Presentation to be delivered at the conference on “The
Voluntary Sector in the Nordic Countries: Change Agents
and Contract Partners?” Bergen, Norway, 18-20 May 2011

Crucial transition time in the relationship between
government and the nonprofit sector.
◦ Fiscal crisis of government
◦ Big increase in number of nonprofits
◦ Pressure for accountability
◦ Widespread interest in social innovation and social
enterprise

Nonprofit welfare providers have a long history in the
United states.
◦ Early nonprofit providers in the 19th century were
typically sectarian agencies such as the Salvation
Army, Catholic Charities, Lutheran Social Services.
◦ These agencies were usually dependent upon
volunteers, private charity, and small client fees. Very
little public funding of these agencies except in very
limited and targeted circumstances.
◦ Thus, the US public-nonprofit relationship was not very
different from Nordic countries at this period of time.
Continuity rather than change
 Government funding and oversight of nonprofit welfare
providers remained very limited.

Welfare providers remained reliant on private charity,
especially Community Chest, a local organization in
most cities that engaged in annual fundraising
campaigns to support nonprofit welfare providers.

No federal funding of nonprofit providers.

Many new federal social programs created which led to
a sharp escalation of federal funding and support for
social services.

New social programs included:
◦ Community based organizations to address poverty
◦ Early childhood education
◦ Community mental health centers
◦ Neighborhood health centers
◦ New agencies for at-risk youth

Most of the new social programs were delivered by
nonprofit social service agencies.

A large percentage of these nonprofit agencies such as
community mental health centers were entirely new
agencies created to take advantage of government
funding.

Government funding was in the form of grants and
contracts.

Government oversight and monitoring of nonprofit
agencies tended to be relatively lax.

Emphasis on service expansion and greater eligibility for
services. Hope for more universal entitlement to
services.

Nonprofits were a vehicle for welfare state expansion.

Contracts were typically renewed

Tight relationships between public funding agencies and
nonprofit welfare providers

Accountability emphasized process measures such as
number of clients served and staff-client ratios

Little effective competition between nonprofit providers
◦ Almost no for-profit competition.
◦ Reluctance of public officials to contract with for-profit
organizations or move contracts.
◦ In many communities, the number of welfare providers
remained relatively modest despite the growth of
federal support. Many new organizations were small
and lacked capacity.

Structure of Contracts
◦ Cost-reimbursement basis
◦ Most agencies recovered their costs subject to state
and local budget fluctuations
◦ Little incentive for efficiency. Many of the newer
agencies were entirely dependent upon public
contracts and did not raise significant amounts of
private philanthropy.

Organizational consequences
◦ Professionalization of staff. Agency staff tended to be
full-time but increasingly advanced degrees and
professional training was required.
◦ Shift away from reliance on private philanthropy and
client fees toward public funding.

Reagan administration shifted responsibility for many
federal social programs to state and local government.

Consolidated many funding grant programs.

Reduced funding

Many nonprofit welfare providers lost substantial funding

New funding through the public health insurance program,
Medicaid, for community care programs for the disabled.
◦ Sharp increase in home health, home care, community
residential programs.

Rising public funding for an array of child welfare and youthrelated programs such as mentoring and recreation.

Greater interest and support for community service,
especially volunteering by young people. More youth
engagement in nonprofits and in turn fostering the
establishment of more nonprofits.

Welfare Reform of 1996
◦ Welfare in the US was previously focused on the
provision of cash assistance to the poor.
◦ Key provisions of this legislation:
 Reduced funding for cash assistance,
 Placed time limits on the receipt of assistance,
 New money for support services, primarily with
nonprofit welfare providers.
Source: Congressional Research Services, 1998 and 2004 Green Book
Welfare cash assistance
Food Stamps
~$12 billion
~$40 billion
Unemployment Insurance
Earned Income Tax Credit
Social Services
~$50
~$45
$150
$200
Substance abuse or mental health; employment
and education; emergency assistance; food
pantries; housing; child care/welfare; youth
programming; transportation
•Publicly funded ($100-150 billion
expenditures)
•Delivered by nonprofits ($100 billion
revenues)
billion
billion
to
billion
Number of Organizations
300,000
250,000
200,000
Registered
nonprofits
150,000
Reporting agencies
100,000
50,000
0
1995
2010

Growing Expectations of Government on the
Accountability of Nonprofit Welfare Providers
◦ Performance-based contracting
◦ Logic models and outcome evaluation
◦ Greater emphasis on transparency and reporting.
◦ Project related funding rather than general support
contracts or grants by public and private funders.

