Making the Stimulus Work

Despite great obstacles, nonprofit housing developers, community action agencies, community health centers, and others stepped up and solved problems on the fly to make the stimulus work. Though more stimulus is not forthcoming, there are lessons to be learned for anyone working with government funding.

Everyone knew putting the $787 billion allocated by the American Recovery and Reinvestment Act, otherwise known as the stimulus, to work would be hard, but almost no one anticipated it would be quite this difficult. The lessons of Albert O. Hirschman’s classic Development Projects Observed are apt, that “underestimating the costs or difficulties of a project on occasion is helpful in eliciting creative energies that otherwise might never have been forthcoming,” the so-called “hidden hand” of creativity.

But calling on untapped reservoirs of creativity to overcome program design obstacles—some might call it suffering brain damage to make programs work—is no way to function, unless somehow the lessons that nonprofits have learned in the stimulus school of hard knocks are put to use in the design and implementation of future federal programs.

Shovel Ready

From the very beginning, we knew that nonprofits were going to be picked to carry out stimulus-related projects that were “shovel ready.” Many of these organizations had established relationships with federal and state agencies charged with stimulus implementation. California was one of the first states to establish a place for nonprofits to go to get advice and support, and Karen Baker, the state’s secretary for Service and Volunteering, suggested that the speed of the stimulus necessitated the recruitment of nonprofits that were known quantities to state agencies. (Baker is the former CEO of Crysalis, a much-publicized homeless training and services program.)

The pressure for shovel ready infrastructure projects had its mirror image in Neighborhood Stabilization Program (NSP) and weatherization funds. Shovel ready in weatherization, however, meant largely to do what groups had typically done before, leaving important community needs and opportunities by the wayside. For example, because many states and localities had no experience with multi-family energy audits, groups stuck to their 1- and 2-unit weatherization tracks, even though weatherization dollars ballooned.

For example, in Connecticut they went from $3 million to $64 million as a result of the stimulus. But Pat Spring of the Connecticut Housing Coalition called the state’s unwillingness or inability to conceptualize multifamily weatherization projects, much less the inability to tie weatherization to other types of challenges such as expiring uses and tax credits, “totally maddening.” It was, in Spring’s estimation, a failure to leverage resources well and to make stimulus funds go further. The pressure to do shovel-ready projects meant to do what was done before, even if emerging needs might have merited a different response. Many state agency stimulus funders pushed for projects, not solutions.

Putting Nonprofits Through the Red-Tape Wringer

Regulatory hurdles affected all parts of the stimulus, not just housing and community development elements that many groups encountered in trying to make affordable housing components of the stimulus such as NSP work. High profile components such as the $17.5 billion for doctors and hospitals to use electronic health records and the $7.2 billion for broadband internet cables have had to wait for approvals or in some cases new regulations.

In many instances, the problem is the Swiss-cheese architecture of government capacity, multiple state agencies sometimes poorly coordinated and inadequately communicating. The trouble is not simply stimulus program funding, but the longstanding diminished capacity of many local and state government agencies in general, exacerbated by having to process many times larger appropriations of stimulus dollars than they had ever seen before in a short period of time. Rarely did the pass-through agencies at the state and local level have the capacity to process what they were given.

Connecticut’s Pat Spring noted that “just in the housing area, there must have been six different lists of shovel ready projects, different agencies were asked to put together lists, we did, HFA did, the supportive housing people, they were all submitted [lists, but] in the end there was no rhyme or reason why one was chosen or another.” Moreover for weatherization, the culling of the lists, she said, took months. Shovel ready was not synonymous with bureaucracy-ready.

In several cases, stimulus programs combined both old and new regulatory hurdles. For example, the City of Philadelphia scored $500,000 a year ago in Creative Industry Workforce Grants meant to stimulate job retention and job creation in the arts, but the grants ($20,000 to $100,000) were announced only this past March. Because the grant program was new but flowed through the Community Development Block Grant program, the City had to deal with stimulus regs, CDBG regs, and new program design to make the effort work.

