Are Government Grants Always Beneficial?

As a non-profit, sometimes it seems like any money that comes in is a good thing. (Heck, as a human it seems like any money that comes in is a good thing.) However, some non-profits have learned that that theory doesn’t always hold true. Government grants can decrease funding from foundations and also decrease overall fundraising efforts.

Joshua Benton writes in the Neiman Journalism Lab about a study conducted concerning charities, where their funding comes from, and how it effects giving in other areas. This study found some surprising results that I did not expect.

Benton reports that, “For every $1,000 given through a government grant, nonprofits reduced their investment in other forms of fundraising by an average of $137. That, in turn, meant an average drop of $772 in gifts from private donors. In other words, that $1,000 check from the government netted only $410, on average, because grant recipients reduced how much they tried to raise money through other means.”

On an interesting note, when the government deems a charity worthy of grant money individual donors find that the organization is trustworthy and are more willing to part with their dollars. On the flip side,
foundations tend to overlook charities with government assistance deciding that their money would be better used in a charity that is not getting help elsewhere. The authors of the study, UCSD’s Jim Andreoni and McMaster’s Abigail Payne, ascertain that “Unlike private donors, these institutional donors are likely to be quite well informed about the quality and finances of charities. But as with private donors, there are costs of attracting institutional gifts, such as making applications and accounting for expenses. In contrast to private donors, government grants are less likely to provide any signaling value to institutional donors, and more likely to make the donor institution feel their marginal impact has been reduced, leading to lower giving and more crowding out.”

Ironically, obtaining government grants does not seem to change an organizations bank account. This study found that as charities garnered government funds, their efforts elsewhere decreased therefore causing no change in the budget. Benton deduces that “Each $1,000 in grants reduces revenue from other sources by about $1,000. But most of that reduced revenue — 77 percent — is due to reduced fundraising effort by the nonprofit, not the result of changed behavior by individual or foundation donors.

So what’s to be learned from this in depth study? Push on and fight hard whether you get government moneys or not. Provide equal effort in your grant writing as well as investing in individual donors. Use social media as part of your time management strategy and touch as many people as you can with your message.