The Changing Government-Nonprofit Relationship in the United States

1
The Changing Government-Nonprofit Relationship in
the United States
Steven Rathgeb Smith Evans School of Public
Affairs University of Washington Presentation in
Wellington, New Zealand 22 September 2008
2
Growth in Nonprofit Organizations By Type
Sources National Center for Charitable
Statistics- IRS Business Master File 01/2007
(with modifications by the National Center for
Charitable Statistics at the Urban Institute to
exclude foreign and governmental organizations).
3

• Extensive government funding dates to the 1960s,
  with a buildup of federal grants and contract.
• Diversification in the tools of government
  financial support
• Initially government funding was in the form of
  grants and contracts
• Increasingly government funds nonprofits through
  a direct and indirect financing mechanisms
  including
• Tax credits
• Tax exempt bonds
• Vouchers
• Health Insurance funding through Medicaid and
  Medicare

4

• Diversification in Organizational forms and
  structures
• Government contracting with nonprofits and
  for-profits represented a blurring of
  organizational boundaries to a degree
• New in recent years is the rise in what might be
  called hybrid organizations
• Public organizations spinning off nonprofits -
  Seattle Port Authority, Port Jobs to work with
  disadvantaged
• Churches spinning off nonprofits to accept public
  and private grants and contracts
• Nonprofits establishing for-profit subsidiaries
• Nonprofit-for-profit contracts e.g. Starbucks
  has contracts with local workforce training
  programs employ disadvantaged workers
• A local nonprofit agency for at risk youth is
  operating an ice-cream store staffed by these
  at-risk youth

5
Management and Policy Challenges
6
Pressure for Accountability and Performance
Evaluation

• More monitoring and regulation of contract agency
  finances
• Shift to performance contracting with
  reimbursement tied to meeting specific
  program-related outcome targets
• Shift by private funders including the United Way
  and major foundations to an outcome-based grant
  model
• Nonprofits and government often struggle to
  develop appropriate performance targets
• Funding also often not present for extensive
  evaluation

7

• Concern about program accountability has
  dovetailed with widespread concern about the
  accountability of nonprofits to the public
• Especially true in the wake of well-publicized
  scandals involving nonprofits
• Diversification of organizational forms and
  regulations around the appropriate use of
  different legal categories

8
Competition for Resources

• Failure of the public sector to keep pace with
  rising costs of nonprofits
• Huge number of nonprofits, vying for public and
  private grants in a very competitive environment

9
Capacity Building and Infrastructure Support

• Big growth in nonprofits is concentrated in the
  smaller community organizations
• Undercapitalized, underfunding, small boards,
  lack of extensive community base of support, have
  a lot of dedication
• Difficult to respond to the increased demands for
  accountability

10
Steps to Improving the Effectiveness and
Representative Role of Nonprofit Organizations
11
General Approach

• Emphasize the need for a problem-solving approach
  that entails all relevant stakeholders and
  involves the public and philanthropic sectors
• Specific areas
• Addressing the Resource Problems
• Reinventing Technical Assistance
• Governance
• New Approaches to Standard-Setting
• Political Voice and Participation

12
Addressing the Resource Problems

• Solving this conundrum is not easy
• Any solution would require placing nonprofits on
  a firmer financial footing
• Nonprofits must be able to cross-subsidize the
  public goods aspect of operations
• This could entail a number of possible
  strategies
• More generous rates for government-funded
  services
• Foundation funding of operational expenses
• Longer-term foundation grants
• Access to tax-exempt bond funding for capital
  expenses
• Performance-based contracts allowing nonprofit
  agencies to keep surplus revenues

13

• Greater flexibility in the types of government
  support and the organizational structure
• The city of Seattle for example might own the
  land on which a nonprofit sits as way of reducing
  its costs
• Economic Development Authorities have issues
  tax-exempt bonds to support capital needs of
  nonprofits
• As a way of broadening political and community
  support, contract agencies could be more flexible
  in terms of
• Structure
• Creating advisory committees
• New means of community membership
• Support

14
Reinventing Technical Assistance

• Funders and nonprofit agencies must rethink their
  ongoing relationship and develop ways in which
  they can work together to solve perennial issues
• Board recruitment
• Funding
• Staff-board relations
• Funders must think of themselves as investors
  with an ongoing commitment to the success of
  their grantees

