30 November 2017 | Rethinking the Government-Nonprofit Partnership: Who’s Funding Whom?, by Kelly LeRoux

To many scholars in the field of public administration and public management, the study of nonprofit organizations is viewed as a narrow niche, a handful of people working at the margins of the field on topics that largely sit outside of mainstream concerns for public managers. Many of us working in the nonprofit space have sensed diminished prospects for publishing nonprofit research in Public Administration and Management journals in recent years. In some cases, there has been explicit resistance by journal editors to considering nonprofit research. This is unfortunate, as nonprofits are increasingly compensating for government failures, and becoming more rather than less relevant to the practice of Public Management in the process. This is true particularly in the current political climate of disinvestment in public services, and especially safety net programs.

The lack of interest in nonprofit research from within the mainstream may stem in part from a limited perspective of nonprofits simply as government contract partners; organizational recipients of public dollars that must be managed and monitored. While that perspective is not inaccurate, the reality is that the government-nonprofit partnership has become far more nuanced and complex. This essay calls attention to some of the less obvious facets of the government-nonprofit partnership and argues that the field of Public Administration needs to pay close attention to the nonprofit sector and ways in which government relationships to the sector are evolving and changing.

The dominant view of nonprofits within the public management field is one which charitable organizations receive money from government in form of contracts and grants to deliver services. Research on nonprofit health and human service organizations is often framed in terms of resource dependence theory, portraying nonprofits as rent-seeking entities working strategically to exert control over the government organizations on which they depend for financing. Yet another picture has begun to emerge, evidence that has coalesced into a story in which nonprofits are funding government. Over the past twenty years a set of institutionalized funding relationships developed in which nonprofit organizations in the forms of private philanthropic foundations and “friends of” charities formed and now raise increasingly large share of revenues to help pay for public services. In some cases, these foundations or charities are created and operated by private citizens. In other cases, they’re created directly by elected and administrative officials of government organizations, operating as an extension of government agencies yet they engage in fundraising, soliciting private contributions from willing citizen donors. What’s more, they are not sporadic or limited to a single service area; they span every service function and level of government.

In the past couple years, several rigorous studies have documented the growth of these nonprofit funding groups, across numerous service delivery areas. Examples of this research include school-supporting nonprofits such Parent Teacher Organizations/Associations and booster clubs (Nelson and Gazley, 2014), philanthropic organizations supporting national parks (Yandle, Noonan, and Gazley, 2016), municipally-created nonprofit economic development organizations (LeRoux, 2012), local-level ‘friends of the library’ charities (Schatteman and Bingle, 2015) and there are more high-quality studies emerging on police foundations in US cities, and the role of privately funded veterans charities in compensating for government service gaps to veterans. In most of these cases, we see steady growth in private fundraising to help offset the government’s cost of public services delivery over time. However, private philanthropy has also been called upon in emergent situations of public financial distress, performing the role of safety net for the government. The most prominent example of this is the collective effort by the Ford, Kresge, Mott, and the Knight foundations to fund over $330 million of the bailout for the bankrupt City of Detroit in 2013. More recently, foundations in the state of Illinois were called upon to help bridge the funding gap during the state’s three year budget impasse in which government contractors were not paid money owed by the state.

The increased role of private nonprofit, voluntary and philanthropic groups in funding public services raises many important questions for the field of public management. Some of these questions are normative. Is this a desirable trend? On the one hand, governments are severely constrained in their ability to raise revenue through taxes and private charities represent an alternative source of financing necessary public services. On the other charitable contributions can be unpredictable, and cannot entirely be relied upon. It may also send the wrong signal to policy makers, who may feel absolved of the responsibility to seek out solutions for fully and adequately funding public services. Perhaps even more importantly, nonprofit financing of public organizations and services raises concerns of distributional equity. The evidence we have thus far suggests that these foundations and fundraising charities are not redistributing society’s resources in a way that makes the less fortunate better off, but instead just the opposite. For example, while we might expect school-supporting nonprofits to help reduce inequality among districts and provide needed to aid resource-strapped schools, Nelson and Gazley’s (2014) research generally finds that wealthier districts not only have an increased likelihood of having school-supporting nonprofits, but also generally raise more per-pupil contributions. Similarly, my own study of nonprofit economic development organizations in US cities found that wealthier cities create nonprofit real estate and nonprofit business assistance organizations at a greater rate than poorer cities, suggesting that wealthier cities reap more of the economic benefits of creating and operating these kinds of nonprofit organizations.

Other questions related to this issue are empirical, and merit the attention of public management scholars. What are the motivations and incentives for public managers to create and operate these institutional vehicles? What are the motivations of private citizens for forming these groups? Among those formed and operated by private citizens, how do they see their role vis a vis government? Do they view their efforts as supplements or substitutes to government? Do local property tax revenues crowd in or crowd out these groups? Who serves on the governing board of these organizations? Who within the public donates to these kinds of charities and why? Are they mainly funded by a few wealthy philanthropists and corporate interests, or do they generate support from a broader public? When do these organizations simply raise money for public agencies, and which engage in more substantive activity to supplement public service provision? Are the relationships between the public organizations that benefit from these charities always collaborative, or does it ever become competitive, or adversarial? Adding to the complexity, the answers to these questions might vary depending on service area (ie public education, economic development, etc).

We could certainly argue that the growth of these kinds of foundations and fundraising charities threatens to slide us further down the slippery slope of diminished public funding for necessary services, but the fact remains that this trend has established itself and will likely continue. It is a mistake for Public Management scholars to view the nonprofit sector as operating on the periphery of the field. The relationship of the nonprofit sector to government continues to evolve and is characterized by increasing complexity. The broader community of Public Management scholars should be paying attention to these relational shifts and trends, and must embrace research that reveals new insights about government-nonprofit relationships.

References

LeRoux, Kelly. 2012. Who Benefits from Nonprofit Economic Development? Examining the Revenue Distribution of Tax-Exempt Development Organizations among U.S. Cities. Journal of Urban Affairs, 34(1): 65-80.

Nelson, Ashlyn Aiko and Beth Gazley. 2014. The Rise of School-Supporting Nonprofits. Education Finance and Policy, 9(4): 541-566.

Schatteman, Alicia and Ben Bingle. 2015. Philanthropy Supporting Government: An Analysis of Local Library Funding. Journal of Public and Nonprofit Affairs, 1(2): 74-86.

Yandle, Tracy, Douglas S. Noonan, and Beth Gazley. 2016. Philanthropic Support of National Parks: Analysis Using the Social-Ecological Systems Framework. Nonprofit and Voluntary Sector Quarterly, 45(4): 134-155.