Alliance for Nonprofit Excellence
A Look at the National Agenda: The Impact of Federal Funding on
Nonprofits
Peter Goldberg, Alliance for Children and Families
May 1, 2009
My thanks to the Alliance for Nonprofit Excellence for inviting me to attend. It is a
pleasure to be here at this annual event.
It is good to be among nonprofits peers, and with an organization with a similar
name and mission as mine.
My theme, and that of this conference, speaks to a quote from Jim Barksdale,
founder of Netscape:
“The main thing is to keep the main thing . . . the main thing.”
It is pretty obvious what the main thing is right now.
The recession, and all the aspects of it such as the meltdown of the financial and
real estate markets, has been a transformative event for this country. Even when
it is over, hopefully sooner rather than later, it will have lasting effects.
As we continue our discussion of the difficult economy and the opportunities to
succeed despite the conditions, please allow me to remind you — and hopefully
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inspire you — that the situation we all face today is counter balanced by the
historic resiliency of the nonprofit sector.
To paraphrase the Pocantico Declaration, which I will describe later,
“For hundreds of years, nonprofits have been agents of change, incubators of
innovation, and crucibles for some of our boldest experiments and highest ideals.
“Today, we function as partners in public service, sheltering the homeless,
training the unemployed, educating our youth, developing affordable housing,
counseling families, delivering health care, giving voice to the powerless,
enriching our lives with arts and culture, and serving uniquely as vehicles for
citizen initiative in support of the common good.
“We are also powerful contributors to our economy, employing eleven million
paid workers — more than the construction industry, finance, transportation, real
estate, and, with volunteers, more than all branches of manufacturing.”
We can all agree that resiliency is one of our hallmark characteristics and it does
us well to remember the wise words of John Gardner, who more than once
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noted, “We are continually faced with a series of great opportunities brilliantly
disguised as insoluble problems.”
So today, in discussing the impact of federal funding on nonprofits, I want to first
review with you the tactical dimensions, which includes some unintended
consequences of federal funding as well as some clear conflicts.
Then I want to discuss the conceptual dimensions, which include some hopefully
compelling ideas on ways to empower the nonprofit sector to realize the change
necessary for future health and strength.
When discussing the impact of federal funding on nonprofits, I instantly conjure
up a visual image:
It is of government giving the nonprofit sector a hug. But then, as with that
“favorite” aunt you see a couple of times a year, that hug morphs into a big, tight,
over-the-top bear hug; and the nonprofit sector in this particular image, can
barely breath.
When and how did this affectionate hug become an asphyxiating bear bug? Or
rather, when did this vote of confidence in the nonprofit sector turn into a stifling
proposal?
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To be fair and realistic, we must acknowledge that federal funding has given
nonprofits extraordinary opportunities to serve their communities, live their
missions, and generally make a positive difference.
Yet, to even begin to explain the impact of federal funding, you have to provide
context of where and what the nonprofit sector was prior to privatization, versus
where and what it is now.
I realize I do not have to provide a long, in-depth analysis to this crowd. Let’s
think of this contextual explanation as one of those sixty-second interpretations of
a Shakespeare play. My explanation will be a one-hundred-eighty-second
version of the history of the nonprofit and public sector relationship; or as
Elizabeth Taylor told the last of her eight husbands, “I won’t keep you long.”
Going back in history we had three distinct sectors — government, business and
non-governmental, and the nonprofit sector.
The era we are in now began in the late 1970s with the development of the
public/private partnerships concept.
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It was first viewed, quite simplistically, as a nice arrangement whereby
foundations and the public sector would work hand in hand to fund nonprofit
initiatives.
But, as we know, it has become a bear hug, and there are some consequences
to that: These are the tactical dimensions of the relationship.
1. The public sector has bought more and more of the delivery system; and in
doing so, they have bought up many nonprofits, and they now have a much more
vested interest in our health and vitality.
Members of the Alliance for Children and Families are nonprofit human and
social services providers. Many if not most, are for all practical purposes public
sector contractors with a voluntary form of governance.
For quite some time, I too stuck to the conviction that partnerships should not
mean private sector substitution for public sector responsibilities. But in the past
twenty years, that is exactly what has happened.
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2. Four challenges with respect to our relationship to the public sector that
bedevil us.
In a sign of the times, many state governments are delaying their
reimbursements for services already provided and paid for by nonprofit public
sector contractors.
In fact, the Alliance for Children and Families and our affiliated organization,
United Neighborhood Centers of America, issued a report this week that found
government agencies in at least nineteen states are delaying payments promised
under existing grants or contracts to nonprofit agencies.
As this happens, nonprofits now have to extend their lines of credit and borrow
more, against declining asset bases, at higher rates of interest, thereby
increasing their costs of doing business and damaging their balance sheets.
The second challenge is that we must do a better job in setting and negotiating
our pricing. This is not, frankly, one of our strengths.
The third challenge is the clearly troublesome, consequence of public/private
partnerships: rather than using non-governmental funding as an engine of
innovation, we are using it as gap funding to bridge shortages in support.
