October 19, 2011

Will Austerity Drive Effectiveness for Human Service Nonprofits?

By: Daniel Stid

In their increasingly belabored search for a silver lining amidst our chronic economic problems, many reformers in the social sector believe they have found at least one: Funders, especially our cash-strapped federal, state, and local governments, will at long last start focusing on results as they decide which programs will be funded and which nonprofit service providers will be awarded grants or contracts to deliver those programs. Insofar as government is by far the predominant funder of human services in this country, the results-based, performance-based, evidence-based, you-name-it-based revolution that so many of us having been working toward may finally be at hand.

As a hopeful citizen, taxpayer, and advisor to several nonprofits that deliver and can document impressive results, I really want this logic to bear out. Alas, as a lapsed but still cynical political scientist and first-hand observer of the unpleasant realities of government funding for human services, I am convinced that it will not. Indeed, several aspects of the so-called new normal work directly against the effectiveness agenda.

First and foremost, austerity increases the determination of those with vested interests in the status quo. For government to invest more in programs and providers that demonstrate superior results, it needs to take money away from programs and providers that do not—especially when times are tight. But it is really hard for governments to impose concentrated pain like this. Advocates for programs at risk of being defunded and incumbent contract holders pull out all the stops with elected officials and administrators in order to hold on to what they have. The interests of those who would benefit from a shift toward results, however, are more diffuse and, in the case of the low-income and marginalized people who would ultimately benefit from more effective programs and providers, not apt to be powerfully articulated. Hence the prevailing tendency for across the board haircuts instead of explicit choices to drive better results as government struggles to make ends meet.

This dynamic reinforces another problem—the tendency for government to be penny-wise and pound foolish, solving the near-term budget crunch even if this leads to more expensive problems down the road, as chronic under-investment in essential human services tends to do. The reality is that most government agencies have dominant market power relative to the smaller and dispersed nonprofits that they outsource the provision of human services to, and they are inclined to exercise this power as we might expect, by putting the squeeze to their suppliers where they can to ease their own financial problems. Insofar as these suppliers are mission-driven and willing to be paid 80 cents on the dollar for the services they provide, it makes it that much easier for government to operate in this fashion.

As the ramifications of this chronic funding squeeze play themselves out in the budgets and operations of human service nonprofits, it becomes harder for them to invest in and sustain the infrastructure and capacity they need to get better. It is not so easy to measure, learn, and improve when you are treading furiously simply to stay afloat.

Let me wrap up what I know has been a bleak post with a note of realistic optimism. Notwithstanding the challenges outlined above, many human service nonprofits are managing to identify what is working and why and to do more of it. We see this occurring every day in a wide range of organizations. But they are doing this in spite of, not because of, government austerity. They are doing it because their dedication to their missions bids them to continually assess and improve what they do. Is it a problem that the fiscal challenges of our government makes this harder, not easier? Yes, but it is not an intractable one.

For example, a couple of months ago I was talking with the leadership team of a human service nonprofit that has made tremendous strides in assessing and improving its performance. They started off at a basic level, tracking a few outcomes, and have grown increasingly sophisticated in their approach, understanding how different inputs and outputs support those outcomes and refining their work accordingly. They are now in the process of teeing up a more systematic third-party evaluation of their impact. When I asked what led them to embark on this journey, the CEO said that at the outset they simply wanted to know, “what are we doing that actually works?” When nonprofits are mission-driven to the point where they feel compelled to ask themselves this essential question—and to follow through on what the answer implies—shortfalls in government funding are not going to stand in their way. Conversely, when organizations are not sufficiently driven by their mission to pose and answer this question, outside-in pressure is not likely to lead to increased effectiveness. Ultimately, excellence for nonprofits is self-imposed.

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