The Changing Relationship Between the Public Sector and Nonprofit Welfare Providers
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The Changing Relationship Between the Public Sector and Nonprofit Welfare Providers Steven Rathgeb SmithGeorgetown University

Presentation to be delivered at the conference on “The Voluntary Sector in the Nordic Countries: Change Agents and Contract Partners?” Bergen, Norway, 18-20 May 2011


  • Crucial transition time in the relationship between government and the nonprofit sector.

    • Fiscal crisis of government

    • Big increase in number of nonprofits

    • Pressure for accountability

    • Widespread interest in social innovation and social enterprise


  • Nonprofit welfare providers have a long history in the United states.

    • Early nonprofit providers in the 19th century were typically sectarian agencies such as the Salvation Army, Catholic Charities, Lutheran Social Services.

    • These agencies were usually dependent upon volunteers, private charity, and small client fees. Very little public funding of these agencies except in very limited and targeted circumstances.

    • Thus, the US public-nonprofit relationship was not very different from Nordic countries at this period of time.

Early to Mid-20thCentury

Continuity rather than change

  • Government funding and oversight of nonprofit welfare providers remained very limited.

  • Welfare providers remained reliant on private charity, especially Community Chest, a local organization in most cities that engaged in annual fundraising campaigns to support nonprofit welfare providers.

  • No federal funding of nonprofit providers.

The 1960s: A Decade of Major Policy Changes

  • Many new federal social programs created which led to a sharp escalation of federal funding and support for social services.

  • New social programs included:

    • Community based organizations to address poverty

    • Early childhood education

    • Community mental health centers

    • Neighborhood health centers

    • New agencies for at-risk youth

A Major New Role for Nonprofit Welfare Providers

  • Most of the new social programs were delivered by nonprofit social service agencies.

  • A large percentage of these nonprofit agencies such as community mental health centers were entirely new agencies created to take advantage of government funding.

  • Government funding was in the form of grants and contracts.

The Government-Nonprofit Relationship: The Early Growth Period

  • Government oversight and monitoring of nonprofit agencies tended to be relatively lax.

  • Emphasis on service expansion and greater eligibility for services. Hope for more universal entitlement to services.

  • Nonprofits were a vehicle for welfare state expansion.

The Government-Nonprofit Relationship: The Early Growth Period

  • Contracts were typically renewed

  • Tight relationships between public funding agencies and nonprofit welfare providers

  • Accountability emphasized process measures such as number of clients served and staff-client ratios

The Government-Nonprofit Relationship: The Early Growth Period

  • Little effective competition between nonprofit providers

    • Almost no for-profit competition.

    • Reluctance of public officials to contract with for-profit organizations or move contracts.

    • In many communities, the number of welfare providers remained relatively modest despite the growth of federal support. Many new organizations were small and lacked capacity.

The Government-Nonprofit Relationship: The Early Growth Period

  • Structure of Contracts

    • Cost-reimbursement basis

    • Most agencies recovered their costs subject to state and local budget fluctuations

    • Little incentive for efficiency. Many of the newer agencies were entirely dependent upon public contracts and did not raise significant amounts of private philanthropy.

The Government-Nonprofit Relationship: The Early Growth Period

  • Organizational consequences

    • Professionalization of staff. Agency staff tended to be full-time but increasingly advanced degrees and professional training was required.

    • Shift away from reliance on private philanthropy and client fees toward public funding.

Devolution and Cutbacks: The First Round

  • Reagan administration shifted responsibility for many federal social programs to state and local government.

  • Consolidated many funding grant programs.

  • Reduced funding

  • Many nonprofit welfare providers lost substantial funding

Expansion of Nonprofit Welfare Providers Continues

  • New funding through the public health insurance program, Medicaid, for community care programs for the disabled.

    • Sharp increase in home health, home care, community residential programs.

  • Rising public funding for an array of child welfare and youth-related programs such as mentoring and recreation.

  • Greater interest and support for community service, especially volunteering by young people. More youth engagement in nonprofits and in turn fostering the establishment of more nonprofits.

Expansion of Nonprofit Welfare Providers Continues

  • Welfare Reform of 1996

    • Welfare in the US was previously focused on the provision of cash assistance to the poor.

