Debt is dangerous stuff
It appears that nonprofits have been emulating for-profit enterprises in some of the wrong ways:
Far from being conservative stewards of their assets, many nonprofits engaged in what some experts call risky financial behavior. “They did auction-rate securities, interest-rate arbitrage, complex swaps — which backfired on them the same way it would backfire on any hedge fund or asset manager,” said Clara Miller, chief executive of the Nonprofit Finance Fund, which has experienced a huge increase in organizations turning to it for assistance with soured bonds. “Organizations got to be all fancy-pants with their financial management.”
Those struggling now include the full range of nonprofits, including museums, colleges, orchestras and small local social service providers.
For example, Brandeis University, with $208 million in tax-exempt bonds outstanding, plans to close its art museum and sell off the collection to raise money. The Orange County Performing Arts Center, with $265 million in bonds, has laid off staff members. Copia, a culinary center in Napa, Calif., went bankrupt in December with $78 million in bond-related debt that its lawyer blames for its failure…
While debt is the not primary reason for these institutions’ woes, the need to service it eats into their dwindling financial resources, forcing near Faustian choices. “Debt is the fourth horseman of the nonprofit apocalypse,” Ms. Miller said. “Add it to the failure of governments to fulfill contracts, declining donated revenues and a surge in demand for nonprofit services, and suddenly a lot of nonprofits are faced with some very hard choices.”
Ron Bauers would not have approved.