Some of the areas that can benefit from innovation include public
policy/advocacy, civic engagement, social enterprises, and advanced training.
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Finally, the fourth challenge is that many — if not most — government contracts
do not fully cover the costs of the services expected to be provided.
Government, it seems, expects us to use private giving to bridge the gap.
This leads me into the framework for beginning to address the conceptual
dimensions. It is best captured in this tagline: Public/private partnerships should
not mean private sector substitution for public sector responsibility.
But, beginning with the advent of public/private partnerships, that is the slippery
slope we have been sliding on. The questions are very clear and remain to this
day: Should we be using non-governmental money to subsidize governmentfunded programs? How do we make sure government pays for its own
responsibilities?
Some of these conceptual relationship points come from an effort led by the
Johns Hopkins Listening Post Project. This project, of which I am the chair of the
advisory board, is overseen by the Center for Civil Society Studies at the Johns
Hopkins Institute for Policy Studies.
When people associated with the Listening Post gathered recently to revisit the
social compact, we developed some of the conceptual points I will cover today in
a document we call the Pocantico Declaration (after the location where we
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gathered). It is formally titled: Forward Together: Empowering America’s Citizen
Sector for the Change We Need.
1. First, there can be no doubt that federal funding has, in varying degrees,
stifled the voice of the independent sector. Because, as you know, it is not polite
to bite the hand that feeds you.
Learning how to be the conscience of government while simultaneously serving
as the contractor for government has proven to be a tricky path to negotiate. We
have to admit that in some cases, this arrangement has seriously hurt our
credibility in the court of public opinion.
2. The second conceptual point is basic, yet complicated: We must improve
public/private partnerships at all levels.
 Establishing a public-private Commission on Cross-Sector
Partnerships for America’s Progress;
 Empowering this commission to articulate a set of Partnership
Principles for a New America,
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 Identifying changes needed to align existing programs with these
principles and mechanisms to ensure these changes are made;
and
 Creating a permanent institutional presence for the nonprofit sector
at all governmental levels.
3. We can make huge strides if investments in nonprofit-sector capacity to
innovate and perform are made.
 Staff development and technical assistance grants, student loan
forgiveness, health benefit aid, and other measures to help
nonprofit organizations attract quality workers and improve
performance;
 Investment tax credits, loan guarantees, or other incentives to
boost nonprofit access to private investment capital for new
technology, facilities and strategic planning;
 A Social Innovation Grant Program to seed and grow innovative
approaches to public problems;
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 Improvements in federal data needed to track nonprofit
performance and economic health.
4. There is no doubt, new models of nonprofit finance must be supported.
 Encourage private investment in nonprofit-sector initiatives through
tax and credit incentives, possible new social-venture legal
arrangements, and incentives for leveraging foundation assets;
 Preserve and expand government’s existing support for nonprofit
organizations and establish a flexible funding mechanism to help
scale up promising social innovations;
 Help push giving, volunteering, and service to new levels through
such measures as a pilot charitable contribution tax credit,
significant expansion of AmeriCorps and other service programs,
augmented deductions for volunteer expenses, and full or partial
restoration of the estate tax.
I know this is a lot to digest. It will require flexibility and new approaches on the
part of government, investment in nonprofit capacity, a nonprofit seat at the
policy table, heightened responsiveness to nonprofit-sector innovations, and
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greater protection of the distinctive functions such as advocacy that make the
sector so vital — that’s not a lot, is it?
A tall order, yet the payoff would be immense. It seems hard, but don’t we want
to be more proactive in shaping a possible reinvention of our future?
Our future — at least for the next four years — features big government.
An obvious example of this is the stimulus package. In fact, the Alliance asked
an expert from a consulting firm in Washington D.C. which we work with closely
to review the plan and come up with potential opportunities in the human
services arena that Alliance members would be qualified for.
He found a number of opportunities in a variety of areas such as education,
vocational rehabilitation, public access to computers, preventing domestic abuse,
youth employment programs, and even energy efficiency projects.
I list these funding streams because the stimulus plan has revived a discussion
among our members and probably among many of you: Is this just us following
the money? Are we moving away from our missions as we move towards
funding of any kind? It seems public sector funding has caused us to ask the
same questions.
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It is a pleasure meeting with leaders of nonprofit organizations of all kinds. After
taking in some of the weighty and troubling issues that face this sector, you may
have come to the correct conclusion that leadership is a tough business. You
may come to the conclusion that this is too hard; you can’t do this.
But remember that during tough times, great leaders seize the opportunity to
make a difference. They boldly set aside the negative and focus on the positive.
They ignore naysayers and step up to the challenge.
In times like these, it pays to remember an African story that is also in “The World
is Flat: A Brief History of the Twenty-First Century,” by Thomas L. Friedman
Every morning in Africa, a gazelle wakes up.
It knows it must run faster than the fastest lion or it will be killed.
Every morning a lion wakes up.
It knows it must outrun the slowest gazelle or it will starve to death.
It doesn’t matter whether you are a lion or a gazelle.
When the sun comes up, you better start running.
Thank you for inviting me here today. I welcome questions at this time.
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