By Andy Carroll, ASF

Every 2 to 3 weeks, I explore trends influencing small-staff philanthropy by spotlighting articles, reports, and essays in the media.

In this edition, I focus on the relationship between the nonprofit and government sectors. The relationship is multifaceted, encompassing much more than incentives to give. Note: I use “nonprofit” to describe both nonprofits and philanthropies. 

Government as Catalyst of Private Giving

The federal government’s role in providing incentives for giving is followed closely by the press, in part because the charitable deduction has broad appeal. In recent news, two members of the powerful Senate Finance Committee—a Republican and a Democrat—urged lawmakers and the President to protect the full value and scope of the charitable deduction. The President has proposed capping the deduction as part of efforts to cut the deficit and reform tax laws.

Government as Regulator

The government’s role as regulator of nonprofits also is covered closely. Recently, the IRS proposed new rules to limit political activity of 501(c)(4) groups, known as social welfare organizations, to clarify their political activity. The new rules reflect growing concern about the influence of 501(c)(4)s in the financing of election campaigns. Commentators point out that the rules would also limit nonpartisan activities such as holding voter registration drives and publishing voter guides. Both conservative and liberal nonprofits have voiced opposition.

Government as Funder of Nonprofits

Explored less often in the press is the nature and scope of the government’s role as funder of nonprofits. A new survey by the Urban Institute sheds light on this role by documenting government support at the national, state, and local levels. In 2012, government agencies paid $137 billion to nonprofits. For perspective, total foundation giving in 2012 was $45 billion, and giving by corporations totaled $18 billion. Government funding represents one-third of revenue for public charities, and more than 65% for human services organizations. According to the Urban Institute study, significant numbers of nonprofits continue to experience cuts in public funding.

Nonprofits as Innovators in the Public Sector

Nonprofits are often seen as society’s research and development arm. In this role, they help federal, state, and local agencies be more efficient; build the effectiveness of government grantees; and craft new approaches to problems that are priorities of government. An excellent article in the Chronicle of Philanthropy highlights foundations as public sector innovators.

An article published by the Association of Baltimore Area Grantmakers explores how a small family foundation worked with the state of Maryland to enhance programs in financial education.

The policy landscape evolves constantly, and the current relationship between nonprofits and government will change. Through our democratic process, laws, tax benefits, and levels of funding are continually renegotiated and reshaped by voters and interest groups. Every nonprofit, donor, and foundation can play a role through advocacy, lobbying, and the contribution of knowledge, data, and experience.

As governments reduce support for nonprofits, as human needs increase, and as private giving remains flat, many foundations and donors are recognizing that philanthropy alone cannot fill the growing gaps and needs. They are taking stock of their assets and influence, and determining ways to achieve leverage. Engagement with government and the public sphere will hold one of the keys.

Read previous posts on trends

Senior Program Director Andy Carroll writes resources, designs workshops, and facilitates seminars for funders. Andy also dedicates a significant portion of his time to managing our Leadership Initiative that defines, validates, nurtures, and celebrates the many ways philanthropists lead. Andy has 25 years of experience in nonprofit organizations, and he enjoys talking with funders about their questions, interests, passions, and plans for making a difference.