The article is titled “Five Ways to Navigate the Fiscal Crisis,” witten by Daniel Stid and Willa Seldon, and appeared in the winter edition of the Stanford Social Innovation Review.
As I read the article I kept finding myself nodding in agreement, and a couple of times I might have even said “exactly!” out loud, even though I was by myself.
It hit so close to home, I felt I just had to share. Below are excerpts from the article that I found especially compelling, and which give a sort of “Reader’s Digest” version of the article. If you find the information below relevant and relatable, I encourage you to check out the entire article.
The head of a large nonprofit that has been serving children and families since the 19th century and that gets most of its funding from state and local government recently told us: “We have never had the chance to sit down across the table from government and discuss line-by-line what it takes to do the work. They call the terms, they put the dollars on the table, they give the staffing patterns, and you can take it or leave it."
And increasingly, government agencies not only are outsourcing the financing of these services, they are also reimbursing nonprofits considerably less than what it costs to deliver them. These organizations are left to cobble together their own resources from other funding sources to make up the difference.
The long-term outlook for human services funding is bleak.
This brings us to the questions we take up in this article: How can nonprofits that rely on government funding navigate this increasingly powerful undertow? How can they stay afloat? And can they even hope to make progress? The sobering reality is that nonprofits will have to be even more entrepreneurial in their funding models, efficient in deploying their resources, and vigilant in serving their mission to make headway.
The government agency typically sets the price, and in cashstrapped times like these, may keep it flat or reset it downward as it sees fit. Prices often fail to cover the full cost of those services. In the Urban Institute survey of nonprofit government contractors, 68 percent of respondents identified this failure to cover the full cost of delivery as a problem.
Government also leverages its market power to squeeze nonprofits further by changing the terms and driving the execution of these contracts in its favor. The Urban Institute survey also reported that 57 percent of nonprofits responding see government changes to contracts and grants as a problem.
Faced with deteriorating conditions, why don’t nonprofit service providers simply walk away? The harsh truth is that they can’t. Nonprofits are prepared to accept poor contract prices and endure readjustments in prices and terms and even badly delayed payments—simply to keep their missions afloat.
Approaches to Staying Afloat
In the highly constrained world of public funding, can a nonprofit delivering superior outcomes do anything more than take the price, accept the terms, provide the service, and hope that things don’t get worse? Do nonprofits have any hope of agency—of having influence or exerting power? Though we have found nothing resembling a formula, we have seen some nonprofits rising to the challenge as tough times become the “new normal.” Below are five approaches that seem to be working for the most ambitious human services nonprofits.
1. Get to Strategic Clarity. The first step in getting to strategic clarity is to set priorities for where, how, and with whom you seek to have impact. The second step in getting to strategic clarity is to understand the true cost of each program or set of services the agency provides. By “true” we mean direct costs (frontline staff, rent for service delivery sites) plus indirect costs (that program’s share of management, information technology, and other agency-wide costs). The third and final step in getting to strategic clarity is to make better decisions about whether or how to pursue a particular opportunity for government funding.
2. Diversify Government Funding Streams. For nonprofits that get the majority of their revenue from government sources, diversifying funding across different government agencies, programs, and contracts can help sustain organizations against declining revenues. In fact, this is a common strategy. Most human service nonprofits hold multiple government contracts. But too often this diversification is driven by opportunism that strains organizations, not a strategic design that plays to their strengths and sustains their missions. Supplementing government contract revenue with contributions from other sources may be essential.
3. Improve Productivity. The drive to improve productivity has long lagged in the nonprofit sector, in large part because of the prevalence of input-based funding and the ambiguity about what nonprofits are “producing.” There are signs, however, that leading human services providers are sharpening their focus on productivity.
4. Measure Outcomes. Given the nascent state of performance based government contracting, it may seem odd for this approach to show up on our list. Yet if the goal is to stay focused on mission, then measuring outcomes is essential. All too often, outcomes measurement is something nonprofits feel obliged to do for reporting to external parties. But the real power of measuring outcomes is to drive internal learning about how the work is going and planning how it can be improved. Viewed in this way, rather than being a burdensome quarterly or annual fire drill to comply with funder reporting requirements, outcomes measurement can become a powerful way for leaders and staff to connect with and advance their organization’s mission.
5. Move Beyond Vendorism. Among the nonprofit leaders we have talked to and worked with, we have noted that the organizations most effective in engaging government are distinguished not so much by a particular set of activities as by a certain mindset. They see the decision makers in government agencies as customers. They try to understand their concerns and unmet needs, and they design compelling solutions
Take It or Leave It?
"It is dangerous to be right,” observed Voltaire, “when the government is wrong.” We have heard a great deal of anxiety that, in an era of shrinking budgets, the current situation only will get worse, resulting in less funding at all levels of government and more limits on the already limited autonomy of nonprofits seeking to provide high-quality services.
But within this $100 billion sector—one upon which so many vulnerable people depend—we believe there remains some room to maneuver. The five approaches we have sketched out hardly guarantee success. Within the system’s numerous constraints, nonprofits have been employing these approaches to get beyond a take it or leave it relationship with their government funders—keeping their eyes on their mission and doing the best they know how for the people and communities they serve.Thank you, Stanford Social Innovation Review, for hitting the nail right on the head.
Then again, what do I know?