Report: Government Continues To Stiff Nonprofits

December 5, 2013       Mark Hrywna      

Nonprofits were owed more than $200,000, on average, for services provided to state governments during 2012 and nearly a third of nonprofits reported receiving late payments from governments, according to a new survey.

Nearly half of the nonprofits affected reported that late payments were creating problems for their organizations, according to the results of the “Nonprofit-Government Contracts and Grants: Findings of the 2013 Survey,” a collaborative project of The Urban Institute’s Center on Nonprofit and Philanthropy and the National Council of Nonprofits.

More than 4,000 completed the survey, which included organizations that are required to file a federal Form 990 and have more than $100,000 in expenditures. Results were weighted to represent all nonprofits that had contracts and grants with government agencies in 2012.

During the recession, nonprofits reported some level of difficulty with five problem areas:

  • Complex application processes;
  • Burdensome reporting requirements;
  • Payments not covering the full cost of services;
  • Changes to government contracts; and,
  • Late payments

The study, funded by the Bill and Melinda Gates Foundation, is the second such survey by the Urban Institute in Washington, D.C. The other was conducted in 2009. “From the perspective of human services nonprofits, little improvement has been made in the past three years in streamlining the application and reporting processes to reduce the cost and burden of applying for and reporting on government contracts and grants,” according to the survey’s authors.

Almost 40 percent of nonprofits in the survey reported continued struggles in the wake of the Great Recession and ended the year with a deficit, survey results show. Approximately 15 percent reported deficits of 10 percent or more at the end of 2012. Almost half reported decreased government revenues from 2011 to 2012.

Late payments were prevalent among all levels of government but state agencies had the highest average owed — significantly more than the average owed by federal agencies ($108,500) or local governments ($84,899). The median amounts owed were smaller, but still highest by the state ($40,000), followed by local ($30,000) and federal ($26,808).

Late payments were regarded as a problem for 45 percent of nonprofits with almost half of medium and large organizations reporting that late payments were a problem. Experiences varied by type of organizations; more than half of health nonprofits reported problems versus a quarter of those in the arts.

Among those that responded late payments created a problem, almost half were more likely to draw down reserves, about a third would reduce employee salaries and a quarter would increase lines of credit. Only 15 percent would affect the number of programs or services and less than one in 10 would reduce the number of offices or program sites.

Organizations involved in education experienced the shortest delays in payments from government. At the local level, a third of arts organizations experienced delays in payment of more than 90 days, but no health organizations reported such a long delay.

Local, state and federal governments worked with nearly 56,000 nonprofits in 2012, with contracts and grants ranging from $1,000 to $325 million. More than two out of three agreements were with human services organizations. The roughly 42,000 agreements with human services organizations were more than the next two subsectors combined – arts, culture, and humanities and health made up almost 18,000, or less than a third. In terms of dollars, human services (59 percent) and health (27  percent) organizations dominated as well, gobbling up 86 percent of funds, with the average $5.5 million for health and $2.8 million for human services.

Governments more frequently had agreements with large nonprofits, nearly half (48 percent) with operating budgets of $1 million or more, and 36 percent with budgets of between $250,000 and less than a million. Only 17 percent of organizations with budgets of $100,000 to less than $250,000 received a contract or grant.