the LA Times article seems implausible to me, particularly given this quote from it: “The mission’s difficulties come at a time when many nonprofits are struggling to raise the funds they need to keep up with demand for their services in a bad economy.” Seems like someone at URM has been reading Grant Writing Confidential, as I have been making this point for over two years. It’s a bad time to be trying to replace hard-to-get grant funds with even harder-to-get donations.

The article also provides an opportunity to illustrate how larger nonprofits often use multiple grant sources to keep the lights on. For those newer and more nimble nonprofits in L.A. that want to provide homeless services, it looks like you’ll have an opportunity to dine on the LAHSA grants that URM/EIMAGO rejects. Some agency is going to need to serve the legions of hungry and homeless in L.A. Go get your bowl of LAHSA grant soup!

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Why Seliger + Associates never esponds to RFPs/RFQs for grant writing services

Faithful readers know we regularly discuss RFPs, NOFAs, FOAs, SGAs—or whatever other acronym funders might dream up to denote that grant funds are available (Jake in particular likes to fulminate about bizarre RRPs). Despite marinating in a stew of RFPs, however,  Seliger + Associates never responds to grant writing service RFPs/RFQs (“Requests for Qualifications”), and there are two basic reasons why.

The first reason is the most important: I know from over 15 years of working for various California cities, mostly in management, that RFQs/RFPs for professional services are easily wired, with “wired” meaning that one firm is going to get the contract regardless of who submits a response. I’m not talking about Sopranos-style wiring in which the public official can expect a visit from Paulie Walnuts if the wiring job isn’t done right: the real process is more anodyne. Usually, the public official knows a certain consultant and thinks the local firm can get it done and makes sure that the local boys get the gig.

A city might also want a local consultant but need bids from qualified out-of-towners to provide cover, so a favored firm is identified before the “open” competition. Many public agencies are required to run a bid process before selecting a consultant (or vendor), and the public official in change of the RFP/RFQ process structures the document to produce the desired outcome. This is usually done by putting requirements into the document that favor the fair-haired bidder.

For example, we recently received an RFQ from a city, and 25% of the available point total was for “knowledge of the local community,” while just 25% was for “grant writing experience.” This RFQ was obviously wired for a local grant writer, as we’d receive zero points for local knowledge. So why should we bid and provide cover for the public officials?

Another favored approach is to require the successful bidder to meet regularly with agency staff in person, making it impossible for a non-local bidder to compete, due to travel costs.Other techniques are subtler, like having a ringer on the selection committee.

We receive at least a dozen RFP/RFQ notices per year. I assume this happens because we’re such a well-qualified and -known firm that we would provide exceptional cover for wired bidding processes. Not being stupid or naive, at least in this respect, we always send more or less the following response: We won’t respond to this RFP, but we’ll be happy to provide a fee quote if your process fails. This does work: the local guys often can’t get the job done. Many public agencies eventually hire us after running a true, or true-seeming, RFP/RFQ process. Years ago, when we first started, we sometimes submitted real bids—but we never got the job.

The second reason is also significant: having been in business for since 1993, we simply don’t have to respond to RFPs/RFQs. We think we’re the best grant writing outfit there is. We’re like Astronaut Gordon Cooper, who answered a reporter’s question concerning who was the greatest fighter pilot he ever saw: “You’re looking at him!“* Responding to RFPs/RFQs wastes our time, and, like lawyers and escorts, grant writers are all about billable hours. Unlike architects, engineers, accountants and similar personal services consultants, who have tons of competition and must respond to RFPs/RFQs, we provide a unique service with few qualified competitors. Don’t believe me? Search online for grant writers and see what you get.

Despite our hard-nosed attitude, we’ve worked for hundreds of public agencies, including cities, counties, housing authorities, redevelopment agencies, and state governments. We can do so without responding to RFPs/RFQs because some public agencies have minimum contract amounts before bidding kicks in, which means they don’t have to go through a RFP/RFQ or public bid process. Additionally, all public agency purchasing rules have an exception for what is known in the trade as a “sole-source contract.” Public agencies occasionally face unexpected emergencies and can’t wait for a bid process. They also sometimes have unique needs—like, say, grant writing—for which there are so few qualified bidders that there is no point in running a competition.

As long as the public official is willing to place herself on the line, nothing prevents her from hiring us under a sole-source contract. When I was a public official and wanted to hire a favored consultant, I simply explained what I wanted to do to the City Manager and City Attorney, wrote the argument in a City Council staff report (if needed—usually it wasn’t), and signed the contract.

This is a lot less work than orchestrating a phony RFP/RFQ process. Since I know from experience that the sole-source approach is always available, and our services and fees are cleverly hidden in plain sight on our website, any public official who wants to go through an RFP/RFQ process is probably trying to wire it. The only way to win is by not playing the game.


* In the terrific film version of The Right Stuff, Dennis Quaid delivers this line as “Who was the best pilot I ever saw? Well, uh, you’re lookin’ at ‘im”, with a boyish charm I could never achieve even when I was a charming boy.