The Nonprofit Fix
"The Nonprofit Fix" is a candid and insightful podcast that explores the challenges of the nonprofit sector and its potential to repair our broken world. Join hosts Pete York and Ken Berger, as they delve into the sector's issues, discussing solutions to foster a more effective and impactful nonprofit community.
Opinions expressed in this podcast are personal and not reflective of the hosts' employers.
The Nonprofit Fix
We're from the Government and We're Here to Help You
What happens when nonprofits become too reliant on government funding? Discover the complex dynamics that unfold as we explore the significant role government contributions play in the nonprofit sector. Our latest episode uncovers the double-edged sword of government funding, which, while offering growth and stability, also generates discussions around dependency and independence. Through a mix of personal anecdotes and critical analysis, we navigate the nuanced landscape of how these crucial funds impact large organizations and those providing direct services, offering a fresh perspective on an enduring debate.
The conversation takes a deeper dive into the challenges that accompany government funding. We shed light on the risk of mission creep, where organizations may find themselves morphing into quasi-governmental entities. As regulations tighten and the government's risk-averse nature comes to the fore, innovation can be stifled, leading to stagnant operations. With unfunded mandates adding to the burden, nonprofits face increased administrative tasks without corresponding financial support. We stress the importance of strategic planning to diversify funding sources, ensuring nonprofits maintain their innovative edge and independence.
Our episode also touches on the broader implications of government regulation and accountability. By examining the American ethos of limited government and the unrealistic expectations placed on nonprofits, we emphasize the value of collective action and evidence-based advocacy in shaping policy. Building relationships with politicians and engaging with influential board members are key strategies discussed to navigate regulatory complexities. We wrap up with visionary ideas for a more dynamic nonprofit marketplace, setting the stage for future episodes on survival strategies and systemic challenges in the sector.
Welcome to the Nonprofit Fix a podcast about the nonprofit sector where we talk openly and honestly about the many challenges that face the sector where we will discuss current and future solutions to those challenges where we explore how the nonprofit sector can have much more positive impact in the world. A podcast where we explore how the nonprofit sector can have much more positive impact in the world.
Speaker 2:A podcast where we believe that once we fix the nonprofit sector, we can much more dramatically help to fix our broken world.
Speaker 1:Hi, Ken Berger, here with my colleague and friend Peter York.
Speaker 2:Hello again, Hi everybody.
Speaker 1:So we're excited to say this is sort of kinda the final episode in our series on the exhausted sector. And to recap for those of you keeping track, this series includes episodes 7, 8, 10, 11, 12, 13, and now 14. A total of seven episodes. It's half of our total episodes. We've been talking about this a lot. And just a caveat, there's so much we have to say about this last topical area it might even take two episodes to get to it, but it's the last topical area.
Speaker 1:So our working title for this episode is we're From the Government and we're here to Help. And just a quick. You know I looked it up where it came from and it was first recorded in the early 70s by a farming group on crop quality and it's been used by Democrats and Republicans over the years. They refer to it as the most feared words in the English language, some of them Democrat Edmund Muskie, and perhaps most famously by President Ronald Reagan. And the point is, while government is often well-intentioned, there are just very frequently unintended consequences that can often cause harm as well as the good that is intended. So I just want to tell a quick story about my personal journey. So I think Peter and I we try really hard, I think, in these episodes to remain apolitical, but because the subject is about government, I want to just share a little personal story that does have a political element to it.
Speaker 1:When I was in college, for a variety of reasons, I was basically a card-carrying democratic socialist. And then, when I left college and I started working, I worked with people in federal government, in state government and in local government and, without torturing you with the details, I ripped up my card and became a regular person along the Democrat, republican and independent sector in my thinking, because of the experience I had working with government. It's not to say that I don't think we need government programs and government support, but it certainly gave me a much more sober view of the strengths and weaknesses of government agencies. And so that's a very quick personal story. And just last thing, before we get into the nitty gritty, you may recall from our second episode where we described the size and scope of the nonprofit sector more than individual donor contributions, which is not institutional as well.
Speaker 1:But you know, one of the largest of all by far is federal, state and local funding, and I think in the stats we looked at for the trillions of dollars that go into the sector. I think it was 30, some odd percent coming from government entities, and then if you add what are considered the private pays, it's probably with Medicaid and otherwise it's probably significantly more than that. So it's a whopper. It's probably the biggest by far when you put all those things together. So this is a big deal. Yeah, please, peter.
Speaker 2:Real quick along those lines, just to add to kind of a number to that point. Yeah, please, peter, real quick along those lines, just to add kind of a number to that point. When you look at the really big nonprofits, those that are $50 million plus, which are taking up a lot of the revenue and doing huge work, obviously they're often single funder category and it is government funding. Now it is typically in third-party payments, things like that, Medicaid, other types of fees for service that are being, but there's a lot of contracted work that's also happening by government. So the bigger you get, the larger your proportion of government funding tends to be, especially for anyone that's providing direct services.
