TY - CONF
T1 - Sustainability at its core? The effects of long term operational funding on Canadian charities
AU - Phillips, Susan D.
AU - Grasse, Nathan
AU - Carboni, Julia
AU - Lecy, Jesse
AU - Khovrenkov, Iryna
AU - Dougherty, Christopher N.
PY - 2021/7/12
Y1 - 2021/7/12
N2 - The loss of operational or ‘core’ funding for nonprofits was one of the casualties of New Public Management which presumed that such funding creates dependencies and viable organizations can survive in a competitive market (Phillips and Smith, 2011). Although the negative effects of the loss of operational funding has been widely discussed in the practice literature (Scott, 2004) and its restoration is strongly advocated (NPQ, 2019), there is limited systematic analysis of the effects on nonprofits of operational funding over sustained periods, in part due to the rarity of such funding.This paper examines the effects of sustained operational funding on human service charities funded by Canadian United Ways, which remain one of the few funders providing such support. Drawing on the nonprofit financing literature, we test two alternative scenarios.One scenario, building on the classic notion of organizational ‘slack’ (Cyert and March, 1963) as incorporated into recent work on social innovation, predicts positive outcomes. The cushion of resources should enable a nonprofit to adapt to pressures for change (Bourgeois, 1981) and undertake more extensive fundraising, resulting in a growth of revenues and reserves over time (Main, 2016; Sloan et al., 2016; Reimer et al., 2017; Calabrese, 2018), thereby enhancing long term viability. It should also facilitate innovation and risk-taking (W. Phillips et al. 2017; Suarez, 2011), enabling them to expand their service niches with more diversified programming (GEO, 2014; Koch et al., 2015; Paarlberg and Hwang, 2017).The contrasting scenario, drawing from the crowding in/out literature, suggests that the concerns about dependencies are well founded. For instance, Andreoni and Payne (2003; 2011a; b) argue there is a ‘subsidy trap’ so that, with high levels of external support, nonprofits reduce their efforts at fundraising. Core funding should mean total revenues that are barely stable or declining, and programming that is not innovative or diversified, making nonprofits less resilient over time. Even though nonprofits with operating financing may have the resources to invest in management and technology systems, they will adhere to public and funder expectations of low overheads, continuing to under invest in infrastructure, reducing staff expenses (Lecy and Searing, 2015; Hager et al., 2004) or fundraising costs (Schubert and Boenigk, 2019).These contrasting scenarios are tested with United Way supported charities using a panel data set of the annual tax Canadian charity tax returns from 2000 to 2016; these are matched (by size and mission) to charities that have not had operational support. The analysis compares changes in overall revenues and expenditures, mix of revenues, administrative costs and reserves held during this period. Using annual reports, archival material and key informant interviews, we assess changes in the diversification of services or populations served, and explore whether the effects of a funding model are due to the funding itself or to other kinds of non-financial supports provided by a funder.Our contribution to research on nonprofit financing and philanthropic grantmaking is to provide a longitudinal, evidence-based analysis of the effects of operational funding as a component of grantmaking.
AB - The loss of operational or ‘core’ funding for nonprofits was one of the casualties of New Public Management which presumed that such funding creates dependencies and viable organizations can survive in a competitive market (Phillips and Smith, 2011). Although the negative effects of the loss of operational funding has been widely discussed in the practice literature (Scott, 2004) and its restoration is strongly advocated (NPQ, 2019), there is limited systematic analysis of the effects on nonprofits of operational funding over sustained periods, in part due to the rarity of such funding.This paper examines the effects of sustained operational funding on human service charities funded by Canadian United Ways, which remain one of the few funders providing such support. Drawing on the nonprofit financing literature, we test two alternative scenarios.One scenario, building on the classic notion of organizational ‘slack’ (Cyert and March, 1963) as incorporated into recent work on social innovation, predicts positive outcomes. The cushion of resources should enable a nonprofit to adapt to pressures for change (Bourgeois, 1981) and undertake more extensive fundraising, resulting in a growth of revenues and reserves over time (Main, 2016; Sloan et al., 2016; Reimer et al., 2017; Calabrese, 2018), thereby enhancing long term viability. It should also facilitate innovation and risk-taking (W. Phillips et al. 2017; Suarez, 2011), enabling them to expand their service niches with more diversified programming (GEO, 2014; Koch et al., 2015; Paarlberg and Hwang, 2017).The contrasting scenario, drawing from the crowding in/out literature, suggests that the concerns about dependencies are well founded. For instance, Andreoni and Payne (2003; 2011a; b) argue there is a ‘subsidy trap’ so that, with high levels of external support, nonprofits reduce their efforts at fundraising. Core funding should mean total revenues that are barely stable or declining, and programming that is not innovative or diversified, making nonprofits less resilient over time. Even though nonprofits with operating financing may have the resources to invest in management and technology systems, they will adhere to public and funder expectations of low overheads, continuing to under invest in infrastructure, reducing staff expenses (Lecy and Searing, 2015; Hager et al., 2004) or fundraising costs (Schubert and Boenigk, 2019).These contrasting scenarios are tested with United Way supported charities using a panel data set of the annual tax Canadian charity tax returns from 2000 to 2016; these are matched (by size and mission) to charities that have not had operational support. The analysis compares changes in overall revenues and expenditures, mix of revenues, administrative costs and reserves held during this period. Using annual reports, archival material and key informant interviews, we assess changes in the diversification of services or populations served, and explore whether the effects of a funding model are due to the funding itself or to other kinds of non-financial supports provided by a funder.Our contribution to research on nonprofit financing and philanthropic grantmaking is to provide a longitudinal, evidence-based analysis of the effects of operational funding as a component of grantmaking.
M3 - Abstract
T2 - 14th International ISTR Conference
Y2 - 12 July 2021 through 15 July 2021
ER -