In response to large deficits and decreased tax revenue, many government services continue to shrink compelling many communities to turn to nonprofits for help. Although nonprofits deliver these essential services, often they remain financed by government bodies.
Nonprofit programs funded by the government (federal, state, or local) are usually large but they are also lean. Receiving government funds has advantages and disadvantages. Exploring these advantages and disadvantages will encourage leadership to build a long term plan including the tools needed to sustain and develop comprehensive services.
The main advantage to obtaining government funds is the quantity of funds received through a single grant or contract. These funds create an opportunity to serve a large number of people and evaluate the outcomes on a greater scale.
Accessing these government funds requires nonprofit resources to build the relationships, identify government sources, write the proposals, and create the internal systems to administer the program efficiently and effectively. Rarely are these costs remunerated or reimbursed through the grant. Since these resources are essential but not compensated, nonprofits find it difficult to identify and access other grants to fund these programs once the government grant or contract ends. In other words, it is easy for nonprofits to become dependent on government funding since they don’t have the resources to develop other funding options.
Government grants or contracts are usually distributed through a reimbursement process once services are provided. Reimbursing for services rendered, requires the nonprofit to supply the services and incur the expenses first and then wait for the governing body to disperse the funds. This type of system requires a comprehensive accounting system to keep track of services rendered and request reimbursement. Often the resources required to run these systems are not covered by the grant. Additionally due to deficits, many states are behind in payments some for nine months or more. Many nonprofits are forced to open a line of credit to float the government until these payments are received. This delay leads to other challenges discussed in a previous blog post: https://gaylenelsonesq.wordpress.com/2014/08/18/leaders-bolster-the-bottom-line/
Another disadvantage, government funding requires a quick turn around once the grant is awarded. After nonprofits submit their proposal, they should expand and create new partnerships and internal systems. With these in place, the organization can quickly ramp up once the grant notification is received. In the next post, we will discuss the essential preparations required to smoothly provide services funded by a government grant or contract.