Most Nonprofits Report Federal Funding Cuts and Serious Problems with Government Contracts

Nearly half of all nonprofit organizations, in 2013, reported a decrease in revenue from federal agencies, and one in five said their experience with federal, state, and local government contracting was worse in 2012 than in previous years, a new Urban Institute study concludes.

CONTACT:
Laura Greenback, (202) 261-5709, lgreenback@urban.org

WASHINGTON, DC, May 15, 2014 -- Nearly half of all nonprofit organizations, in 2013, reported a decrease in revenue from federal agencies, and one in five said their experience with federal, state, and local government contracting was worse in 2012 than in previous years, a new Urban Institute study concludes.

The report, based on a national survey of 501(c)(3) public charities with budgets greater than $100,000, provides state-by-state data on the fiscal health of nonprofits, aggregates the size and type of government contracts they hold, and ranks states by the problems they encounter with government contracts. 

Roughly half of nonprofits reported problems related to five government contracting headaches, including agencies changing the terms of existing agreements, paying late, using complex and time-consuming application and reporting processes, and not covering the full cost of contracted services.

Key findings:

  • Fifty-four percent of nonprofits said government payments are not covering the full cost of contracted services, led by New Jersey (75 percent), Rhode Island (74 percent), and Illinois (70 percent).
  • Nationwide, 72 percent of nonprofits said government application and reporting processes are too complex. In Rhode Island, 87 percent of nonprofits took issue with application processes, and 88 percent of Maryland nonprofits had grievances about reporting.
  • Forty-four percent of nonprofits complained that agencies change the terms of their contracts mid-stream, with Rhode Island (67 percent) and Wisconsin (66 percent) taking the lead.
  • Governments that paid contracts late were a serious problem for 45 percent of nonprofits, with Rhode Island again in the worst position (81 percent).

Federal funding cuts strained nonprofits’ fiscal health, and 38 percent ended 2012 with a deficit. Nonprofit organizations reacted to reduced revenue and other problems by making a variety of cutbacks. Over half of nonprofits with government contracts froze or reduced their employees’ salaries, while 42 percent drew from their reserves.

Despite the crunch, most organizations continued to serve their communities without cutting programs. Only 11 percent reduced the number of programs or services they offered and 14 percent reduced the number of people served. Some states felt the crunch more than others, with 45 percent of nonprofits in Florida borrowing funds or increasing lines of credit, while only 2 percent of nonprofits in Connecticut reduced programs or services.

The Study

National Study of Nonprofit-Government Contracts and Grants 2013: State Profiles was written by Sarah L. Pettijohn, Elizabeth T. Boris, and Maura R. Farrell. It follows up on the Nonprofit-Government Contracts and Grants: Findings of the 2013 Survey, released in December 2013. The latter report found that nearly 56,000 nonprofits had 350,000 federal, state, and local government contracts and grants totaling more than $137 billion in 2012.

The 2013 study moves beyond human service nonprofits to assess the scope of government contracts and grants across most types of charities. It also compares the funding of human service nonprofits in 2009 with 2012, to assess changes in the aftermath of the recession.

Additionally, the National Council of Nonprofits released a special report on solutions to improve government-nonprofit contracting issues.

National Study of Nonprofit-Government Contracts and Grants 2013: State Profiles is part of a collaborative project between the Urban Institute’s Center on Nonprofits and Philanthropy and the National Council of Nonprofits. The project was funded by the Bill and Melinda Gates Foundation.

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