September 20, 2010; Source: Neiman Journalism Lab | When is too much of good thing too much of a good thing? A new study finds that when nonprofits receive government support, private donations to those organizations fall precipitously. According to Neiman Journalism Lab, the study of 8,000 nonprofits by researchers at UC San Diego and McMaster University in Canada finds in the wake of government financial support to nonprofits, some “73 percent of the extra money is counterbalanced by a decline in support from private donors.”

The researchers say the reason for this drop-off is not because people think government money alleviates the need for private gifts. Instead, they argue that after receiving money from the government, nonprofits tend to throttle back their own fundraising efforts.

Citing a key finding from the research, Neiman Journalism Lab reports that “for every $1,000 given through a government grant, nonprofits reduce their spending on fundraising by an average of $137. But that decrease leads to a drop of $772 in donor gifts. (The paper found that, contrary to the fears of some, government grants encourage outside donors to give instead of discouraging them — but the impact is small, only about $45 per $1,000 in government grants.) In other words, adding it all together, $1,000 in government money only nets out to $410 in the end, on average.”

The key takeaway from the study: investing in fundraising is smart. Researchers found that each $1 spent on fundraising could return $5 in revenue.—Bruce Trachtenberg