Government-funded nonprofits slammed; fixes seen

Government contracts and grants can create big problems for nonprofits, but proven solutions are readily available, two new reports say.

Among nearly 56,000 nonprofits with government contracts or grants, or both, in 2012, nearly three-fourths reported problems with the complexity of — or time required for — applications and reporting, according to the “National Study of Nonprofit-Government Contracts and Grants 2013: State Rankings” from the Center on Nonprofits and Philanthropy at the Urban Institute.

“Contracting with multiple agencies is a way for organizations to diversify their income and protect themselves from risk, but it also can complicate administration for nonprofits because different government agencies have different reporting application and reporting processes and requirements,” the report says.

A second report, by the National Council of Nonprofits, says that problems in government-nonprofit contracting systems throughout the U.S. are “profound, thoroughly documented and, most importantly, solvable.”

Solutions recommended in the report are “tested, free or relatively inexpensive,” and readily available,” says the report, “Toward Common Sense Contracting: What Taxpayers Deserve.”

Government partnerships diverse

Contracts and grants vary in structure and administration, the Urban Institute report says. Some require nonprofits to share the costs of programs or services the contracts and grants fund, while some limit the types of activities on which nonprofits can spend money.

Restricting spending for program administration or overhead costs is common, the report says, with 50 percent of nonprofits reporting limits on spending for program or overhead costs, and 53 percent reporting limits on spending for general administration or overhead costs.

“These limits can severely undermine an organization’s capacity and effectiveness by restricting its ability to adequately manage its programs or invest in staff and equipment,” the report says.

Previous reports

The new report follows a national survey in 2010 by the Urban Institute that found the recession had had “dire effects on nonprofits’ funding from government and private sources, in a time when the demand for services was higher than normal,” and a second national survey it conducted in 2012 that found that nonprofits still were dealing with many of the same problems as in 2009.

That second survey found nonprofit-government contracts and grants reached roughly 56,000 nonprofits and totaled $137 billion.

The new report provides data on government contracts and grants with nonprofits, problems encountered, and the current fiscal situation of nonprofits in each state, as well as state comparisons.

Problems not ‘anomaly’

The new data from the Urban Institute confirm that the government-nonprofit contracting problems documented in its 2010 study “were not an anomaly” of the recession, the National Council of Nonprofits says in its report.

“The serious problems persist nationwide,” it says. “Nonprofits performing work on behalf of governments still confront policies, laws and attitudes that deny reimbursement for the full costs of providing those services.”

Nonprofits continue to “encounter wasteful application processes and costly reporting regimes that defy logic, consistency or fairness,” it says. “Once contracts are signed and work is commenced, governments often unilaterally change contract terms and conditions mid-stream, regardless of written commitments or the added costs those changes impose on nonprofits.”

And governments “often pay nonprofits late — sometimes more than a year after the nonprofits incurred the costs on behalf of government,” it says.

All those problems “add billions of dollars in unnecessary costs to nonprofits and taxpayers alike,” it says.

Late payments

Forty-five percent of nonprofits responding to the Urban Institute survey reported that late payments by governments are both frequent and “debilitating,” the National Council of Nonprofits says in its report.

On average, it says, past-due amounts owed to each nonprofit totaled $200,548 from state governments, $108,500 from the federal government, and $84,899 from local governments.


Seventy-two percent of nonprofits surveyed by the Urban Institute reported the “complexification” of reporting requirements, says the report from the National Council of Nonprofits.

That problem takes a variety of forms, including “duplicative audits, overlapping and inconsistent compliance procedures, retroactive imposition of reporting requirements, incompatible and inconsistent data collection, and a lack of standardization that injects vagaries into an already complex process,” the report says.

“Rarely is it clear to nonprofits if and how the government even uses the information that often is expensive to collect and report,” it says.


The National Council of Nonprofits report includes 16 recommendations for policymakers, executive-branch officials, lawmakers, and governments at all levels take steps to spur collaborative solutions to problems with government-nonprofits contracts and grants; improve accountability for full and prompt payments; eliminate “unilateral mid-stream contract changes;” and simplify complex application and reporting requirements.

Todd Cohen

‘Cliff’ crisis still seen looming for nonprofits

Legislation passed by Congress on New Year’s Day to address the so-called “fiscal cliff” crisis simply delayed the resolution of big issues that affect charities, an advocacy group says.

“Nonprofits must remain vigilant during the next couple of turbulent months and be prepared to mobilize to lift their voices to federal policymakers,” the National Council of Nonprofits says in a statement.

The law, for example, postponed for two months, until March 1, sweeping spending cuts from nearly every federally funded domestic program, cuts that “will reduce funding without reducing the underlying human needs, there by increasing demands on nonprofits in local communities while also decreasing resources for nonprofits to provide needed services,” the Council says.

Decisions on those cuts made for fiscal 2013 “will have a rippled effect on spending levels for the next decade, underscoring the urgency of this issue,” the Council says.

And while the law passed on January 1 does not significantly change the charitable deduction, the Council says, “most experts expect deductions to become featured more prominently on the chopping block in the looming debates ahead as Congress and [President Obama] look for ways to increase government revenues while addressing budget and tax reform in the coming months.

The law restores the Clinton-era limit on itemized deductions and trims the deductibility of most itemized deductions, including charitable deductions, by three percent of adjusted gross income above a specified threshold, or by 80 percent of a person’s itemized deductions, whichever is less.

The law retroactively restores the tax incentive for giving by older Americans by letting them give to charities their mandatory Individual Retirement Account distributions taken in December 2012 or January 2013, and apply the rollover their 2012 tax filing, the Council says.

It says the law also restored conservation easements retroactively and renewed them through 2013, and continues tax provisions that benefit low-income families many nonprofits serve.

The Council also says law extends for five years tax credits for college tuition and the working poor that benefits 25 million low-income families; extends for one year federal benefits to the long-term unemployed; delays cuts in reimbursements to medical personnel under Medicare; and extends funding through the fiscal year that ends September 30 for agricultural programs, including food stamps.

— Todd Cohen