Speaker 1:Yes, and so I can tell you like, in the case of my current agency and virtually every agency I've worked for where we're doing direct service, 90, 95% of our funding coming from government. You know, I just thought of one other sort of talking about the politics and the different sides on the issue. Peter and I have a colleague that we knew for years who was very conservative, and he told us this story. So you know we're talking about how government can have bad consequences. So he's he's at the other end of the spectrum and his attitude was no government funding, I don't want any. And so he he came to work for this homeless agency as a board member. He was a board member of this homeless agency and he had all of it came to work in quotes?
Speaker 1:yeah, he was, yeah, but anyway he had all of these and came to work in quotes yeah he was, but anyway he had all of these very wealthy fellow conservatives and you know they wanted to have an agency doing direct service without government funding. And so he went to all of his colleagues and he asked them to support the agency and basically it was like crickets. And basically it was like crickets and he was very honest about it that, in our continuing effort to be frank and honest about things that are often not discussed by others, in this regard we're wanting to put together a really, probably one of the most significant list of challenges I can imagine of some of the topics we've we've talked about so far.
Speaker 2:so that, and I do want to say I mean it's a. As with anything in the nonprofit sector, there are pluses and minuses. There are studies that do find that government grants have actually promoted, you know, nonprofit size, better operating margins, financial reserves, and there's actually studies showing that these benefits do persist even after grant periods end. So I say that because a lot of the nonprofit sector has to almost hold for those that want or don't want government funding. And it all depends on your views. It depends on you know this is a very complicated, challenging, you know, debate worthy topic. But at the end of the day, one of the things that is true with what we've said is that it becomes difficult to scale any kind of service or any kind of nonprofit effort or mission or vision if government funding weren't there. It's such an important part of the fabric of the nonprofit sector, it's a big part of it, and there's an upside to it.
Speaker 2:But we're going to talk a lot about the challenges and one of the challenges I'll segue into is how much, while the studies say and show that it can benefit. There's benefits to getting government grants and funding and many chase those dollars with great intentionality. There's also the problem. There's the problems. Many nonprofit managers in many studies will report fiscal strain due to grants not covering full program costs, often late payments from the government, very heavy and intensive administrative burdens. We'll talk a lot about all those kind of things. So I just wanted to add those little pieces of two cents to what you're sharing, ken, so I'll toss it back to you.
Speaker 1:Great, yeah. So just along those lines, a little bit of a very crude rendering of the history of government funding of nonprofits. I think a real watermark, a real turning point in government's support of nonprofits. I think a real watermark, a real turning point in government's support of nonprofits really happened back in the 60s during the Johnson administration, where you know the war on poverty efforts, the amount of involvement from government really ratcheted up and I think I've mentioned before Lester Salomon has done some really interesting books on the history of all of that and the transformation it made to the sector, the nonprofit sector.
Speaker 1:And for me, the next big sort of turning point, as government funding increases, there was at that time sort of a mixed view as to whether government itself should be providing these programs or contracting out to nonprofits. And I think the next big thing was in the 1990s, during the Clinton administration. There were efforts largely guided by Al Gore did a lot of this on sort of reinventing government, and part of that reinventing of government involved contracting out even more to nonprofits cost-effective and more impact if we gave the responsibility of these services to non-profits and thereby funding them, and the role of government increasingly moved towards monitoring for the funding to make sure that it was used in the way that it was intended to quote unquote by the government, and so that was the next big thing. And so since that time there've been ups and downs. There was some downtime in the Reagan administration in the 80s, but overall there's been a steady increase in government support over the years for nonprofits and relying on nonprofits.
Speaker 1:So what has been the problem? Some of the problems with that. Well, for one thing, there's the danger, if so much of your funding is coming from government and the temptations of that that I think Peter also sort of alluded to already is a danger of mission creep. If the funding is over here and you're over there, your mission is to do X and the government is Y and it has sort of kind of X's part of it, there can be a tendency to sort of move from your initial mandate towards that which government wants you to do, from your initial mandate towards that which government wants you to do. Another thing related to that is that some have argued that with this move, many nonprofits are essentially functioning almost as quasi-governmental agencies, because the funding is so significant and it sort of drives them into this sort of a hybrid role where they're semi-independent because they're so reliant on those funds.
Speaker 1:In my experience, the irony of that is that sometimes the relationship with those governmental entities can be even adversarial, that on the one hand they're reliant upon the non-profits but on the other hand there's a reticence to rely too much on those non-profits.
Speaker 1:You know the pressures of, you know, and and also the the tendency of government to be very risk averse can put some real, real pressures on the nonprofits.
Speaker 1:I I I told Peter the story recently that we have turned to a former government official for some help for a situation that we had a while back and we were just sort of frustrated with the government agencies we were dealing with.
