Government contracting hurts nonprofits

PJ staff report

Human-service nonprofits reeling from the troubled economy are reporting “serious and widespread” problems with government contracts and grants, a new study says.

Forty-one percent of human-service nonprofits say government agencies made late payments in 2009, for example, while 24 percent say delinquent payments are a big problem, according to the study by the Urban Institute.

With over 40 percent of nonprofits saying they faced a deficit in 2009 as a result of the recession, 56 percent reported less revenue from state governments, 49 percent from local governments, and 31 percent from the federal government, says the study, Human Service Nonprofits and Government Collaboration: Findings from the 2010 National Survey of Nonprofit Government Contracting and Grants.

Overall, nearly 33,000 human-service nonprofits had government contracts and grants that totaled roughly $100 billion last year and provided the single largest source of revenue for 62 percent of them, the study says.

All levels of government were slow to send checks, with state governments most likely to be over 90 days late.

Sixty-eight percent of nonprofits say they were hurt by federal, state or local government payments that do not cover the full costs of contracted services, with 44 percent saying that practice was a major problem.

Fifty-seven percent reported problems with governments changing contract terms in the middle of the contract, including cancellations, reduced payments and postponements, with 26 percent saying the mid-stream changes were a serious problem.

And 76 percent of nonprofits reported problems causes by complicated, time-consuming applications, with the same percentage citing complex reporting demands.

In both cases, 37 percent say those problems are big ones.

Overall, 31 percent of nonprofits nationally say their experiences with government contracting in 2009 were worse than in previous years, with 82 percent reporting one or more contracting problems, and 66 percent reporting at least one big problem.

To cope with the financial stress from the economy, 82 percent of human-service providers reduced their operations, with 50 percent freezing or reducing salaries, 39 percent tapping financial reserves, and 38 percent reducing staff.

Nonprofits that reported changes in government contracts and grants, late payments or insufficient payments were much more likely to make cutbacks than groups without changes or problems.

“Government processes differ from agency to agency and often from contract to contract, which exacts a heavy toll on nonprofit providers,” the study’s research team says in a companion brief.

If donations and investment income decline while demand for services increases in addition to projected state budget shortfalls for fiscal 2011 and 2012, many nonprofits will reach the “breaking point,” the study says.

“Of greater concern is the hollowing of organizational capacity that may take years, if ever, to rebuild,” it says.

Nonprofits in some states reported fewer problems than in others, providing “bright spots” that could provide “models for involving nonprofit-government funding relationships,” the researchers say.

“Nonprofits and government agencies at all levels must work together to identify and implement workable solutions to the problems documented here,” the study says.

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