Nonprofit Organizations, Government and the Welfare State


Published in Political Science Quarterly, Volume 104, Number 4, 1989-90, pp. 625-648.


Since the early decades of the American Republic, nonprofit organizations have played a critical role in helping people in need by providing education, training, residences, counseling, and in‑kind and cash support. Moreover,          President George Bush has followed Ronald Regan in calling upon nonprofit agencies to take the leading role in American society in addressing social problems. Their belief in the efficacy of nonprofits (President Bush’s “thousand points of light”) combined with the current political and financial constraints on government spending, suggests an even larger service role for nonprofit organizations.­


Nonprofit organizations invoke the images of community, voluntarism, civic dependability, and neighbor‑helping‑neighbor that have always exerted a powerful impression on the American public consciousness. However, largely as a result of this expanded role in providing services for government, these images are at variance with the contemporary reality of nonprofit service organizations. Rather than depending mostly on private charity and volunteers, most nonprofit service organizations depend on government for over half of their revenues; for many small agencies, government support comprises their entire budget.  In contrast to the traditional relationship of two independent sectors, the new relationship between government and nonprofits amounts to one of mutual dependence that is financial as well as technical; increasingly, the lines between public and private are blurred.  For instance, a recent survey of the Child Welfare League of America­ concluded that government support comprised, on average, 59 percent of their member agency revenue in 1986.  On the other hand, government relies on nonprofits to provide social services.  In l988, fifteen Massachusetts state agencies were budgeted to spend

over $75O million, about 7 percent of the state budget, to purchase from over 1,200 contractors such services alcoholism rehabilitation; family crisis intervention, English-as-a‑second‑language, and daycare.  Overall, the state recognizes 200 distinct types of social services in its purchase-of‑service system.  Until recently, our understanding of the development of the welfare state in advanced industrial coun­tries assumed that the hallmark of a progressive welfare state was a large public sector that regulated the private sector to a small residual role.  In this view, the

United States with its smaller public sector and larger private nonprofit sector com­pared unfavorably. The expansionof government contracting with nonprofit agen­cies calls the prevailing view into question.  In the recent period, government has used nonprofit agencies to expand the boundaries of the welfare state in the United States in a host of service categories - from child abuse to domestic violence to homelessness.  The result is a welfare state that is more expansive than would be the case if policy makers relied solely on the public sector.


It is also a welfare state thathas compromised some of the values that the private voluntary sector contributes to social welfare provision.  These values include the variety, indepcudence, and legitimacy of community‑based agencies, and the capacity of such agencies to pursue distribution policics that tolerate responsiveness to clients over equity among clients if the two values conflict.


Broadly speaking, we reach the following conclusions about the effects of government spending in nonprofit organizations and public policy. As governmcat funding of nonprofi organizations grows, the pressures on government officials to maintain accountability over public funds increases as well. Over time, government officials respond to increased reliance on private agencies by instituting new regulations, changing contract requirements, and increasng administrative oversight. The effect is to shift the organizational norms of nonpofit agencies from their historical emphasis on being responsive to the individual to focusing more on treating

 all clients alike, an organization that bears resemblance to that of government service agencies.  This shift is particularly noticeable in the areas of staffing, client selection and treatment, and physical plant.  Thus, government may require nonprofit agencies to hire professional staff as a condition of receiving a contract.  Or government may force a contract agency to accept only client referrals from government bureaus, rather than allowing contract agencies to have the flexibility to respond to all clients in need who present themselves to the agency.  Government may also require a contract agency to modify its physical plant in order to meet official standards on public safety and health.  We will argue that government funding of nonprofit agencies transforms the management of contracting agencies and the politics surrounding social services expenditure.


In sum, government spending of nonprofit agencies should not be viewed simply as “privatization,” if this term means reducing or minimizing government involvement in policy matters by turning over responsibility to private agencies and providing them with additional funds.  Rather, the new public-private funding arrangement means increased government intrusion into the affairs of nonprofit agencies, thereby altering the character of social policy and the American welfare state.


Our views are based upon systematic research on the development and growth of government funding of nonprofit agencies in Massachusetts, supplemented with research in Connecticut, New Hampshire, and Rhode Island. In addition, thirty case studies of nonprofit service agencies were conducted to assay the effects of­ government funding on these agencies and social policy in general.  Our findings are also based upon previous research conducted for other purposes on food banks, shelters for the homeless and battered women, and rape crisis centers.  Further, we have drawn on our experiences as members of the boards of directors of several nonprofit service agencies.


The Growth and Scope of the Nonprofit Service Sector


Government support of nonprofit service agencies has expanded dramatically in the last twenty years.  Over 50 percent of federal social service expenditures is now devoted to nonprofit organizations; virtually none went to such sources in 1960.  Advances in daycare, sheltering, counseling, employment training, and protection from child abuse and neglect have all proceeded through government contracting with nonprofit service agencies.  Thus, for example, when the problems of homelessness and hunger have arisen, the predominant response of government has been to launch programs through nonprofit agencies. In many states, nonprofit organizations under contract to government deliver the publicly‑funded services in categories such as day care foster care, protective services for children and adults, and community programs for the mentally ill and developmentally disabled.


Government purchase of social services affects vast numbers of people.  A 1986 study of the nonprofit sector in St Louis indicated that there were over 2,500 nonprofit service organizations in the metropolitan St. Louis area. Eighty-five thousand people, or 7 percent of the local force were employed in these agencies.  In 1982, over 4 million people worked nationwide for private nonprofit health, social and legal service organizations. It is undoubtedly fair to say that most

of these people worked for agencies whose incomes in part reflected contract revenues.  In Massachusetts service providers to government under contract em­ployed roughly 48,000 persons, a number that compares favorably with the number of state workers involve in human services. Social service agencies funded by government call upon armies of volunteers to supplement the ranks of workers and provide direction through their boards of directors.  The survey of St. Louis area residents revealed that almost half of the adult population (45 percent) of the region's 900,000 adults volunteered at least once during the year in support of area organizations.


