Five Ways to Let Government Money Run You Over

Is government funding a way to expand what you do for important constituencies, whether they are families living with autism, low income people seeking legal help, or people attending your dance performances? Or is government funding a trap that will mire you in reporting nightmares, take you away from your values, and turn you into a heartless bureaucracy?

Let's start with a reality: local, state, and federal government agencies are major buyers of social services, education, health, and arts in the United States. In fact, government funding made up 52% of total income for social service nonprofits in 1997 (Lester Salamon in The Resilient Sector). For many organizations, the question is not whether to take government funding, but how to get more of it. Whether you are thinking about your first RFP (Request for Proposals) or are already knee-deep in existing grants and contracts, here are five ways to do it WRONG.

1. Don't assign anyone to oversee contracts management. Successful completion of a government contract requires not just doing the work well, but customized reporting of activities and finances. If no one is explicitly responsible for contracts management, some program directors may under-bid on costs, and you'll end up losing money on the contract. In other cases you may not pay attention to ensuring that the full amount of allowable costs is charged to the contract. Someone needs to make sure that budgets are appropriate prior to submission, that financial and programmatic performance is monitored, and that reports are done promptly and completely--these are not entry-level responsibilities!

2. Stay out of politics. Political engagement is an essential responsibility of government-funded organizations. It's not enough to help social service clients deal with the aftermath of our systems' inadequacies. Nonprofits need to take a seat at the budgeting and policy tables to inform policy direction and protect vital services. This might mean joining a local association of nonprofit contractors, or making sure that your board and staff leaders have the savvy to engage with government agencies and officials. Remember: endorsing a candidate for office isn't legal for nonprofits, but keeping officials informed is.

3. Blind yourself to the difference between what they're paying and what it's costing. A $1 million contract is a disaster if it ends up costing you $1.5 million to meet the deliverables. Because nonprofits have to track expenses to show they are in compliance with an approved contract budget, it's easy to post expenses only if they are at the level in the approved contract budget. In many cases, real costs that were not approved in the contract budget often get pushed somewhere else--to some nebulous "administrative" dumping zone--and the full cost of the program is lost forever. As a result, when it comes time to negotiate a renewal, the cost picture is inaccurate, and the nonprofit happily signs onto another money-losing year.

4. Let your organizational culture evolve organically. Because government funding often is a majority or even 90% of a nonprofit's budget, an implicit culture can grow that narrowly focuses on contract compliance and regards the government as the client (after all, the government is the client from a contract perspective). Culture means more than dress code or communication styles: it means a sense of nonprofit commitment to mission and to mission-identified constituencies (rather than contract-identified targets). Rather than let culture evolve on its own, devote attention keeping a nonprofit culture and a constituent-oriented outlook. Encourage cross-contract work groups and discussions. Demonstrate the same care with individual donors as you do with institutional donors. Engage your community in needs assessment, feedback, and be open to criticism and suggestions about your programs.

5. Now that you've got big money, don't sweat the little money. In CompassPoint's consulting practice, we often work with nonprofits--often those based in communities of color--whose early funding came from government agencies. Unlike nonprofits that established with large donations from their founding volunteers and board members, these groups often get started later on their individual, foundation, and corporate contacts. The result is too many 10-year-old organizations with $1 million programs but with fewer than 50 donors (who are listed in an outdated FileMaker database that nobody knows how to use!). Start to build the capacity for other kinds of funding, and set realistic goals for doing so. With even 10% of your budget coming from non-government sources, you'll enjoy the freedom to experiment, make a few mistakes, and do important work that would never be government-funded.

This article is adapted from "Government Funding: Use It Well," by Jeanne Bell, in Nonprofit Quarterly.

Comments (4)

  • Back when I was doing a lot of finance consulting to nonprofits, I used to say, "There would be no nonprofit bankruptcies if there were no government funding." Nonprofits frequently fear that their values will be compromised by taking government money. Instead, more frequently the problem is that they are driven into financial difficulties by government contracts that are Wal-Mart like: unrealistically cheap but too big to ignore. I'm glad this article takes on this problem.

    Apr 22, 2008
  • Our group has a small budget with little funding outside our annual resident letter campaigns - a small foundation grant here or there helps. We have close ties, however, to another group in our area that is servicing six-figure grants in fire abatement and property clearance that come from state and federal agencies through a clearinghouse or the county. I sit in on their board meetings and have become very familiar with the challenges they encounter meeting the terms of some of their big grants. If they fail to spend the percentage allowed for "ground work", they lose their admin percentage, as well. It can be nightmarish for the Executive Director and the contract-oversight committee.

    May 01, 2008
  • I'm director of a nonprofit call West Virginia Kids in Action geared at reducing and preventing pediatric obesity in the eastern panhandle of WV. We get the small foundation grants, my salary was for two years from Benedum, which ends in January. We're trying Heinz, RWJF, etc. but I'd like to go to a more localized ownership of the public/private sectors. Any success stories or ideas from anyone would be greatly appreciated.

    Jun 16, 2008
  • Our non-profit private school in central NJ is starting to seek gov't funding, but we don't know what the LEA refers to - our county? school district? How do we establish contact with that local branch?

    Nov 17, 2008

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