Long before Congress let automatic federal spending cuts take effect in March, nonprofits started lobbying furiously to protect government money that they—and many of the people they serve—depend on.
Several nonprofits created Web sites detailing what it means that $42-billion in across-the-board cuts are falling evenly on nearly every domestic program. They point to the children who can’t get access to Head Start, poor elderly people who can’t get housing or food, and the vast array of other services nonprofits provide using federal dollars.
Their pleas grew more intense last month as charities joined forces to ask Congress to restore funds to social-service programs as swiftly as they moved to replenish the budget for air-traffic controllers to end long waits at airports.
But what goes largely unmentioned amid the increasingly loud advocacy is that charities have received record government aid for years before they faced today’s climate of austerity.
Over the past decade, state, local, and federal governments have been expanding their largess at a faster rate than America’s foundations, corporations, and individual donors, a new Chronicle study finds.
Feels Like a Triple Hit
From 2000 to 2010, the money charities received from governments at all levels increased 77 percent, to $215-billion (not counting the money that goes to colleges and hospitals). That’s as much as the combined annual spending of five states last year: Illinois, Indiana, Michigan, Minnesota, and Ohio.
Meanwhile, in that same time span, donations from private sources grew just 47 percent, to $172-billion.
In total, those nonprofits reported $695-billion in revenue in 2010, the latest year for which data are available from the Urban Institute’s National Center for Charitable Statistics.
The rapid growth in government dollars to nonprofits in 2010, experts say, was fueled in large part by the massive federal stimulus measure Congress passed in 2009. The last of that money reached nonprofits last year, which explains why they now feel like they faced a triple hit: The stimulus money is nearly gone, federal money for many programs has been trimmed in the past two years, and the automatic cuts known as sequestration are now taking effect.
“It’s really only recently, with the federal stimulus dollars gone and state and local budgets not completely recovered, that we’re seeing nonprofits get really pinched in terms of their government funding,” says Alan Abramson, director of the George Mason Center for Nonprofit Management, Philanthropy, and Policy.
While nonprofits have struggled with increased demand ever since the economy soured, some nonprofit advocates say they wish organizations had realized that the stimulus money was a financial cushion that gave them the time and financial security they needed to prepare for today’s tighter government budgets.
“What has happened over the past few years has been far from the worst-case scenario,” says Kim Syman, a managing partner at New Profit, a nonprofit that provides money to innovative social projects.
“Our hope was that stimulus money would be used with an understanding that there would be an endpoint,” Ms. Syman says, “that they would use it to build sustainable models that would be in place when stimulus was over.”
Preparing for Reductions in Aid
Some groups began preparing for changing government spending patterns even before the recession started.
In 2006 Crittenton Women’s Union in Boston analyzed government spending trends and realized it probably wasn’t going to keep getting generous state and federal grants to pay for the adult education and day-care services it provides to needy women.
But governments were increasing spending on job training and low-cost housing and likely to keep doing so, says Elisabeth Babcock, the group’s chief executive.
So the group cut back its work on education and day care, which meant giving up $1-million it could have expected to receive from governments from 2006 to 2009.
And then it focused on beefing up the services that could attract growing government aid.
With money from the Boston philanthropists Albert and Kate Merck, the group started a program to teach financial skills to low-income women in public housing. Those lessons helped the women learn how to accumulate the money they needed to move out of public housing, saving the city and state money.
The results of the program were so strong that the group won contracts with the Cambridge and Massachusetts housing authorities, and its revenue grew to $11-million in 2012, a 57-percent increase from 2006.
“Our organization is surviving and thriving, but largely because we shifted away from being a traditional safety-net organization,” Ms. Babcock says. “If we hadn’t made that transition, we’d be dying a death of a thousand cuts.”
While Crittenton was willing to ditch programs that government wasn’t willing to support generously, not all groups are willing or able to do that. And in the end, Crittenton is now back to relying on government for a key part of its budget.
“Once you take that government dollar, it’s like taking the first hit of a narcotic,” says Paul Light, a professor of public service at New York University. “You slowly or quickly become quite dependent.”
And that can become a problem now that the federal government is cutting back.
“Policy makers think they can inflict one small paper cut after another as nonprofits do more with less and take less for more,” Mr. Light says.
