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When Government Shuts Down, the Nonprofit Community Pays

October 04, 2013

(Tim Delaney is president and CEO of the National Council of Nonprofits, which, as the hub of the nation's largest network of charitable nonprofits, serves as a central coordinator and mobilizer, helping nonprofits by identifying emerging trends, sharing proven practices, and promoting solutions that benefit charitable nonprofits and the communities they serve.)

Headshot_tim_delaneyThe federal government shutdown is more than just a symbol of political dysfunction. Real people are being hurt. And charitable nonprofits and foundations are unfairly being asked to subsidize government even more than usual while the government is closed.

Community and human needs do not stop just because the federal government has stopped functioning. Indeed, the shutdown has actually increased the needs of millions of Americans. That's why when politicians shut the doors of government, charitable nonprofits struggle even more than usual to meet the needs of their constituents.

Increased Public Needs Transferred to Nonprofits

The government shutdown means there is no federal money to pay for essential programs. Many federally funded, community-based programs that provide food for infants, children, veterans, and seniors, such as WIC (Women, Infant, and Children Supplemental Nutrition) and Meals on Wheels, report having only enough resources to continue operating for a few more days. At least twenty-three Head Start programs in eleven states have already run out of money, leaving children without access to vital educational programs and their parents scrambling for options. Similarly, people who could be applying for Social Security, Medicare, Medicaid, veterans' benefits, or other essential programs -- all of which have been idled during the shutdown -- turn to charities for help.

New Needs From Furloughed Federal Employees

The government shutdown also means that almost a million federal employees across the country -- not just in Washington, D.C. -- have been ordered to stay home, as have many more people working for government contractors. Collectively, these employees and their families have seen their personal income cut by about $200 million a day. For government employees working paycheck to paycheck who need to provide for their families, charities are the first place they turn to for help.

When the government reopens, Congress may decide to pay federal employees and even beneficiaries of safety-net programs in recognition of the fact that they were innocent victims of partisan squabbling. But Congress will not make charities whole for the added costs they incurred in filling the void created when Congress closed the doors on the American people.

Higher Costs Due to Broken Policies and Practices

It has been well documented by the Urban Institute and others that governments at all levels routinely pay nonprofits late, fail to pay the full costs for the services nonprofits perform, and create many other challenges to their nonprofit partners. That broken "system" forces charitable nonprofits to turn to private funders to underwrite, subsidize, and provide bridge funding to keep operations going in the face of government policies and practices of shortchanging nonprofits and imposing wasteful costs.

These systemic problems require systemic solutions, which is why the National Council of Nonprofits has been publishing a series of solutions-oriented reports on government-nonprofit contracting reform. The latest Streamlining Report, issued the day before the federal government closed its doors, Investing for Impact: Indirect Costs Are Essential for Success, examines how governments undermine the ability of nonprofits to deliver the most effective and efficient services when they reimburse their nonprofit partners for less than reasonable indirect costs; calls on governments to pay actual indirect costs incurred by nonprofits; and offers solutions for streamlining contracting practices to the benefit of taxpayers and those receiving services. It reflects insights about indirect costs gleaned from such projects as "Real Talk About Real Costs," run by the Donors Forum in Illinois. If governments adequately compensated for the management and administrative costs actually incurred, albeit indirectly, to fulfill public contracts and grants, then nonprofit contractors would not have to turn to private philanthropy to subsidize those functions.

Subsidizing Government Due to Uninformed Policy Makers

Nonprofits regularly hear from elected officials that they should turn to private funders to backfill government spending cuts. What policy makers rarely understand is that nearly a third of the sector's revenues (32.2 percent) come from contracts and grants with governments at all levels, compared with only 2 percent from foundations. As everyone in the philanthropic sector can attest, there are not enough assets in the foundation community to provide sixteen times the current level of funding to support the work of charitable nonprofits for a year, much less indefinitely. The recent federal austerity cuts that chopped $2.2 trillion from the federal budget (including the arbitrary sequestration cuts), combined with state cuts totaling an additional $250 billion, falsely assume that nonprofits can simply go to a foundation ATM and punch out more money.

While foundations can't begin to replace the full amount of funds received from governments at all levels, they can play an important role in the long-term viability of the nonprofit sector by 1) encouraging nonprofits to accept that advocacy is core to their mission; and 2) providing general operating support. Without effective advocacy, nonprofits and philanthropic organizations will continue to be targeted by federal, state, and local governments to fill budget gaps. Nonprofits are already making amazing contributions to their communities while saving taxpayers money. Likewise, since nonprofits are already subsidizing government services -- through underfunded contracts, late payments, etc. -- general operating support is critical to allow nonprofits to invest in the necessary infrastructure to deliver their services effectively.

