Antiquated View of a Modernized Sector

The conclusions Steven Malanga reaches in his piece “Charities on the Dole,” demonstrate a real lack of appreciation for the history and complex relationship between government and mission-driven social service organizations.  The mere fact that he uses the outdated term “charities” to refer to these multifaceted organizations offers insight into his limited understanding of how these groups have evolved and operate in the 21st century.

Since the early 20th century, the human services sector has matured in size, scope and sophistication, and government has increasingly turned to these organizations for the delivery of services in communities.  While many organizations contracting with government today have long histories steeped in philanthropy, spending on social services has grown well beyond the capacity of philanthropic giving. This is mostly due to the growing recognition that social programs are important ingredients to a prosperous society.  

This arrangement allows government to leverage the expertise and community connections nonprofit groups offer while providing services on the cheap. While collective spending has grown as public policies aimed at addressing social problems have expanded, individual programs are chronically underfunded, with as few as 14 percent of nonprofits reporting sufficient government reimbursement rates. Mission-driven organizations tend to take on government contracts that don't pay the full cost because they can leverage private supplemental dollars. Government and taxpayers do well in this arrangement getting discounted services that would cost government a tremendous amount of money to perform on their own. Pension costs alone would gobble up significant tax dollars. 

But this arrangement is taking its toll. Today, nonprofit human services agencies operate on the margins because the discounted rates they agree to are rarely adjusted over time, allowing the combination of inflation and rising costs to systematically undermine quality programming, weakening our ability to have the social impacts desired.

For example, let’s say you operate a homeless shelter, and you know it costs you $110 per night to house an individual; your government contract might reimburse you $100. As a mission-focused nonprofit, you agree to this rate with the intent to privately fundraise to make up the rest. But five years later, your costs have gone up – food prices are higher, but specific nutritional regulations rightfully prevent you from serving cheaper meals so you delay roof repairs to make up the difference; employee health insurance rates increase drastically, so you institute a higher employee contribution rate; your rent is raised, so you downsize staff, increasing the workload each remaining employee must bear, and, at the same time, you are struggling to convince your best employees to stay despite the lack of raises that you can’t afford.  And the budget pressures grow as the years go on, yet your government reimbursement rates remain stagnant. This is not a system lending itself to the quality programming we need to make a difference in communities.

So let's do something about this. Not by pushing government away, but by re-imagining the nonprofit / government partnership.  Are there sister systems such as health care and education we can better leverage to help transform and support human services?  Should we adopt policies and approaches that incentivize government led support for the long term financial health of the nonprofit entities providing services? Can we develop and incentivize partnerships with businesses to bring non-government resources, technology systems and infrastructure to the table? 

HSC views the downfall of FEGS not as a call for nonprofits to abandon government, but as an opportunity to right the relationship and to look internally at practices that contribute to the problem. That's why we set up a blue-ribbon commission to examine nonprofit closures.  We are looking in-depth at the contributing factors from management and oversight to challenging fiscal environments and are focusing in on the underlying systems and incentives that drive social service delivery to come up with recommendations for change. 

Malanga asserts, wrongfully, that we must “choose between the lure of government money and fidelity to their stated mission,” as if the two are fundamentally at odds. Government and nonprofits partner to create dynamic and critical programs, and the two groups should work in deeper collaboration, not part ways.  We – government, nonprofits and philanthropy – need to think strategically about what outcomes we want, and designing a system accordingly. The mission-driven social service nonprofit / government partnership is a good thing; it just needs to be re-worked a bit. 

Allison Sesso is the executive director of the Human Services Council.