For many organizations, the potpourri of ARRA programs they are administering is a paperwork nightmare, especially when dealing with families or clients with multiple needs. The Community Action Partnership of Northwest Montana, for example, received stimulus funding through program lines such as Community Services Block Grant (CSBG), the Homelessness Prevention and Rapid Re-Housing Program (HPRP), the Workforce Investment Act (both youth and adult services), the Subsidized Employment Program (SEP) (jobs for TANF-eligible households), and homeless shelter funding (through the state). As a CAP representative told us, “with an agency of our size, it becomes a barrier to our clients to fill out so many different applications and to meet with so many different case managers, etc to receive services.” Due to the recession, the spokesperson went on, the agency “see(s) many clients walk in our doors who have never asked for assistance in their lives…[which is] a very humbling experience for them.”

Community action agencies, community health centers, and most community development corporations are seasoned practitioners in the administration of federal grants. But the hurry-up nature of stimulus funding made reporting “hell” according to Brenda Peluso, the public policy director of the Maine Association of Nonprofits. “Everyone said [reporting] is a bear,” Peluso added, “so I thought I budgeted plenty of time into the grant for reporting and compliance, but I’m not sure I did…because they are trying to push the money out there quickly, offices aren’t set up to handle the increased reporting and the cheese keeps moving.” Multiply the federal funding by a factor of three, four, or five, and the stimulus funds proved beyond the capacity of most nonprofits without prior federal contract experience to handle.

Reservoirs of Distrust

“ARRA funds aren’t the best way to cut your teeth on federal money,” Peluso noted, corroborating the inclination of many to funnel stimulus funds to experienced nonprofit contractors. But experience might not necessarily yield the best ideas or even appropriate to the funds in question if prospective government partners aren’t comfortable with nonprofits. The former executive director of the Southern Rural Development Initiative (SRDI), Deborah Warren, described North Carolina’s administration, or perhaps misadministration, of the weatherization program. Although weatherization funds through community action agencies had long been administered by the state’s Department of Human Resources, for the stimulus the state shifted responsibility to the Division of Energy in the Department of Commerce. Faced with ramping up quickly and not knowing (or perhaps trusting) the CAPs, Energy decided to run its weatherization training funds through local community colleges possessing no prior experience with the program, bypassing the established systems and expertise of the community action agencies. Prior to that decision, the state had given 30 CAPs an extraordinary warning “not to use the [weatherization] funds to finance regular operations . . . [and] not to use the money to pay employee bonuses.”

Risk averse or worse? In the run-up to the stimulus, there was lots of talk about how public agencies and nonprofits would partner up to make the recovery happen. But money does strange things to government agencies, causing some to get very nervous as nonprofit partnerships veer toward reality. Notwithstanding the propensity for happy talk about partnerships, the stimulus revealed surprising depths of anti-nonprofit hostility, particularly directed toward organizations working with marginalized populations. As Warren observed, “politicians and bureaucrats make it impossible to get funds out efficiently and quickly – even with a nonprofit infrastructure – which they don’t trust because it’s non profit.”

For example, after extensive planning with the state government for NSP-I with nonprofits at the table expecting solid and substantive implementation roles, Judi Patrick of the Colorado Rural Housing Development Corporation and her colleagues in the nonprofit sector were stunned and disappointed with the state’s 180-degree reversal cutting nonprofits out of the NSP funds for REO acquisitions. In Georgia, the state had to confess to having sat on stimulus funds that should have gone to job training and placement groups, with the result that half of the funds are going unspent and adult job creation is less than half of what was targeted. In North Carolina, the state cited concerns about Davis-Bacon prevailing wage requirements for weatherization contractors and multiple layers of certification mandated to ensure accountability as causes of its slow disbursements to nonprofits. In Georgia, the state attributed its haphazard performance with the Adult Subsidized Employment Program and the Fresh Start program (helping families pay for home-related bills) to federal regulatory hurdles.

With the “political pressure to do something,” a Midwestern Federal Reserve Bank staffer said, “wrongly maligned bureaucrats…were overwhelmed and unprepared.” For NSP and other programs, federal agencies were compelled to “trying…to push this huge amount of money through what was an unprepared, underresourced pipeline, pushing money out through [Community Development] Block Grant mechanisms…[that] weren’t designed for that” volume. Some state and local agencies receiving these funds reverted back to traditional behavior, using suspicions about nonprofit capacity, cloaked amidst federal accountability concerns, to choke off much of the capital flow to the nonprofits that could have and should have made programs work.