The clients of nonprofit agencies makeup the most important constituency of these organizations from a social services point of view.  Every United Way campaign heralds the numbers of needy people its agencies serve. The report of the American Public Welfare Association that 633,000 individuals in twenty‑three states received services under the U.S. government's Social Service Block Grant in 1988 undoubtedly understates by a considerable margin the numbers in these states served by all the agencies with some public funding.


Until the 1960s, most nonprofit service organizations relied upon fees, donations, and in some cases endowment income for revenue.  Government funding tended to be restricted to a few service categories and, was generally small scale relative to total agency revenues. Only in selected urban areas such as New York City was government funding extensive typically, these public funds would be used to purchase services for a child or adult when there was popular support for service provision (for example, residential care for emotionally disturbed children) but no government capacity to provide a particular service. In these cases government rarely made extensive demands on the private agencies, relying on the judgment of the agencies’ administrators on important issues such as treatment and discharge.


The substantial growth of government support of nonprofit agencies has raised the concern of many observers that government funding would have harmful ef­fects on the independence and overall missions of nonprofits and on their via­bility as autonomous, community-based agencies. The concern is not simply of academic interest. Virtually every American is likely to have contact with a non­profit service organization during any given year - whether it is a hospital, a com­munity mental health clinic, a family service agency or a nursing home, to name just a few of the possibilities. These organizations serve as intermediate institu­tions between the individual and the state, providing a vital link for the citizen and helping to shape citizens' views of themselves and their places in society. To the extent that government extends its influence into the world of nonprofit or­ganizations, it is likely to alter the relationship between the citizenry, nonprofit organizations, and the state – perhaps fundamentally changing the life possibili­ties of citizens and the role of their community organizations.


Three Types of Nonprofit Agencies


Before developing our analysis we need to make some important distinctions that recognize the diversity of nonprofit service organizations. Keeping the diversity of organizations in mind should help us avoid analytic difficulties encountered by earlier critics who tried to assess the impact of contracting on the nonprofit sector in general, without seeing that some kind of nonprofit organizations might, be severely affected, while others might be unaffected.


One type is the traditional social service agency, the old‑line service association such as the Massachusetts Society for the Prevention of Cruelty to Children, which was established in 1878. Founded by affluent civic leaders, these agencies typically were established many decades before the New Deal. They usually have endow­ments (sometimes very substantial ones), and therefore tend to be less dependent on government funds than other agencies. Often they offer many different ser­vices and programs and thus are also less dependent than other agencies on de­mand for any single service.


A second type of nonprofit social service organization is the agency founded within the last twenty years directly in response to the availability of government funds for job training, mental health and other services.  An example is the Key Program, a large youth‑services agency established in Boston in 1973 to provide community and residential services for delinquent youth.  These agencies usually derive most of their revenues from government.  Often they were established by social activists who used government funds to create an organization dedicated to addressing their version of social reform.


A third type of organization is the agency founded in response to unmet neighborhood or other community needs.  These may be organizations devoted to solving problems experienced as local concerns, such as homelessness, hunger, or runaway youth.  Or they may be established to solve problems for communities of people who are less identifiable by geography than by some other characteristic, such as shelters for battered women, respite care for the developmentally disabled, or hospices for victims of AIDS.  These organizations tend to be started and staffed by volunteers or underpaid workers out of strong personal commitments to alleviate the suffering their organizations address, or to help pother people realize their potential that is otherwise thwarted by social conditions.  Particularly at their start, they are typically shoestring operations built on shaky financial grounds.


Seen from the perspective of their relationship to government these three types of organizations form a kind of continuum:  At one pole, there are the new community-based organizations that tend to act most like volunteer associations -- non-bureaucratic and held together by the freely given commitments of their members.  At the other pole, there are the organizations founded in response to the availability of government funds.  These tend to be rulebound, concerned with consistency, and highly responsive to the priorities of the government agencies whose grant programs were the occasion for their establishment and development in the first place.  These distinctions are important, because they suggest that different types of nonprofits are affected by government funding priorities in different ways.  The most pronounced shifts and the greatest conflicts with government occur among those agencies that initially resemble government least.  In contrast, where nonprofit agencies arise directly in response to the availability of public funds, the impact of contracting is less pronounced, if only for the reason that such agencies have at their inception conformed to government contracting expectations.  For all these agencies, however, some degree of change is virtually inevitable as government contracting increases.  As we shall see during the course of this analysis, government contracts eventually create difficult organizational dilemmas for nonprofit organizations.  While contracts may allow an agency to expand services, pay their staff better salaries, and move into new service areas, contracts bring administrative and accountability demands that may conflict with an agency's mission.


The Imperatives of Service Organizations


Public and private service organizations share many characteristics:  the need to process clients through systems of eligibility and treatment, to field a staff, to be effective, and to account for financial expenditures.  Also, they are expected to pursue a similar range of objectives.  They are expected to be fair (equitable); to accommodate likely and unanticipated complexities (responsive); to protect the interests or sponsor in minimizing costs (efficient); to be true to their mandated purposes (accountable); and to be honest (maintain fiscal integrity).


Simultaneous pursuit of a handful of objectives, however, means that the objectives are likely to come into conflict with one another.  Adherence to rules may insure equity, for example, but may be pursued at the expense of responsiveness.  A guidance counselor may be fair in allocating to each advisee exactly the same amount of time, for example, but his formula would surely be counterproductive if some students needed little help and others needed special attention.


Modern governments must use universalistic criteria in client selection or develop elaborate rationales for favoring one group over another.  In contract, the different emphases of nonprofit agencies allow some nonprofit organizations to pick and choose their clients on the basis of some group characteristics, such as place of residence or ethnic background.  They also allow "creaming" to a greater degree -- for example, screening out clients with the lowest educational levels, severe mental illness, or in the case or private schools, children with handicaps who are disruptive or costly to serve.  Such screening is rationalized as appropriate to the focused mission of the organization and because these excluded or hardest-to-reach clients are deemed to be the responsibility of the public sector.


However, government service agencies are not free from bias in client selection and treatment either, although such practices are generally unsanctioned.  Workers in government agencies often discriminate against the poor through efforts to control the demand for services, despite the official policy of their agencies to serve everyone in need.