Speaker 1:And he said you have to understand that emblazoned think of it emblazoned on the door of almost every government monitoring agency is thou sh shall take no risk. That because government officials are so at times worried that something that could come out in the public domain, that could embarrass governmental representatives and so forth, that they tend to be very restrictive. And in my experience, the more government money you get, the more likely it is that you're going to have more and more regulations that you have to follow that can put a real damper on your ability to be innovative and creative in the work that you're doing, because there are so many rules and regulations that you have to keep track of and that also can affect your overhead for your administrative oversight and all the rest of it. Because you've got this tremendous amount of requirements that you have to comply with to continue to receive the funding, I'll pause.
Speaker 2:Part of the. You know what you're describing is interesting because there's some conversation that I think is really important to have. Government funding is such a huge amount of resources. The question is like there's a lot of dollars coming from government and, to your point, there's a lot of challenges, and I've got some data that I'll share with everybody here in a moment in terms of just the specific challenges of taking government funding. But I want to just say something to what you were just describing, which is how it can hamper innovation. You know things move slow.
Speaker 2:I think part of the challenge we also have as a sector is that we don't really think about different funding streams for different parts of our lifecycle, stages of development of our programs and our organizations. So in some ways, I do think it's really important to note that government funding is not really where the innovation happens. Usually, where that happens is you're either investing in yourselves you actually raise money through your contributors, donors and through campaigns to be able to do some of the innovative stuff, or you're actually going to philanthropy, which is where some of the innovation and risk can happen. Because, while that's a little bit more separate from that, I think it's important to note that because I think one of the challenges in the sector we do have is because it's a large pool of money and everybody, oftentimes organizations, aspire to get there. I think some of the first stages of development of a program or organization, some of the earlier stages, smaller organizations who want to get there I do think it's important to note you're not going to get seed or innovation funding typically from government.
Speaker 2:There are exceptions, there are government departments where there is a little bit more of that tolerated, if you're like doing something in the scientific field and you get NSF funding, or there may be some other innovation grants and things like that that do come out of government, but for the most part, we're talking about dollars that are there, quite frankly, to contract services from you that you've already proven work. You've already got the innovation innovated right. So I think it's important to understand that because it puts government funding in a different perspective. We're going to talk a lot about the challenges, but I do think it's important to acknowledge that government funding is something that plays a very important role and I think you're right, ken, that innovation. It's're just so desperate for money.
Speaker 2:We're looking at every kind of coffer there is and going after that and from a fundraising standpoint and sometimes things we need a little bit more sophistication as to where we go, for what purpose, at what stage in development we are.
Speaker 1:Yeah, agreed, totally agree, you know I I just want to, speaking of the funding from government, just a few more points I wanted to make on that. In addition to having lots of rules and regulations as you go, another thing that I've experienced over the years repeatedly is what are called these unfunded mandates, where, as you go along, governmental agencies you know have no, you know do no, take no risk will come up with if something arises. They'll then create another regulation and another regulation. I think I might have told the story of a situation where an agency did something unethical and, rather than going after that one agency that did something wrong, an entire sector of our non-profits that were doing a similar service were now loaded on with a whole new set of regulations that were very burdensome and it was like overkill. Rather than going after the guilty party, we were all guilty and we all were burdened with this and unfunded mandates. Often what it means is there's all kinds of new tracking, new requirements, and it's unfunded. There's no new funding to accommodate it, there's no additional overhead or whatever other requirements. Things needed to address this new mandate, and it happens a lot.
Speaker 1:And in fact, on top of those unfunded mandates, we also had this experience where, when governmental officials come to do an audit or monitor a program, the individual auditors will basically make shit up as they go. They'll basically come up with things and it's like where the hell is that in the regulations basically come up with things. And it's like where the hell is that in the regulations. And sometimes those of us that are experiencing that it's like you have to weigh the pros and cons of do we want to confront this person and get into it with them and thereby have them potentially grind us down with technicalities and whatnot, or do we just let it go because the consequences of confronting them outweigh the benefits of doing so?
Speaker 1:Same thing, actually the same thing when there are new government regulations, and it was overcome by the group that I was involved in, but the group is now very worried that those governmental agencies will come a-calling and be even more aggressive in their enforcement efforts.
Speaker 1:Because they were in their enforcement efforts, because they were shot down. So that's the power of government when it comes to these things is absolutely enormous. On the other side of it, I've also experienced with some of the people from government who've been in the monitoring role. Some of them could have a very light touch, because there's this other thing called like the pink triangle or something of that nature, where, just like you have the military industrial complex, you have the non-profit industrial complex where government officials will see a long-term opportunity, perhaps once they've gotten their pension and whatnot, to go into the non-profit sector, and so they want to cultivate relationships, and so you can also have the other side of the coin where there's a lack of true monitoring because of a desire for a long-term career goal, and so it's sort of it's all over the place when it comes to that. Along these lines.
