Cutting the Budget of the Harristown Family Service--Case Study

Cutting the Budget of the Harristown Family Service

The image that kept returning to Sarah Jordan’s brain was the scene from The Wizard of Oz where water is poured over the wicked witch, who is screaming, “I’m melting, I’m melting!” In this case, the metaphor did not describe Sarah herself but rather the income stream of the Harristown Family Service. At the same time, demand for the organization’s services was skyrocketing, fueled by the credit crunch, burgeoning unemployment, and increases in reported child abuse. For the first time in the HFS’s history, clients were being turned away for some services, or placed on expanding waiting lists for others.

HFS was 60 years old now, a pillar of the community’s social service safety net. Sarah had been at the helm of HFS for 20 years, after serving ten years with the organization as head of the social work department. Although an administrator, she still managed a small social work caseload so she could keep current with the “street level” aspects of her operation. Another reason for this was that she was a “not afraid to roll up your sleeves and get your hands dirty” social worker at heart, continuing to find immense personal satisfaction in working directly with needy clients rather than moving paper around and attending meetings, the two tasks that dominated her daily agenda.

During her tenure, HFS had grown from 10 to 60 employees. Income financing the $5 million annual operating budget came from a balanced mix of fee-for-service payments from clients, private donations, endowment interest, and government and foundation grants. There had been some lean years in the past, but never had the agency experienced a perfect storm of a deteriorating economy that squeezed income and that increased demand for its services from otherwise eligible clients who were unable to afford to pay HFS enough for the agency to recover its costs. These two trends squeezing the organization were exacerbated by simple bad luck and a culture of corporate greed in the general economy.

Now the chickens had come home to roost. Government bailouts had helped the greedy, not the needy, she mused. The banks, insurers, auto manufacturers, and others who had made bad decisions for years were on the short list for help. No one proposed helping the helpers who had played by the rules.

This morning, Sarah had convened a staff meeting with everyone present, from the COO and CFO to the 87-year-old “retired” social worker who answered the telephones. Everyone was there, including Sean Smithson, one of the front-line social workers she would have been quite happy to have come up with some excuse to miss this particular meeting. Sean was the organization’s énfant terrible, and he could be counted on to provide unwelcome, nonproductive capriciousness in any serious discussion. For years, Sean broke almost every personnel rule, was contemptuous of authority, thumbed his nose at laws and regulations whenever they got in his way, played practical jokes on co-workers that often were over the line, and was a general pain in the butt.

His actions resulted in several near lawsuits filed by clients. Yet, she had to concede, he was the best social worker she had ever had, his risk-taking always in the interest of the organization’s clients, even when not particularly good for the organization.

If the TV show House, M.D. ever had a spinoff that focused on a social worker rather than a medical doctor, Sean could be the model for the main character. One thing Sarah could count on was that Sean would play class clown and do everything he could to sabotage the tone she intended to set for this brainstorming session. For today’s meeting, her tolerance level for levity was as low as it could get, as decisions made to increase income and cut expenses, influenced by input from staff, would determine whether the agency would survive the economic tsunami that threatened to swallow up similar agencies in other communities.

Her memo requiring all staff to attend and participate in this meeting spelled out its purpose—to engage everyone in a group brainstorming session to get input from staff to increase income and cut expenses before she submitted her recommendations to the board at the next meeting in three weeks. The inspiration for including everyone on staff was an experience she had had in graduate school learning about the benefits of large group interventions (LGI).

It was early March, and a light snow was falling. Perhaps this is the time to announce my retirement, she thought, imagining herself lounging on a sun-drenched beach in front of a Florida condo with her husband, Harold, and a grandchild or two, worrying about nothing more important than where and when to have lunch later. But then she dismissed this option, recognizing that her leadership was needed to save the organization, not only to protect the livelihoods of the almost three score people in front of her, most of whom were already under economic distress, but the agency itself. She felt an obligation to preserve the health of the organization that played an important role in improving the quality of life for several thousand sick, impoverished, old, and distressed families and individuals, none of whom were ever turned away because of an inability to pay. At least, until a couple of weeks ago. With the economy in a free fall not seen since the Great Depression, this now described almost every client.

Sarah noticed out of the corner of her eye that Sean was amusing himself by flicking spit balls at a social work student who was working at HFS for her field placement, obviously aiming the wads of paper at her chest. She cleared her throat and was about to begin when Sean quipped, “I thought we already decided to paint this room the lavender blue at the last Large Group Intervention meeting.”

Sarah pretended to smile, and began her speech. She had rehearsed it several times in front of Harold, but had never felt comfortable. Sarah knew that some of her staff were already preparing updated résumés in expectation that the axe would fall soon.

“As you are aware, there have been rumors about the upcoming board meeting and what actions the board will take to approve a balanced budget for the next fiscal year. The board has directed me to come up with a plan of recommended expense cuts and income enhancements to balance the budget. To this point, no firm decisions have been made, and everything is on the table. The purpose of this meeting is to get some ideas from all of you on how we can achieve what we need to achieve, which, at this point, appears to be a minimum of a 25% retrenchment. This is not good news, and I am not going to sugar-coat what I have to tell you.

