In order to solve the federal government’s budget problems, some policymakers have called for cuts in spending on social services, assuming the nonprofit sector can fill the gaps.

What many fail to realize is that the nonprofit sector relies on government support to provide these crucial social services. In fact, in 2010, nearly one out of every three dollars given to public charities came from government sources. So, in addition to rendering them unable to fill any gaps, cuts in funding would force nonprofits to cut nearly one-third of their own services.

While nonprofits are dependent upon the public sector for funding, the government is dependent on the nonprofit sector to provide services to its constituents.

To examine the relationship between government and nonprofit organizations, the Urban Institute conducted a national survey of human service nonprofits in 2009.  The survey found that nonprofits that reported problems (like late payments, contracts not covering the full cost of service, complex reporting requirements, etc.) with their government contracts and grants were more likely than nonprofits without problems to freeze or reduce employee salaries, lay off employees, and draw down on their reserves.

Overall, the survey revealed large-scale systematic problems in government-nonprofit contracting and grants processes that adversely affected the ability of many nonprofits to serve their clients. That said, government funding is absolutely necessary to help nonprofits achieve their missions. When nonprofits have difficulty obtaining government funding, the organizations and those they serve suffer. Cuts in federal funding would make this a more common occurrence.

While the survey provided insight into the relationship between the government and nonprofit organizations, many questions were raised about the government’s perspective on nonprofit contracting and grants processes, as well as a need to greater understand trends and improvements in the processes that are underway.

The Center on Nonprofits and Philanthropy at the Urban Institute is in the process of conducting a national survey of all nonprofit organizations (except hospitals and higher education institutions) to compare to the 2009 results. We are also conducting a case study in Maryland to highlight promising practices implemented at the state and local level to improve the government-nonprofit relationship. This follow-up work also seeks to capture the government perspective on its relationship with nonprofits through interviews and a survey of government officials.

As the public and nonprofit sectors rely on each other to provide services, understanding and improving their relationship is a high priority.