RALEIGH, N.C. — In early November, more than 400 people gathered at the Marriott in downtown Raleigh for an evening of pageantry, food, awards and live music from jazz-great Nnenna Freelon.
The occasion was the 29th annual Academy of Women Awards, an event presented each fall by YWCA of the Greater Triangle to recognize women who have excelled in their fields and supported the agency’s mission.
But despite the veneer of success and vitality the event provided, the YWCA was in deep trouble.
Just four months later, with no warning, the YWCA closed its doors, leaving the women, children and seniors it served – as well as employees and creditors – shocked and adrift.
Community members and the organization’s funding partners did not see the shutdown coming, and the YWCA’s board, while it had begun to worry, was trying to keep the financial troubles under wraps, says Maria Spaulding, a YWCA board member who served as chair until last fall.
“As a board and staff, we sent some very strong signals at the start of November that we were doing okay,” says Spaulding, who serves as deputy secretary for long-term care and family services at the state Department of Health and Human Services. “The community was so shocked because we had just had this major event.”
And although it knew at the time that the organization’s financial stability was tenuous, it was not until February of this year, the same month it closed, that the board recognized that shutting down was a possibility, Spaulding says.
In the wake of its demise, community members, funders and nonprofits are struggling to understand how a respected organization, which for 110 years was an integral part of the Triangle’s civic fabric, could disappear so quickly.
And while many details remain murky, the problems the YWCA faced, and the way it handled them, underscore serious challenges shared by many nonprofits and funders across the social sector, and can serve as cautionary tales as the community regroups and moves on.
Like most nonprofits, YWCA of the Greater Triangle took a hard hit from the recession.
From fiscal 2008 through 2010, overall revenue fell 25 percent, while expenses grew 35 percent, ballooning its deficit to $844,068 at June 30, 2010, according to annual Form 990 returns the YWCA filed with the IRS.
And as expenses and revenue trended in opposite directions, salary and benefit expenses – a subset of overall expenses – jumped 54 percent, while the staff surged to 51 employees in 2010 from 30 in 2009, the 990 reports show.
While the YWCA’s attorneys have advised its board “not to talk about numbers because of potential litigation,” Spaulding says, she and Debby Warren, who has served on the board for six years, say the downward spiral continued into fiscal 2011 and 2012, ultimately leading to the organization’s demise.
Spaulding estimates the agency currently owes creditors $350,000 to $500,000, and while the nonprofit has not filed for bankruptcy, she says, it is “insolvent” and cannot meet its financial obligations.
The deterioration of the YWCA’s revenue affected nearly all its sources of income, Warren says.
Supported mainly through grants, the agency also received supplemental income from program-related fees, investment income, and corporate and individual donations.
“All funding fell,” Warren says. “Corporate, individual donors, foundations – it was every dimension.”
From fiscal 2008 to 2010, for example, investment income fell 90 percent, to just $8,900, while program-service income fell over 10 percent, data from the agency’s Form 990s show.
But the biggest blow in 2010 was a 25 percent drop in contributed income, or just over $300,000 in one year.
And with contributions and grants representing 80 percent of overall revenue, that loss was damaging.
Grants represented virtually all contributed income, with individual donations generating only small fraction of donated revenue, Warren and Spaulding estimate.
And efforts to bolster individual fundraising over the last two years fared poorly, Warren says.
The YWCA in 2011 sent an end-of-year appeal to double the number of people it typically reaches, for example, but generated only half the usual number of dollars, she says.
“That conveys the spirit of what happened,” she says.
Over-reliance on grants
For many years, the YWCA depended on grants and sponsorships from foundations and corporations, several of them long-term supporters.
It also relied on government grants and United Way funds to cover some of the recurring costs associated with its programs and services.
But as stock-market volatility caused foundation assets to dwindle, and as government deficits led to funding cuts, critical revenue sources for the YWCA began drying up.
Funding allocated to the YWCA by United Way of the Greater Triangle, for example, fell 33 percent from 2008 to 2012, says Angie Welsh, senior vice president for resource investment for United Way, which is based in Morrisville.
Funds from the state Department of Transportation fell 22 percent over the same period, says Don Willis, transportation manager for Wake County Human Services, which administers the state transportation funds.
And grant allocations from the City of Raleigh fell 11 percent, says Marionna Poke-Steward, community services program manager for the city.
