The Built-in Risk of Growth in Government-funded Nonprofits

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March 18, 2017; Detroit Free Press

Government grants and contracts have a pattern of fueling unsustainable organizational growth by rarely funding all of the costs associated with the contracted program and service. Yet, one of nonprofits’ main functions is to provide services the state is otherwise obligated to provide. Responsible nonprofit leaders need to fully articulate program costs and improve evaluation systems, thereby providing long-term dependable services.

Recently, the Greening of Detroit laid off all of its 26 employees and temporarily shut down operations. According to its last published IRS Form 990 return, in 2014, the nonprofit organization had a budget of over $4 million and over 200 employees. Over its 16-year history, it has planted tens of thousands of trees, replacing a large number lost to Dutch elm disease. The organization plans to restart programs in April once funding resumes.

At its peak, the organization had employment training and urban agriculture programs as well as tree-planting activities. Much of its work was fueled by youth and volunteers and the majority of its funding was programmatic government grants. Unfortunately, this structure didn’t provide for the administrative or overhead costs necessary to fuel a healthy organization.

The Nonprofit Quarterly has written many articles chronicling the unsustainable growth of diverse nonprofit organizations. Often, this stems from decisions to accept government grants that barely fund the program, staffing, and equipment and not the space the program is housed in. Lacking the funds for utilities, supervisory, administrative, and overhead costs, organizations have little margin to fund activities to develop other, less restrictive funding and earned income revenue streams. Without other healthier revenue streams, the nonprofit has few options when government funds are late, disrupted, or ended.

Another trap is the belief that using volunteers doesn’t cost money. Volunteer activity may be free, but the identification, training, and supervision of volunteers are not. Without funding to support volunteers, many will become frustrated, and more staffing will be needed to replace the ones that leave.

These decisions create a propensity to continue these untenable government contracts. After all, how can nonprofits argue the contract is insufficient when they have a history of accepting it as full programmatic funding? Additionally, leaders and staff perceive it as a responsibility to provide the services outlined in the organization’s mission and not as creating a dangerous unsustainable precedent. These conditions create an environment where burnout and insufficient staffing become the norm.

Greening’s solution is to develop fee-for-service landscaping opportunities for condominiums and other large landowners. Hopefully, the new earned income revenue stream will be up and running before the federal government guts the Great Lakes Restoration program that’s responsible for funding Greening’s tree planting program.—Gayle Nelson

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