What the shutdown crisis serves to highlight is that when government fails the people, people depend on their local charities. Hundreds of millions of Americans come to charities to receive essential services, enhance their quality of life, and uplift their spirit of faith, innovation, and inspiration. Local communities also rely on nonprofits to be problem solvers and engines of economic development.

Why do so many Americans turn to the nonprofit community when times are tough? Because charities are innovative, efficient, and effective. Because we stick to our missions in good times and bad, in political chaos and in calm. And because our doors are always open.

-- Tim Delaney

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Posted by Linda M. Czipo  |   October 07, 2013 at 05:52 AM

This article is spot on. The federal shutdown is only adding more unfunded burdens and exacerbating the already challenging circumstances for nonprofits. For years, nonprofits in New Jersey have been coping with the realities of rising demand for services coupled with funding that is still well below pre-recession levels from all major sources. This situation is not sustainable. All stakeholders of nonprofits - even those organizations that don’t directly receive government funds – should be concerned about the breakdown in federal government functionality and the broken government contracting system at all levels, because the negative ripple effects are strong and far-reaching.

This painful situation reinforces the importance of all organizations to embrace advocacy as a core part of their missions, and underscores the need for general operating support so nonprofit leaders have the flexibility to address unexpected developments, be they natural disasters like Hurricane Sandy or man-made crises like the current shutdown.

Linda M. Czipo
Executive Director
Center for Non-Profits (NJ)

Posted by Patrick McWhortor  |   October 07, 2013 at 08:41 AM

In Arizona, nonprofits reported at the beginning of the year that for the first time since the beginning of the Great Recession, they would not be able to meet the increased demand for their services. (This mirrored national data collected by Nonprofit Finance Fund.) That was before they knew that a government shutdown in the fall would increase demand for services yet further. They cannot withstand more economic turmoil - the reserves are depleted and the financial house is cracking from the strain.

Tim Delaney's call for systemic change could not be more timely or important. Our systems for supporting people and building communities are breaking. The arts and culture sector is on its deathbed in many parts. The lack of real jobs keeps families in dire straits year after year. And do we need another shooting to remind us that the behavioral health system isn't working? I could go on and on.

We have dedicated, resilient nonprofit leaders working on these issues, but the enormity of the challenges requires that they have equally strong leadership in the public sector. It is time for real public service from people who want to serve people, not politics. Every nonprofit leader I know stands ready to work hand in hand with public leaders to solve problems and fix systems. But we must be at the table, and we must activate our organizations to fully participate in the civic sphere.

Tim's call to action should be the wake up clarion for every nonprofit leader to get involved, advocate for your communities, and help our communities lead us out of this mess.

Posted by David Heinen  |   October 07, 2013 at 02:30 PM

Tim Delaney's article certainly resonates with us in North Carolina. Last 83% of our nonprofits experienced an increase in the need for their services, and nearly two-thirds weren't able to meet this demand. The arbitrary federal spending cuts from the sequestration added to this trend, as private philanthropy didn't have the capacity to make up for massive shortfalls in federal investment in head start programs, meals for seniors, weatherization programs, and community development work. For example, the sequester meant that seniors lost out on 12,000 lunches from our local Meals on Wheels.

The federal government shutdown not only shifts more of this need onto nonprofits - whether it's in the form of families, children, seniors, and veterans who normally rely on federally-funded community-based programs or from furloughed federal workers from North Carolina's two major military installations or the national parks along our coast or in the mountains. It also creates uncertainty for the nonprofits that provide these essential services, for the families who rely on nonprofits' work, and for staff and volunteers and charitable organizations. For example, our state Department of Health and Human Services has reported that, after tomorrow, it will have to assess every day whether it can continue to provide for the basic food needs of women, infants, and young children in the WIC program. This means that every day, these families will need to reassess where they'll get their food, and nonprofit food banks and food pantries will need to divert their already thin-stretched resources to find solutions.

We've also heard that AmeriCorps VISTA members at NC nonprofits who aren't receiving their stipends during the shutdown aren't allowed to get a second job to pay rent and buy food food during the interim. Some may even have to turn to the nonprofits where they're volunteering to meet their own basic needs

Posted by plus.google.com/117262628793556914368  |   October 08, 2013 at 09:31 AM

It is true. Real people in Maine are being hurt as well. The government shutdown, following the sequester cuts, an economy that is recovering much more slowly here in Maine, and at least a decade of state and federal budget cuts are having real-world impact. From businesses that rely on Acadia National Park's visitors and defense contracts to children and the elderly, it could be a very long winter.

Maine nonprofits are committed and will do everything they can to keep the doors open, but without supportive public policies, Maine's critical network of community support agencies is fraying.

Posted by Madeleine McGee  |   October 09, 2013 at 12:00 PM

Well said Tim. SC nonprofits are feeling the impact and thank you for representing us so well.

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