In sum, nonprofit and government service organizations should not be analyzed as radically different in their approaches to clients.  Rather, they should be understood as sharing the same organizational service norms, although in different measures.  To understand the effects of government contracting out to nonprofit organizations, we must start with an appreciation of the different weights that governmental and nonprofit agencies accord to organizational imperatives.


Equity and Responsiveness in Government and Nonprofits


In the distribution of social policy benefits, government is overwhelmingly driven by concerns of equity.  So long as scarcity of resources requires government to make choices among claimants, policy makers will seek to impose norms of equity or at least give the appearance of fairness in resource distribution.  Public officials require a rationale for public action that legitimizes the fact that in the use of public resources some will be helped and others not.


Government requires not only unambiguous eligibility criteria, but also unambiguous indicators that people meet those criteria.  Even if eligibility categories are clear, proof in meeting those standards must be unambiguous if benefit distri­butions are to be fair. Unambiguous indicators include age (over 65 in social security, 3 to 21 in special education and prior government service (for example, veterans status). Slightly more ambiguous, but still able to meet the appearance of fairness, are indicators of income and assets.


Government, to be sure, also pays attention  to responsiveness.  But even in some concerns over responsiveness, the primacy of equity is illistrated in the ways in which policies designed be responsive historically have been structured to conform to norms of equity.  Consider, for example, public welfare payment rules that attempt to respond to unique family (circumstances and differences in work‑related expenses, housing costs, and assets. To achieve responsiveness within the stric­tures of equity welfare agencies have developed policies that recognize differences but are articultaed in increasingly elaborate formal rules.


Nonprofit service agencies weigh equity and responsiveness differenty from government. The traditional nonprofit organizations were distinguished from providers of public benefit precisely because they were particular .clients. Wc are remidded of this particularism by the narnes of many of these agen­cies have come down through the years: the Catholic Charitable Bureau and

the Jewish Family and Children’s Bureau in Boston, for example.


Consistent with this particularism, nonprofit agencies are less concerned than government in serving all clients within a specific target group. Instead, nonprofits focus on serving clients compatible with the agency's service mission.  For example, shelters for battered women tend to conceptualize their role as offering an important service alternative to traditional health and welfare organizations for some women. Government, in contrast, prefers that all agencies providing counseling service to abused women provide similar service so that a minimum standard of equivalent care should prevail across all agencies.  Furthermore, there is much less need for independent verification and much more trust of clients' testimony in private nonprofit agencies than in government. Nonprofit agencies consequently invite criticism from government officials that service is being provided inefficiently or inequitably.


These general tendencies of nonprofit agencies lead two different responses to clients that sometimes lead to conflicts with government agencies. First, if people say that they are hungry, or homeless or recently assaulted and fearful for their safety, ­nonprofit organizations are inclined to accept such testimony as sufficient. Govern­ment officials upholding the equity requirement cannot tolerate such an accepting attitude.


To be sure nonprofit organizations recognize potential problems arising out  of a generous intake policy.  If  challenged, nonprofit organizations deal in several ways with the possibility that some people will take advantage or become "free loaders."  First, they may acknowledge that there are costs to increasing the accuracy of program targeting, but calculate that they will accept a small degree of "advantage-taking" because the cost of reducing advantage-taking would be too high in organizational effort and morale.  Second, they may defend their policies by pointing to the rationing impact on clients of certain barriers to seeking aid.  Entry into the orbit  of a homeless shelter, for example, may mean losing privacy, agreeing to accept counseling, taking a make-work job, giving up one's weapon, or exposing oneself to a religious message.  Third, they may act to reduce the accessibility of services by raising the eligibility threshold for those who would take unfair advantage, or even by cutting back services if too many untargeted clients begin to appear.  Rather than directly confront clients who seemed to be free loaders, for example, a mobile van feeding the homeless in Boston simply moved to a new location when too many people who did not appear to be homeless (although they may have been hungry) began to line up for a free meal.


A second response of nonprofit agencies to clients it to reject clients deemed incompatible with their service mission to restrict their intake to clients within their primary mission area.  The former may lead to creaming, with very poor or severely disabled referred to other programs.  The latter may lead to a focus on a specific community (for example, co-religionists), though citizens in other communities may need service.  Either situation can lead to charges by government officials that nonprofit agencies are not providing service to the "neediest" clients, who unambiguously are deemed "deserving."


Explaining the Primacy of Responsiveness


The primacy of responsiveness over equity in private, nonprofit agencies follows from their origins, the people who work for them, and their structure of accountability.  Many nonprofit social service providers tend to be neighborhood or community based.  Workers or volunteers in these agencies are more likely than government workers to know individual clients, their families, and their circumstances.  Moreover, it is a strength of such organizations that their workers are presumed to be interested in claimants as individuals, even if they do not actually know them.  For example, a shelter for battered women may be staffed by other women who empathize with the victims' plights and want to make them feel safe through personal contacts.  Thus they are inclined to know people seeking help in a holistic way.  Unlike government administrators of rulebound eligibility standards, providers in private service agencies resist reducing clients to their bureaucratically relevant characteristics.


Supporting these propositions is the voluntary nature of personnel in nonprofit organizations.  When workers cannot be presumed to be motivated by bureaucratic incentives, other mechanisms to insure worker conformity to organizational tasks must operate.  Such mechanisms include providing workers with a sense of well being derived from valuing their work and convincing them of its importance, and supporting workers' desire to give expression to altruistic impulses.  It also means that if the organization depends upon them for labor, volunteers and workers who are not primarily motivated by income considerations have a certain power in the organization.  (It also follows that as agencies "outgrow" their dependence on volunteers, they will not have to cater so much to their implicit demands.)


Voluntarism in nonprofit agencies takes many forms.  The newer agencies are often founded by social activists, sometimes based in religious communities, who are committed to solving certain social problems, sometimes at great personal sacrifice.  They may receive no pay for their efforts and work unusually long hours.  Many shelters for battered women, for example, were founded by volunteer women who had a particular vision of addressing the problem of spouse abuse.


Aside from agency founders, social service agencies are often staffed by volunteers (possibly former clients) whose work is given at least in part in exchange for the feeling of well-being they get from helping in the organization.  For some who work in nonprofit organizations the transactions between providers and clients themselves may be the point of their involvement in work that otherwise seems hopeless.  People volunteer or work for low pay in drug treatment storefronts, food banks, and legal advice centers not because they expect fully to solve the problems these agencies address, but because they find altruistic behavior rewarding.


