By Ben Gose

In 2007, the House of Charity, a homeless shelter for men in Spokane, Wash., finally achieved a goal it had been after for years: It received enough money to keep its overnight shelter open during the summer.

The new service was an immediate success, with all 109 beds filling up during many summer nights.

But the boom that made the summer shelter possible has gone bust, and Catholic Charities Spokane, which operates the House of Charity, says the overnight shelter will almost certainly close during the summer of 2010. The summer shelter was financed with money Washington State collected on real-estate filings — and the collapse of the housing market has eliminated that source of state support.

Closing a program that provides a valuable service is never an easy decision for a charity's leaders. But experts say that those who make difficult decisions to protect essential services and programs, even if it requires letting other programs go, will put their organizations in the best position to ride out the downturn.

"We have to sleep people when it's cold, feed people year-round, and clothe people year-round," says Robert J. McCann, executive director of Catholic Charities Spokane. "Putting people on the street in the summer — as crazy as it sounds — is one of those things that you can do and not have people die."

Freeing Up Resources

Plenty of other charities are also slimming down to protect the operations that are most essential to their missions.

A survey of more than 100 charity leaders to be released this week by the Bridgespan Group, a nonprofit consulting group in Boston, found that 54 percent of respondents are scaling back or eliminating some programs to free resources for other programs, up slightly from a year ago.

Nearly two-thirds of the respondents (63 percent) said they were moving staff members to support core programs, up from 55 percent of the charities surveyed in November 2008. And 47 percent of charities said they are now renegotiating the terms of their support from donors and foundations so that they can use the money to focus on their core programs.

"The world is still a very tough place," says Alan Tuck, head of Bridgespan's New York office, and a co-author of a report on the new survey. "But I don't see charities saying, 'We'll hold our breath and get through this.' They're tuning up their organizations. They've moved from a state of shock to a determined way of working through this difficult period."

Avoid Equal Cuts

Charities with four or more programs can usually identify one that may be ripe for cutting, perhaps because the service it provides is not as closely tied to the charity's mission as the others. But eliminating the entire program is not the only answer — sometimes significant cost savings can be achieved simply by a sharp reduction in services offered by a peripheral program.

One approach that experts generally do not recommend is the one that is perhaps the most popular — cutting all programs by the same percentage. Doing so can weaken essential programs and leave the charity ill-prepared to both survive the downturn and thrive in the subsequent economic rebound. It also doesn't make much sense; one program might be crippled by a 10-percent cut, while another could endure a 20-percent hit and be fine.

"It's using a meat cleaver when you need a scalpel," says David La Piana, president of La Piana Associates, a consulting firm in Emeryville, Calif., that specializes in nonprofit restructurings.

Last summer, Catholic Charities Spokane kept the overnight shelter open at its own expense, by dipping into reserves and asking executives to take salary cuts. But with the state's 2010 budget projections looking even worse than this year's, Mr. McCann knows that state support for the summer shelter will not return anytime soon. And he says he will not sacrifice the financial health of Catholic Charities Spokane by asking it to foot the bill on the $75,000 summer program for a second consecutive year. Barring a gift from a "white knight," the overnight shelter will close from April through October.

"You're making heart decisions with a calculator," Mr. McCann says. "It's impossible to do. But if you don't do it, you risk the agency's ability to survive, and then you're not helping anyone."

Reducing Services

Service Coordination, a charity in Maryland that works with 14,000 developmentally disabled people, was also forced to revamp its programs as a result of a state budget crisis. The charity, which helps draw up plans to ensure that developmentally disabled people get the state services for which they are eligible, endured a $3.2-million cut this year — about 15 percent of its budget.

The charity depends on the state for nearly all its revenue, so it quickly eliminated 20 percent of its 350-person staff, through layoffs and leaving open positions unfilled.

But those cuts only solved the charity's financial woes. It still had to figure out how to manage its large and growing case­load with a smaller staff.

Instead of dropping some of its clients entirely, Service Coordination divided the pool into two groups. Those who had sufficiently low incomes to qualify for certain services under the federal Medicaid program would continue to receive the same level of service, while the remaining group would receive fewer services.

"We're a typical nonprofit — we want to do everything for everybody, even while we sustain a 15-percent cut," says John Dumas, Service Coordination's executive director. "That's impossible. We felt this was the best option, given the alternative of cutting 15 percent of the people we were working with."

Peggy Helwig and her son, Justin, are among those suffering a cut in services because of the change. Justin spent years in hospitals on a ventilator after suffering aspiration pneumonia in 2004. He finally moved into a nursing home in October 2008, and Peggy is now fighting to have her 24-year-old son moved to a group home, where she thinks he will receive better care and enjoy being around people his own age.

A Service Coordination employee, Jennifer Bell, is helping Ms. Helwig find a suitable group home, and serves as a liaison with Maryland's Developmental Disabilities Administration, which has not yet decided whether it will pay for the skilled nursing care Justin will need in a group home.

But the Helwigs, who live in Ellicott City, Md., are getting a smaller slice of Ms. Bell's attention due to the budget cuts. A year ago, Ms. Bell worked with about 55 clients. Now she is juggling 80.

"If Peggy or Justin calls us with a special request, then of course we'll respond," says Cari L. Oleskewicz, a Service Coordination spokeswoman. "The challenge will be that we have 14,000 other people that will be making the same demands on our time. The point will come where we'll have to say we can't keep doing this."

Ms. Helwig says she has already noticed some changes.

Ms. Bell is "not able timewise to go up and see Jason and advocate for him," Ms. Helwig says. "The more advocates I have, the better the situation will be. I certainly did not feel it would take all these years for somebody to give this boy quality of life."

While Service Coordination was reluctant to cut any of its clients loose, charities that operate a broad range of programs may have an easier time finding services that are expendable.

St. Luke's Community House, a social-services agency in Nashville with a $1.3-million budget, had to tap its reserves to cover a $50,000 deficit after fund raising fell sharply in the last weeks of 2008. In early 2009, as the charity began looking for ways to cut costs, it decided to eliminate one of its more than 40 programs.

The charity cut a job-skills training program in the culinary arts, its newest program. It was relatively expensive to operate, due to the cost of food, and served only eight students at a time, nearly all of whom were already employed in another field.

Brian W. Diller, the charity's executive director, also weighed the impact on the charity's employees. He knew that the culinary program's one part-time employee would be able to rely on her catering business for income after losing her job at the charity. "Even she agreed that cutting the program would have the least impact on the overall organization," Mr. Diller says.

David Condon, chief executive of DNS Associates, a consulting company in Rockwall, Tex., that works with nonprofit groups, says any financially vulnerable charity would be wise to take a close look at closing expensive programs that aren't helping many people.

"It's a good time for introspection," Mr. Condon says. "Downturns separate the wheat from the chaff."