Speaker 2:I think it's important to note something the way you're framing regulations and it is a problem, and the perspective you're sharing is important. I just want to say that and I think you and I come from slightly different places I think that part of it from the standpoint of government's role, I'm somebody that thinks that what we're really talking about is there has to be a balancing. Act right, because part of the truth is these are taxpayer dollars. Act right, because part of the truth is these are taxpayer dollars and so there has to be some way to make sure we can monitor and regulate the ethics of how it's spent, the values it reflects. You don't want to make grants and have them be discriminatory in some way or prejudiced by some type of biases. You don't want to give grants where somebody says they're going to serve a hundred people this year and they only serve two and they keep the money. So unfortunately and you've been a big storyteller along these lines from and I don't mean that as a liar, I mean storyteller as in you've got many, many stories of corruption in the nonprofit sector. That has to be not over-regulated, but there has to be a way to see what's going on. Now you and I both know that. I think some of the opportunities where better data technology, other things, should lighten the burden and still give us actually better eyes on how things are going. We can talk about that when we get to the little solutions here in a moment.
Speaker 2:But I just think it's important to say that I'm somebody that I'm not anti-regulation. I just think there's a lot of things that are over-regulated, where they're just creating friction Because, as you said, there's an exception and you basically made rules to a very outlier exception and now you've hindered everybody. That's not good. At the same time, we also want to make sure we're also not letting everybody just squeak by and taking the government for their own benefit, for their own purposes. Right, it's a real balancing act and unfortunately there is a decent amount of corruptibility of the kind of nonprofit sector government funding that is inherent to our sector that we have to be careful of, as you well know when you were a charity navigator and some of the stories that I remember seeing you on the news about. So we have to be very careful about some of those things as well. So it's a balancing act.
Speaker 1:Look, you know it's funny because I do see parallels in this story to, in this issue, to the conversation we had about nonprofit boards, and you know we could have called this episode, you know, government involvement the good, the bad and the awful, because.
Speaker 1:But the parallel that I see to your point is that the frequency with which you find government in that sweet spot that you've described, where there's a right balancing act of, you know, not overregulating but also holding the nonprofits appropriately to account and all the rest of it, in my experience, unfortunately, it is a rarity, and I mean I admit that I'm biased from the nonprofit side of this you know formula, but more often than not I see the government's out of whack and you know, in support of the government officials that are involved in this, one of the things I do see as a challenge for them is, well, number one, the variations in politicians who may be in charge and their funding as an agency for the enforcement and the monitoring function being like a roller coaster ride.
Speaker 1:There's just not enough of them, and so that increases the likelihood of fraud and abuse because there's not enough of an enforcement and monitoring oversight role. And then there are other times where there's so much money involved that they are involved in overkill and are just grinding some of these agencies down with so much overregregulation. So I guess my point is I completely agree with you. There's a very appropriate role for government to play here. But as we're talking about the problems, there's a lot of problems and it's often out of whack.
Speaker 2:In my experience, Well, in part, though and this is where I'm always coming at things from a different perspective, now just so steeped in technology, data, machine learning and AI and I have to just say I think one of the things that are at the root cause of these problems are people, and what I mean by that is, you know, there are decision makers within government who are in some of these regulatory positions, monitoring positions, other types of stuff, and it really does come down to different philosophies and approach.
Speaker 2:So part of the thing that I've experienced is I've experienced very effective oversight of government grants to do exactly what they're supposed to do, and the leadership and the management of those resources has been very, very effective, and it always came down to kind of who was doing the work, what was their motivation.
Speaker 2:Part of the problem is a lot of these systems themselves have a lot of folks that really aren't accountable for their own jobs and what they do when they're in government, but there are some interesting problems that I think government inherits, not because it's government that's causing some of these problems, but it's the electorate, it's the people, it's what people want and how they perceive what can happen. So I'll give you a great example of this where I see there's a real big challenge. So I actually think there's an over-regulation of output counting. We got to monitor and see how many people we serve. Did everybody say they were serving who they were serving? And yet government and the public wants outcomes. But here's the interesting thing Whenever governments evaluate, truly go in and in their regulatory I use that word broadly but in their regulatory or their monitoring and evaluation function, which is another function, right, they administratively require you all to count who you're serving how many?
Speaker 2:people you're serving. It's the people count, right, and that's heavily regulated to the point where they're requiring all that and that sometimes, by the way, is also an unfunded mandate. You have to basically produce the data without being resourced for the system, right, there's a whole lot of administrative costs, there's the financial oversight and there's the program oversight. But what is very interesting to me, having been an evaluator for government, is when you start to ask outcome questions. Here's where the people factor comes in. What happens when you do an evaluation and the evaluation determines that the actual program is not effective, right, the actual program is not effective, right. The reason a lot of outcome evaluations get kind of shaped, manipulated and everything else is because a lot of times they will commission outcome evaluations but they don't really want to hear the answer. I can't tell you how many times, if you come to the results conclusion of an evaluation where the findings are that this program is really not as effective as it could be, that the response of the government is to say, well, you must have done something wrong from an evaluation standpoint. So, government. It's so funny and I think that's a reflection of people it's like.
