The voices of Urban Institute's researchers and staff
July 1, 2016

A “better way” for nonprofits and government to partner to address poverty

June 30, 2016

Throughout June, Urban Institute scholars will offer evidence-based ideas for reducing poverty and increasing opportunity.

It was no surprise that House Speaker Paul Ryan unveiled the House Republicans’ antipoverty plan alongside nonprofit leaders and in front of the nonprofit House of Help City of Hope, a residential substance abuse treatment facility. It is testament to the crucial role that nonprofit organizations play in partnership with government, working on the front lines to expand opportunity for people living in poverty. 

The degree to which government relies on nonprofit organizations to meet its service delivery obligations has grown considerably since the 1960s, with the share of nonprofits’ funding from government grants and contracts reaching nearly one-third of all reported revenues.

In the antipoverty plan, House Republicans acknowledge the value of this partnership and highlight the continued importance of nonprofits in their vision for policy solutions moving forward. What is not directly addressed in the plan, however, is whether action will be taken to address the problematic practices in the government-nonprofit contracting relationship that have and, if left unaddressed, will continue to hinder the effectiveness of government’s nonprofit partners.

To get the most from nonprofit partnerships, government agencies should do the following:

  • Pay on time: Late payments impose real harms on nonprofit partners and provide essentially no benefit to the government. Far too often, governments make late payments on contracts to nonprofit providers. In our national survey, nearly half of nonprofits report receiving late payments for services rendered. This practice creates cash flow shortfalls that strain the financial health of nonprofits, threatening the viability of the very programs governments fund.
  • Pay the full costs of projects: It takes infrastructure (e.g., staff, buildings, and computers) to run a project, and government should pay these costs. In many cases, governments set reimbursement rates that do not cover the costs of contracted services, especially indirect costs like rent, utilities, equipment, and administrative services. This leaves nonprofits to somehow find additional funds to cover the costs of the services they provide or forgo or delay capacity building and staffing needs.
  • Emphasize outcomes, not outputs: Outcomes focus on the difference programs make and illuminate the challenges, issues, and priorities of program participants. A highlight of the antipoverty plan is the continued interest in innovative revenue strategies for achieving social impact. The plan’s recommendation to implement social impact financing, also known as pay for success, encourages a different relationship between government and nonprofit service providers. By shifting much of the programmatic cost and risk to private investors, government has more latitude to be open to funding and scaling up promising strategies that nonprofits are doing on the ground. At the core of this approach is a focus on measuring social outcomes.

    This realignment around outcomes should also apply to traditional funding approaches. For the foreseeable future, traditional contracts will be a prominent means through which nonprofits will partner with government. The focus on bureaucratic oversight, strict accountability, and contractual performance needs to be refreshed to incentivize the achievement of meaningful results for all.  

Clearly, the status quo is not acceptable if nonprofits are expected to develop innovative solutions to meet today’s needs. A “better way” to address poverty should provide for a better-functioning funding relationship between government and nonprofits—one where nonprofits are empowered to develop solutions that work and everyone shares responsibility for the outcomes. 

Speaker Paul D. Ryan, R-Wis., and Bishop Shirley Holloway conduct a news conference in Anacostia, June 7, 2016. Ryan and other House republicans gathered at the House of Help City of Hope in Southeast to unveil new initiatives to fight poverty. Photo By Tom Williams/CQ Roll Call via Getty Images

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