Debt and Weak Fundraising
Limited Charity’s Options
$23-million budget. Missteps by
the group’s leadership, say inside and outside observers, also
contributed to the fate of the organization.
Whatever the particular details of Hull House’s story, it
may be only the highest-pro-file casualty so far of forces that
could reshape urban social-service groups nationwide.
“It’s an explosion of need. The
full effect of the recession is
just now being felt,” says Terry
Mazany, chief executive of the
Chicago Community Trust. “If
123-year-old Hull House, with
its revered name and legacy,
can be taken down, then any organization is at risk.”
Continued from Page 1
them make operational changes to stay afloat. But less than
two months into 2012, the trust
is already working with seven
charities at risk of closure.
Many charities are hurting
now, he says, because they went
into debt during the mid-2000s,
aggressively expanding and
building new facilities. But now
many are receiving less government support and are struggling to survive. Some waited
too long before reaching out for
help, Mr. Mazany says.
And some, he adds, came to
depend so much on government
funds that they have forgotten
how to raise money locally.
Stephen Saunders, who took
control of Hull House’s board
18 months ago, when, he says,
the organization was already in
deep crisis. He estimates that
the charity’s debt was approximately $3-million and growing, owed to vendors and landlords all over Chicago, where
the association’s programs in
foster care, child care, domestic
violence, job training, homeless
services, small-business development and other areas pepper
Chicago’s urban landscape.
The organization operated
during its final nine months
without a CEO, he says, after the top executive left in
the spring. He says the charity didn’t have enough money to
hire a replacement.
Paul Beaty/a P Images
On the last day of work, a Hull House
Association employee adds her signature
to one of the Chicago charity’s banners.
Bettmann/Cor BIs /aP Images
The original Hull House served
immigrants and the poor, teaching
A Coming ‘Train Wreck’
pened comes from Clarence
Wood, 71, who retired in April
after a decade as chief executive
of Hull House.
“We had new board mem-
bers who were more corporate
in their experience,” says Mr.
Wood, who has worked for char-
ities for 45 years. “They didn’t
understand that the reason the
Saunders that the board was
exhausted, but he says that was
no excuse to stop trying. Had he
stayed, he says, he would have
called for help from many quar-
ters—and he believes it would
have come.
Le SSo n S Fr o m H u LL Ho u Se’S Co LLa p Se
Look for a merger partner—before it’s too late. Hull House
had several opportunities to join forces with others when its
finances were in better shape, but it passed those chances by
and clung to its optimism, says Stephen Saunders, the organization’s board chair.
Diversify revenue. Ian Bautista, president of United Neighborhood Centers of America, urges boards to raise no more than
one-third of an organization’s income from government sources, one-third from fees for services or revenue from business
enterprise, and the rest from foundations and other private
donors.
Keep fundraising skills sharp. Before President Johnson’s War
on Poverty, the drive in the 1960s to direct more federal aid
to charities that serve the needy, many social-services groups
did a good job raising money. “But with big-government funding, they lost a lot of the connections and the ability,” says
Mr. Bautista. He notes that the founder of Hull House, Jane
Addams, did most of the fundraising for her charity herself.
Stay nimble. Charity leaders and boards need to know where
every dollar goes and quickly make adjustments when revenue is weak, says Thomas Vanden Berk, chief executive of
the Uhlich Children’s Advantage Network, one of the Chicago
groups that will take over services for some of Hull House’s
14,000 clients. “You need to think like a business person,” he
says.
Crisis Deepened
Even so, the association did
pare itself from a $40-million
nonprofit to one running on a
budget of $23-million over the
past decade. It eliminated programs that couldn’t attract
enough money to operate and
consolidated social-service locations to reduce operating costs.
But “we should have narrowed our focus even more,” Mr.
Saunders acknowledges.
The 30 board members tried
to raise money through several
campaigns and to put a recovery
plan in place, but it was all too
little, too late. Most board members didn’t have the personal resources to write big checks, or
friends who could. Board members were asked to give $5,000
and raise $5,000 each year, and
for some that was a stretch, Mr.
Saunders says.
By late 2011, he says they
were worn out and tapped out,
and the debt kept growing.
Though it tried to find merger
partners in its final two months,
Hull House simply had too much
debt, Mr. Saunders says. The
group planned to file for bankruptcy.
“If someone had given us a
$2-million check, that would
have given us time to right the
ship,” he says, adding that he
would have hired a good fund-raising consultant, sought more
help from private donors, and
set a goal of reducing the share
of government support from 85
percent to 75 percent.
But nobody wrote that check.
“There were
pivotal moments
when the board
should have made
tougher decisions.”
staff members like me were
staying positive in attitude was
that we are very used to social-
service agencies being always
on the brink of destruction.
They bailed out too soon.”
The culture gap between staff
and the board was evident in
fundraising issues, he says.
“Over the years, I would of-
ten have to call someone in
state government or elsewhere
and tell them they had to get
a grant or a check to us soon-
er rather than later because we
were on the edge,” Mr. Wood
says. “Some of the board mem-
bers didn’t get the idea of living
on the edge. They were coming
out of an economy where, if your
house is under water, you walk
away from it. The fact is, some
of us had learned to breathe un-
der water, and they didn’t un-
derstand that.”
Mr. Wood says he suggested
two potential merger partners
to the board, but the board re-
jected them. However, he ac-
knowledges that those potential
partners had serious financial
woes of their own at the time.
The former executive says
the financial reports presented
to the board were accurate and
timely, but he knows the board
might have expected a different
management approach.
Mr. Wood agrees with Mr.
More Closures Expected
Most, but not all, of the 40
programs Hull House offered
have been picked up by other
social-service groups in Chicago, mainly Metropolitan Family
Services and Uhlich Children’s
Advantage Network. Mr. Saunders hopes the name Hull House
will reemerge through one of
the surviving Chicago organizations. Right now, though, the
name would just be a magnet
for collection agencies, he says.
“Hull House is not an isolated
situation,” says Irv Katz, presi-
dent of National Human Ser-
vices Assembly, an umbrella
group for social-service chari-
ties. “I have witnessed a cou-
ple national groups that should
have merged, but, out of stub-
bornness or arrogance, allowed
themselves to go too far down
the tube rather than look for a
partner.”
When the news broke that
Metropolitan Family Services
would take over serving some
of Hull House’s 14,000 cli-
ents, three other charities ap-
proached Metropolitan’s leader,
Ricardo (Ric) Estrada.
“They were saying, well, if
you are talking to Hull House,
will you talk to us, too?” he says.
“They were shopping themselves
around. I have no doubt that we
will see more closures.”
Social-service nonprofits that
are surviving the economic
downturn, Mr. Estrada says,
have some common denomina-
tors. They “have strong boards,
with civic leaders who have been
asking the hard questions as
well as contributing financial-
ly themselves,” he says. “They
have been willing to cut pro-
grams and merge before they
accumulate too much debt.”
Stay alert. “Don’t ignore all the signals,” warns Ricardo (Ric)
Estrada, chief executive of Metropolitan Family Services, another Chicago group that will be serving Hull House’s clients.
“Listen to what your gut is telling you and what the numbers
are saying. Ask for help early and often. And help doesn’t have
to be financial.” —Maureen West
‘Living on the Edge’
Mr. Mazany agrees that a big
check might have bought time,
but it wouldn’t have eliminated
the need for restructuring or a
merger.
Another view of what hap-
WHa T Wou LD Jan e a DDam S THIn K?
A scholar who teaches the charity pioneer’s work offers more
perspective on the Hull House closing. For details, go to:
philanthropy.com/extras