    • Key provisions of this legislation:

      • Reduced funding for cash assistance,

      • Placed time limits on the receipt of assistance,

      • New money for support services, primarily with nonprofit welfare providers.

Safety Net: From Cash to Services

Source: Congressional Research Services, 1998 and 2004 Green Book

The Welfare Safety Net

Registered Nonprofits and Reporting Agencies, 1995 and 2010

Major Recent Trends

  • Growing Expectations of Government on the Accountability of Nonprofit Welfare Providers

    • Performance-based contracting

    • Logic models and outcome evaluation

    • Greater emphasis on transparency and reporting.

    • Project related funding rather than general support contracts or grants by public and private funders.

Major Recent Trends

  • Intensified competition among nonprofit agencies

    • Growth in nonprofits amidst declining public and private revenue

    • Shift away from older style cost-reimbursement contract. More funding is tied to the client.

    • Entry of For-Profit Firms into services previously dominated by nonprofits such as community care

Employment Trends in Social Services and Related Services, 2002-2007

Social Service Establishments by Category, 2002 and 2007

Major Recent Trends

  • Personalization of care and more individual choice in services.

    • Individual accounts that families or disabled individuals control and they make the purchasing decisions rather than government.

    • Increased use of vouchers in child care and substance abuse treatment

Major Recent Trends

  • Staffing Changes among welfare providers

    • Professionalization

    • More contingent workers including part-time and contract staff

    • Growth of volunteers in support positions

    • Exchange of personnel between government and nonprofit sector

Changed Political Landscape

  • Nonprofit organizations have organized politically through coalitions and associations.

  • These intermediary organizations often have close relationships with government and negotiate important funding and regulatory matters at the state and local level.

Changed Political Landscape

  • Impact of the Fiscal Crisis

    1.More emphasis on political mobilization by nonprofit welfare providers, given the funding cutbacks and the potential for more reductions.

    2. New emphasis on collaboration among nonprofit agencies to share costs and overcome the fragmentation of services.

    3. Tighter eligibility for services which then undermines the fiscal health of many providers especially the smaller providers.

Changed Political Landscape

  • Impact of the Fiscal Crisis

    • Exacerbated the tension between government and nonprofit welfare agencies. Are they partners in service delivery or are nonprofit agencies simply agents of the state providing a service under contract?

    • Government is under pressure to reduce costs and often view nonprofits as agents while nonprofits believe in a shared approach to policy development and implementation.

Nonprofit Welfare Agencies: Contractors or Change Agents

  • Nonprofit Social Service Agencies have been central to the restructuring of the state in social policy in the US.

  • Expansion of community care, child welfare services, job training, child care made possible by utilization of nonprofits

  • Government funding has been crucial to the growth of nonprofit social service agencies

Changing Government Policy toward Nonprofit Welfare Agencies

  • Fiscal centralization and administrative devolution.

  • Greater emphasis by government on performance, competition and accountability.

  • Nonprofits face pressure to diversify revenue sources through earned income and private donations in part to provide them with greater flexibility in their administrative and programmatic decisionmaking.

  • The push for earned income also reflected in the broad interest and support for social enterprise.

A New Paradigm for the State-Nonprofit Relationship

  • Government needs to think of the relationship as a long term investment and promote fiscal stability.

    • Restructured contracts

    • Direct and indirect assistance with capacity building in nonprofits.

    • Support for self-regulation by nonprofit providers.

A New Paradigm for the State-Nonprofit Relationship

  • Government needs to invest in its own staff and infrastructure.

  • New staff and new skill sets needed for contract managers as well as state managers engaged in complicated public-private partnerships.

  • Adaptations of the “The Compact” model from the UK and Australia.

Nonprofit Welfare Agencies and Social Citizenship

  • The expansion of nonprofits in providing social services now means that they are crucial to social citizenship in the US.

  • Initially, the expansion of nonprofit welfare providers was in the interest of a broader welfare state for America.

  • More recently, nonprofits are at least to some policymakers a vehicle for reducing the welfare state by shifting services to volunteers and agencies dependent upon private philanthropy.

Nonprofit Welfare Agencies and Social Citizenship

  • Growing polarization between larger, more professionalized nonprofit providers with more stable sources of income and smaller community based organizations that lack capacity for sustainable effective services.

  • Overcoming this polarization and the inadequacies of current public funding will require nonprofits to be more than contractors but also change agents.

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