It’s commonly held wisdom— particularly among fundraising generalists — that nonprofit organizations shouldn’t rely exclusively on grants for their operational and programmatic support. Grants should be only one element in a multiple-source mix.
This post explores nonprofits’ revenue development strategies and their varied mixes of funding sources. Later posts will explore their options for seeking grants from private sources.
Available statistics suggest that nonprofits — as a large population of organizations — apply this wisdom in practice. Generally, grants are in fact only one element in their funding mix — and often they form only a small part of that mix.
As the Congressional Research Service (CRS) noted in its Overview of the Nonprofit and Charitable Sector (2009) — “…It is important to note that nonprofit organizations that receive charitable contributions generally have other important sources of revenue, such as user fees, earnings from assets, or government support….” In its Overview, the CRS found that, as of 2005:
- Government grants and payments were much more important for health organizations (37%) and for human services organizations (36%) than for other types of organizations.
- Private donations formed the largest source of funding for arts, culture, and humanities organizations (43%) as well as for environment and animals (48%) organizations. They were also significant in human services organizations (16%).
- Private payments (fees for service) were most important for education (56%) and healthcare (56%) organizations, but also significant for human services organizations (41%), arts, culture, and humanities organizations (29%), and for environment and animals organizations (24%).
- Investment income was far more important for education organizations (17%) and arts, culture, and humanities organizations (9%) than for others (range: 3% to 7%).
- Other sources of revenue (e.g., special events) were most important for environment and animals organizations (9%) and for arts, culture, and humanities (7%) organizations.
In its Overview, the CRS reported that government grants were least important for health organizations and most important for human services and international organizations. The grants reflected the nature of the specific organizations, and were less important as a revenue source for those organizations — such as hospitals — that relied heavily upon government fees (e.g., Medicare and Medicaid). Grant support was more important in areas where the government had a special interest — such as the human services and international sectors — than in others.
Government Grants as Revenue:
Government funding to charitable organizations has three origins. It may come: (1) directly from the Federal government, (2) from state and local governments that have received the funding from the Federal government (rather than raised the revenue themselves), or (3) directly from state and local governments.
Among the findings of one CRS-cited study were that only 9% of grants originated with state and local governments; 61% were financed by the Federal government but flowed through to nonprofit organizations via state and local programs; and the remaining 30% were provided directly via the Federal government. While the Federal government appeared to be the primary source of funds through grant making, state and local governments were the primary sources of oversight.
This distribution of grant origins implies that what happens to future Federal discretionary spending will impact greatly — even disproportionately — those organizations that rely more heavily on grants in their funding strategy mix – particularly those human services organizations that depend upon Federal-origin grants and Federal-origin fees.