Building Public Services Through the Nonprofit Sector: Exploring the Risks of Rapid, Government Funded Growth in Human Service Organizations

42 Pages Posted: 21 Sep 2013 Last revised: 25 Oct 2014

See all articles by Jasmine McGinnis

Jasmine McGinnis

George Washington University - Trachtenberg School of Public Policy and Public Administration

Lewis Faulk

American University - School of Public Affairs

Susannah Ali

American University

Date Written: August 20, 2013

Abstract

As the public sector increasingly relies on grants to nonprofits to provide human services, both public and nonprofit partners are exploring the implications of this relationship in order to ensure the best possible outcomes. A key issue that has emerged in the public sector literature is the concept of “thin markets” where public sector entities become reliant on a limited pool of private providers. At the same time, the nonprofit literature explores how to make nonprofits financially viable and develop relationship with government without straying from their mission. We combine these two perspectives to understand how a large influx of government grant funding to human service nonprofits impacts organizations’ future financial sustainability, recognizing that the stability of the relationship between government and nonprofits is crucial to providing quality services. Using a 13 year panel dataset of IRS 990 data from over 50,000 human service nonprofits we find that nonprofits who experience rapid growth from government grants do not build financial reserves to serve as a cushion during economic downturns creating a situation where declines in funding forces immediate expense reductions. We recommend approaches to the grant process for both government and nonprofit organizations to encourage long-term sustainability ensuring continuity of services, especially during unforeseen economic downturns.

Keywords: Government Grants, Nonprofit Organizations, Human Services, Organizational Growth

JEL Classification: L3, L31, L33, H1, H5, D92

Suggested Citation

McGinnis, Jasmine and Faulk, Lewis and Ali, Susannah, Building Public Services Through the Nonprofit Sector: Exploring the Risks of Rapid, Government Funded Growth in Human Service Organizations (August 20, 2013). American University School of Public Affairs Research Paper No. 2014-0010. Available at SSRN: https://ssrn.com/abstract=2313228 or http://dx.doi.org/10.2139/ssrn.2313228

Jasmine McGinnis

George Washington University - Trachtenberg School of Public Policy and Public Administration ( email )

805 21st Street, NW
Suite 601
Washington, DC 20052
United States

Lewis Faulk (Contact Author)

American University - School of Public Affairs ( email )

Washington, DC 20016
United States

Susannah Ali

American University ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States

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