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Financial Management in the Nonprofit Sector

For a decades government funding has played its part and shaped the nonprofit sector, each era has brought it's own unique challenges and issues. This presentation focuses on the impact that government funding has had in shaping the sector.
by

Tabitha Blackwell

on 18 April 2011

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Transcript of Financial Management in the Nonprofit Sector

Financial Management in the Nonprofit Sector Each era has brought its own unique challenges and issues to impact the nonprofit sector and financial management Pre-1960s 1960-1999 Present Future 1940 1950 1960 1970 1980 1990 2000 2010 2020 In the 21st century, federal grants and contracts had become the major public funding source for many nonprofits. According the Urban Institute, about 60 percent of nonprofit organizations with government grants and contract count those grants and contracts as their largest funding source (Smith, 2006). According to a national study conducted by the Urban Institute, 56 percent of human service organizations reported that they received less money from state governments in 2009 (Smith, 2006). Since funding has been cut, roughly 82 percent of these groups have had to cut back on their operations.  This has had a huge detrimental impact on the operations of nonprofits (U.S. Government Accountability Office, 2009). Funding organizations like... With an increase in budget feuds.... ...it is apparent that nonprofits will continue to play a huge role in the impact of government decisions as it has since the beginning of the millennium. Peter Frumkin (2002) stated that nonprofit organizations depend on government grants and contracts for over half of their revenue, regardless of religious or political origins. Studies show that government funding accounts for 66 percent of the revenue of health related nonprofits and 52 percent of revenues of social welfare organizations (Rushton and Brooks, 2007). As the economic downturn took its toll on banks and businesses, nonprofit organizations has also felt the effects in the form of available government funding Along with a decline in government funding, there has also been a reduction in monetary contributions, as well as investment income. About 63 percent of youth developments and employment programs reported a decrease in revenue in the 2000s (Smith, 2006). The government is cutting back on funding to nonprofits that cater to needs such as food, job training, education, and child care services. In addition to these cuts, management of government funds to these nonprofit agencies has declined significantly. More than 30 percent of nonprofit participants said that their experience with government funding has gotten worse since 2009, according to the Urban Institute report (Smith, 2006).  In 2008, the United States experienced a major economic downturn. Past priorities and decisions of the government shape the present and future funding of the nonprofit sector. While federal funding began to decline in the 1980s and 1990s, funding for nonprofit organizations remained on the increase (Hammond, 2006). and improves citizens well being overall. In the 1960s, government spending on social welfare programs increased. There was a landmark shift in the relationship between the public and the private sectors (Cho & Gillespie, 2006). From 1963-1969, the Johnson administration promoted nonprofits through its Great Society programs. Then from 1969 – 1974 the Nixon Administration continued to expanding on the services from the previous decade. The shift has reinforced other government policies that have increased involvement in delivering publicly-funded services. The 1960s was a period of social welfare reform in the United States. In 1964, two major initiatives were passed: Civil Rights Act and the War on Poverty The War on Poverty was key to the funding many of the nonprofits and initiatives to help those in need, including... VISTA (Volunteer in Service to America) – Stressed community service to impoverished neighborhoods Community Action Program – Provided federal funds for community programs working towards eliminating poverty Food Stamps Program – To help alleviate hunger in America. Older American Act – Coordinate services for the elderly Social Security Act - Was expanded by adding Medicare and Medicaid (healthcare for the elderly, poor and disable), and... And finally...
Head Start – To prevent poverty by providing services for poor preschool children and families (1965) In the 1970s, there was an increase in caseloads for single mothers and families of color, according to the statistics from the Aid To Families with Dependent Children (AFDC) (Oakley, 2006) ...Then again there was also a shift of ideology in the 1970s with President Richard Nixon’s conservative policies. ...the Comprehensive Employment and Training Act (CETA) that fund numerous nonprofits dedicated to workforce development. More importantly, from 1960 to 1999, the concept of devolution emerged, which sought the return of controlled social services from the federal level to the state or local level (Grnbjerg & Salamon, 2002). This timeframe was an explosive period for nonprofit social welfare organizations. Due to the increasing needs of families and individuals, during this time, the government implemental new policies that would be beneficial to those in need. The nonprofit sector has increased triple the size since 1970 and is a result of greater family income and government payments. In the 1970s, the country also found itself plagued with high unemployment rates, which the government responded with.. Dartmouth v. Woodward “In 1819, the US Supreme Court ruled in Dartmouth v. Woodward that Dartmouth College, even though originally chartered by the government, was legally akin to a private corporation. This landmark decision was the founding legal document of what has become the American private nonprofit sector” (Lee, 2007). This decision by the Supreme Court assured donors that their foundations are legally protected from government interference, thus providing the impetus for social change through private nonprofit organizations. Prior to the 1890’s philanthropy on a large scale was hindered by laws in numerous states. Men like John D. Rockefeller and Andrew Carnegie wanted to donate huge sums of money to private charities, but were prevented from doing so. “By 1893, New York, Pennsylvania, Ohio and Illinois had altered their charity statues, permitting the kind of wholesale philanthropy that Carnegie had advocated” (Hall, 2000) By the turn of the century, nonprofit organizations were part of the “de facto” government, providing valuable social services (Hammack, 1989). In 1901, a survey studying government subsidization of private charities concluded that “except possibly two territories and four western states, there probably is not a state in the union where some aid to private charities is not given either by the state or by counties and cities” (Salamon, 1995). During the social upheaval caused by the First World War and the Great Depression, the Government relied more upon private charities to address social needs. “Between 1917 and 1929, the income private social agencies received annually from public funds increased fourfold” (Oakley, 2006).
Private charities and local government worked together to address the needs of the people. The Community Chest was created as a way to receive and distribute charitable trusts. “By 1930, hundreds of towns and cities had adopted this form of federated fundraising” (Hall, 2000). The Community Chest, and similar community councils solidified the partnership between private organizations and public officials, who often sat on council governing boards (Oakley, 2006). During the 1930’s, President Roosevelt passed significant tax reform, which greatly impacted the nonprofit sector. The reforms to income and estate taxes encouraged large scale donations to nonprofits in order to avoid taxation. Post WWII the income tax was reformed to apply to all Americans. More “loopholes” were created to further “encourage charitable giving to private institutions classified as tax-exempt by the IRS” (Hall, 2000) This greatly stimulated the growth of the sector. In 1940, 12,500 charitable tax-exempt organizations were registered with the IRS (Hall, 2000). Stimulated by tax reform and increased funding, the nonprofit sector continued to grow. In 1929, only 203 foundations had assets exceeding $1 million. By 1959, over 2,000 foundations had such assets (Hall, 2000). Nonprofit organizations established in the early 20th century “gained increased vigor in the 1950s, and thrived in the 1960s, when many nonprofits…found a new role as advocates of extensive social change” (Hammack, 1989). Nonprofit organizations play a key role in social economic and political fields, which promotes community development, advocates for civil rights, Unfortunately, the forecast for government funding for nonprofits remains bleaks. By 1980, there were 320,000 (Hall, 2000). Remember how many nonprofits were registered with the IRS in 1940? This Presentation Brought To You By: Ebony Howard Lia Lane Nataly Schwartz Tabitha Blackwell and the scholarly works of... Many of the programs and initiatives the government created and has spent decades funding, in the future, face being cut. Nonprofits will be forced to find outside streams of revenue like... Corporate partnerships Individual Donors and social enterprise. However, as the government continues to create policies that drive funding, the nonprofit sector will continue to evolve to serve the needs of those in society.
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