15

• Developing new technical assistance relationships
  is often complicated by the reluctance of
  nonprofits to seek assistance from funders
• Many fear it may be perceived as a sign of
  trouble and threaten current or future funding
• Public and private funders are trying to overcome
  this problem by supporting technical assistance
  provided by third party organizations
• Includes nonprofit assistance centers
• Umbrella organizations of nonprofit agencies have
  received support for technical assistance to
  their members
• Importance of intermediary organizations

16
Governance

• Related to Technical Assistance and Improving
  Capacity in Revisiting Governance in both Public
  and Nonprofit agencies
• The traditional lines of authority within
  government, etween government and nonprofits, and
  within nonprofits must be rethought
• Government must be more collaborative in working
  across departments to develop policies that are
  appropriate to the complex world of public
  services

17

• Government and nonprofits must address the
  accountability and performance assessment issue
• Already happening in many service categories such
  as child welfare as housing policy
• Nonprofits must be more accountable to their
  communities and their members
• Many nonprofits have only very weak links to
  their communities and are often not very
  accountable to them
• Nonprofits, especially those receiving public
  funds, must be more connected to their
  communities
• Many models aiming to revamp the board and
  advisory committee structure to provide more
  community governance and accountability exist

18
New Approaches to Standard-Setting

• In the current environment, there is a tendency
  toward over-regulation or inappropriate
  regulation
• In response, there is much greater interest in
  the US in various types of self-regulation
• Some efforts are by nonprofit associations that
  try to certify nonprofits who abide by certain
  ethical practices
• Other means of self-regulation are more
  programmatic
• E.g. Child welfare agencies attempting to create
  a type of peer review system
• Success has been uneven and is still unfolding
• Government should help support these efforts and
  work with the nonprofit sector where appropriate

19
Political Voice and Participation

• Many of these changes hinge on the effective
  political voice of nonprofit agencies
• Nonprofits may be reluctant to participate in the
  political process due to concerns about
  governments reaction
• This directly affects those receiving direct
  government funds
• Nonprofits may be worried that political advocacy
  may jeopardize a tax exempt status
• This is a special concern in newly democratizing
  countries where nonprofits are less established
• It is also a concern in the US and other
  countries where overly aggressive political
  action has invited scrutiny and even audits

20

• Many nonprofit volunteers and staff are
  unfamiliar with the political process
• Smaller organizations may not have the resources
• Given the differences among nonprofits and the
  dynamism of the government-nonprofit
  relationship, it is not possible to solve these
  political challenges
• Education of government and nonprofit staff will
  help
• Many nonprofit staff and volunteers are not
  well-versed in the laws and regulations governing
  political activities
• Model agreements between government and
  nonprofits may assuage concerns and promote
  greater cooperation
• Compact arrangement in the UK and US.

21

• Government can provide incentives for nonprofits
  to reach out to communities and build new social
  networks
• Government should approach its involvement with
  nonprofits as a political development issue
  requiring a long-term commitment to building
  civic infrastructure

22
Concluding Thoughts

• In the last 25 years, governments relationship
  to the nonprofit sector has undergone a profound
  transformation
• Privatization of a sort has occurred for some
  services
• However, most new nonprofit provide previously
  unavailable services
• Increases in fee income are largely from public
  funds, especially through Medicaid but to a
  lesser extent other public programs
• Some fear a shift to private nonprofits has been
  accompanied by an abandonment of public goals in
  favor of private goals
• Whether true or not, most nonprofits receiving
  public funding are tied to public priorities and
  regulations

23

• The diversification of policy tools has produced
  an explosion in partnerships, coalitions,
  collaborations, and hybrid organizations
• The rhetoric of privatization minimizes the need
  for additional public resources, resulting in
• Difficulties for advocates of nonprofit-provided
  programs to successfully argue for government
  support
• Risk of even incremental adjustments to key
  funding programs not being immediately apparent
• Finally, government financing focuses the
  attention of nonprofits, government
  administrators, and policymakers on performance
  efficiency and effectiveness measures
• Civic contributions of nonprofits can be
  overlooked or minimized