Speaker 2:When it comes down to it, it's very difficult and challenging this regulatory. We don't. We regulate a lot of like productivity, like make sure you deliver, and do all that kind of stuff. But in fact even government, in my opinion, doesn't really do a good job of regulating and monitoring outcomes and being able to ask those questions. And when they do, I think they're afraid because you don't want to go to the electorate and say we just spent $10 million and we didn't get the results we want, right, and that's that risk aversion piece.
Speaker 2:The problem is now we have a sector that, because government is such a big, big elephant in the room all the regulatory powers coming through, monitoring and fiscal accountability kind of stuff right and numbers served and dollars managed and done so correctly that we actually have a sector that's driven by that kind of philosophy and approach. And what I find a little bit hypocritical is when we come down to outcomes. It's kind of scary to go into the regulatory side of outcomes and I wonder if we could streamline things by being more outcome accountability and focused cost per outcome rather than outputs. How would that change our government kind of like uh, you know, regulatory kind of process, you know regulatory kind of process. Maybe it'd be less burdensome, but a little more risky, I don't know. So it's one of these dynamics that you and I talk a lot about, and I wonder what's the government role in actually not getting to outcomes, because they're almost afraid of the answer.
Speaker 1:Yes, you know, I actually think you've put your finger on, as usual for our looking at the long term and what matters most. I think that's probably one of the biggest problems of all that. If the government is requiring the nonprofits to count things that are really not getting to meaningful, lasting change in people's lives and in communities, then my goodness, that means that potentially, we are spending all of this money for we're not sure what. For much of it.
Speaker 2:That's the big, big, big deal and what I'm actually getting at too is, like you know, we've been trying to in some ways in a lot of our episodes. We keep coming back to, like, what are the root causes of some of this fatigue? Right, some of this, and I really do believe, if you think about government, it's funny that this is where we come to in our episodes and we're now in government which is really the biggest funder, and if you really think about the biggest funder, it's the biggest carrot and stick, and at the end of the day, it's the carrot and stick. Unfortunately, if you want to be very, you know, skinnerian about it or Pavlovian about it, you know it's like that's where people are driven by, right? So maybe part of the problem we have, why there's not more outcome learning and outcome accountability is because it's just way too risky for government to invest in dollars, is because it's just way too risky for government to invest in dollars. It's so much better to just count widgets number of widgets made as opposed because then accountability is just on productivity.
Speaker 2:And so, as a result, our entire sector, the ethos, the philosophy and even philanthropy is guided by this, because, if you really think about it, even in the philanthropic sector, some of the biggest philanthropies are really about innovation.
Speaker 2:They hope eventually, and they partner with the public sector to be able to get that scaled right. It's often about taking things to scale. If you're going to scale, you can't do it without government, at least not now. I mean, you could argue that some of these things are. That's not the case, but government is a partner in some way even so, at some point you have to get there. Well, if our entire accountability system and the way we gum everything up with over-regulation is tell me it's bean counting and people counting, maybe that's actually the deepest root cause for why we can't get to actual results, because we don't want to take the risk of telling the taxpayer that we just spent $10 million to get no positive outcomes in two years and that and so that that leads to the last point I wanted to make when it came to the problem area, and that relates to the, the public perception of things and politicians involvement in all of this right.
Speaker 1:So I think you know, a fundamental reality for politicians and leaders of government agencies is their public facing and how what they're doing is viewed by the public. And if we assume, I think correctly, that the public and most politicians and many government leaders not all, but are pretty ignorant of the nuances of the difference between outputs and outcomes, then the pressure from the public is for and with all this money, taxpayer money they want to show right now concrete results. And so if you say that, you know I'm. I, my private school has graduated X hundred students and Y number of them have gone on to some employment or college or whatever it might be. Those kind of counting things look good on the face of them.
Speaker 2:And you can spin that story right. You can say those Every time. You say so many people graduated. What happens is the human bias is to insinuate, imply that that means they're successful right, and it's just an output right. We don't know where they go, we don't know what their results are.
Speaker 2:So it's, it's, not an easy business of getting to outcomes, because it's human nature to think if I've produced something, if I've generated the deliverable, I've generated impact. But the truth of the matter is you can actually produce a whole lot of crap, you know, and it's not going to get you anywhere. But at the end of the day, I think to this point we're talking about. I mean, it's interesting. We came here because in our previous discussions setting up this episode, we really hadn't gone this far on this. But now that I think about it, I'm like wow, when you really look at some of the problems and challenges with respect to government funding, it's not just the fact that nonprofits want it to scale. The issue is that if you take it to scale, you're going to be, you know, you're going to have to be encumbered by a lot of regulation of stuff that really doesn't actually speak to. There's no accountability for actually getting results, outcomes.