In the more established agencies, professional staff members often work for low salaries by comparison to what they could earn in government or elsewhere.  In Massachusetts, for example, salary disparities between the private and the public sector for direct care positions are said to range from 12 to 29 percent.  Thus many workers in nonprofit agencies must be considered at least in part volunteers, who take at least some of their compensation in non-monetary form.


In addition, emergency services are likely to be governed by volunteer boards consisting of community activists or leaders playing traditional civic roles as supporters of nonprofit agencies.  Such people may be relatively single-minded in their willingness to pursue the interest of their organization's clients without regard for competing organizational interests.  Board members of traditional agencies, for example, in the past regularly permitted their organizations to make up deficits by spending the endowment, believing that they were trustees for needs that had to be met.  They were also surprisingly tolerant of management that incurred annual losses.  Board members of younger agencies may have come out of a social movement environment in which they too, perhaps even more aggressively, may be willing to support their agencies in pursuing responsive client policies.


Significance of Difference between Government and Nonprofits


Several corollaries that find their way into actual practice follow from these differences in orientation between government and private, nonprofit agencies.  First, in contrast to government, nonprofit agencies are more tolerant of client selection in contrast to government, nonprofit agencies are more tolerant of client selection procedures that are not based upon rigid standards of equity -- both in client selection by staff and client self-selection.  Nonprofit organizations are more willing to say that they can help some people and not others.  Private agencies are also more comfortable with self-selection.  They act as if first-come, first-served is an adequate decision rule when resources are scarce and need is great.  If they apply rationing mechanisms to discourage people who perhaps are less needy, the mechanisms tend to be advisory rather than definitive.


Second, nonprofit agencies strive to be responsive to individual clients, even at the expense of  other policy objectives.  Government agencies, though, try to spread resources evenly over affected populations.  For example, many child welfare advocates have complained over the years that the long-term involvement of some nonprofit agencies with their clients led to inappropriate, excessive treatment of children, both in residential centers and foster care.  It also meant that there were fewer resources available to a burgeoning client population.  In the 1980's, government control of the purse strings and a reaction against long-term treatment has produced new policies aimed at limiting the length of time children spend in residential centers and foster care.


Third, public and private agencies to a degree are both likely to define agency clients in terms of their ability to be more effective with them.  But government agencies are more likely to define the scope of the client population primarily to achieve greater consistency with equity, rather than the ability of the agency to be effective.  This tendency is noticeable in at least two distinct instances.


In one instance, government will define unrealistically large catchment areas that, while providing formal "coverage" for all, cannot because of distances reasonably serve many of the people in the areas. This situation commonly occurs with homeless shelters, mental health services, and food distribution centers in many rural and other underserved areas.


In another instance, government will seek to narrow eligibility criteria, for example, by lowering income limits or imposing more severe distress requirements in order to be able to serve a greater proportion of those people in the pool. Thus, government will appear to assist a larger proportion of those clients defined as eligible to receive assistance under the policy.


By contrast, nonprofit agencies are more likely than government to prefer a relatively large pool of potential clients, primarily because the pool allows a nonprofit agency to manage its client selection process in a way that is consistent with its sense of mission. Thus, a large pool of potential clients for shelters for battered women means that the shelters will be able to serve women deemed responsive to their particular treatment orientation. And shelters will be in a stronger position to reject individuals who may be perceived as potentially disruptive. This situation is particularly true of various residential programs:  group care for children, emergency shelters for adolescents, and shelters for battered women and the homeless.  There is also a financial consideration involved in the preference for a large client pool.  Since most nonprofit agencies are of modest size and severely undercapitalized, a small pool of potential clients may be insufficient to guarantee a steady stream of clients -- and hence revenue -- into the agency, producing major financial and organizational strains on the agency.


The differences between government and nonprofit agencies regarding the appropriate size of a nonprofit agency's client pool is evident in the recent political conflict over participation in the Women, Infants and Children Supplemental Nutrition Program (WIC).  Federal officials have striven to target aid to the poorest and most distressed women and children; nonprofit WIC distributors have wanted to retain a more expansive definition of eligibility.  It is also evident in the assignment of public daycare slots to welfare recipients.  In the program to distribute surplus agricultural products to the hungry, federal officials sought to persuade states to restrict eligibility to families with lower incomes so that a higher proportion of eligibles would receive free cheese and butter.


There are important political considerations in conflicts over the size of the client pool.  If one's objectives include maintaining pressure on public authorities to act more vigorously with respect to a target population, it makes sense to support an expansive conception of the needy group.  The larger the numbers of people who cannot receive help from a program for which they qualify, the more pressing the claim that not enough resources are being applied to a recognized problem, particularly if need cannot strictly be defined by income.  This is why it is disingenuous for public officials to maintain that their interest in restricting eligibility to the "truly needy" in any program is based solely on their desire for more effective targeting.  To limit program eligibility criteria is simultaneously to reduce political pressures to expand program resources to meet the need.


Growth of Government Contracting with Nonprofit Agencies


Despite the differences in organizational norms between government and the nonprofit sector, government officials are utilizing nonprofit agencies to delivery public services at an unprecedented rate.  Let us now take a brief look at the advantages public officials believe accrue to government that may attract them to contracting with nonprofit agencies.  These reasons have varied in importance to public officials over the period that contracting has been ascendant.


First, government agencies can respond to emerging service needs more quickly and effectively by contracting than by mounting new efforts utilizing public employees and public agencies.  Second, public officials can purchase specialized services that would be difficult to find or develop within government ranks.  Third, by using nonprofit agencies, public officials recognize that they can change program direction with relative impunity and can cut back on services more easily than they could if public employees were involved.  Fourth, government agencies can take advantage of the legitimacy already won for program initiatives of private organizations while avoiding the political costs that would be associated with attempting to usurp their role.  Fifth, in contracting, government shifts the political financial risks of providing service at least in part onto the nonprofit sector.