Still, the YWCA did not submit the paperwork required to collect half the funds it was due in fiscal 2011, she says, and has collected none of the funds it was due for fiscal 2012.
And on Feb. 16, the agency withdrew its grant application to the city for fiscal 2013, Poke-Steward says.
At least two large grants from private funders ended in 2010 or 2011.
The Raleigh-based John Rex Endowment provided program funding to the YWCA that totaled $50,000 in 2008 and over $140,000 a year in 2009, 2010 and 2011.
The YWCA received a one-year $150,000 grant from the Z. Smith Reynolds Foundation in 2010 to help form a coalition of groups to challenge the Wake County School System’s student-reassignment plan, with some of the money funding a staffer to coordinate the effort, says James Gore, a program officer for the Winston-Salem-based funder.
The YWCA’s 2011 grant proposals to the foundation were not funded, he says.
And an annual $15,000 sponsorship from Blue Cross Blue Shield of North Carolina for the YWCA’s Academy of Women, funding that had been in place since 2003, ended in 2011.
That reliance on grants, an approach that had worked for the agency during robust economic times, proved to be a weakness after the economy collapsed in the fall of 2008.
“It’s always been that last grant that carries you through,” Spaulding says, noting the practice among many nonprofits of operating from grant to grant.
But the “last grant” never came through.
Toward the end of 2011 and into early 2012, the YWCA was waiting to hear about seven pending grant applications, two of which were denied and five of which were still pending as of the organization’s closure.
“As we were waiting to receive the grants we were expecting,” Spaulding says, “I don’t think I’ll ever wait that long to get an answer.”
Compounding its reliance on grants, the YWCA created mission-related programs using investment income, then sought grants to support those programs, a strategy that Spaulding says suffered when the grants were not approved, leaving the agency with significant new costs but no revenue to meet them.
“It’s very hard to raise money for,” Spaulding says of the YWCA’s mission of fighting racism, for example. “The major dollars for racial justice are national pools, not local pools. You have to have the programmatic piece in place first so they know what they’re investing in.”
Under-reliance on donors
While relying heavily on a handful of large grantmakers, the YWCA paid too little attention to raising money from individuals.
The organization’s Forms 990 do not show what share of revenue came from individuals, although Spaulding says it was “a very small percentage” of overall revenue, with much of that support provided through ticket sales to its annual Academy of Women gala.
Over the past two years, however, the YWCA had worked to increase support from individuals, Warren says.
“We had done some very detailed strategies for building up our revenue side,” she says. “There was a plan done last June that was aggressive on a number of fronts.”
But it is not clear if the agency executed that plan, or its impact, Spaulding says.
“Some things were followed up on and other things may not have been,” she says.
And as the organization evolved in the wake of the sale of its Oberlin Road facility, including a fitness center and popular swimming pool, the YWCA continued to operate as a membership organization, a move Spaulding now questions.
“In hindsight, I would have concentrated more on individual donors,” she says. “I would have thought more about whether to be a membership organization and if so, what would be part of that package.”
Lack of trust of funders
Funders and nonprofits alike readily concede that while they rely on one another to fulfill their respective missions, the imbalance in power that favors grantmakers over grant recipients can lead to relationships that are less than candid.
Struggling nonprofits may believe they must paint a picture of strength and
success to keep grants coming in, while foundations may be wary of investing more money in an ailing organization.
“When you have a trusting relationship with a funder, you alert them” so they can help the organization get back to stable footing, Warren says.
“That level of trust wasn’t there with the YWCA,” she says. “There was not the thinking that we could share this and say we really need some help. Rather, we needed to show that we had a strong organization going forward.”
The recession, which led to scarcer resources and stiffer competition, only deepened the power imbalance.
“You’ve got to look good until you just can’t hold up if you’re going to compete for the money out there,” Spaulding says. “Nobody is interested in putting money in a failing organization.”
And while they saw from the 990 returns that the YWCA was not immune to effect of the recession, its funders say they received no advance warning, saw no major red flags, and were surprised when the agency closed.
“We had definitely seen, and were aware of, and were seeking to understand more about their drop in revenue sources,” says Welsh of United Way.
“We knew some of their foundation grants had ended and they hadn’t found replacements,” she says. “However, we were not aware that the situation was so desperate they needed to close their doors.”
United Way even offered to advance some of the YWCA’s payments for this year, she says, but the nonprofit shut down.
The move also jolted other funders.
“Everything had been going perfectly,” says Poke-Steward of the City of Raleigh. “I was totally shocked.”
