The Perfect Storm
In the days between Christmas and New Year's Eve, Anthony Romero, executive director of the American Civil Liberties Union, sat at his desk in Lower Manhattan and reached out to people who had lavished generous donations on his organization during the long, benighted tenure of George W. Bush. It was a heady moment: the era of Dick Cheney, John Ashcroft and Alberto Gonzales was winding to a close, and Barack Obama was about to assume office, having vowed to rescind some of his predecessor's more egregious assaults on civil liberties.
But Romero wasn't phoning his supporters to share the joy--he was calling to plead for cash after a season (actually, several seasons) of thwarted solicitations. Throughout the spring and summer, would-be donors had explained, over and over again, that they were too busy writing checks to the Obama campaign. By the time Obama mounted the stage to deliver his acceptance speech in Chicago on election night, many had become preoccupied with something else: the implosion of the economy. As Romero worked the phone from his office on the nineteenth floor of the downtown high-rise, around the corner from the New York Stock Exchange, he could feel the aftershocks of the collapse.
"I'll come back, but I lost it all," one longtime donor told Romero.
"I love you guys, but it's gone--all gone," said another.
The most expensive presidential campaign in history and the cataclysmic financial meltdown of the past few months combined to produce a "perfect storm," Romero told me recently. The storm blew a $19 million hole in the ACLU's budget, resulting in a hiring freeze and the cancellation of various projects, followed by the announcement, in January, that 10 percent of the national staff was being let go. Employees with decades of experience were told to clear out their offices; no department was left unscathed.
Founded in 1920, the ACLU boasts a membership of 530,000 and assets of more than $200 million. However dire the economic downturn gets, Romero, who has weathered his share of controversy at the ACLU but also presided over a period of impressive achievements and growth, can rest assured his organization will be around in a couple of years. It's an assumption a growing number of his peers in the nonprofit world can't make. At a forum in New York City in November, Paul Light, a professor of public service at New York University, predicted that "at a minimum" more than 100,000 nonprofit organizations would be wiped out in the next two years. Light asked the audience members whether any of them had tuned in to the recent hearing in Washington on the impending nonprofit upheaval. The room fell silent. Light then admitted he'd missed the deliberations as well, because, alas, there hadn't been any. "We should demand a hearing immediately on the state of the nonprofit sector--immediately," he declared.
Not everyone believes the fallout will be quite so cataclysmic--historically, the nonprofit sector has proved surprisingly resilient, even growing during some recent recessions--but the scale and scope of the current downturn is clearly different. And its reverberations will likely extend far beyond the world of high-profile advocacy organizations like the ACLU. From the arts to education, soup kitchens to housing organizations, nonprofits perform an array of functions that shape the texture of daily life in communities across the country, often by helping people whose situations were precarious even before the economy crashed. Now, with foundations watching their endowments shrivel, many individual donors maxed out and states across the country staring at massive budget deficits, nonprofits are scaling back their services at the very moment when the need for them is escalating.
The Greater Hartford Legal Aid agency occupies the third floor of a boxy glass-and-concrete building a few blocks down from the University of Connecticut School of Law. Its executive director, Elam Lantz Jr., doesn't like to talk about the ripple effects that the financial crisis has had on his agency. "I would not use the word 'ripple'--it's more like a tsunami," Lantz, a mild-mannered man with a clipped gray beard and wire-frame glasses, tells me. "It's more dire than it's ever been--this is a sharp plummet, not a decline."
The main cause of the sharp plummet is a seemingly unrelated development--the decline in interest rates to near zero--that has taken a disastrous toll on legal aid organizations, which, in Connecticut and many other states, receive a substantial share of their funding from the interest on temporary trusts that lawyers hold for clients while carrying out transactions such as real estate deals. This might seem like an odd way to finance such an essential social good, and it is, but the evisceration during the Reagan era of the Legal Services Corporation, the federal agency created in the 1970s to fund legal aid programs and a longstanding target of Republicans, forced states to find creative alternatives. Back when interest rates were 3 to 4 percent, the creativity seemed to be paying off. Now that they've nose-dived, agencies from Ohio to Oregon are scrambling to survive. In Connecticut, the interest on lawyer trusts generated $21 million in 2007; the figure will plunge to under $4 million this year. At Greater Hartford Legal Aid, six attorneys have been let go and more cuts may soon follow. "I have to raise $500,000 somehow," says Lantz glumly, "and then spend some of our operating reserves. That will take us to 2010, and we're just going to have to take it one year at a time."
All this means an already overburdened legal aid system will be that much less likely to help people like Evelyn Colon. A single mother with two young daughters, last year Colon dialed the 800 number in Connecticut that refers low-income residents to attorneys who might be willing to represent them. Colon had just received an eviction notice, even though she'd kept up with her rent, after her landlord's property went into foreclosure. Her case fell to Stephanie D'Ambrose, an attorney at Greater Hartford Legal Aid. D'Ambrose discovered that the author of the eviction notice, Fannie Mae, which weeks earlier had been bailed out by the government, was obligated to treat renters more leniently under the terms of the conservatorship it had entered. After the Hartford Courant ran a story about the case, calls began pouring in from lawyers across the country representing people in similar situations. The mounting legal challenges eventually prompted Fannie Mae to announce a moratorium on all post-foreclosure evictions. At the time, there were 10,000 such cases pending nationwide.
D'Ambrose, a former Peace Corps volunteer whose desk is cluttered with manila folders and thank-you cards from various clients she's served, beams with pride when talking about the case. But she hasn't had much time to savor her success: she is among the lawyers at Greater Hartford Legal Aid who were recently laid off, and she is searching for work while trying to stomach leaving an agency swamped with need. "We already turn away a lot of people; now we'll turn away that many more," she says.
Unlike D'Ambrose, Sudha Acharya, executive director of the South Asian Council for Social Services, hasn't had to thumb through any help-wanted ads lately. She's just taken a 50 percent pay cut that, along with a 15 percent cut imposed on her staff, has enabled her agency to keep its doors open, for now. Located on the ground floor of a brick building on a noisy commercial drag in Flushing, Queens, SACSS is the sort of agency most at risk of not making it through the downturn: a shoestring operation that could disappear tomorrow with few people noticing, save for the hundreds of South Asian immigrants who rely on it for job training courses and healthcare workshops that help clients navigate a byzantine system even many native New Yorkers find impenetrable. (Among people in the state without health benefits, fully half are eligible but either don't know they are or can't figure out how to apply.)
Acharya says her organization stays afloat on a mix of foundation support, corporate donations, individual contributions and community funds but is seeing money from all sources dry up. The agency recently had to scrap an English-language class it had been offering in the Bronx; it has kept other services intact despite receiving no money for them. I ask her who else in her circles is feeling strained. "Everybody," she says with a sigh. One of the groups with which Acharya's agency partners is the Community Service Society (CSS) of New York, a 160-year-old advocacy and direct service organization for low-income residents. Its president, David Jones, describes the forces that are making the work of charitable groups like his seem like an increasingly Sisyphean task: on the one hand, cash-strapped cities and states slashing programs; on the other, private foundations reducing outlays by as much or more. Jones's colleague Frank Kortright works with a network of nonprofits that help tenants in New York City avoid eviction. The network has been fielding more and more calls lately from high-income residents it rarely heard from in the past. Yet CSS recently had its city funding sliced in half. Jones says similar cuts are "in the offing" from foundations. He sits on the board of one that "just voted for a 60 percent cut in their amounts."