Hawaii’s Quiet Crisis: Nonprofits Sound Alarm on Underfunding Peril

Hawaii’s community-based organizations are sounding the alarm on a quiet crisis threatening the very foundations of our social safety net. Over 50 local nonprofits have united as the Hawaii True Cost Coalition to address the severe and chronic underfunding they face from government contracts.

Collectively, these organizations serve over 500,000 residents statewide by providing a diverse range of essential services — from food security and housing assistance to domestic violence support and care for seniors. Their programming forms a vast yet often overlooked web of care and support for the most vulnerable in our communities.

However, as contract reimbursement rates have remained stagnant over the past decade while operational costs continued rising, many nonprofits now face heartbreaking choices that threaten their organizational viability and ability to provide services. This demands immediate solutions to stabilize and uplift our caring community organizations before it’s too late.

Shifting Responsibility, Shrinking Support

How did we arrive at this crisis point? Let’s examine how nonprofits came to deliver many services once considered the government’s responsibility.

In the 1980s and 1990s, governments at all levels moved to downsize their role in providing direct social services. They turned increasingly to nonprofits to provide those services by issuing competitive contracts through requests for proposals for services. Over time, nonprofits proved more adaptive, innovative, and connected to local community needs than direct government service delivery. And most notably, a more economical strategy.

But, as the cost of services, both labor and program operational expenses have continued to rise, the reimbursement rates offered through contracts no longer cover the full costs for nonprofits to deliver quality, sustainable services. In fact, many State contracts require a portion of our budget to be “matched” by other funding sources. Over decades, this “underfunding gap” between actual service delivery costs and government contract reimbursements has only widened because it costs more for grant writing and raising funds these days.

Hawaii’s nonprofits continue to provide services with incredible commitment to their missions and subsidize the full costs from other funding streams. But after years of chronic underfunding, many can no longer independently bridge this gap.

Defining What “True Cost” Means

At the heart of this crisis is the concept of “true cost” — determining the full actual expenses required to sustainably and effectively operate a quality service or program. This encompasses living wages enabling staff retention, robust training and supervision, evaluation to enhance services or articulate the impact of services, suitable facilities, administrative overhead, and more.

Accurately calculating a program’s comprehensive true cost is quite challenging but essential to allow equitable and reasonable resources to deliver vital services. When government contracts do not cover the real calculated true costs, nonprofit contractors must absorb the remainder themselves, leading to instability or service reductions to survive, at times.

Service Cuts Leave Communities Vulnerable

Without sufficient funding, local nonprofits must make difficult decisions that ultimately reduce or threaten critical services. A recent survey found 40% of coalition members report they may completely cease operations in Hawaii if solutions are not found. We’ve already seen some non-profits shutter their doors this past year.

Specific programs affected by chronic underfunding provide critical lifelines for our most vulnerable community members, including:

• Hungry families struggling to put food on the table and keep their keiki focused in school
• Shelter and support for victims fleeing the terror of intimate partner violence
• Stable housing and care for foster youth and at-risk children who have suffered abuse and violation from the adults in their lives
• Aid for low-income and rural kūpuna with no one to turn to as they live with cognitive and physical impairments
• Homeless shelters offering refuge when there is nowhere else to go

Overall, the survey found 91% of responding nonprofit groups had existing government contracts that fell below their actual delivery costs for those services. The result is reduced organizational capacity and services at a time when community needs are skyrocketing in the wake of COVID-19, inflation, housing costs, climate disasters, an aging population and more.

The Heavy Burden on Local Nonprofits

On the ground, nonprofits are left to find their own ways to fulfill their missions and serve communities despite underfunded government contracts. While we are nonprofits, we are required to operate with the same principles of balancing a budget like businesses do, without the same flexibility as private enterprise because government funding is so tightly regulated. Trying to reward staff or celebrate good work completed is virtually impossible with government funds. All of that must be done with private funding generated from entrepreneurial efforts or private donations designated for such. Even giving raises to be more competitive for recruitment and retention usually requires budget revision requests that need approval. Costly loans to float delays in payments can also add to deficits in cash flow. and private philanthropy to fill budget holes, our community-based organizations are stretched extremely thin.

The Institute for Human Services (IHS) offers an incisive local case study. As an anchor of Hawaii’s homeless services system, IHS provides a remarkable breadth of integrated support — from emergency shelter to meals, health care, job training, and housing programs. In the past decade alone, IHS has served nearly three million meals and provided housing services to over 18,500 people. However, stagnant government reimbursement rates over the past decade have severely jeopardized IHS’s ability to maintain a workforce to deliver this comprehensive scope of essential services, particularly emergency shelter. Many of the agency’s staff are people with lived experience like those they serve. Some staff have faced tough choices when getting a modest raise might result in losing benefits that equate to more than the raise itself.

And unlike large national organizations with local chapters, IHS lacks that wider funding network to offset local shortfalls. Still, like many other non-profit colleagues, IHS actively cultivates philanthropic partners, engages volunteers, continues to innovate and demonstrate the resilience of local nonprofits even in the face of chronic government funding gaps.

Advocating Solutions for Those Who Serve Our Most Vulnerable

The Hawaii True Cost Coalition gives nonprofits a unified voice to advocate for equitable funding and solutions. The coalition calls for government contracts that fully cover comprehensive true costs as calculated by regular independent actuarial analyses. This will enable local organizations to not just barely survive but thrive and nurture our dedicated workforce to best empower the communities most in need.

Other solutions call for multi-year contracts with regular increases, much like government workers are given, to allow organizations to keep up with inflation, wage compression caused by the needed increases to minimum wage, and the general cost of living. This could enable financial stability and capacity building, enhanced infrastructure support, and improved data systems to accurately track program performance and true costs.

Uplifting Those Who Uplift Our Communities

Hawaii’s nonprofits need legislators to understand and support the true costs behind the services we depend on and too often take for granted.

Please join us in advocating for equitable solutions, especially an increase in the State budget for the Dept. of Human Services, Dept. of Health and the Judiciary. The programs these departments support often facilitate restoring capabilities to hurting households, enabling self-sufficiency and a return to productive living.

Our local nonprofits are too essential and too integrated into the fabric of our diverse community to allow them to quietly fade away. With open communication, good faith negotiation, compassion and a shared vision of equity, we can ensure these caretakers thrive to nurture and empower our community for generations to come.

To learn more about The Institute for Human Services’ advocacy efforts visit ihshawaii.org/advocacy.