Beyond these pragmatic reasons for encouraging contracting, other motives for contracting appear to operate as well.  In particular, contracting for services is viewed by some analysts as a way to shift resources and responsibilities to the private sector, thereby reducing the role of government in public policy and halting the postwar rise in government's size and influence.  This would be accomplished because of two additional advantages often thought to accompany contracting.


Sixth, government will save money, because competition among agencies bidding for government contracts will result in efficiencies spurred by competition.  Finally, government will save money because nonprofit contractors tend to pay lower wages and employ volunteers, allowing government to contract at low prices.  As a result of these aspects of contracting, many analysts believe a new dynamic will rise in which public services will be sustained at a high level of quality by competition in the private market.


This view is in error.  It is based upon a model of independent buyers and sellers, when in reality the world of government and service providers is one of a mutual dependency.  It is faulty because it is inherently difficult to hold human service providers accountable for the quality of performance outcomes.  Hence, improvements in service quality and increased savings while holding quality constant are unlikely to be achieved in contracting for human services.


Moreover, this view neglects recognition of the political interests that form around government's new way of doing business and the new clients of government (the nonprofits) that are created by contracting activities and are thus in a position to make demands.  Contracting is not simply an administrative procedure than changes the mode of service delivery from public to nonprofit (or for profit).  Rather, it fundamentally alters the politics of public service delivery.  Over time this new politics brings issues of equity and of community autonomy to the fore.


Consequences for Nonprofit Service Organizations


Critics of government contracting often express concern that nonprofits may compromise their original service mission in the process of responding to government priorities.  However, it should be noted that government contracting requirements may alter nonprofit agencies approaches to services and clients, even if their goals are entirely compatible with those of government. In essence, they may be forced to conform to standards imposed by contracting policy at the expense of their homegrown notions of what constitutes effective service delivery. I


In the following section we discuss the trade‑offs between government demands for accountability and nonprofits' conceptions of effective services in terms of three areas: staffing, clientele and program, and facilities. Two caveats apply to these generalizations. First, the extent to which nonprofits will find government accountability demands onerous is likely to vary, depending upon whether the agen­cies had previously been independent of government influence, as suggested above in our discussion of three types of nonprofit agencies. Second, while we focus discussion on conflicts between governmental and private conceptions of service, we do not mean to imply that the contracting parties are invariably in conflict or always troubled by differences in perspectives. Our article is intended to high­light inherent conflicts under contracting difficulties and the places where differ­ent perspectives are most likely to result in compromising requirements for the nonprofit sector.


Staffing.  The people who arise to establish and direct community organizations are often not the people government officials regard as most appropriate to lead the organizations with which they contract. For example, shelters for battered women and rape crisis centers, developed and directed by nonprofessional femi­nist activists, have been encouraged and sometimes required to hire human service professionals as a condition of funding. Public officials have considered the

founders of the shelters too ideologically oriented and insufficiently trained to meet what they regard as the therapeutic and coping needs of shelter clients.  Emer­gency housing shelters also have been pressured to add (and have sometimes wel­comed) social workers to their staffs. 


If these examples illustrate government concerns over accountability, other staffing requirements demonstrate the press of efficiency considerations. In re­cent years, many mental health centers, job‑training programs, and child welfare services have been forced to lay off professional staff as state and federal officials reduced funding support.


At times these reductions were required simply because of insufficient govern­ment funds. However, government officials also have forced layoffs because they charge that nonprofit agencies did not need as many staff members to provide quality service. For example, a traditional child welfare agency had obtained a government contract in the 19 70s to provide protective services. In the early 1980s, state officials gave the agency the choice of either terminating the contract or reducing the degree of its staffs involvement with clients. The agency decided to give up the contract and has struggled financially ever sin~ Other agencies subjected to the same pressures accepted the state's conditions and changed their service profiles.


In the requirement to hire social workers or psychologists, staff upgrading results. In the case of staff layoffs, deprofesionalization occurs, as workers are less able to use their own judgment in responding to clients' needs. Both cases illustrate the imposition of governmentally-derived requirements on private nonprofit agencies. They also highlight that government is interested in obtaining minimum standards of care: in the case of new agencies, such as shelters established through non professional auspices, government seeks to establish minimum care standards through professionalization; in traditional agencies with high levels of professional care, government concern with higher productivity leads to a reduction in professional standards.


Clientele and Program. One way in which these pressures for equity and accountability are particularly felt is in government's concern over the apparent open-endedness of enrollment in some community services. Government agencies are likely to pressure emergency service providers to establish or improve and enforce eligibility verification and enforcement; to restrict the amount of service any single recipient can obtain.


These propositions can be illustrated with reference to the federal surplus-commodity  distribution program. In 1982, when the program was just getting started, it emphasized giving away as much as food as possible through networks of private agencies, which first had to be located and then persuaded to participate. However, when the program was cut back sharply a year later in response to food retailer's complaints that the program was hurting their sales, the federal Food Nutrition Service (FNS) began to worry that the mismatch between the number of people eligible to receive food and the amount of food available would be too great. Accordingly, it promulgated regulations that required states to establish more precise and restrictive guidelines, and it started procedures to insure that those guidelines were being followed. The FNS later proposed regulations that would further tighten the loose verification procedures of the food banks and soup kitchens.


It is evident that in developing policy for nonprofit contractors, governments often see the contract for services as a resource by which it can be achieved ancillary service goals. Government seeks not only to provide services in general, but to improve its performance in other aspects of its activities. Thus, the Massachusetts Department of Social Service (DSS) reduced the number of contracts that permitted agencies to take referrals from any source (known as open referral contracts) and instead required agencies to take referrals only from DSS staff ( known as closed referral contracts). The state did the same with its daycare slots to support its employment and training programs for welfare recipients; and it restricted the use of some of its subsidized housing vouchers to support its policies to reduce homelessness. 


The interest of equity, government standards push non profit agencies to broaden their client mix. Thus, battered women's shelters have been required to expand their catchment areas and to take clients from different racial and ethnic communities. A community agency in Boston that was established to serve a pre dominantly Hispanic community in the early 1970's now servers clients from the entire Boston area.


Increasingly, government also imposes various limitations on the actual treatment provided by a contract agency.  Battered women's shelters have been required to limit the amount of time women can stay in the shelters, although the shelters prefer to allow women to stay until they are deemed able to act independently.


