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The Flow of Federal Funds to the Sector

Quick! What are the largest sources of revenue for nonprofit organizations? The public usually thinks the right answer is charitable giving, and this is certainly where most of the attention goes. But according to the Urban Institute’s Nonprofit Almanac 2008, 50 percent comes from fees for services and goods from private sources, and another 29.4 percent comes from government grants and fees for services. That’s nearly 80 percent of all of our revenue! Private contributions account for only a little more than 12 percent.

Through my work with the Nonprofit Data Working Group organized by the Aspen Institute, I saw a February 2009 report from the Government Accountability Office (GAO) to the chairman of the Committee on the Budget, House of Representatives. You can find the report here. The Committee asked the GAO to report on the mechanisms through which federal dollars flow and what is known about federal dollars going to the nonprofit sector.

Tracking this money is not easy. For example, in fiscal year 2006, grants were provided to nonprofit organizations directly under almost 700 different programs. But grants and contracts also reach nonprofit organizations through intermediaries at various levels of government. Money also flows to nonprofits through fees for services in an even more complex path, particularly when it comes to health-related services. Other monies flow through loans, loan guarantees, and tax policies.

The report states that “due to limitations and reliability concerns with tracking systems’ data, the funding data presently available leave policy makers without a complete, accurate understanding of the amount of funding flowing to these key partners.” That’s a nice way of saying it’s nearly impossible to know what’s happening given existing systems and processes. Despite these limitations, the GAO estimates that in fiscal year 2006 the following federal funds flowed to nonprofits:

  • $145 billion in fee-for-service payments, mostly through Medicare
  • Approximately $25 billion in direct grants
  • About $55 billion in grants that flowed through states
  • Approximately $10 billion in contracts
  • Approximately $450 million in outstanding direct loans and $2.5 billion in loan guarantees

The report concludes that the opportunity to get to understand the nonprofit sector is “being missed, in part, because of the absence of complete and accurate data on federal funding reaching recipients of different types. … As a result, the extent of the federal government’s dependence on various sectors for delivering services also is unknown.”

I hope this report is a wake-up call not only for the federal government but to leaders in the nonprofit sector as well. We need to do more to get government decision makers, in both the executive and legislative branches, to understand better and appreciate the essential role the nonprofit sector plays in American society and how essential we are to supplying vital social services. Why wasn’t the nonprofit sector a major focus of the stimulus package? What can the Social Innovation Fund do to get us on the path to strengthening this vital partnership?

Topics: Economy