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A newly released Bridgespan Group study of U.S. government funded human service nonprofits shows that while many have survived the harsh economy of the last few years, 91% fear that looming federal funding cuts will “cause significant problems” for them.

 

Nearly two-thirds said that they expect their government funding to shrink over the next two-to-three years, with the harshest cuts anticipated to programs serving the most vulnerable populations such as the elderly and homeless. Adding to that fear is uncertainty as to how the cuts will be made and what their exact impact will be.

Rising costs of healthcare, pensions, Social Security and Medicare, driven by changing demographics, are drawing down dollars available for social services. According to Daniel Stid, Bridgespan partner and co-author of the study with his colleague Vishal Shah, “This grinding down on all other budget items is about to accelerate in the wake of the Budget Control Act of 2011 and the failure of the congressional super-committee it established, which combined will result in roughly $1 trillion in cuts to federal domestic spending over the next decade. While this total represents just a fraction of the deficit reduction that will ultimately be required at the federal level, it will have a huge impact on already-strained state and local government budgets. “  

“To date, major cuts in state and local funding have been at least partially offset by a huge influx of federal stimulus dollars; that one-time uplift is now being replaced by federal cuts. Unfortunately, the worst is yet to come, and it is not yet clear what can be done about it,” added Shah.

According to the study, neither government nor government-funded nonprofits have developed coherent strategies to respond to impending cuts. Though Bridgespan survey respondents discussed a set of traditional remedies for navigating fiscal crises, including advocacy to maintain funding, improved contracting and some consolidation of smaller or weaker organizations, there is limited confidence that that these strategies will be enough to address the problems of the funding system as a whole. 

However, the study did point to two promising emerging solutions:

• Focus resources on what works: Instead of making across the board cuts in programs and the funding of the nonprofit providers that deliver them, which is what often happens, government should prioritize funding for the programs and providers in the best position to provide better results for the funding invested – and make the hard choices of defunding those with less impact in order to free up the resources to do so. Of course, this is easier said than done given the tenacity of program advocates and the political influence of the incumbent providers who stand to lose out.
• Focus on the link between healthcare and human services: Consider health and human service budgets as a whole, recognizing that government costs on health are continuing to rise. Examine how certain kinds of human services spending, tied to tested strategies in public health, and could help control health care costs by serving society’s most vulnerable in more carefully targeted and effective ways. There is increasing evidence that some large cost drivers, for example repeated use of the emergency room by chronically homeless individuals and others, can be significantly reduced by well-designed non medical strategies that address housing conditions, social support and other “social determinants’ of health. 

“As tough as things are going to be,” says Stid, “there are some positive glimmers. In recent years we have identified solutions for social problems that do provide more bang for the taxpayers’ buck. Indeed, recently we have seen a number of federal, state, and local government agencies on the path of investing in ‘what works,’ though that money only is only a pittance relative to baseline spending and is most at risk in the ongoing shakeout.If things are going to change, there needs to be a countervailing constituency that demands public money be spent on programs that deliver better results for lower costs, delivered by nonprofits with a demonstrated ability to improve the lives of the people they serve, and funded at levels that enable them to increase their impact over time.”

About The Bridgespan Group

Founded in 2000, The Bridgespan Group is a nonprofit advisor and resource for mission-driven organizations and philanthropists. We collaborate with social sector leaders to help scale impact, build leadership, advance philanthropic effectiveness and accelerate learning. We work on issues related to society’s most important challenges in three primary areas: pathways to opportunity for disadvantaged populations, environmental sustainability, and civic engagement. Our services include strategy consulting, executive search, leadership development, philanthropy advising, and developing and sharing practical insights.