Similar pressures are felt by old-line agencies whose traditional policies are practice of family social service encouraged working with the family until it was judged to be stable and well or well-enough adjusted. Government contracts, however, require the agencies to limit(say, to a year) the amount of time any single family receives counseling from a caseworker. While the shift prevents gross disparities in length of treatment, it also constrains treatment discretions by limiting the opportunity for long-term treatment for clients who need it.


Some of the same strain is currently experienced by emergency housing shelters, which must agree to maximum-stay limits when they contract with government. Here, however, there is generally agreement between government and providers that every effort should be made to limit the extent to which guests come to depend upon shelters as permanent refuges.


Finally, government applies the equity standard that the neediest should be served first to a host of nonprofit services including group care for children, emergency shelter programs for adolescents, and counseling. The result is that these agencies are now serving an increasingly disturbed client population that requires intensive service intervention. For emergency youth shelter programs, for example, this shift represents a sharp break from the founding vision of these organization as vehicles for early treatment and prevention in a non-0threatening supportive environment. In the case of counseling for children and their families, many nonprofit agencies that began to provide services under contract in the 1970's served children and families who could be described as experiencing adjustment problems. In recent years, however, these contracts have been restructured to emphasize protective services for abused and neglected children - a high priority for state government and a more profoundly needy group.


In general, government pressures toward accountability in admission to the rolls and equity in distribution will be more evident under some conditions than others. If government is paying on a per capita basis, as is the case, for example, in job training and some emergency services, government is more likely to make demands for careful scrutiny of the rolls than if it is contracting with agencies for blocks of service. Further, if quasi-objective indicators of need are utilized, such as income or participation in other government programs, government can demand accountability from agencies overseeing eligibility standards.


Facilities. Community-based services are often located in unlikely places. Although sometimes they are housed in multi-service neighborhood centers with good facilities, they are also found in church basements, dilapidated storefronts, and even private homes. Government funding is often accompanied by demands to upgrade the quality and extensiveness of the facilities. These demands range from fire code compliance to greater scrutiny over cooking and washing facilities, and more space per client.


In themselves, government demands on facilities often have some validity. But they also skew the allocation of private resources by creating absolute requirements for some concerns (which usually can be articulated quantitatively), while leaving other program components to ve satisfied with what is left over. A shelter that is required to remodel its kitchen man not be able t buy the used can it considers critical to help homeless residents search for housing. If a program must hire a clinical psychologist as a director at $30.000, it may not be able to hire more night staff.


In some cases, service organizations may be required to invest in facilities that they would not otherwise develop, although they have no promise of reimbursement. Residential treatment programs may remodel facilities only to find themselves stuck with them if the program is closed down or their contracts are not renewed Small food banks and community action agencies have obligated themselves or used fundraising resources to obtain trucks, freezers, and other food storage facilities in order to serve their constituents. Yet, community action agencies are not otherwise in the emergency feeding business.


The Politics of Contracting Out


We have suggested that among their organizational objectives governments will give high priority to norms of equity. They will also emphasize accountability. Government agencies must adhere to legislative and administrative mandates across their jurisdictions. Most straightforwardly, they do so to achieve to other objectives. They must provide the same service throughout their jurisdiction to meet equity needs. And they must ( in theory, at least) protect the object of their attention by intervening responsibly ( as responsibility is defined in legislation or administrative action). To achieve accountability among contractors, government routinely will seek to set standards to protect citizens from harm delivered through their agents ( insuring, for example, that teachers are qualified or that there are adequate sanitary facilities in daycare centers).


However, when contracting with nonprofit agencies began to grow significantly in the late 1960s and 1970s, government officials faced many impediments to imposing norms of equity on nonprofit contract agencies.


Government contract administrators tended to be inexperienced and lacked adequate financial and personnel resources.


Many nonprofit agencies, especially the established traditional agencies, possessed monopoly power within their service area; thus government officials were in a weak position to demand that these agencies alter their admission or treatment practices. 


Federal funding for contracted services was rising. Consequently, government officials were not required to address politically difficult choices of client and service priorities.


In part because of the nature of many of the contracted services, government officials lacked adequate information on their contracted programs.


Initially, government officials emphasized quick program start-up and tended to place on the back burner issues of program accountability and management.


In addition, at least in some cases, government officials may have wanted deliberately to avoid facing issues of equity and program targeting. In using nonprofit agencies under contract, the fragmented, diffuse character of the network of nonprofit agencies could obscure aggregate client and service trends among public clients served nonprofit agencies. In a related vein, public officials may have wanted to shift the risk of addressing a particular social problem from government to the nonprofit sector. This has been particularly evident within controversial services such as family planning, daycare and protective services.  In these situations, government officials may be able to avoid facing issues of equity in service and delivery.


At some stage the contracting relationship between government and nonprofit agencies usually signals an increase in the salience of an issue on the public agenda, and program support and government expenditures have tended to rise as a contracting develops. Consequently, public officials come under greater pressure to impose equity standards on nonprofit contract agencies as program visibility increases. These standards include new regulations and contract requirements on client eligibility. However, government officials encounter agencies' resistance to their efforts to achieve greater accountability due impart to basic differences in the ethos and priorities between the two parties in their approaches to issues of accountability. While government agencies are accountable to legislatures and public executives for execution of policy and fiscal responsibility, nonprofit organizations are subject to no such powerful sanctions.


Nonprofit organizations tend to be mission-oriented. They often arise in response to emergent social problems and remain motivated toward solving problems rather than worrying (in the short run) about agency maintenance. In is not uncommon for line workers in nonprofit service agencies to work overtime or long hours without compensation, or to accept cuts in salary if the organization falters financially.  In is not unheard of for the agency executives to mingle accounts to sustain under funded programs or to dip into an endowment to maintain current activities. Such passion for realizing an agency's mission is unlikely and borders on the illegal in the public sector. Moreover, their dependence upon local contributions and voluntarism often requires them to style themselves to attract and maintain the volunteers upon whom they depend. Nonprofit organization to varying degree will strive to maintain services even if their objectives conflict with articulated procedures. The mission orientation at times tends to be matched by disregard for organizational control mechanisms. Historically, accountability systems in nonprofit organizations have been crude or nonexistent. Performance indictors were lacking. Executive directors were in relatively weak positions to monitor their organization's financial status; administrative functions tended to be under funded. Trustees tended to be intrusive, but not excessively worried about organizational efficiency.


