Last week, many of us were writing checks to worthy causes in an end-of-year rush to give to charity. Whatever prompts us – the holiday spirit or the advice of tax accountants – more people give at year’s end than at other times. What few realize, though, is that trends in government are undermining our seasonal generosity.Our national safety net of social services is a curious public-private hybrid. Federal, state and local government underwrites the bulk of the cost of supporting vulnerable people in our society. But most services are delivered by nonprofits operating under government contracts or grants. In essence, government outsources its social work, both to lower costs and to take advantage of nonprofits’ entrepreneurial spirit and local ties. For their part, the nonprofits receiving government contracts and grants have more resources and can in turn have more impact.
However, the financial underpinnings of this hybrid approach are quickly eroding. As governments grapple with the fiscal reckoning, they are squeezing the nonprofits they retain to feed the hungry, house the homeless or mentor at-risk youth. In a 2010 survey of social service nonprofits by the Urban Institute, 68% of respondents said government’s failure to pay what it cost to deliver services was a problem.
Individual charitable contributions to these nonprofits cannot prevent a death of a thousand cuts from government budget woes. Further reductions are coming with the Budget Control Act of 2011 and the failure of the equally misnamed congressional super-committee. The resulting federal cuts of nearly $1 trillion in domestic spending will soon begin to cascade down through already-stretched state and local budgets.
Government-funded nonprofits are bracing for the impact. In a November survey of nonprofit executives, we found that more than 90% agreed that the federal cuts will cause significant problems. These leaders grasp political reality: The fiscal shakeout will disproportionately hit the poor, the marginalized and the nonprofits supporting them.
Despite these cutbacks, most nonprofits will soldier on, as their missions bid them to do. Their determination in the face of adversity masks the problem of chronically underfunded social services – at least for now. But too many of these organizations are wearing themselves out as their missions outstrip their margins. We often talk about the widening investment gap in this country’s physical infrastructure; the dynamics outlined above are creating an equally troublesome gap in our social infrastructure.
Where do we go from here?
Many demand increased funding levels for social services. But the hard fact is our fiscal problems effectively rule this out. Given the tradeoffs we need to make as a society, it will be especially hard to justify boosting investment in those social programs and service providers that aren’t making a demonstrable impact.
At the same time, cutting necessary social services generates false savings. People who don’t get support they need are much more apt to turn up in homeless shelters, emergency rooms, or prison cells — where taxpayers get stuck with a larger bill.
We can’t go back. We can’t stay where we are. We need a breakthrough such that our hybrid social service system can produce better results at lower costs.
There are positive glimmers here. In recent years we have identified many solutions for social problems that provide more bang for the taxpayer’s buck. For example, research has shown that a dollar invested in a high quality home visitation program to support first time mothers in challenging circumstances can save more than five dollars over time in social services that the family would otherwise require. And it is so much better for a community to help a young family to get off to a healthy start than to have to deal with the fallout from this not happening down the road.
We are also increasingly in a position to identify the nonprofit organizations delivering superior results. Indeed, the Obama administration, through its Social Innovation Fund and related initiatives, is on this very path of investing in “what works,” as are several state and local governments.
Unfortunately, the public funding now supporting the “what works” agenda will be at risk with the pending cuts. In any case, it remains a pittance relative to baseline spending flows – and will continue to be until the hard corollary to this approach – dropping programs and providers that do not demonstrate acceptable results – comes more to the fore.
All of which begs the question: Why don’t governments, as a matter of policy, invest taxpayer dollars in what works? It turns out this is politically difficult. The officials we elect find it far easier to impose across-the-board cuts than to make choices that impose losses on particular programs and their constituencies, something demonstrated again most recently by the super-committee.
The same dynamic plays out when it comes to government selecting higher-performing nonprofits to deliver services. As the finance head of a major city recently related: “It’s hard to be the bad guy and say, ‘we had 10 grantees and now we are going to only have 8.’ It is comparatively easier to say, ‘we had 10, will continue to have 10, but we need to give everyone a haircut.’ It is made more difficult by the fact that these are venerable institutions that have a powerful legacy whose leaders and board can wield considerable political influence.”
If things are going to change, there needs to be a countervailing constituency for what works, one that demands public money is spent on programs that deliver better results for lower costs, delivered by nonprofits with demonstrated ability to improve the lives of the people they serve, and funded at levels that enable them to increase their impact over time.
So by all means keep giving to worthy nonprofits. But also recognize that you can preserve and enhance the impact of your contribution by ensuring that the politicians asking for your support in 2012 are committed to investing our scarce public resources in what actually works.
