Harlem — When the superstar CEO of a nationally venerated social services organization announces that even he laid off staff members recently, for the first time ever, it's a sure sign the nation's nonprofits are entering unfamiliar territory.

Geoffrey Canada, head of the multi-service anti-poverty agency Harlem Children's Zone, brought a severe warning to a high-level gathering of city nonprofit leaders last week. Speaking to a group routinely charged with feeding the hungry, caring for the sick, and housing the homeless – because New York City government contracts out for most of these services – Canada didn't softpedal the daunting challenge of doing all that amid a fiscal crisis yielding more human need and fewer dollars to fill it.

"What we do in this next couple of months is either going to give this city a fighting chance, or we're going to watch the decline of this city," said Canada, who laid off 10 percent of Harlem Children's Zone's more than 1,200 full- and part-time employees earlier this month, to cut costs. By comparing the present recession to the arrival and aftermath of Hurricane Katrina – a disaster that could have been much better foreseen, prepared for and addressed – he described an immediate imperative for social services chiefs to rise to the occasion. "This is a time when leadership matters," he said.

Panelists from varying perches around the nonprofit world didn't disagree, articulating a range of possible responses to the crisis. Carolyn Cavicchio, a researcher at the Conference Board's Center for Corporate Citizenship and Sustainability, said leaner times present the opportunity to institute long-term "sustainable" practices, such as issuing an annual report online rather than spending tens of thousands on a printed version. Stephanie Palmer, executive director of the New York City Mission Society, expressed the fear that funding cuts would force a reduction in the quality of services delivered. Phillip Henderson, president of the Surdna Foundation, spoke for grantmakers by saying those with money to give "are thirsting in this time of crisis" for new ideas: "The need for creativity is tremendous."

Most speakers touched on the likelihood that a much weaker stream of funding will lead to the closure of nonprofits across the country. Some surmised that the smallest and largest would carry on, while mid-sized groups will have the hardest time. According to Dr. Paul Light, a professor of public service at NYU's Wagner School, either a fundamental withering of the sector is ahead, or else a winnowing of numbers. Light expects thousands of nonprofits to close their doors over the next two years. "We are going to lose a big brand-name nonprofit, I swear," he said.

Light also encouraged the 300 attendees of the Nov. 19 forum in Midtown – presented by the Foundation Center, the New York Regional Association of Grantmakers and United Way, it's one of many such facing-the-crisis convocations occurring of late – to take advantage of the presidential transition and become more active in Washington: demand a Congressional hearing on the nonprofit sector and advocate creation of a federal fund for distressed nonprofits. "Let's find our voice, for godssakes!" he exhorted.

Canada also spoke of Washington, saying New York City and its human infrastructure need a financial boost as much as any sector. "I think NYC needs a bailout," he said – and U.S. Sens. Hillary Clinton and Charles Schumer and U.S. Rep. Charles Rangel are well-placed to deliver it. Canada quashed talk about the potential for his own departure to Washington for a position in the Obama administration, however. "You can't leave the city you love when it's about to face what it's going to face," he said.

Even as participants sought a way forward in the current crisis, discussion circled back to perennial questions about effective budgeting and recruiting, collaborating versus merging, and other management issues. It seemed that drastic public and private sector budget cuts have created a feeling of energy as well as urgency. After taking it all in, Emerging Practitioners in Philanthropy associate director Sophia Silao noted, "This economic crisis has really forced the nonprofit sector to look inward."

- Karen Loew