How does government funding affect nonprofits' program spending? Evidence from international development organizations

Under the new governance models, the scope of government funding of nonprofit activities in service delivery and policy implementation is extensive. There is a long‐standing concern that government funding may compromise nonprofit operations and lead to unintended consequences. This research examines the concern by exploring the effect of government funding on nonprofits' spending on programs and services. Existing theories and empirical evidence propose competing arguments concerning the relationship between government funding and nonprofits' program spending. Using a 20‐year panel dataset of international development nonprofits registered with the United States Agency for International Development, we find that nonprofits receiving more government funding spend significantly higher proportions of their organizational resources on development programs. Government funding seems to increase nonprofits' program spending and to make them more focused on their mission‐related activities.     

Paternalistic or Participatory Governance? Examining Opportunities for Client Participation in Nonprofit Social Service Organizations

Nonprofits represent a substantial group of third-party agents that deliver public services, yet little is known about the extent to which these organizations embrace participatory governance practices. Using survey data from nonprofit social service agencies in Michigan, the author examines how these organizations provide opportunities for client participation and identifies factors that contribute to these practices. Four methods of securing client involvement are examined: participation in agency work groups, client feedback surveys, advisory boards and committees, and client service on the agency board of directors. The results indicate that government funding plays a systematic role in promoting these activities within nonprofits. These findings carry important implications for the government–nonprofit contract relationship by demonstrating that government funding shapes the practices of nonprofits in ways that promote democratic governance.     

Managerial Networking in Nonprofit Organizations: The Impact of Networking on Organizational and Advocacy Effectiveness

Public management scholars are interested in the ways that public managers can improve the performance of their organizations and, by extension, public service outcomes. However, public sector outcomes are increasingly being produced by nonprofit organizations. Nonprofits have encountered increased pressures to improve effectiveness in recent years, both from their funding entities and from the public. A growing body of public management research has shown that managerial networking can pay dividends for organizational effectiveness, yet no studies to date have considered the effects of managerial networking on nonprofit effectiveness. This is the first study to apply the basic elements of Meier and O'Toole's model to the nonprofit sector. Using survey data from a random sample of 314 nonprofit human service organizations in 16 U.S. states, the authors explore the frequency of various networking relationships on organizational and advocacy effectiveness. The findings reveal that political networking increases advocacy effectiveness and community networking increases organizational effectiveness.     

Organizational Characteristics and Funding Environments: A Study of a Population of United Way–Affiliated Nonprofits

This study examines a population of United Way–affiliated nonprofit organizations in Massachusetts (1) to test hypotheses generated by previous research on relationships between government funding and specific nonprofit organizational characteristics, (2) to compare differences in organizational characteristics between nonprofits receiving higher percentages of revenues from the United Way and from government sources, and (3) to explore associations between government funding and United Way and underexamined characteristics, including use of commercial income and racial diversity of organizational membership. The study supports previous research on the relationship between government funding and nonprofit characteristics, with one notable exception—less administrative complexity was associated with higher percentages of government funding. The study also finds differences in organizational characteristics between nonprofits with higher proportions of government funding and those with higher percentages of United Way funding, including organization size, number of board members, administrative complexity, use of volunteers, and the racial diversity of boards, staff, and volunteers.     

Embedded Government Control and Nonprofit Revenue Growth

This research combines insights from resource dependence and institutional theories to examine the growth of Chinese nonprofit revenues. The authors propose the concept of embedded government control (EGC) to capture the complexity of the government–nonprofit relationship along two dimensions: government regulation of nonprofits’ public fund‐raising qualifications and the political embeddedness of nonprofits with the government. Using a data set of 2,159 Chinese philanthropic foundations for the period 2005–12, the authors test hypotheses about the implications of EGC for nonprofit revenues in China following two major external shocks: the Wenchuan earthquake in 2008 and the Guo Meimei scandal in 2011. The empirical analysis shows that EGC can help philanthropic foundations obtain more government subsidies, donations, and market revenues. However, external shocks may either strengthen or weaken the enabling role of EGC in helping foundations acquire relatively more donations.     

