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The Built-in Risk of Growth in Government-funded Nonprofits

Gayle Nelson
March 23, 2017
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“Domino Cascade” by aussiegall ([1]) [CC BY 2.0], via Wikimedia Commons

March 18, 2017; Detroit Free Press

Government grants and contracts have a pattern of fueling unsustainable organizational growth by rarely funding all of the costs associated with the contracted program and service. Yet, one of nonprofits’ main functions is to provide services the state is otherwise obligated to provide. Responsible nonprofit leaders need to fully articulate program costs and improve evaluation systems, thereby providing long-term dependable services.

Recently, the Greening of Detroit laid off all of its 26 employees and temporarily shut down operations. According to its last published IRS Form 990 return, in 2014, the nonprofit organization had a budget of over $4 million and over 200 employees. Over its 16-year history, it has planted tens of thousands of trees, replacing a large number lost to Dutch elm disease. The organization plans to restart programs in April once funding resumes.

At its peak, the organization had employment training and urban agriculture programs as well as tree-planting activities. Much of its work was fueled by youth and volunteers and the majority of its funding was programmatic government grants. Unfortunately, this structure didn’t provide for the administrative or overhead costs necessary to fuel a healthy organization.

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The Nonprofit Quarterly has written many articles chronicling the unsustainable growth of diverse nonprofit organizations. Often, this stems from decisions to accept government grants that barely fund the program, staffing, and equipment and not the space the program is housed in. Lacking the funds for utilities, supervisory, administrative, and overhead costs, organizations have little margin to fund activities to develop other, less restrictive funding and earned income revenue streams. Without other healthier revenue streams, the nonprofit has few options when government funds are late, disrupted, or ended.

Another trap is the belief that using volunteers doesn’t cost money. Volunteer activity may be free, but the identification, training, and supervision of volunteers are not. Without funding to support volunteers, many will become frustrated, and more staffing will be needed to replace the ones that leave.

These decisions create a propensity to continue these untenable government contracts. After all, how can nonprofits argue the contract is insufficient when they have a history of accepting it as full programmatic funding? Additionally, leaders and staff perceive it as a responsibility to provide the services outlined in the organization’s mission and not as creating a dangerous unsustainable precedent. These conditions create an environment where burnout and insufficient staffing become the norm.

Greening’s solution is to develop fee-for-service landscaping opportunities for condominiums and other large landowners. Hopefully, the new earned income revenue stream will be up and running before the federal government guts the Great Lakes Restoration program that’s responsible for funding Greening’s tree planting program.—Gayle Nelson

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ABOUT THE AUTHOR
Gayle Nelson

Gayle Nelson, Esq is a leader responsible for raising millions of dollars for diverse nonprofit organizations. Since over three quarters of revenue flows from individuals, Gayle begins her work expanding organizational capacity by coaching leadership on development best practices and engaging new volunteers. In addition, she reaches out to major and younger donors planning exciting events and increasing visibility utilizing crowdfunding, social media tools, and traditional media outlets. With a strong network and knowledge of philanthropy, Gayle coaches organizations of various sizes on opportunities to increase revenue from Donor Advised Funds (DAF) and planned giving vehicles as well as public and private foundations. Additionally, she often writes proposals funding new programs and develops earned income revenue streams. As an attorney, Gayle is also an advocate, partnering with nonprofits to enhance their relationships with government leaders to pinpoint community need and promote agency services. And, to ensure activities lead to thriving organizations and long-term sustainable growth, Gayle utilizes her financial acumen to partner with Boards and finance staff to build comprehensive program and agency budgets. Finally, she is a highly respected speaker on diverse topics including shifting government funding, succession planning, and inter-generational board/volunteer engagement.

More about: government contracts government fundingManagement and LeadershipNonprofit NewsVolunteerism

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