Reason for Hope? Government Funding

What Your Board Needs to Know About Government Funding

If the seven nonprofit incomes sources[1] entered a popularity contest this year, the biggest loser would be government funding. As state legislators across the United States come to a close, sessions that caused widespread anxiety, it is clear that government funding has become unpopular. However, dismissing it entirely is a mistake. Even with current cutbacks, nonprofits will continue to receive significant government money. Grants.gov, the official website for US Federal Grants, lists 26 agencies that offer 1,000 funding opportunities. States, provinces, municipalities and others will continue to provide income. This article provides a board primer on government funding to help your leaders maintain a realistic perspective on this source.

1. Why do governments pay funds to nonprofit organizations?

  • The activity promotes the common good.
  • More bang for the buck. Nonprofits offer better or cheaper solutions.
  • Nonprofits provide services that increase the impact of government funding, i.e. support services for developmentally disabled or seniors.
  • Voters like the mission. Elected officials like happy voters.
  • An unpopular activity, like tickets from parking in handicapped spots, can be made more palatable by sharing the proceeds.

2. What are some examples of how government support has helped nonprofits?

  • Utah Judicial Council received $30,000 to support the creation of a Court Visitor Volunteer program to assist elderly and incapacitated persons appearing before the court on matters of guardian or conservatorship.
  • The Alberta Ballet Company receives $500,000 CA from Canada Council for the Arts.
  • The Florida Humanities Council awards $2,000 mini-grants to planning and execution of public humanities projects.

3. What types of support do government entities offer?

Typically three kinds:

a. Grants. Through a competitive application process, nonprofits apply for one-time funding. The application and subsequent contract outlines what the nonprofit will achieve with the funds. Often payment is divided into segments.

b. Contracts. While the labels of “grants” and “contracts” are often used interchangeably, they represent two different arrangements. With contracts, again through an application process, nonprofits obtain funds to provide services. If the service is not performed, or less units of it take place than the contract allows, the nonprofit receives a reduced proportion of the award.

c. Earmarks. Wikipedia defines an earmark as “a legislative provision that directs approved funds to be spent on specific projects, or that directs specific exemptions from taxes or mandated fees . . .” Generally, your legislator inserts an earmark into a budget or legislation that directs resources to your organization.

4. Is this a common source of nonprofit income?

Yes, it is the second or third largest source depending on the reference. In size, government funding ranks after earned income and either before or after individual donations. Historically, governments represent 21 percent or more of all nonprofit income.

5. What are the benefits of government support?

  • Significant Money. Government funding ranges from around $20,000 and reaches to multimillions. Individual donations, by contrast, start with $20 or $100 gifts.
  • High Need. Government funds often help pay for needs that have low individual donor appeal, but high societal need, like help for parents who abused their children, juvenile delinquents, or adults with mental health problems.
  • Persuade Few. You only need to convince a handful of decision makers of your work’s merit, like county commissioners, panel members, and staff. In contrast, individual donor databases include thousands of names.
  • Renewal Opportunities. With contracts and grants, successful early birds often learn and successfully apply the rules of the game. These rules act as barriers that discourage new entrants.

6. What are the risks?

  • Underpayment. Government entities rarely pay for all costs associated with projects, including the expense related to obtain the money.
  • Winners Take All. You will face stiff competition. The difference between success and failure can be one point or vote.
  • Unintended Impacts. To manage the funds you will need infrastructure to deal with the paperwork, and a tolerance for bureaucracy.
  • Unhealthy Dependence. The size of the government funding creates huge impacts in budgets both when the funds begin and end. Some nonprofits develop an unhealthy dependence on this money.

7. What is your organization’s experience with government support?

As a board member it is wise to learn about the different types of government support your agency receives or might receive. Consider asking questions like: What government agencies might fund the nonprofit? What is the process? What percentage of the budget does government funding represent? If significant in size, what plans exist to replace these funds if they are reduced or eliminated for a year—or forever? What actions should we take to ensure these funds remain available to us? Do we have the infrastructure in place to do a stellar job with these funds?

8. What is the role of the board?

  • Determine if government funding makes sense for you, and the percentage of your income you would like it to represent. If you are already heavily funded by the  government, help your organization to diversify.
  • Vet opportunities and remain objective when the lure of millions impacts the group’s thinking. Qualifying for an opportunity does not equal winning it. Determine if an opportunity offers a greater than 50 percent chance of success—before applying. Many federal programs anticipate funding ten or fewer recipients and set six-week deadlines. Many qualify. Few can develop a quality application in 45 days or less unless they anticipate the opportunity before the official announcement.
  • Help your nonprofit to persevere. When you find a program that works, or a legislator willing to include your program as an earmark, understand that second or even later requests stand increasingly better chances of success, especially when your request was a near miss the last cycle. Obtain any review comments. Second requests allow you work from a template, respond to the review comments, and tinker with the project—all actions that increase your success.
  • If government funding fits, develop a “spare income vehicle”—for downturns. Fluctuations will continue.
  • Create positive relationship with your government officials. Listen to them. Help them to meet their goals. Practice good stewardship just as you would with other people who provide you income.

9. How can we prepare for what is ahead?

Pursue. Don’t let the headlines confuse you. Government funding is here to stay. Identify the sources you need. Seek them. Be aware of trends. Don’t let them keep you from the money you need for mission and a partnership with a government entity.

Be Proactive. Your government income may be immune to cuts, but recognize that for many nonprofits the unthinkable in this arena has happened. Regardless of your certainty, find a spare income vehicle that works and run it around the neighborhood regularly.

10. What is the general process of developing government support?

Best Practices.

For earmarks: Contact your legislators.

For grants and contracts, 1. Identify government entities that share goals with your organization. Review their websites. 2. Talk to their staff. Learn about any existing or pending programs. Ask for copies of successful applications. 3. Develop a proposal concept. Check with staff about it suitability. 4. Draft your proposal in time for a pre-submittal staff review. Adjust the proposal according to any suggestions. Thank staff for their help. 5. Submit the proposal. 6. Prepare for the site visit or panel review meetings. 7. Obtain the results. Celebrate or determine if this source is a realistic opportunity for your organization. Incorporate what you learned. Apply again as appropriate.

The End of Government Funding?

Government funding will remain an important funding source for nonprofits. In all likelihood, threats of cuts and actual cuts will be part of the experience. If your mission and the government’s intersect, uncover the opportunities you have and decide how your organization will take advantage of this resource to forward your mission.

Resources

Government funding is only one of seven sources. To learn about the other six, see Can Your Organization Obtain More Income? The 7 Sources. This article on government funding is number three in a series about each of the seven sources. For the earlier issues, see https://www.kedconsult.com/newsletter-archive/

For more on nonprofits and funding opportunities listen to our collection of audio downloads, especially Money-tastic #2: Nonprofit Income Opportunities and Money-tastic #3 Creative Revenue Streams for Your Nonprofit


[1] Mission earned income, individual gifts, government, corporate, foundation and other groups, other income and in-kind.