It seems that every year regulatory bodies are taking stronger actions to protect shareholders. With every new development in the corporate world, nonprofits also need to take a look at how new legislation will have an effect on their operations. Trustees are trusted advocates that Congress and other lawmakers rely on for industry advice and counsel.
In the coming year, trustees will likely see additional changes in the nonprofit space. We can get a hint at the types of issues that may be looming by taking some cues from two major nonprofit industries — hospitals and higher education. We’ll also take a look at some of the issues facing nonprofit organizations in general.
General Issues That May Affect Nonprofit Boards in 2018
Trustees of nonprofit boards can expect many budgetary challenges in 2018. In an article by Nonprofit Quarterly (NPQ), Gayle Nelson, Esq. and Ruth McCambridge highlight the importance of building flexibility into nonprofit organizational budgets and adding strong real-time evaluation tools to help them navigate potential threats and opportunities in the coming year.
For most nonprofit organizations, the fiscal year begins on July 1. In anticipation of planning a responsible budget, most nonprofits start planning their budgets in the spring. With economic uncertainty continuing to play a major role in nonprofit budgets, it’s never too early to start looking at potential financial strategies to weather the turbulence with confidence.
State and federal budgetary decisions have a major impact on many nonprofit organizations. Discussions about policy changes in 2017, particularly with regard to health and education, will continue into 2018. Active advocates can make a big difference in educating politicians toward creating responsible new policies.
Nelson and McCambridge recommend that nonprofits build flexibility into their budgeting strategies on a quarter-by-quarter basis. The experts suggest that boards will need to clarify the assumptions on which they based their budgets and continually be open to modifying them as the political winds change in 2018. Rather than take a wait-and-see approach, boards will need to anticipate financial issues that may have a strong impact on their budgets and factor them into their capital and revenue structure as well as they can. Analytical tools such as strong dashboards and portals will assist board directors in managing cash flow and liquidity.
In 2018, nonprofit boards will also need to identify potential risks associated with revenue, particularly revenue that originates from government funding streams. Nelson and McCambridge point to the almost three-year budgetary stalemate in Illinois that left many nonprofits without allocated funds and that necessitated long waiting times for payments for services rendered. Policy moves toward block grant funding may have a substantial impact in 2018. Lastly, federal funding to states may be inhibited by unpopular state decisions, such as establishing sanctuary cities.
Looming Issues for Higher Education in 2018
The leading authority on policy for colleges and universities is the Association of Governing Boards for Universities and Colleges (AGB). AGB expresses concerns about the Trump administration’s 2018 fiscal year budget proposal to Congress and tax reform proposals.
The Trump administration intends to increase defense spending by 10% (US$54 billion), which could substantially affect agencies and programs such as federal financial aid programs, student loan repayment programs and scientific research funding streams.
AGB points out that higher education is an investment in our country’s future and that budget cuts to higher education place that future at risk.
AGB suggests that trustees of higher education boards keep their finger on the pulse of 2018 developments in tax reform, which may be finalized by the fall. Tax reforms could take several forms, including closing tax loopholes or implementing new taxes.
AGB also warns that current tax provisions that are favorable to higher educational institutions could be cut, including placing restrictions on charitable deductions, capping deductions at lower tax rates and limiting contribution levels before colleges can take a deduction. Creating floors or ceilings to charitable gifts and endowments may decrease tax benefits for donors, which would likely result in lower charitable gifts for colleges.
AGB encourages advocates for higher education to support tax-exempt bond financing, tax-code provisions that encourage saving for higher education, federal financial support to help families with college costs, and assistance with student loan repayment.
Potential Issues Affecting Hospitals in 2018
Many hospitals operate on a nonprofit basis. They make up one of the largest industries in the nonprofit world, so the issues that hospitals face often transcend industries. Like many other nonprofit organizations, hospitals will have some carryover of issues they faced in 2017, as well as facing some new challenges in 2018.
For starters, there’s been a general trend toward value-based care, and simultaneously, some gentle movement away from fee-for-service-based care. Value-based care contrasts starkly with fee-based care. The transition has been slow to date. Analysts expect to trend toward value-based care to gain greater traction in 2018.
As the healthcare arena evolves, hospitals will struggle to maintain positive financial margins. Changes to the 340B Drug Pricing Program, decreased revenue for inpatient care and more value-based contracts will make it difficult for hospitals to provide care and stay in the black. Hospital boards may be having more discussions about finding alternative revenue streams.
Most hospitals are using some sort of electronic health records, but the level of software sophistication varies substantially. To date, there is no consistency across the industry, making it difficult to share medical information. In 2018, boards will be looking for ways to use electronic health records that work across systems.
Telehealth became more popular in 2017. Hospitals will be looking at how to use telehealth more often and be able to find a way to gain revenue from using it. Consumers expect hospitals to provide telehealth services, putting even more pressure on hospital boards in 2018.
In past years, hospitals have focused on quality health and medical care. In 2018, hospitals will need to be more concerned with their reputations as they pertain to the total hospital experience. A Deloitte research report details how good patient experience nets higher profits for hospitals. Patients are looking for a comforting atmosphere where the medical staff demonstrates caring. Patients also want billing practices that are easily understandable. Patients that get great service from medical providers don’t think twice when they need medical services again.
For every type of industry, change is unsettling. Typically, at least a few good things result from change. It’s difficult to predict how things will shake out for nonprofit organizations in 2018. One thing is sure: Board directors will need to bring their A-games to navigate next year’s choppy waters.