Nonprofit Government Contracts

Through most of our history, government has provided extensive amounts of financial support that has allowed the nonprofit sector to grow and flourish. Government agencies have funded or contracted out services to nonprofit organizations for a variety of reason, including:

• Lower Costs
• More Flexibility
• Less Need for Permanent Government Staff
• Greater Responsiveness to the Clients’ Needs

During the past 20 years, however, government’s relationship with the nonprofit sector has become increasingly less supportive, with consequences that could be serious for the sector’s long term health.

Areas of Government-Nonprofit Interaction

Constructive interaction between nonprofits and government require organizations to bring their administration to be more government-like. Government affects nonprofit operations in at least 4 different areas: through its spending decisions, its tax policies, its regulations, and its broader policy posture. In most of these, the record of the last two decades generally reflects increasing hostility.

Government Funding

Funding for many of the government programs that encouraged the expansion of the nonprofit sector in the 1960s and 1970s began to decline in the early 1980s. Nonetheless, many organizations continue to depend greatly on government funding for their operations. These relationships have many consequences.

One such consequence is a management dilemma for nonprofits. While, in the interest of professionalism, nonprofits should display characteristics similar to government and private businesses, the longer an organization relies upon government contracts, the more it will tend to look, think, and act like a small government agency. Such organizations will begin to lose some independence, and may experience â€oemission-creepâ€�. Many nonprofit professionals are aligning with the argument that the amount of influence that the government has on the nonprofit sector far exceeds what it offers in funding. More and more charities and nonprofits are torn between government funding for organizational maintenance and the pursuit of their objectives.

Changing Forms of Governmental Support

While government support of charities and nonprofits continues, the form of this support has changed markedly. Specifically, government support has shifted from producer-side subsidies provided directly to nonprofit service providers to consumer-side subsidies provided directly to the recipients of such services. This process began with the G.I. Bill, and has subsequently expanded across the human service arena. This has allowed for increased competition throughout the sector, and the result has been an intense marketization of nonprofit operations.

Growing Regulatory Pressures

Nonprofits are experiencing increasing regulatory pressures from government, including legislative and administrative efforts to discourage advocacy by nonprofits, especially those receiving federal support. Other mission-critical functions have also been put at risk, such as the commitment to serve those in the greatest need, to promote teaching and research, and to value quality and community benefit over efficiency and responsiveness to pressures.

Shifts in Tax Policy

Unfortunately, changes in tax policy have reduced the financial incentives to give, both while living and at death. At the same time, battles over nonprofit property tax exemptions have added additional uncertainty in many jurisdictions.

A New Paradigm of Partnership

To put nonprofit-government relationships back on track, Gronberg and Salamon (2002) recommend a new paradigm of interaction. This new outlook treats the collaboration between government and the nonprofit sector not as a regrettable necessity, but as a highly positive feature of a modern society. This viewpoint encourages active cooperation by all sectors in the resolution of social problems.