Intensified competition among nonprofit agencies
◦ Growth in nonprofits amidst declining public and
private revenue
◦ Shift away from older style cost-reimbursement
contract. More funding is tied to the client.
◦ Entry of For-Profit Firms into services previously
dominated by nonprofits such as community care
5,000,000
Number of Employees
4,500,000
4,000,000
3,500,000
3,000,000
Total
2,500,000
Nonprofit
2,000,000
For-profit
1,500,000
1,000,000
500,000
2002
2007
Social Service
Category
Type of operation
or tax status
code
Individual and family Total
Nonprofit
services
For Profit
Total
Vocational
Nonprofit
rehabilitation
For Profit
services
Total
Child day care
Nonprofit
services
For Profit
Community food and Total
Nonprofit
housing, and
emergency and other
For Profit
relief services
Total
Residential Care
Nonprofit
For Profit
Number of establishments
2002
2007
49,618
56,693
38,731
39,177
10,887
17,516
8,526
7,595
6,350
5,818
2,176
1,777
69,127
74,151
24,231
21,403
44,896
52,748
12,481
13,952
12,133
13,223
348
27,565
10,139
17,426
729
34,132
10,492
23,640
Personalization of care and more individual choice
in services.

◦
Individual accounts that families or disabled
individuals control and they make the purchasing
decisions rather than government.
◦
Increased use of vouchers in child care and
substance abuse treatment
Staffing Changes among welfare providers

◦
Professionalization
◦
More contingent workers including part-time and
contract staff
◦
Growth of volunteers in support positions
◦
Exchange of personnel between government and
nonprofit sector

Nonprofit organizations have organized politically
through coalitions and associations.

These intermediary organizations often have close
relationships with government and negotiate important
funding and regulatory matters at the state and local
level.

Impact of the Fiscal Crisis
1. More emphasis on political mobilization by nonprofit
welfare providers, given the funding cutbacks and the
potential for more reductions.
2. New emphasis on collaboration among nonprofit
agencies to share costs and overcome the
fragmentation of services.
3. Tighter eligibility for services which then undermines
the fiscal health of many providers especially the smaller
providers.

Impact of the Fiscal Crisis
◦ Exacerbated the tension between government and
nonprofit welfare agencies. Are they partners in
service delivery or are nonprofit agencies simply
agents of the state providing a service under contract?
◦ Government is under pressure to reduce costs and
often view nonprofits as agents while nonprofits
believe in a shared approach to policy development
and implementation.

Nonprofit Social Service Agencies have been central to
the restructuring of the state in social policy in the US.

Expansion of community care, child welfare services, job
training, child care made possible by utilization of
nonprofits

Government funding has been crucial to the growth of
nonprofit social service agencies

Fiscal centralization and administrative devolution.

Greater emphasis by government on performance,
competition and accountability.

Nonprofits face pressure to diversify revenue sources
through earned income and private donations in part to
provide them with greater flexibility in their administrative
and programmatic decisionmaking.

The push for earned income also reflected in the broad
interest and support for social enterprise.

Government needs to think of the relationship as a long
term investment and promote fiscal stability.
◦ Restructured contracts
◦ Direct and indirect assistance with capacity building in
nonprofits.
◦ Support for self-regulation by nonprofit providers.
◦ Government needs to invest in its own staff and
infrastructure.
◦ New staff and new skill sets needed for contract
managers as well as state managers engaged in
complicated public-private partnerships.
◦ Adaptations of the “The Compact” model from the UK
and Australia.

The expansion of nonprofits in providing social services
now means that they are crucial to social citizenship in
the US.

Initially, the expansion of nonprofit welfare providers was
in the interest of a broader welfare state for America.

More recently, nonprofits are at least to some
policymakers a vehicle for reducing the welfare state by
shifting services to volunteers and agencies dependent
upon private philanthropy.

Growing polarization between larger, more
professionalized nonprofit providers with more stable
sources of income and smaller community based
organizations that lack capacity for sustainable effective
services.

Overcoming this polarization and the inadequacies of
current public funding will require nonprofits to be more
than contractors but also change agents.