Turning Points for Children: 
A Litmus Test for Nonprofit Sustainability

 

May 10, 2024

 

On May 1, 2024, Turning Points for Children (TPFC), a cornerstone of Philadelphia's social services for nearly two centuries, filed for chapter 11 bankruptcy along with its affiliated Community Umbrella Agencies (CUAs). This development marks a significant shift in the city's child welfare landscape and raises important questions about the future of social services in Philadelphia. As one of the largest and most established child welfare organizations in the region, TPFC's financial struggles and subsequent bankruptcy filing underscore broader systemic challenges that nonprofit organizations face in today's economic climate.

 

A Legacy of Service

 

Founded 189 years ago, TPFC has been a vital part of Philadelphia's child welfare system. The organization has touched countless lives through its diverse range of services, including foster care programs, permanency services (adoption), family finding, older youth services, and a food and wellness network, operating two food pantries in Southwest Philadelphia and Olney.

 

Over the years, TPFC has evolved to meet the changing needs of the population it serves. Initially focused on orphaned and abandoned children in the 19th century, the organization expanded its services in the 20th and 21st centuries to include a broader array of family-centered programs. TPFC's history is a testament to its resilience and adaptability, qualities that will be tested as it navigates chapter 11.

 

The Critical Role of Community Umbrella Agencies

 

Until recently, TPFC operated four Community Umbrella Agencies (CUAs), which were integral to Philadelphia's Department of Human Services (DHS) initiative to decentralize child welfare services and provide support at the community level. The CUA model was designed to ensure that children and families received care and services from organizations embedded within their communities, rather than from a distant and centralized bureaucracy.

 

TPFC's involvement in this initiative was significant. As the operator of these Community Umbrella Agencies, the organization was responsible for providing direct case management and related services to over 14,000 children and families. At its peak, TPFC's CUA operations represented more than 80% of its financial resources and employed almost 85% of its staff. The discontinuation of these services in 2023, due to insurmountable financial pressures and legal challenges, marked a turning point for the organization and the city's child welfare system.

 

The Road to Bankruptcy

 

Several interrelated factors contributed to TPFC's decision to file for bankruptcy under subchapter V of chapter 11 of the Bankruptcy Code. These include:

 

• Discontinuation of CUA services: The financial burden of maintaining the CUAs became unsustainable, primarily due to skyrocketing insurance premiums and an increasingly complex legal landscape. Despite DHS covering 80% of the insurance costs, the remaining burden on TPFC was too great to bear. In 2022, TPFC informed DHS that it could no longer sustain these operations, leading to the transfer of CUA services to other agencies in 2023.

 

• Legal challenges: TPFC is currently facing at least eight pending lawsuits related to personal injury claims associated with its former CUA operations. These lawsuits, combined with the possibility of future claims, have created significant uncertainty and potential liabilities for the organization.

 

• Insurance complications: Insurance coverage became prohibitively expensive for TPFC. The transition from occurrence-based to claims-based coverage did little to alleviate the financial strain, and ongoing lawsuits have only exacerbated the situation.

 

• Financial strain: The organization has faced chronic delays in receiving payments from DHS. As of the petition date, DHS owed TPFC approximately $3.5 million for services rendered during fiscal years 2023 and 2024. This delay in payments forced TPFC to draw on its line of credit to maintain operations, further depleting its financial reserves and contributing to its decision to seek relief under the Bankruptcy Code.

 

These challenges have culminated in a dramatic reduction in TPFC's budget, from $66.9 million in fiscal year 2023 to $21 million in fiscal year 2024. This reduction is both a reflection of lost revenue and TPFC's shift away from CUA operations.

 

Understanding Chapter 11 and Subchapter V

 

Chapter 11 bankruptcy, often referred to as a "reorganization" bankruptcy, is designed to allow businesses and nonprofits to restructure their debts while continuing to operate. Subchapter V, introduced as part of the Small Business Reorganization Act of 2019, is designed for small businesses and certain nonprofit organizations. It offers a streamlined process that reduces the time and cost associated with a traditional chapter 11 bankruptcy process.

 

Key aspects of TPFC's chapter 11 filing under subchapter V include:

 

• Debt limit: Subchapter V is specifically designed for small businesses and organizations with noncontingent, liquidated, unsecured claims under a certain threshold. During the COVID-19 pandemic, this limit was temporarily increased to $7.5 million as a relief measure. However, as of June 22, 2024, the debt limit has reverted to $3,024,725 for new filings, down from the higher pandemic-era threshold. 