A Changed Relationship


As contracting with nonprofit agencies has become more prevalent, several developments have occurred that give government added leverage in insisting that nonprofit agencies adhere to equity norms and accountability objectives. First, the number of nonprofit contract agencies has increased. As a result, government has greater choice in selecting contractors; although the degree of choice still varies with the geographic locale and type of service. More choices mean that government agencies are in better bargaining positions with contractors.


Second, federal budget cuts in social spending have forced nonprofit agencies to compete far more aggressively for the remaining public and private service funds. The cuts have undermined the financial health of some agencies, leaving them vulnerable to government influence.


Third, government administrators have become more experienced in managing contracts. In addition, governments, particularly at the state level, have developed elaborate rules and regulations for the contract process and the actual delivery of service.


Fourth, state governments have improved the information-gathering capacity, notably by implementing sophisticated management information systems. Improved information can give administrators enhanced leverage in contract negotiation and bargaining with contract agencies.


Fifth, overall service demand has increased dramatically in a host of categories, including foster care, home care, child abuse and neglect, homeless shelter and service to battered women. While increased demand gives contract agencies more bargaining power, government officials are pressured more than ever to ration services equitably in the face of high demand.


The response of government to escalating pressure for greater accountability is complicated by the mutual dependence of government and nonprofit agencies. Because of physical plant requirements and the need for specialized experience and expertise, contract agencies cannot easily be replaced. Shifting contracts from one agency to another may also be disruptive to clients. In addition, new providers cannot easily bid to provide contract services because of providers' high start-up costs.


Although some governments might like to use the threat of changing agencies to gain concessions from nonprofit agencies, the difficulty of switching providers is a major factor in pushing government to develop more rigorous standards for nonprofit performance. Contracting for services with nonprofit agencies does not follow the competitive market model; instead, government purchase of services from nonprofit agencies is a substantially political process undertaken against a backdrop in which a market model is said, wrongly, to apply.


Resistance and Acceptance of Governmental Priorities


We have indicated three areas - personnel, clients, and facilities - in which nonprofit service agencies are vulnerable to government influence.  Regulations in these areas significantly raise the overhead cost of operating a program and reduce the potential contribution of private revenues to operating expenditures.  For example, many residential care programs for emotionally disturbed youth have been required to make expensive changes in their physical plants and hire new professionals to cope with the increased severity of illness of the children they serve under government contracts.  The result is that per client costs have risen enormously.  These agencies face strong disincentives to refuse government referrals or contract demands so as to keep their costs in line with their resources in the event, not uncommon, that government changes policy direction or cuts back on service contracts.


To be sure, some nonprofit agencies refuse to accept the governmental emphasis on equity.  The more a nonprofit agency is committed to a specific mission as opposed simply to perpetuating itself on a stable basis, the more it is likely to resist government demands that it screen clients closely for eligibility, obtain independent verification, or otherwise conform to external demands for staffing and facilities.  A traditional agency in Rhode Island, for example, decided against reapplying for government contracts rather than accept the accompanying rules and regulations.  The agency subsequently struggled financially for several years before it was able to stabilize its operations.


There are other strategies available to nonprofit organizations that wish to resist the impositions of government.  For example, food banks have consented to new regulations, but neglected to enforce new procedures in practice.  They have questioned clients about eligibility, but nonetheless screened everyone in.  They have submitted false compliance reports, particularly when they believed they would not be closely checked.  Agencies with little control over their admissions may try to manage their client population by discharging clients who do not fit within pursue.  Public and private funders now expect contractors to meet high standards of fiscal and program integrity.  And as the era of contracting for services matures, governments have developed improved monitoring capacities.  Also, financially vulnerable agencies will be reluctant to discharge clients if this would result in reductions in revenues.


Despite the service compromises nonprofit organizations may have to make, overall they tend to be attracted to government funds in order to expand or sustain their activities.  There are severe costs to refusing government money, and it is increasingly difficult to accept government funds while trying to finesse the accompanying obligation.  With the option of "exit" from the contractual relationship closed off, most nonprofit agencies find themselves pursuing one of the two other responses that economist Albert Hirschman has suggested are available to people or organizations confronted with unsatisfactory circumstances.  They may try to change existing conditions (giving "voice," in Hirschman's terms) or to nestle closer to authorities in hopes of reward.


Nonprofits may exercise their voice to try to minimize the impact of government on their organizations.  I our study, nonprofit agencies routinely tried to affect contract requirements or state regulations governing their programs, either through direct action or indirectly through umbrella coalitions and state organizations.  Many nonprofit agency personnel, however, are very worried about alienating government officials if they speak out about contracting arrangements.  They fear that their outspokenness may lead to loss of a contract, although this is rare.  But government officials can make life difficult for executive directors and their staff in many other ways.  They can delay or impede nonprofit agency requests for more money or more favorable contract terms.  They can request a new audit or site visit.  They can make client referrals that they know are unacceptable to the agency.  And they can fail to steer new contracts toward the agency.  All of these actions can have a major impact on the life of the organization and the success or failure of an executive director.  Thus, the effectiveness of an executive director - if defined in terms of organizational growth and stability - is tied more than ever before to good relations with government officials.


Concern over relationships with government officials is related to the other major response of nonprofits to the vagaries of contracting.  This is their effort to be "model citizens" - to demonstrate their acceptance of government directives and willingness to help government officials faced with a problem.  Thus some nonprofit staff leap to support government officials in legislative hearings and in the press.  Some agencies, against their better judgement, accept particularly troubling or controversial referrals from government agencies (called "hot" referrals) t help defuse difficult situations the agencies are facing.  They expect government officials in return to be sympathetic to future requests for rate increases or other agency priorities.


This loyalty can exact significant cost.  It may corrode the morale of nonprofit staff who feel compelled to cooperate with government despite their own reservations and objections.  It may also hide serious problems within agencies, since government may reward a loyal provider despite quality problems and financial difficulties.