Exploring the Role of Nonprofits in Public Service Provision: Moving from Coproduction to Cogovernance

This article investigates the determinants of nonprofits' involvement in cogovernance, or the planning and design of public services, using a unique data set of park‐supporting nonprofit organizations in large U.S. cities. The results indicate that nonprofits are more likely to get involved in cogovernance when they are younger, larger, and operate in communities that are more resourceful and stable. In addition, the likelihood of nonprofits' involvement in cogovernance is negatively associated with the level of social capital and government capacity to provide corresponding public services. The article points to an emerging mode of government‐nonprofit collaboration that goes beyond the production and delivery of public services. As public managers face extensive challenges in sustaining the desired level of public services, these findings have important policy implications for efforts to promote citizen participation and cross‐sector solutions to complex social problems.     

The future of the nonprofit sector: Its entwining with private enterprise and government

The nonprofit sector—neither private enterprise nor governmental—is growing rapidly, and not only in the United States. This article explores three questions about the sector, which includes large elements of such service industries as universities, hospitals, nursing homes, day-care centers, museums, social services, and organizations promoting medical research, environmental protection, and the arts. These questions are: (a) Why is the nonprofit sector expanding worldwide?; (b) How is the growth of nonprofits affecting other parts of the economy?; and (c) What evidence is there that nonprofits make a difference, that they perform functions which private firms or government cannot perform? A major theme is that the sector's growth necessitates finding ways to increase revenues, and that has brought side effects, particularly as nonprofits have become more and more “commercial.” In the process, borders between the nonprofit and both the for-profit and public sectors are being crossed increasingly, and with consequences that often pose problems.     

The Marketization of the Nonprofit Sector: Civil Society at Risk?

The public sector has increasingly adopted the methods and values of the market to guide policy creation and management. Several public administration scholars in the United States have pointed out the problems with this, especially in relation to the impact on democracy and citizenship. Similarly, nonprofit organizations are adopting the approaches and values of the private market, which may harm democracy and citizenship because of its impact on nonprofit organizations' ability to create and maintain a strong civil society. This article reviews the major marketization trends occurring within the nonprofit sector—commercial revenue generation, contract competition, the influence of new and emerging donors, and social entrepreneurship—and surveys research on their potential impact on nonprofit organizations' contributions to civil society. The article ends with a discussion of the significance of marketization in the nonprofit sector for public administration scholars and public managers.     

Differential taxation of nonprofits and the commercialization of nonprofit revenues

The effects of the favorable tax treatment of nonprofit commercial activities are best understood in a framework that explicitly accounts for a number of interactions. These involve differential taxation of nonprofits and for-profits and of nonprofits’ “related” and “unrelated” activities; the preferences of nonprofit executives who may be averse to commercial activity; donors whose giving may be sensitive to nonprofit organization commercial activity; and cost-complementarities between nonprofit core mission-related activities and their secondary money-raising efforts. Differential taxation encourages nonprofits to pursue otherwise avoided commercial ventures by providing excess financial returns that nonprofits can exploit because of their tax-exempt status. Data from the 1992 Statistics of Income (SOI) public use file of Internal Revenue Service (IRS) Form-990 returns indicate that the propensity of nonprofit organizations to undertake both tax-exempt and taxable activities depends on their primary mission-related output and size, the relative importance of government versus private contributions, and the size of the excess return created by differential taxation of nonprofit and for-profit business. Additional analyses of SOI data also show that organizations that engage in taxable commercial activities are likely to allocate joint costs in ways that reduce, and in most cases eliminate, their taxable income.     

Is There a Nonprofit Advantage? Examining the Impact of Institutional Context on Individual–Organizational Value Congruence

This article addresses an important question: do nonprofit organizations have an advantage over public organizations in fostering individual–organizational value congruence? The authors argue that nonprofit organizations do have an advantage. This is because institutional differences between the two sectors become manifest through nonprofit status and the extent of external control, which influences the organization and the individual. External control and sector status (nonprofit versus public) determine the extent of centralization, organizational goal ambiguity, and work autonomy. In turn, these three organizational characteristics shape individual–organizational value congruence. Although the results provide support for the nonprofit advantage thesis, it is worth noting that organizational effects on individual–organizational value congruence are more powerful. Indeed, the results suggest that managerial and organizational actions, compared with sector status, are more likely to influence individual–organizational value congruence.     