 

• Streamlined process: One of the primary advantages of subchapter V is its streamlined approach, which eliminates several procedural hurdles typically associated with traditional chapter 11 cases. This expedited process is particularly advantageous for nonprofits like TPFC, enabling them to address financial difficulties swiftly and continue their mission with minimal disruption.

 

• Continued operations: TPFC aims to continue its non-CUA programs and services throughout the bankruptcy process. These programs include its Foster Care Program, Permanency Services, Family Finding, Older Youth Services, and the Food and Wellness Network.

 

• Asset management: The organization owns property at 415 S. 15th Street, Philadelphia, which is currently for sale. The proceeds from this sale will likely play a critical role in TPFC's reorganization. TD Bank, N.A., TPFC's only secured lender, holds a mortgage on this property with a balance of approximately $782,000.

 

Implications for Stakeholders

 

The bankruptcy filing has wide-ranging implications for various stakeholders, including employees, service recipients, creditors, and the broader Philadelphia community.

 

• Employees: TPFC employs approximately 135 individuals, whose livelihoods are directly impacted by the bankruptcy. To maintain staff morale and ensure continuity of services, the organization has sought permission to continue paying employee wages and benefits.

 

• Service recipients: TPFC serves some of Philadelphia's most vulnerable populations, including children in foster care, families in crisis, and individuals relying on its food pantries. The organization's commitment to continuing these services throughout the bankruptcy process is a positive sign, but the uncertainty surrounding its financial future may cause concern among service recipients.

 

• Philadelphia's child welfare system: TPFC's reorganization could have broader implications for the city's child welfare system. As one of the largest providers of these services, any disruptions to TPFC's operations could strain the system and impact the availability of services for children and families.

 

Broader Implications for Nonprofits

 

TPFC's bankruptcy filing is part of a larger trend of financial instability among nonprofits, particularly those reliant on government funding and facing increasing legal and insurance challenges. The pressures faced by TPFC are not unique, and other organizations may find themselves in similar situations as they grapple with rising costs, delayed payments, and legal liabilities.

 

The situation also raises questions about the sustainability of the nonprofit model, particularly in sectors like child welfare, where organizations are tasked with providing critical services under tight financial constraints. Reliance on government contracts, which are often subject to delays and bureaucratic hurdles, can create significant cash flow challenges for nonprofits, making them vulnerable to financial stress.

 

Looking Ahead: TPFC’s Path Forward

 

TPFC's bankruptcy process will be an opportunity for the organization to address its financial issues and potentially emerge stronger. The organization's leadership views this as an operational restructuring designed to strengthen its remaining programs and streamline operations. The reorganization plan will likely focus on several key areas:

 

• Creating a mechanism to resolve present and future claims: TPFC will need to establish a process for addressing claims related to its former CUA operations, particularly those stemming from the pending lawsuits. This may involve setting aside funds from the sale of assets or negotiating settlements with claimants.

 

• Focusing on core programs: TPFC plans to concentrate its efforts on its core programs, including the Foster Care Program, Permanency Services, Family Finding, Older Youth Services, and the Food and Wellness Network. These programs have long been the backbone of the organization and will continue to be central to its mission.

 

• Maintaining its role as a leading family service organization: Despite its challenges, TPFC remains one of the largest and most effective family service organizations in the region. Its ability to navigate bankruptcy and continue providing high-quality services will be essential to its future success.

 

Conclusion

 

TPFC's bankruptcy filing underscores systemic issues in nonprofit funding models, particularly in government-dependent sectors such as child welfare, and may significantly impact Philadelphia's social services landscape. The organization's capacity to sustain core programs throughout its reorganization will be crucial for maintaining essential services to vulnerable populations. Furthermore, TPFC's bankruptcy process will likely set a precedent for how other nonprofits, especially those reliant on government contracts, navigate financial challenges. Stakeholders should vigilantly monitor this case, given its potential to reshape social service provision in Philadelphia. The outcome of TPFC's bankruptcy process could substantially influence the operational strategies and long-term viability of similar organizations across the region.  

 

Turning Points for Children's first day declaration can be found here.  TPFC's other "first day" motions are listed below.