Providing Public Services Without Relying Heavily on Government Funding: How Do Nonprofits Respond to Government Budget Cuts?

Abstract

Existing studies of government–nonprofit relationships have largely treated government funding as a revenue stream of nonprofit organizations. However, there is limited empirical research on how nonprofits respond to government spending changes in a public service subsector where they provide public services without relying heavily on government funding. In such public service subsectors, government spending cuts, thus, represent a reduction in governmental service provision rather than a revenue shock to nonprofits in the sector. Utilizing a unique panel data set of park-supporting nonprofits in large U.S. cities, this study examines how these nonprofits adjust financial management strategies in response to incremental and dramatic changes in the overall government spending on parks and recreation services in a city. The findings suggest that nonprofits increase fund-raising efforts and diversify revenue portfolios in response to incremental changes in the government spending environment. Facing a dramatic government budget cut on parks and recreation, nonprofits are more likely to reduce administrative expenses and spend more on programs to fill in the gap of service needs. Borrowing and using reserves seem not to be strategies nonprofits pursue in such circumstances.

Looking at the nonprofit accountability‐charitable donations relationship through the publicness lens

“…The results also show that the household median income in counties is positively associated with private donations, suggesting that nonprofits in a wealthier county receive greater charitable support. However, the findings reveal a positive relationship between the unemployment rate and charitable donation, which may be due to the increased demand for social services during an economic slowdown (Cheng & Yang, 2019).…”

“…Total charitable contributions in the U.S. reached a record of $471.4 billion in 2020, with more than 90% of nonprofit organizations receiving private charitable donations (Giving USA, 2021). Private charitable contributions are an important funding source for nonprofits, which enable nonprofits to strengthen financial capacity while reducing reliance on government grants or contracts, especially when facing unstable government funding (Cheng & Yang, 2019). Charitable contributions are also a symbolic demonstration of support for nonprofit organizations and the “defining and unique source of revenues to capture and channel philanthropic endeavors” (Froelich & Knoepfle, 1996; Moore, 2000, p. 185).…”

Government‐nonprofit partnerships outside the contracting relationship and public funding allocation: Evidence from New York City's park system

“…Our finding is important not only because the context is new, but also because we are able to rule out the alternative explanation of funding flow from governments to nonprofits in empirical studies of the contracting regime (Grønbjerg & Paarlberg, 2001; Lecy & Van Slyke, 2013). For public services like parks and recreation, nonprofit organizations rely heavily on private donations to finance their activities and their donations do not directly go to local governments (Cheng & Yang, 2019; Walls, 2014). Funding flow between the two sectors is insufficient to explain such interdependent relationships.…”

Nonprofit Density and Distributional Equity in Public Service Provision: Exploring Racial/Ethnic Disparities in Public Park Access across U.S. Cities

“…Second, public park services are a type of public service where nonprofit organizations play important roles in financing and planning service provision (Brecher and Wise 2008; Cheng 2019a; Cheng and Yang 2019). According to a recent study of large park conservancies in the United States, Harnik and Martin (2015) found that park conservancies spent 50 percent more on public parks they support than public park departments.…”