Beats Private Industry
Still, some nonprofit advocates think charities hurt themselves by not acknowledging how much government aid they receive and how much it has grown in the past decade.
“The nonprofit sector loses credibility when its message is always that the sky is falling,” says Jan Masaoka, chief executive of the California Association of Nonprofits. “Has there ever been a year that nonprofits have said, ‘Funding is great this year’? So when people say it’s bad this year, nobody believes them. It doesn’t distinguish us from other industries.”
In fact, nonprofits have performed better than private industry during tough economic times.
Lester Salamon, director of the Center for Civil Society Studies at the Johns Hopkins University, says his research has shown that government money plus creative approaches from charities allowed nonprofit hiring to outpace for-profit hiring during the recession and in the past few years of the slow recovery.
He says that throughout the downturn, he and his Hopkins colleagues “were putting out reports saying let’s not overreact” about the recession’s impact. “The surveys were saying that the sector was continuing to grow.”
His findings never sat well with nonprofits beating the sky-is-falling drum, he says.
Hospitals Get the Most
That said, he notes that the overall figures showing government spending often don’t capture the big differences in what kinds of groups get support. Hospitals, for example, get the lion’s share of money because they benefit from programs like Medicare or Medicaid that subsidize any poor or elderly person who qualifies.
To get a better look at how a typical nonprofit benefits from government, The Chronicle excluded both hospitals and colleges from its analysis. With hospitals and colleges included, the total government spending on nonprofits was $499-billion in 2010, compared with $215-billion when their dollars are not counted. (Fifty-four percent of the $499-billion went to hospitals.)
In the Chronicle analysis, human-service groups received the most in total dollars in 2010, while education groups that deliver Head Start, after-school programs, and other mentoring services grew the fastest from 2000 to 2010—128.7 percent, to $13-billion.
Even though social services topped the list, that hasn’t been enough to help some nonprofits cope with increases in requests from the needy and cuts in government aid in 2011 and 2012.
Take the situation in Ohio, where unemployment, poverty, and hunger soared during the downturn.
Barbara Sykes, chief executive of Ohio United Way, says cuts to local grants from a federal emergency food program came at exactly the wrong time. The federal Emergency Food and Shelter Program reduced grants 68 percent—from $13.4-million in 2009 to $4.3-million in 2012.
Although Ohio unemployment fell to 6.7 percent last year, demand for food, shelter, and job training never eased, Ms. Sykes says. In part, she says, that is because people who now have jobs often make a lot less than they did before the recession and still need a hand putting food on the table.
In the last six months of 2012, food banks reported an average 17-percent increase in requests for help, says the Ohio Association of Foodbanks.
“I call this one the unending Great Recession,” says Lisa Hamler-Fugitt, executive director of the association. “Despite the fact that it ended in June 2009, nothing in my world indicates that.”
Ways to Cope
Some nonprofits find it easier than food banks and other safety-net charities to cope with losses of government aid.
At NeighborWorks Sacramento, “there’s been no fiscal cliff,” says Pam Canada, the group’s executive director, even though government grants to her group have declined. The charity suffered a 26-percent cut in 2011, to $1.7-million compared with 2010.
But the organization is thriving because it has been aggressively buying and refurbishing real estate, then selling it. Earnings from such real-estate activities during that time grew 177 percent, to $906,000. “We didn’t want to be reliant on any one source of revenue,” says Ms. Canada.
Still, that entrepreneurial approach doesn’t work for every group.
“The reason people like [earned revenues] is that it gives them a sense of autonomy that they’re no longer beholden to the vagaries of foundation and government funding,” says Daniel Stid, a partner at the Bridgespan Group, a nonprofit consulting organization. “But it’s a pretty rare social-service organization that is able to really sustain its work through earned-income funding models.”
Aside from the practical challenges, charities also face basic questions about their mission when they increase fees.
In Arizona, for example, Phoenix Day, a child-care center, has been forced to increase its fees to offset deep state cuts, but that has prompted some low-income families to quit as clients.
“There are some things you can charge more for and some things that are hard to charge more for,” says Mr. Abramson, the George Mason University scholar. “Some clients can afford that and others can’t.”