Speaker 1:That's right, yeah, last, I agreed. Last point on politicians. So my experience in working with politicians is number one. The typical scenario is either directly, as an agency or through a trade association. We will have junkets to Trenton or to DC or what have you, and we'll have scheduled meetings with a bunch of political representatives and we will have talking points on legislative issues that we want to support or oppose and other ideas for politicians. And nine times out of 10, we will meet with legislative aides. At the risk of sounding ageist, they are typically very young and not necessarily that experienced, but they have tremendous influence and power.
Speaker 1:And I think you know when I go there, it's a parade of other entities. I can't you know. It's like back-to-back. They have back-to-back meetings every 15 minutes every day. You know, seven, eight hours a day, all of these different interest groups pressuring for this, that and the other thing, and I think it's very hard, in the noise of all that, to have an influence.
Speaker 1:And the most important thing I think for any politician is how's you know how's it going to affect my ability to stay in office and also in my experience you know how's it going to affect my ability to stay in office and also in my experience.
Speaker 1:You know what kind of support can I get so that you know I can continue to campaign successfully and all of that.
Speaker 1:And so it's a very it's very difficult to get attention and influence, but the politicians can be very, very important in emergencies because, like I think I told you just a little earlier, if you need a workaround of over-regulation by government entities, the ultimate boss at least in theory, that sits over those agencies are those political representatives that you know approve the appointment and also create new laws and so forth. But it's very, very hard to have an impact and to be able to do that. You know, something like that did happen recently in my experience, and forgive me if I've said this before, but we had this very seasoned political operative who'd worked with government for her entire career and she said this was miraculous and highly unusual in her 30, 40 years of doing this work, because it's so hard to overcome the obstacles that would be required to overturn the highly regulated and inappropriate regulations that sometimes come down the pike. So that's the end of my problem list.
Speaker 2:Let me transition this a little bit because we'll jump into the opportunity side of this or at least like a different way of thinking, and we talked about this in prep for this. But I just want to share some other dynamics of the root causes of why some of the government funding is so challenging and, by the way, it's just important. I think we've articulated most of the challenges. I just want to say really quickly we're talking about often complex, burdensome processes. It's often insufficient funding and they don't typically fund full cost right. They really do fail. A lot of times government does not fund full cost. There's arbitrary caps on indirect or overhead. Typical overhead rates are not achieved by nonprofits. The true overhead rates of 25% to 35% government office will only cover 10%, for example. Unpredictable and unreliable funding. The truth is that 44% of nonprofits in one study talked about midstream changes to contracts were common right. So these are the kind of things that happen. There's restrictive funding terms, right. What you can use the funding for and what you cannot use the funding for are highly restrictive. There's often dependency on resource allocation issues. You know the nonprofit starvation cycle actually sometimes gets just the administrative burden. So that's the cause side of it. But if we take deeper a little bit, well, how did this all is? To me those are causes, but they're also symptoms. They're symptoms of a deeper illness, like what's really going on with why we have this. And so if we ask the question a little bit deeper of the root, root causes of this, you know we do have to come back to even some stuff that I wonder if other countries experience this the way we do.
Speaker 2:In terms of government funding, there is an American ethos of limited government. Right, we have a longstanding tradition and even skepticism towards big government and I know that we make that a political issue sometimes and say it's conservatives versus. But even the moderate democrats oftentimes will come in with the same kind of mantra or close mantras anyway to the Republicans of the 70s they almost sound the same. So we still do have this like let's not overdo it with government. There is a public sentiment and lack of understanding that Americans they don't always have positive views about what nonprofits can do and too often there's a lot of bad stories of corruption in the air on some of this stuff. So you're fighting against that. The bureaucratic inertia, these are the kind of things we talk about. So there's a number of different kind of underlying issues that also kind of get there that I think are important to mention as we start to really think about what is the cause of a lot of this stuff. Ken, you and I have talked a lot about this.
Speaker 2:Also unrealistic expectation comes from government, I think, but it filters through the general public, it filters into philanthropy, it filters into all kinds of grant making, which is this overhead myth idea. It really is this idea that you don't get the dollars to do what you need to do. Nonprofit sector. When we get funded and nonprofit gets funded, it's not like you're receiving investment capital. If you're in a private sector where they trust, they look at your numbers, they do their due diligence and then they write the check and let you kind of go. I do think there's some interesting experiments in that. We've mentioned before some of the work that, like Ford Foundation and others, are beginning to do around being able to support some of that.
