Government Funding for Nonprofits

Many nonprofits rely on government funding and it is usually a steady check, but it can lead to serious problems, as this article from City Journal reports.

An excerpt.

FEGS, or Federation Employment and Guidance Service, began life in 1934 as a small Jewish charity in New York. Over 80 years, it grew into a sprawling, $230 million social-services nonprofit, helping welfare recipients find jobs, housing people with disabilities, and offering home care for the poor. Its sudden collapse earlier this year—it filed for bankruptcy in March, owing $2.3 million to the New York State Office of Mental Health and another $12 million in construction loans—illustrates how government money has transformed religious and mutual-aid philanthropic organizations and the risks that such groups take when they chase public funding.

FEGS’s messy collapse marks an inglorious end to an institution that began by using charitable money to provide vocational services to Jewish immigrants. This task grew broader and more urgent with the flight of Jews from Europe to America during the late 1930s. During World War II, FEGS, then called Federation Employment Service, expanded its mission to run recruiting drives for local manufacturers contributing to the war effort. After the war, FEGS helped place veterans in jobs.

Like many charities, FEGS’s mission began to change more dramatically with the rise of government-funded social services, starting with President Lyndon Johnson’s War on Poverty. By the late 1960s, FEGS was operating federally funded Youth Corps summer-employment programs. In the 1970s, it took on government-financed programs to serve meals to the elderly and counsel troubled youths. By then, FEGS was part of a broader network of some 130 New York Jewish philanthropies with a collective budget of $200 million, over half of which government supplied.

Today, FEGS is essentially a government contractor—in some ways, virtually indistinguishable from government agencies. The organization’s 2013 IRS filing, for instance, lists $227 million in total revenues—including $93 million in government grants and $119 million in program revenues, much of it from providing services funded by public-sector programs like Medicaid. By contrast, fund-raising events and nongovernment grants and contributions brought in just $1 million and $4.3 million, respectively.

FEGS’s evolution is fairly common among many other nonprofits that got their start as charities. A 2014 examination of the funding sources of 3,600 Jewish nonprofits by the Forward estimated that 79 percent of the $5 billion that these groups generated for spending on social services came from government grants and program services. Just 15 percent originated from private contributions. Decades ago, these groups largely relied on private contributions and grants from organizations like UJA-Federation.

Jewish groups aren’t alone in their reliance on government funding. During the late 1990s, Catholic Charities USA opposed congressional efforts to slow federal welfare spending by instituting work requirements for recipients. At the time, the Catholic philanthropy was receiving almost two-thirds of its revenues from government to run social-services programs, prompting Senator Rick Santorum to observe that the organization “can do little that is uniquely Catholic. They have to do what the government dictates.” (See “How Catholic Charities Lost Its Soul,” Winter 2000.)

Retrieved August 18, 2015 from

About David H Lukenbill

I am a native of Sacramento, as are my wife and daughter. I am a consultant to nonprofit organizations, and have a Bachelor of Science degree in Organizational Behavior and a Master of Public Administration degree, both from the University of San Francisco. We live along the American River with two cats and all the wild critters we can feed. I am the founding president of the American River Parkway Preservation Society and currently serve as the CFO and Senior Policy Director. I also volunteer as the President of The Lampstand Foundation, a nonprofit organization I founded in 2003.
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