Willis of Wake County Services says the move took county officials by surprise.
“We were shocked to hear they had closed their doors,” he says. “The economy had been so bad and funding was so difficult for these agencies.”
Kevin Cain, president and CEO of the John Rex Endowment, said the closing also took him by surprise.
And although the Endowment never received the final reporting from the YWCA for a three-year, $376,714 grant that ended in December of 2011, the funder’s “experience was that the grant was doing what it was supposed to be doing,” Cain says.
The circumstances that led to the closing of the YWCA have implications for foundations as they continue their work with nonprofits, he says.
“From my perspective, this is a call to us to say how do we monitor the financial well-being of organizations” over the course of a funding relationship, he says. “You can’t help but wonder. A year ago, Wake Teen [Medical Services] closed. People are saying the same thing about them. There’s a gap there.”
In the wake of the closure, many people have asked what the YWCA board knew, and when.
The YWCA’s 990 filings made it clear the organization was in financial trouble since at least fiscal 2008, when its deficit totaled nearly $121,000.
And while its financial stability worsened through early 2012, the agency apparently did not begin making serious budget cuts until 2011.
“One could assume they didn’t develop realistic budgets, or take sufficient needed action steps during the past few year to reduce or eliminate programs that were generating significant losses,” says a retired accountant who has reviewed the agency’s 990 returns.
Refreshments were cut at meetings, the YWCA’s Capital Boulevard office was closed, some employees transitioned to home offices, and travel expenses were cut, Warren says.
But while staff costs accounted for over 60 percent of overall expenses by 2010, major staff cuts and furloughs did not did not take place until late 2011, Spaulding says, and she did not believe major cuts were warranted before then.
“There wasn’t anything a year ago that would have made me start cutting,” she says, noting that the agency was waiting on several grant applications.
“If I knew anything was wrong,” she says, “I’d have been jumping on it with both hands and both feet.”
In hindsight, Warren says, the board should have been more focused on the YWCA’s finances.
“No matter if you’re on the finance committee or not, you have to pay attention to the finances and not delegate that to anybody,” she says of board members. “A lot of these organizations are really complicated these days. This is a very complex organization.”
And looking back, Spaulding says, the relationship between the board and the executive director and staff could have been improved.
The board got most of its information from Folami Bandele, who was executive director of the YWCA when it closed, and who typically was the only staffer who attended board meetings, Spaulding says. Bandele did not respond to requests for an interview.
And although she and Bandele talked regularly in person and by phone, Spaulding says she now believes a stronger relationship with staff could have alerted the board to problems as they arose.
“I think there were things staff knew, or had indications of before we did,” says Spaulding. “They had to have. Maybe they may not have known what they were seeing.”
And she says “employee-relations issues internally” also were an issue.
In future boards she serves on, Spaulding says, she plans to keep a close relationship with staff.
“I want a different kind of relationship with making myself more available to staff,” she says. “I could have helped them figure things out. And it’s all hindsight.”
Should the board have known sooner about the possibility of closure?
“I feel guilty that I didn’t know,” Spaulding says. “I think we should have known earlier. I don’t know where I missed it.”
Since it closed on February 29, the YWCA has had no staff, leaving the board to try to reconstruct what happened and to piece together the agency’s financial status.
The board continues to meet several times a week, Warren and Spaulding say, to deal with those tasks, and to handle myriad details that remain – cleaning out refrigerators, keeping up with the building and grounds, locating information, and communicating with lawyers and accountants.
And while at least three board members resigned as the financial situation worsened, Spaulding says, the remaining eight members have formed close bonds.
“We couldn’t be closer or work any more effectively together,” she says. “We can really count on each other.”
Although former staffers have not responded to repeated requests from the Philanthropy Journal for interviews, board members have been willing to provide information and explanation.
The board’s primary goal now is to “dispense with our indebtedness,” Spaulding says.
Two of the YWCA’s properties are on the market and likely would generate a total of over $200,000, she says.
And while “everything is on hold” until creditors have been paid, Spaulding says, she “still hopes some seeds of the YWCA will survive to carry on the two missions” of eliminating racism and empowering women.
A full understanding of all the factors leading to the downfall of a beloved community institution may take years to reach, if at all, Warren says, but the lessons of the past few years are important for the nonprofit sector as a whole.
“It’s incumbent on all our board members,” she says of the charitable world, “to absorb these learnings.”