“The trends for income are almost universally going south on us and for everyone else who provides social services. Our creditors are hesitant to extend our credit limits because of our shaky cash-flow position, not to mention their own problems with liquidity. Those who owe us money, including several local government agencies and the state, are delaying their reimbursement payments for expenditures we have already incurred on their behalf. We’ve tried to get a new loan at a rate we could afford, but were unable to do so. Several major donors have reneged on their annual pledges, and you only have to read yesterday’s local section of the paper to read why. Our modest endowment, as with virtually every nonprofit organization endowment, has taken a major hit, losing about 40% of its value just in the last year. Many of our clients are either unable to pay upfront for their services or are delaying payment so they can first pay for food, fuel, and medicine.”

“How about if we each agree to liberate rolls of toilet paper from public bathrooms, such as movie theaters or at the mall, and bring them here?” Sean offered with a straight face. Sarah simply ignored him.

“Again, everything is on the table. Planned retirements will save us some money if we don’t fill replacement positions. We may need to get more aggressive in pursuing some grant opportunities that we avoided in the past because they were not quite consistent with our core mission.”

“I had an idea to save money the last time we stayed at a suite at the Marriott for the national conference,” Sean said. “If we each took all of our used light bulbs and switched a couple of them for those in the room, and brought them back here, no one would even notice. I guess you can say when I thought of this, the light bulb went on, literally!”

“Sean, this is a serious meeting, and not anything you should make light of,” interjected Howie the maintenance man, with a wink. Howie was often Sean’s co-conspirator in pulling off some of the more involved practical jokes. Howie was a punster, and in his mind, the more strained the pun, the better. It was once said that “the pun is the lowest form of humor, and poetry is much verse.” Even though he was approaching 70 years old, no one could even think of calling Howie “Howard,” other than perhaps his mother, who was still alive and living with her cats in Bayonne, N.J.

“Sean, you’re not being either helpful or funny,” Sarah chided. “Bill, what ideas have you put together for us to think about?”

Bill was the CFO, efficient, a bit nerdy, and the only one in the room who was wearing a suit and tie. Most staff members were wearing their coats, as Sarah two months ago had ordered the thermostat to be turned down to 65 to save on energy costs.

“Well, even if we adopt both of Sean’s suggestions, we would still need to close about a million dollars in projected deficit for the current year,” he began. “I’ve considered a few possibilities that would get us closer to where we need to be, but none is without pain. First, we simply have to stop hiring folks to fill the four vacancies that we have been advertising. Second, we can accelerate staff retirements, and offer modest bonuses to those who agree to retire early. We can freeze all training, travel, and conferences—although if we do so, we would lose any potential savings from Sean’s suggestions. To avoid layoffs, we can cut hours, like California State government did in 2009, or we might promote job sharing to save on personnel expenses. We can deplete our meager endowment, and perhaps sell off the land we purchased in 2005 for expansion. We could cut salaries and benefits. Lots of organizations already were requiring their employees to pay a higher share of health benefits even before the current economic crisis. We could start using volunteers or non-licensed professionals to handle some of our counseling duties. And, it goes without saying, we need to increase our fees to those who can pay market rates and be more selective about our marketing strategy so that we are not inundated with requests for services that will hemorrhage our resources. Anyway, that is my short list.”

“Each of those comes with some costs,” interjected Wilma Williams, head of the Social Work Department. Sarah could almost see Wilma’s blood pressure rise highlighting the veins in her neck. Sarah worried that her reaction to these trial balloons might trigger a heart event in the heavy-set woman. Wilma, a two-pack-a-day smoker, had been carried away from the room several years earlier after being involved in a heated discussion when HFS was considering making the campus smoke-free. Wilma had threatened to resign on the spot, and then collapsed. She recovered, but Sarah knew that Wilma was not a healthy woman and was on several medications that seemed to affect her vitality that, before that incident, appeared to be almost limitless.

In some respects, Wilma was the glue that kept everything running smoothly, even though she could be abrasive and perhaps too blunt on occasion. “My department is already straining because of the vacancies, and it just isn’t fair to my staff or the clients to have caseloads that don’t provide the attention required to accomplish what needs to be accomplished. Every one of our social workers is already stretched beyond the breaking point, and we need those four positions filled or we will have more burnout. As for cutting salaries and benefits, that is simply not a viable solution. All of us have bills to pay and families to support. Our staff are highly committed, but it isn’t fair to balance our budget on the backs of our employees, who already are making significant financial sacrifices to work here compared to what they could earn in a comparable position in the for-profit sector.

“Yes, it’s true that using uncredentialed workers to provide our services would save money. And it would make just as much sense to use a college intern volunteer to be the agency CEO or CFO—it would save money in the short term, but using those without the appropriate education and training to deliver our services or run our agency is penny-wise and pound foolish,” she added, clear that she was only just beginning to rant about what she had heard so far.