Competition,commercialization, and the evolution of nonprofit organizational structures

This article explores competition both in settings where nonprofits compete among themselves and where they compete with for-profits. Growing competition among nonprofits raises questions as to the impacts of this rivalry. How does competition affect nonprofit behavior and does it cause nonprofits to become more commercial in orientation? Does it alter organizational structures and does it cause nonprofits to become less focused on their charitable missions? The answers to these questions can influence public policy toward the nonprofit sector. A definition of competition is presented and Porter's five competitive forces are introduced and used to explore competition in nonprofit marketplaces. Conditions under which commercialization is likely to occur are discussed and the nature of competition is then examined in settings where nonprofits compete in mixed (for-profit/nonprofit) markets. Organizational structures from the health care industry are then used to highlight the evolving legal structures that nonprofits employ in competition with for-profits. Five policy implications of the analysis are examined and the need for additional information is highlighted.     

For Those Who Care: The Effect of Public Service Motivation on Sector Selection

Public service motivation (PSM) theory suggests that the alignment of values may explain sorting into public service work. Evidence suggests that people with high PSM cluster in government and nonprofit organizations. However, reliance on cross‐sectional data leaves open the question of whether observed patterns are the result of public and nonprofit organizations attracting and selecting high‐PSM people or cultivating PSM through socialization within the sector. Using longitudinal data, this article analyzes the relationship between motivational bases, such as PSM, and sorting into the public, for‐profit, and nonprofit sectors. The results indicate that PSM‐related values, measured before labor market entry, predict the sector a person will select for employment. Moreover, the effect on sector selection does not operate through some commonly cited alternative predictor of sector employment, such as college completion. Rather, PSM predicts sorting into college majors in a manner consistent with sector sorting in the labor market.     

Who Gains from Charitable Tax Credit Programs? The Arizona Model

The Bush administration and some states have promoted charitable tax credits as a way to increase private charitable giving, to support antipoverty programs, and to allow taxpayers to directly determine the utility and effectiveness of nonprofit services. Looking at Arizona's charitable tax credit program, this study assesses the strengths and limitations of this policy approach. Although charitable giving increased during the first two years of the program (1998 and 1999), tax returns from 2000 suggest it may be difficult to sustain these gains in a weak economy. Larger and better-known nonprofits and taxpayers who itemize their returns are the primary beneficiaries of the program. The program may put small but well-run organizations at a competitive disadvantage, weaken accountability in the sector, and pose administrative challenges to state departments of revenue. This analysis suggests that tax credits are not a panacea for the funding needs of nonprofits.     

Bending the arc of nonprofit leadership toward justice: Impacts of racial representation and organizational publicness on diversifying executive leadership

Nonprofits are critical partners in the delivery of government-funded human services in the US, but there is evidence of a persistent racial leadership gap in the sector, whereby Black and Latino Executive Directors are dramatically under-represented. Why does this gap persist despite increased attention to this issue in recent years? And what organizational and community-level factors do shape the likelihood that nonprofits will hire a Black or Latino Executive Director (ED)? We answer these questions through a mixed-methods sequential design, drawing on survey data from 606 nonprofit organizations across the US, along with interview data from 12 nonprofit executives representing expert informants in the Chicago metro area. Consistent with theories of representation and publicness, we find demographic representation at the board level positively linked to the hiring of a Black or Latino ED, but government funding has inconsistent effects. We further elaborate on these findings through our qualitative data.     

Loan delinquency in community lending organizations: Case studies of neighborworks organizations

Abstract

This article reports on qualitative data gathered through interviews conducted in 1996 with key leadership and staff from 13 community lending organizations. Loan servicing and collection procedures within the organizations were examined. Findings suggest that several organizational factors of nonprofit lenders are related to their loan delinquency rates: social networks, business culture, funding sources, composition of the board and loan committees, staff structure, loan intake, and collection tools.

The study also finds that the nonprofit sector's institutional environment and its partnership with the private sector in a mutually beneficial process influence the loan delinquency rate. More specifically, active participation of local bankers in NeighborWorks¹ loan committees, diverse funding sources (from both the public and private sectors), and a diffusion of business practices through dense social networks are related to NeighborWorks’ loan servicing and collection policy and procedures. These factors in turn influence NeighborWorks’ rehabilitation loan delinquency rates.     

