Imagine a future when government support of the charitable sector is cut in half. Even though some 35 percent of nonprofits indicated that government funding had increased this past year, 38 percent spoke of a decrease while 91 percent agreed with the statement, “federal cuts will cause significant problems for our organization as we seek to fund our mission.”

These are among the results of a survey by the Bridgespan Group with offices in Boston, New York and San Francisco, called “The View from the Cliff: Government-Funded Nonprofits Are Looking Out on Steep Cuts and an Uncertain Future.”

Prepared by Daniel Stid, partner at Bridgespan Group and Vishal Shah, senior associate consultant, the study examined 68 nonprofits of various sizes that receive at least 50 percent of revenue from governmental sources through a survey conducted in November 2011 and via 17 interviews with nonprofit leaders.

The results illustrate that although some organizations are enjoying funds from the government’s American Recovery and Reinvestment Act (ARRA) of 2009, the future leaves some nonprofit leaders with a level of trepidation on what’s going to happen when the money runs out.

“Nonprofits need to envision a world where they are receiving 50 to 60 percent of the resources they receive from the government now,” said Stid. “The short-term options are getting exhausted. This calls for a re-thinking of how things should be done.”

With federal stimulus money running dry, it remains to be seen how nonprofits will deal with decreased budgets. Only 55 percent of survey respondents agreed that their organization “had an adequate understanding” of how budget cuts would impact them.

Some two-thirds of respondents expected government-sourced funding to decrease during the next two to three years. And even though a third of organizations have seen an increase in government funding, none expected an increase in the years ahead.

Nonprofit leaders have been uniform when it comes to instituting measures to “belt-tighten.” In interviews, a majority of respondents cited having a reduced staff, frozen salaries and hiring, along with a variety of administrative efficiencies. Others have used interns or volunteers to fill paid staff positions.

Sector-wide solutions have not been cutting it. As some nonprofits try to increase their advocacy to preserve and enhance funding, Stid saw this is as a “zero-sum” game. “In tough fiscal times, such focused, narrow-bone advocacy is going to be a zero-sum game, helping one set of nonprofits or program category at the expense of another,” he wrote.

Consolidating and collaborating across nonprofits has been seen as an option, but in practice these do not seem to be very effective. Barely 10 percent of respondents indicated they found mergers and acquisitions to be an “effective” means of dealing with the funding situation. Only 20 percent of nonprofits considered mergers, but nothing more than that.

Stid outlined his own recommendations advising nonprofits to enhance their strategic clarity, diversifying funding streams, measure outcomes, improve productivity and engage government funders as customers.

Some workable solutions, according to interviewees, included using improved human services to reduce health care costs and focusing resources on programs and providers that demonstrate superior results.

Rather than using a majority of health care expenditures, Stid discussed having more preventive care measures. By targeting human services given to the highest cost users and instead deliver low-cost preventive services, state governments could avoid paying those “deep-end” costs.

In addition, nonprofits should begin to zero in on lower impact programs and instead fully fund the higher impact programs.

“Given the structural problems we’re facing, we need to help people who are thinking short-term, show them there is going to be erosion of government funds sector-wide,” said Stid. “There has been so much emphasis on evaluating programs or benchmarking in the short-term, but the long-term view needs to be emphasized in order for these nonprofits to persevere.”

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