Editorial note: This essay originally appeared at The Giving Review. To watch the video, please see the post at The Giving Review.
Jack Salmon is a research fellow whose work focuses on economic and fiscal policy at George Mason University’s Mercatus Center, to which he returned after a two-year stint as the Philanthropy Roundtable‘s director of policy research. He remains a visiting fellow of the Roundtable, and he’s also done research for the Competitive Enterprise Institute and the Cato Institute.
Last month, the Roundtable published a report by Salmon, Strings Attached: How Government Funding Compromises Nonprofit Independence. Nearly one-third of nonprofit entities’ revenue came from government sources in 2021-2023, according to the report. Large nonprofits with expenditures exceeding $1 million report almost half their revenue comes from government funding.
Since 2008, federal grants awarded to nonprofit groups have more than doubled, with most of that growth occurring since 2019, Strings Attached reports, and every dollar in government support may “crowd out” 50 cents or more in private charitable contributions to social-service nonprofits.
“Ultimately, overdependence on government funding threatens to transform nonprofits into mere extensions of government bureaucracy, eroding their independence, reducing sectoral diversity, and diminishing the interpersonal connections fostered through private giving,” Salmon concludes.
Nonprofit leaders must remain vigilant to ensure the nonprofit sector retains its vital role as a dynamic, community-driven force for social good, free from the constraints of excessive government intervention and dependence. Balancing the benefits of public funding with the need for independence will be essential for preserving the integrity and effectiveness of the nonprofit sector.
Salmon was kind enough to join me for a recorded conversation late last month. The just less than 15-minute video is the first part of our discussion; the second is here. During the first part, we talk about the report’s findings and the ways in which various forms of government benefits can compromise nonprofits’ independence—as well as the range of conditions government can and cannot, and should and shouldn’t, attach to its nonprofit funding.
Strings Attached is “really just a deep dive into what the funding streams look like in terms of government money flowing to nonprofits,” Salmon tells me. “The total funding is probably somewhere close to about a trillion dollars as of today.
“That’s trying to encapsulate all grants [and] contracts, but also indirect funding,” he continues. It does not include what are called governmental “tax expenditures” related the nonprofit sector. Tax expenditures are revenue losses resulting from specifically directed provisions in the tax code—including, in the nonprofit context, charitable exemption and deductions. “This report didn’t go into the tax side of things. This was just about direct funding. Tax advantages is another topic, but also it’s really minuscule in scale when you compare to the direct government funding.”
Overall, “there’s no sort of broadly accepted threshold level at which a nonprofit starts to have issues with the strings attached to the government funding,” according to Salmon. “For some, it might be 30% of their revenues. For others, maybe 50%. But there really is no hard number.
“What I would say is the greater the dependence, the higher the risks that come with receiving those funds,” he continues. “I would say that the ultimate measure of how much is too much is if that government funding was withdrawn tomorrow,” would the “nonprofit be able to survive? Would they be able to survive without following government priorities and government regulations? That’s the ultimate question.”
Salmon says,
governments can attach a wide range of conditions to the funds that nonprofits receive. This could be reporting requirements and auditing rules to limit certain things that aren’t allowed legally. Sometimes, there are basic accountability measures, like preventing fraud or ensuring money is spent as promised. But other times, they cross a line into restricting speech, forcing programmatic changes, and imposing compliance costs on nonprofit organizations. The broader the conditions, the more government exerts control on the nonprofit’s sort of direction or its mission.
Since the 1990s, “there have been a lot more private-public-partnership type agreements,” he notes, so nonprofit “organizations have effectively been increasingly looking more and more like arms of the state, extensions of federal agencies.
“I think there’s been an even-greater acceleration since the pandemic,” he goes on. “We saw a huge upswing” in government spending “that hasn’t come back down. We’re sort of stuck in this post-pandemic spending cycle” that’s affecting government support of nonprofits too.
In the conversation’s second part, we discuss Alexis de Tocqueville, whether “civil society” and the “nonprofit sector” are the same thing, and what his research has to say both to nonprofit leaders and to policymakers, if anything.