Speaker 2:But government, I think, is a real root cause of why the ethos in the US generally speaking to nonprofits is I want every dollar to go towards programming. Don't tell me you're funding your technology infrastructure, right? Yep, yep, yep. So anyway, those are just some quick last thoughts on that before we shift gears to our solutioning part of the conversation, because we see and hear the pain and we just talked about some of the implications and I want to just say it's not all bad. Government funding, like I said, I think in the right place and the right development of your programs and organization could be really pivotal to being able to spread the good work that's happening and the results that you're getting.
Speaker 1:The vast majority of direct service nonprofits of any significant size are absolutely it's absolutely essential for the vast majority of them to get the most, the vast majority of their funding from government support. So I did want to just mention that when Peter and I were preparing for this episode and part of the reason why we thought it might become a two-parter is because we identified what I would call short-term fixes and then long-term solutions and, being in the trenches, I'm the short-term fix guy not the only one but I have more thoughts on that than the longer term, which is sometimes hard to see when you're in the trenches with so much challenge. So I just wanted to mention a few things that I think every nonprofit that is reliant on government support needs to be a part of. I think this first one we have covered before, but again it bears repeating that is, trade associations. I think that when you have concerns about what government is doing at times and you need to advocate and educate governmental officials and or political representatives, a trade association has power in a number of ways. Number one, it's the order of magnitude, numbers matter, and when government and or political representatives are hearing from multiple parties, it's much more powerful than if it's a one-off. And secondly, the trade association. In some of these situations, the association gives you a bit of a buffer in that regard, so it can be a powerful tool.
Speaker 1:And I think you know what I've run into is sometimes, because we're all so busy, because we're so in the trenches, it's like that's extra, like I don't have time for that.
Speaker 1:You know, that's sort of over there in my day-to-days, but I think it's essential to be involved in trade associations for, you know, for the services that people are delivering, when they exist.
Speaker 1:I can tell you like, when it comes to private special education schools, there are some states where there may be only one or two entities and there may not be a state association, but there is, in our case, there is a national association. But whatever can be done in that regard and then partnering with other associations that have alignment, similar concerns, associations that have alignment, similar concerns, similar agendas can bring that order of magnitude to an even higher level to have the kind of influence and the impact that you need to make sure that things are done better than they would be otherwise. I recently was involved in a trip to DC on a number of issues and we had been advocating for some changes in pending legislation over a number of years and slowly chipping away at it. We have gotten the attention of a number of politicians and, by the way, using a lot of evidence-based research, we're able to make some changes to make some of those regulations much more reasonable and grounded in reality than they otherwise would have been.
Speaker 2:Yeah, that's a great point, and I don't think enough here about the power of trade associations, coalitions groups to advocate. I think that's something actually's, that's a. It's something actually. I just don't think. I think there's only small portions of the nonprofit sector that realize that kind of some of the power, than the potential of doing that, that work. And there are advocacy organizations or trade associations. There's other stuff that, and just getting involved in being able to join and be a part of groups that are advocating for the kinds of systems, change, policy change, regulatory changes that could really make a difference. There is, you know, power in numbers talking about and kind of riffing on. Before that, when we think about trying to address some of the pain points that we just talked about in government funding, there are some things that we did talk about, some ideas that I think are also worth bringing forward, and all of these are ideas that I think are just either beginning or they're things that we really need to start to consider. To play with a little bit more, yeah Well.
Speaker 1:I just want to make it clear. I think we had tried to segment our points to sort of immediate pragmatic, like what can be done right now, and then the second part. I think it was going to be our sort of longer range view of systemic change things.
Speaker 2:Yes, that's right, and you and I had an interesting little back and forth on what defines something as short-term, immediate or longer-term solutions. So part of it is sometimes there's innovation that would take a very long time and there's some innovation, depending on the kind of public will for it, that could take a shorter time. So part of it is what we have to do is put out some of these ideas that you're talking about and just think about yeah, what would it take, is it possible to speed some of these things up? So let me just throw some ideas out and, to your point, these ideas that we were talking. I'm going to throw some ideas out that I think sound like they may be longer term, but there's a part of me that feels like, should they be longer term? Like maybe there are even some ways to get there quicker.
Speaker 2:I agree that some things are going to take a bigger change, but I would also say that that's probably the case even for some of the things we think are going to take a short period of time. You were always famous for telling me Ken, everything you think you can do, multiply it by what? At least three, if not 10x. But let's just talk about a few ideas that I thought we were talking about last time as we were discussing this episode, and I had four more, but that's fine, oh, I'm sorry. Yeah, I forgot.
Speaker 2:Keep going, keep rolling with yours, and then I'll give you a couple of these.
