News and analysis
October 06, 2010

As Government Money Dwindles, Many Human-Service Groups Cut Back Assistance to the Needy

Richard White/The Chronicle of Philanthropy

Food kitchens and other human-services organizations are cutting back their operations due to declines in government support, according to a new study.

Many human-service groups are slicing services to those in need in the face of widespread cuts in government support, according to a study released Thursday. Fifty-six percent of human-service organizations reported that they received less money from state governments in 2009. Forty-nine percent reported drops in local government aid, and nearly one-third, or 31 percent, said they received less money from federal agencies.

The national study, conducted by the Urban Institute, a Washington think tank, said the declines in government funds—along with reductions in contributions and investment income—have led to a “hollowing of organizational capacity that may take years to rebuild, if ever,” as many of these agencies have had to scale back their operations. As a result, they are cutting back services like food, job training, and child care even as demand for these services is on the rise.

In fact, more than four in five human-service groups in the survey—82 percent—reported that they have scaled back their operations.

Twenty-one percent have reduced programs or services; 17 percent have served fewer people; 50 percent have frozen or reduced the salaries of employees; 39 percent have drawn on reserves; 23 percent have reduced health insurance, retirement contributions, and other staff-member benefits; and 22 percent have borrowed money or increased lines of credit.

Making matters worse, the report predicts that the tension between increased demand and reduced government support will only intensify. If projected state budget shortfalls for the 2011 and 2012 fiscal years “are coupled with declines in donations and investment income and heightened demands for services, many nonprofits may reach the breaking point,” the Urban Institute said.

Widespread Pain

The scope of these problems is widespread, given the amount of money the government provides to human-service groups. The Urban Institute estimates that federal, state, and local government agencies have about 200,000 formal contracts and grant agreements with about 33,000 human-service groups that total about $100-billion. Government aid accounts for more than 65 percent of these organizations’ total revenue, the Urban Institute said.

“About 60 percent of organizations with government grants and contracts count those grants and contracts as their largest funding source,” according to the report, which focused on human-service groups that have more than $100,000 in annual expenses.

And the problems are heightened by government inefficiency, the Urban Institute said.

“While pain from the recession may have been unavoidable, better government management of contracts and grants can at least avoid adding to nonprofits’ financial stress,” the report said, pointing to “serious and widespread problems” with the management of government contracts and grants.

Of the human-service organizations that were surveyed:

• 53 percent reported concerns with late payments.

• 58 percent reported concerns with government changes to contracts and grants—including cancellations, reduced payments, and postponements.

• 68 percent reported problems with government agencies not paying the full cost of contracted services.

• 75 percent said the application process for contracts and grants was too complex and time consuming.

• 76 percent said the complexity and time required for reporting contracts and grants was a concern.

The report said these problems are becoming more common: 31 percent of the nonprofits surveyed said that their experience with governments was worse in 2009 than in prior years. Only about 5 percent said it was better.

The study is part of a project the Urban Institute operates with the National Council of Nonprofits, a Washington coalition of charities. The project was paid for by the Bill & Melinda Gates Foundation.

The Urban Institute presented its findings in the report, “Human Service Nonprofits and Government Collaboration: Findings From the 2010 National Survey of Nonprofit Government Contracting and Grants,” and a companion report, “Contracts and Grants Between Human Service Nonprofits and Governments.”

Study results for each of the 50 states and the District of Columbia are available in a third publication, “National Study of Nonprofit Government Contracting: State Profiles.”

All three publications are available on the Urban Institute’s Web site.

A group of nonprofit experts will review the study—in a discussion called “The $100-Billion Connection: Government Contracts and Human Service Nonprofits”—at 9 a.m. today at the Urban Institute’s offices. For information about attending the discussion or listening to a live audio Webcast, go to