Fixing the Stimulus for the Next Time

As one sharp-eyed observer recently noted, the best way to fix the stimulus would be to fix the economy so that it didn’t tank so badly so as to need this kind of multi-part intervention. No hurry-up stimulus is going to work the way people might want if the approach one of hamstrung nonprofit providers trying to navigate hastily assembled programs designed with relatively little program input from the nonprofit sector charged with carrying them out.

Young Hughley of Atlanta’s Resources for Residents and Communities suggested that the leverage requirements of the Neighborhood Stabilization Program were a significant obstacle in Atlanta’s ability to obligate funds, requiring the City to design some creative substitutions for the mandated leverage. Looking to nonprofits and homebuyers for leverage during a recession when foundations and charitable givers have headed for the hills. Unfortunately, the Obama Administration had made leverage a key design component of its signature nonprofit programs such as the Social Innovation Fund and the Promise Neighborhoods program, the latter for example modeled after the Harlem Children’s Zone where board member Stanley Druckenmiller wrote personal checks totaling over $100 million.

If nonprofits cannot imagine participating in federal programs unless they come to the table with hefty matching funds, the federal government will have achieved the unintended consequence of cutting out good nonprofits and needy regions that lack large reservoirs of flexible leveragable capital.

Hughley’s crediting Atlanta city community development officials with creative approaches to leveraging requirements is an example of a systemic response to making the funding work. For most nonprofits, they were unfortunately on their own in the hurry-up-and-wait stimulus dynamic. For example, NorthWest Initiatives in Lansing, Michigan, received a spring 2009 approval to purchase emergency food boxes for unemployed workers and their families, an obvious need in a state whose combined unemployment and underemployment easily topped a quarter of the labor force. NWI’s executive director, Peggy Vaughn-Payne, commented that they waited until the end of September to actually get the money which then had to be completely spent out by the end of December. Not only did needy families go without assistance for months, but then the agency had to scramble to meet the spending deadline. It did, but much like peer agencies, they were making the unworkable workable.

Taking Stock

It isn’t ideological to see parts of the stimulus with strong nonprofit roots showing evidence of success. The White House is now highlighting accomplishments in the Neighborhood Stabilization Program in HUD’s monthly reporting on the housing market.

There is no question, however, that the accomplishments of the stimulus for nonprofits are about to fade and potentially reverse. While ARRA tax expenditures are cresting in 2010 and 2011, discretionary expenditures are going to dip precipitously unless there is a new infusion of capital from this Congress, which, of course, is highly unlikely. Chris Keeley of the New York Stimulus Alliance predicts the all-too-obvious about the impact of the end of stimulus funding: “We’re gonna start seeing cuts in services, we’re gonna start seeing people getting laid off. So the Stimulus Alliance is looking towards, how can we get that ‘stimulus two,’ how can we make sure that those jobs are maintained and all of our services aren’t cut.”

The stimulus funding cliff is the looming Achilles heel for nonprofits. It is a particularly difficult challenge for nonprofits in localities where philanthropic largesse is in short supply. What, for example, will the Carolina Mountain Land Conservancy (weatherization services), Blue Ridge Health Services (which used ARRA funds to hire a new medical team), and Western Carolina Community Action (Head Start and Early Head Start) do to maintain their staffing and services going into 2011 given scarce funding alternatives in Henderson County, North Carolina?
It may be that the best defense against the funding cliff is participating in a consortium or network that provides participating agencies some prospects for mutual support, particularly if foundations and financial intermediaries are in the mix. Among the 60 NSP II grant recipients were consortia in which nonprofits appeared to have significant design and implementation leadership responsibilities in very creative initiatives.
Like the Obama administration’s Social Innovation Fund, these and other NSPII grants are predicated on the participation of groups in networks, reflecting the fact that in responding to crisis, whether environmental catastrophes such as Hurricane Katrina, terrorism like the 9/11 attacks, or economic recession, nonprofits are more likely to survive and function if they are connected to networks and systems that provide organizational backstop, mutual support, and sometimes fiscal flexibility.
The magnitude of the recession and the size of the stimulus, even if it was far less than it should have been, were much like the onset of the subprime foreclosure dynamic in 2007 and 2008. Many nonprofits waited and watched, because the crisis was too big, too daunting, and too complex for them individually to take on. The stimulus posed similar challenges, as government expected speed, deals, and progress on a rapid clip. The best positioned groups appearing to be those nonprofits and those localities that could mobilize an infrastructure to support the nonprofits willing to take action:

  • The Ella Baker Center’s California Green Stimulus Coalition advocating for equitable job creation and economic development
  • The Chicago Recovery Partnership, involving the business community and foundation leaders working with the city government to align ARRA resources with needs and to provide assistance to applicants responding to NOFAs
  • The Central Texas Education Stimulus Collaborative with the participation of the Michael and Susan Dell Foundation and the Communities Foundation of Texas focusing on educational innovation in and around the Austin, Texas area
  • The Southeast Michigan Regional Foreclosure Intervention and Neighborhood Stabilization Collaborative convened by the United Way for Southeastern Michigan
  • The New York Stimulus Alliance, a coalition of six organizing networks and other multi-chapter organizations promoting effective use of ARRA funds for marginalized communities
  • The Trans Pecos Stimulus Consortium connecting nonprofits and government agencies to attract stimulus funding for the “Big Bend” area of Texas
    Coordinating and informing nonprofits about ARRA possibilities, hurdles, and strategies isn’t free. The Massachusetts Nonprofit Network, according to its executive director, former state legislator David Magnani, issued seven very detailed and informative “stimulus and nonprofits” reports—until the Network’s funding from the Boston Foundation ran out.
    From her Federal Reserve Bank perch, a program officer confirmed the importance of networks, suggesting that “some cities did not have the capacity to handle the quick turnaround, except in rare circumstances, because [they lacked]…coordinated coalitions and regional approaches that doing something like this really called for.” For nonprofits, the programmatic siloes in anti-recession stimulus don’t hold. It’s why, for example, the Office of Community Services recently contracted with the California Community Economic Development Association to show community action actions how what they do in weatherization and job training is actually consistent with and should be considered part of community development. “If we could exclude the political and time pressures and hold those things aside…we would be looking at a community development strategy, not the siloed programmatic strategies that have not worked over the years…It would be to push for ongoing integration of funding in communities based on the requirement that their community development strategies be comprehensive and integrated and include capacity-building for their nonprofit partners.”

The message from the federal level to leverage and work across sectors “is a very positive message that we haven’t heard for a long time,” Spring notes, but there’s no directive about working across agencies at the state and local level, you still end up having tranches of money…the way they were filtered in the past…Once it gets to the state level, they feel no strong need to do things differently than they’ve done in the past.” The result actually works against the stimulus. Without effective mechanisms to require recipient agencies to coordinate effectively, what occurs is that the siloed moneys go to the same agencies that typically got the funds in the past, but they are “overwhelmed because the money is so much greater.”

Pointing Forward

The nonprofit sector need not feel compelled to explain why the stimulus mix of entitlement expenditures and tax subsidies did or did not lead to as many jobs as this nation wanted or needed. But it ought to bang the drum loudly about its contribution to making the program expenditure parts of the stimulus work despite obstacles on nearly all fronts, ranging from the near impossibility of absorbing huge amounts of money in short periods of time to vaulting over a weak government architecture and sometimes hostile attitudes to implement programs.

Nonprofit successes in the short timeframe of the stimulus may look like they are due to the Hidden Hand of Creativity, brought to the surface because of the impossibility of the task, but that is hardly the whole story. In a recession, nonprofit service providers and community developers are caught in a perfect storm, a vortex of tanking philanthropic and charitable contributions, cascading state and local government budget deficits and cutbacks, and burgeoning demands from distressed communities. In poor communities oddly enough, nonprofits face that vortex whether the economy is in recession or not. The challenge of the stimulus was simply business as usual—except perhaps geometrically increased to a level that nonprofits haven’t seen in decades.

Stimulus-connected nonprofits have challenges in front of them, notably a funding precipice that doesn’t seem to have obvious solutions in terms of near term government resources. The nation’s philanthropic sector, enamored as it is with kitschy federal initiatives such as the Social Innovation Fund and Promise Neighborhoods, might want to take a look at the nonprofits whose bread-and-butter program delivery skills leveraged the stimulus to help hundreds of thousands of families with critically needed housing and services. It might discover a seasoned array of nonprofit developers and service providers meriting support that allows them to build on their stimulus program successes rather than watching programs wither as stimulus monies cease.

Nonprofits have a story to tell—and lessons to teach—so that the next round of stimulus spending gets into the hands of groups in touch with communities that know where and how to spend it. It is a story of creativity and entrepreneurialism mixed with experience and professionalism. Bang the drum, nonprofits.

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