Of course, it is often difficult to tell when private agencies support public officials because of the merits of their positions, and when they extend themselves on behalf of public officials to curry favor.  No doubt both perspectives at times apply.  But whatever the mix; it is difficult to escape the conclusion that the contractual relationship between government and nonprofit agencies cannot be viewed in terms of arms-length buyers and sellers of services. It is clear that the relationship is a fundamentally political one where nonprofits' programmatic and financial outlooks are often linked with the political skills and savvy of their directors.




Ultimately, our argument that developments in government contracting with nonprofit organizations vitally affect the future of the welfare state depends upon recognizing that these organizations have traditionally played a role in integrating the individual into community-sponsored activities (as client, donor, or volunteer) and in offering an alternative to public policies derived from governmental power and coercion.  It is thus critical whether nonprofit organizations operate according to standards derived from the community of interest from which they arise, or whether they are operated according to standards imposed by law and the values of public agencies. We maintain that a significant change in the balance of effort and responsibility among private firms, government and the nonprofit sector augurs am important change in the principles governing the delivery of social welfare service. Changes in the capacities of nonprofit organizations affect the diversity and quality of community life.


The broad expansion of government contracting with nonprofit agencies for social welfare services has resulted in a wider role for private agencies in social service provision, and also an enhanced position for government, as public agencies become increasingly dominant in affecting the character of the services nonprofit agencies provide. Thus we see paradoxically not only greater dependence on private agencies for social service provision, but a heightened role for government as well, even as these developments are championed in the name of privatization.


Two other, perhaps unexpected developments deserve comment here. First, despite the enhanced role of government in funding services, the trend toward contracting places nonprofit organizations even more certainly in the role of social welfare innovators. In the past twenty-five years, many nonprofit agencies were established, specifically to respond to the opportunity to contract with government for services in policy areas such as employment training, residential programs for the handicapped, and child welfare services. In these areas and others, government official have made the decision that policy will be designed for implemented through nonprofit service agencies, albeit under governmental guidelines.


In other arenas, nonprofit organizations have taken the lead in forcing social problems onto the policy agenda. In emergency service areas, where uncertainty over the size of the problem and ambiguities over eligibility make it difficult to mount entitlement programs, community agencies have forced public officials to recognize the urgency of problems. Governments have accepted the need for public action only after nonprofit groups created a clamor and demonstrated the political visibility of the issue.


Shelter programs for battered women provide a good example. Shelters were established in several cities around the country in the early and mid 1970's as service alternatives for battered women. These organizations also served as focal points for individuals interested in changing the existing laws and regulations on spouse abuse. Since then, government has responded with new funding, albeit in varying amounts in different states, and far-reaching legal changes. Many government agencies, such as the police, have adopted new procedures in dealing with domestic violence incidents.


Second, nonprofit agencies have emerged as buffers between the implacable fairness of government norms and the needs of citizens for policies that reflect responsiveness to their problems. Nonprofit can treat as special those clients who might be overlooked or treated routinely under public program standards. The executives of the nonprofit agencies interviewed for our study were very proud of their commitment to individual cases, often permitting workers to devote special attention and resources to help their clients. It is not uncommon for employees in these agencies to work on their days-off to help a client or to try to circumvent a government regulation to obtain special programmatic or financial help. This type of commitment is much more difficult to sustain in a government agency organized on the principle of treating all deserving clients alike. The need of such eligibility makes equal treatment norms difficult to enforce, yet the severity of the need calls for responsive treatment.


Despite these salutary developments, it is important to recognize that the ability of nonprofits to serve the role of the responsive agents in the welfare state may be in jeopardy. Cost pressures are forcing nonprofit managers to be more attentive to the bottom line. As nonprofit staff comes to be viewed as government workers once removed, it becomes more difficult for nonprofit staff to depart from government expectations. The result is a welfare state with a more limited range of potential responses to any given social problem. This produces a complex social policy trade-off. Specific clients are more assured of a minimum standard of response, since less variation exists between nonprofit agencies. But responsiveness to individual clients that can enrich assistance at the local level is diminished, because nonprofit staff are encouraged or required to respond to specific social problems such as spouse abuse or homelessness in a standardized fashion.


The parents of a developmentally disabled adult living in a community residence know that this residence has to conform to state regulations on public safety, heath and coverage. These regulations reassure parents that their children are living in decent surrounds. But compliance with these regulations makes it less likely that nonprofit agencies will offer unusual service packages, take special in­terest in particular clients, or develop service innovations; compliance creates higher revenue demands on the agency for the same number of service units. The result is an inexorable shift awad9 from flexibility to greater attention to the efficient utilization of staff and resources.


Government funding of nonprofit agencies enlists them as partners and allies in providing important social welfare services to the clients of government. In many states nonprofit agency staff, board members, and volunteers have played key roles in preserving social welfare services in an era of declining federal assistance. The risk is that political resources of the nonprofit sector are marshaled to support their service programs at the expense of a larger social welfare vision that the nonprofit sector traditionally projected. Among the agencies we surveyed, only a few were engaged in social issues that were not directly related to the agency, although many clients of these agencies might be better serviced by expanded job opportunity, ties and increased welfare benefits and child support. ­


Ironically, the federal government cutbacks in spending on nonprofit service programs have actually compromised and diminished the intermediate role of non­profit agencies as buffers between the state and individual by increasing the vul­nerability of nonprofit service agencies to government influence. Moreover, these cutbacks have facilitated or encouraged a wave of regulatory efforts at the federal, state and local level designed to "allocate" scarce service resources using an equity standard and to improve accountability. In the process, the role of the citizenry in the formulation of services for the needy has been constrained. Volunteers5 and citizen boards are enlisted in pursuing the service agenda of government. Social provision is placed on a more equitable basis, and there may exist a broader‑polit­ical constituency for government social programs. However, as government increas­ingly penetrates the nonprofit sector it undermines the civic virtues or nonprofit organizations, such as citizen participation in service development, voluntarism, and community definitions of proper support for the needy. Those interested in establishing a balance between governmental and nonprofit organizational pri­orities must find within the, contracting regime a way to secure the legitimate public interest in fairness and accountability, while minimizing the negative impact of government influence on community initiative, motivation, and identity.