“And selling off that parcel would have some major negative consequences, as we raised almost a million dollars in some major gifts, making the case that this land would be used for a particular purpose,” added Steve Goldman, another social worker who had been with HFS for a decade. “Selling it off would send a wrong signal to these donors and damage our credibility. When the economy improves, we would no longer have this land for our use. In the long term, it would trash our strategic plan, which envisions a major expansion of our campus to accommodate the changing demographics of our community.”

Sarah, impressed that anyone on her staff other than herself was familiar with anything in the HFS strategic plan, then asked for other ideas.

“How about being more entrepreneurial, such as by marketing education programs to our middle-class neighborhoods?” offered Kate Johnson, one of the newly-hired social workers who Sarah surmised was quite anxious about whether her job was in jeopardy because of the perception that layoff notices would be meted out based on seniority.

“Excellent suggestion. This is what I am looking for in this meeting,” Sarah complimented. “Could you put together a memo for me on this that I could run past the board?”

“We could train our receptionists and other administrative staff to do more hands-on work with clients, and answer our own phones and do our own paperwork, along the lines of reengineering the office to take advantage of technology,” offered another social worker. “Whoever answers the phone could pull up information about who is calling, and be empowered to make minor decisions, improving efficiency and avoiding all of the minor interruptions I get when I am meeting with my clients.”

“We could explore an effort of reengineering,” Sarah said. “Send me a memo outlining how this might work, and which changes might be affordable in the short term.”

“We could charge our board members for the lunch and breakfast at the Hilton in three weeks,” Sean suggested.

“I don’t think so.” Sarah responded automatically, although, on further reflection, perhaps this might not be such a bad thing to do.

“Has anyone considered merging with another organization?” offered Steve Hamilton, a staff member who rarely participated in administrative meetings, but was considered to work well with his co-workers and clients. “We could share overhead and perhaps weather the storm.”

“Yeah, let’s merge with Hooters, and we could get an employee discount for all of us, and add some new services to our therapy department,” Sean said. Sarah heard some snickering from the back of the room, but looking at her audience, she saw more annoyance than amusement.

“We could consider a merger down the road, but we are talking more short-term ideas here,” Sarah conceded. She turned to Edie Oliver, the Development Director. “Anything you might suggest?”

“Remember back in April when we turned down that six-figure donation from the founder of Ellen Bowman’s Boutiques, a couple of months after she was indicted for tax fraud? We might just be desperate enough to see if she still would be willing to make that donation in exchange for naming our building after her. And I’m learning how to conduct on online charitable auction, although even if it is successful, it probably won’t make up for the thousands of dollars we won’t be getting this year because of poor attendance at our annual tribute dinner.”

The suggestion provided fodder for another unwelcome volley from Sean.

“If we are, in principle, willing to sell our good name to the highest bidder, why don’t we literally sell our good name and make her an offer to call us the Ellen Bowman Family Service of Harristown for a seven-figure donation? For six figures, we would name our main building after her. And for five figures, we could offer to plaster a decal on the HFS vans that say, “This vehicle sponsored by Ellen, the Felon.”

“And why not have the tribute dinner this year at McDonald’s instead of the Hilton, and give everyone a Happy Meal?” Sean said. “We can all collect extra napkins, spoons, forks, and straws for the office lunchroom afterwards. And we could honor Ronald McDonald himself rather than the clown we picked this year.”

“Sean,” Sarah admonished icily, “That clown is the board chair of this organization, my boss, and at least for the moment, your boss, as well.” Everyone laughed, other than Sean, who got the message and shrunk back into his seat, wounded.

Sarah spent the next 15 minutes fielding more suggestions, tried to mask how disheartened she was by the responses, and then brought the meeting to a close.

“Thank you for all of your suggestions,” she said, the cue that the meeting was over. “We will reconvene after the board meeting, and I will share what decisions the board makes with respect to these issues.”

As people filed out, some looking shell-shocked and some angry or scared, one of the fluorescent lights began to flicker. Maybe Sean’s light bulb idea isn’t such a bad suggestion, after all, she mused.

Discussion Questions

1. Make a list of the serious suggestions made for increasing income and cutting expenses mentioned in this meeting. What are the benefits and limitations of each?

2. Had you been in this meeting, what other suggestions might you have offered?

3. For the most part, Sarah handled Sean’s inappropriate comments by simply ignoring him. What message did that send to the others in the meeting? How would you have handled someone like Sean?

4. Was it appropriate to have every staff member in the room to discuss what strategies might be employed to close the budget deficit? What are the costs and benefits of doing this rather than simply having professional staff hammer out the recommendations it will make to the board?

5. When an organization is in crisis, how much information should be shared with all staff members who might be affected by management decisions? Under what conditions might it be considered ethical for organizational leadership not to be completely honest with staff?

6. What are the pros and cons of HFS considering applying for grants that are “not quite consistent with our core mission”?

7. Discuss the costs and benefits of accepting or seeking donations from convicted felons.