Speaker 1:So second one is implicit in the first one is although trade associations are important, it is equally important to cultivate and develop relationships with local, state and federal politicians yourself, with your agency. If you have even the slightest bandwidth, I can't tell you how important that is. There's also opportunities for funds that sometimes these politicians have and also for them to help you when you face things like, you know, the NIMBY syndrome of not in my backyard and things like that. Those relationships can be incredibly important and some of them can be very powerful speakers on your behalf and advocates for you. This is in the most extreme circumstances. I keep thinking of this song by is it Leave on? Help, bring lawyers guns and money.
Speaker 2:Lawyers, lawyers can be Wasn't that Jackson Brown?
Speaker 1:No, it was not Jackson Brown, it was uh Levon. Uh lawyers got so many.
Speaker 2:Wait, wait, I got you.
Speaker 1:Somebody. Somebody will look it up, but, at any rate, the point being that I have seen situations where having attorneys involved who are very versed in the regulations if you're really under the gun and you have something really that could tremendously impact you, lawyers that are very seasoned and have those connections at the state level or at the federal level can transform things for you. But, again, that can involve a lot of money and a lot of time but, man, if you can do it, it can really change things Along those lines. In terms of people, of influence, the ideal scenario when you are recruiting board members, when you have donors that are of a certain type, they can have connections that can be incredibly important to you.
Speaker 1:The old saying of it's not what you know, it's who you know can also be tremendously important in dealing with government. So, as you're this issue of innovation and creativity we've mentioned this before. Whereas I totally agree with Peter that government is frequently not the place to look for that sort of thing, one of the places that you can turn to and I think we need to continue to advocate and educate them on their potential for this are foundations, that there are times that foundations can take the lead in doing something innovative and creative and then, once it's been tested and the tires kicked enough eventually, with advocacy and educating government and seeing that the risk has been already borne by others, then government will potentially move and make a change to embrace things that otherwise in the past they had not. So that's another short-term fix in our long road towards making system change in how we work with government and to your point.
Speaker 2:We'll just give a to that point. We'll pause the longer term for another episode, which I think we'll reserve some time there for that. As a teaser, I think we'll follow up with an episode that talks a little bit about some opportunities around ideas like outcome-based funding. You know, is it possible that we could start a nonprofit stock exchange? Is it possible that we could start a nonprofit stock exchange? Looking at open source impact measurement, some have put forth the idea of universal basic income for nonprofits, ubi for nonprofits. So these are things I think we can explore in subsequent episode or episodes.
Speaker 2:Episodes, um, and I think it kind of goes naturally from this, this exhaustion piece around the government piece, and it's much more about okay, so what are some other options? So one of the things that seems really important I really appreciate all the the short-term ideas that you shared, because I think that I don't think people think along those lines the who you know, the local legislators, you know, the, the trade associations, some, some of those other areas where you can start to act now at the same time and this is where you and I sometimes have interesting little debates, and usually you're right, but I do like to be- able to hear first everybody Go usually you're right on how long it takes.
Speaker 2:I'm a dreamer, but I do think that there's things that are being tried out there and with technology, ai and other things that we can start to. I think the important thing is we've got to start to dilute any one source of revenue too much and start to expand the pool of dollars available to nonprofits. And I think government's always going to be important. But how can we start to create a little bit different of a marketplace? We've talked about this in the past and this government episode and the funding really does. It's important. But my hope would be, as we talked about in the first episode my hope would be that we can start to change the way kind of the marketplace of the sector, and we need to start with looking at where our typical dollars come from and so much is coming from government how we get out of all that red tape and shift to outcomes focus and then what could we innovate?
Speaker 2:And I don't know that it has to take forever, because I think with technology, ai and other stuff, I think there's some opportunities to really make some changes based on some of the challenges we've identified here and some of the root causes and, yes, some of the short-term ideas you've got, ken, which I think are really important in the short term, but I think we also have to be able to find some stuff that I wouldn't call it long-term. It may take a little, but I would call it. We don't know how long it's going to take, but the truth of the matter is technology has proven already to make things happen faster than sometimes we realize could. This is one of those areas I would love to see more than a spark but a flame with respect to changing the way we fund the nonprofit sector.
Speaker 1:Amen to that. And then you know, my final teaser is you know, I also am hoping for us to have an episode on what I would call a survival guide when dealing with all of these problems that we call exhaustion problems how to not be exhausted in the exhausted sector. I think part of it is also just having that long-range view that Peter's talking about, and we do need to dream and think of other ways to do this. I do think there needs to be some fundamental changes so that the magnitude of these problems is pushed back, but I think that there's a certain mental attitude and way of taking care of yourself that's equally important as we take the journey to fix nonprofits.
Speaker 2:I think it's much needed. Looking forward to that episode or episodes. Yes, so terrific. Thank you everybody. That was another episode of the Nonprofit Fix we look forward to. Please leave likes, share with your colleagues and network. We will continue to produce more episodes and we're looking forward to upcoming ones soon. Cool, all right. Thank you everybody. Bye-bye Later, later.
Speaker 1:See ya, bye.