Do Donors Penalize Nonprofit Organizations with Accumulated Wealth?

Does current accumulated wealth by nonprofit organizations influence contributions from individuals? Existing research demonstrates that financial reserves aid program continuity during economic downturns. Yet donors, charity watchdogs, and policy makers voice concern about accumulated wealth in nonprofits. This empirical analysis examines whether the expected negative relationship occurs when donors perceive accumulated wealth as excessive. The results support the conclusion that future contributions are negatively affected when wealth levels are deemed excessive. Nonprofit managers concerned that accumulated wealth will diminish donations should consider financial strategies that will allow their organizations to build modest—but not excessive—reserves.     

Nonprofits and Civic Engagement

There are approximately 800,000 501(c)(3) nonprofits large enough to register with the federal government. Add churches, foundations, and nonprofits too small to register, and the number is far higher than that. The potential for nonprofits to engage their clients and members in community affairs and public policy making is, in theory, enormous. Yet, perversely, nonprofits are regulated by the federal government in such a way that discourages the involvement of their followers in the public policymaking process. This is a problem, not simply because we social scientists believe civic engagement is a good thing, but because these regulatory standards sharply skew public participation. Although middle- and upper-class individuals have many organizations that engage and mobilize them, nonprofits usually are the only organizations that work on behalf of the poor, those without health insurance, immigrants, the disabled, and most other marginalized constituencies. Put bluntly, federal law works against the participation of the most disadvantaged in society.     

Surviving the Great Recession: Nonprofit Housing Developers Through the Lens of Organizational Theory

This study identified factors that influenced California nonprofit housing development organizations’ (NHDO) survival and financial stability during the Great Recession. NHDO typically develop and manage affordable housing, while providing social services. During the recession, NHDO financial issues were exacerbated and compounded by the elimination of state redevelopment funds. This research tested organizational theories through bivariate and multivariate analyses from Internal Revenue Service 990 tax forms for nearly 800 NHDO. In many ways, the factors that influenced NHDO sustainability and performance were similar to those affecting for-profits and other nonprofits. For example, older and larger organizations with more staff and revenue fared better. Other factors were unique to this sector (e.g., the region and type of housing developed affected outcomes). An important finding was that reliance on government funding was negatively associated with survival and revenue. The lessons learned from NHDO inform other organizations about surviving and thriving during tough economic times.     

Nonprofits as Local Government Service Contractors

Despite the growing role that contracts with nonprofits play in local service delivery, only limited attention has been directed to why some cities rely more on nonprofit organizations to produce services or how political institutions influence the role nonprofits play in service delivery. To investigate these issues, the authors present a transaction cost explanation that focuses on how political system characteristics and structures of service markets shape the costs of negotiating, monitoring, and enforcing contracts for local governments. The findings indicate that forms of government, mayoral turnover, racial segregation, and the market of nonprofit producers influence the role of nonprofits in delivering elder services, but decisions to contract exclusively with nonprofits are subject to different influences than decisions to jointly produce service with a nonprofit organization.     

Internal and External Determinants of Formal Plans in the Nonprofit Sector

ABSTRACT

The study of formal planning in nonprofits and the public sector is thriving, with management gurus providing abundant advice on its value and proper execution. We address a related, but broader issue: why has the management tool of formal planning become prevalent in organizations with a public goal in the first place? To answer this question, we draw on insights from institutional theories of organization, bringing a fresh perspective to the increasingly common practice of formal planning in the administration of public entities. Using a unique dataset constructed from interviews with a random, representative sample of the leaders of 200 nonprofits in the San Francisco Bay Area, we analyze the factors associated with the presence of a formal plan. We combine the interview data with details on organizational characteristics from tax reports and consider the features of nonprofits that plan using logistic regression. The findings reveal that size and capacity are important, but links to an external, rationalized environment dampen the effects of both. Thus, functional factors, while important, are insufficient to explain why nonprofits engage in planning. For those interested in promoting formal planning as a management tool, our findings provide insight into other organizational features that promote the use of planning. And for those concerned with the potentially deleterious effects of this tool in the nonprofit sector, we show that certain types of organizations seem adept at maintaining a less formal structure.