Should Charities Take Government Funds?

Should charities take government funds? What are the advantages, and dangers, of doing that? I’m wondering because I live in Illinois, and I’m on the board of a charity that started taking state funding in the 1990s. At the time, it seemed like a smart move to access taxpayer funding for faith-based charities. But now the charity has grown dependent on state funds, and the state budget is in deep crisis. (This doesn’t even touch on religious liberties, which I know is another consideration when taking government funding.) Should Christian organizations be refusing, or weaning themselves off, public money?

This is a difficult question. As you likely know, there are competing incentives in funding nonprofit organizations.

Organizations have goals for what they are trying to provide, and financial contributors have ideas about what they want to happen with their money, whether these contributions are voluntary (donations) or forced (through taxation that funds government grants).

So, it’s wise to weigh potential sources of funding and the associated tradeoffs.

Benefits of Government Funding

Government intervention is most helpful in cases when markets fail to allocate resources efficiently. Many nonprofits exist where these market failures occur.

Take education: society benefits from an educated population, yet those who aren’t in school—or who don’t have children in school—aren’t likely to pay for someone else’s education. To encourage individuals toward a higher level of education, which benefits society as a whole, the government supports it.

Sometimes markets fail due to difficulty in setting a price for some goods. For example, we would have too few hunger-alleviation programs without the work of nonprofits. When markets undervalue the output of the nonprofit, the government can fill the gap with funding from tax revenues.

In addition to stepping in where the market won’t, taxpayer funding—money from the government—typically allows organizations to access more dollars than their donor database might afford.

Problems with Government Funding

There are two important difficulties that arise with government-sourced funding.

First, most states have balanced budget requirements (including your state of Illinois), which means that the state government cannot spend more than it collects in revenues in any given fiscal year. As a result, in lean economic years, state legislatures often cut spending rather than raise taxes to meet any shortfall. Since many nonprofits provide goods and services that are more needed during economic downturns, this could exacerbate the challenge for the organizations—not only is the demand for what they provide higher, but simultaneously their funding and ability to supply both fall.

Second, when nonprofits receive government funding, they are faced with the questions you raise. Should a private organization that receives taxpayer funding have the ability to select employees on the basis of religious affiliation, for example? The exceptions granted to religious organizations, while currently in place, are not guaranteed in perpetuity. Hillsdale College in Michigan excuses itself from these discussions, as it is one of a few private colleges that does not take federal funding and prohibits its students from accepting federal loans or grants, in an effort to maintain its complete independence.

Donald Heller, the University of San Francisco’s vice president of operations, states it succinctly: “As everyone knows, where there is money there is control.”

The reality is that any acceptance of taxpayer funding opens an organization to federal guidelines.

Benefits and Problems with Private Giving

Funding from individual donors may allow for more independence, though donors (particularly large-gift donors) may have their own ideas about how the nonprofit should spend the donations. In addition, donations also tend to fluctuate with economic conditions.

For many nonprofit organizations, households provide significant funding through charitable donations. Poor economic conditions lead to lower giving. In my research on charitable giving with Jeremy Thornton, though, we find that devout Christian households do not lower their donations as quickly as their income changes (proportionally). This is especially true with giving to religious causes, so if your nonprofit is religiously oriented, you are partially insulated from the economic swings affecting donations.

Devout Christian households do not lower their donations as quickly as their income changes.

Christians give in obedient response to the Biblical teachings of Jesus, and this is a stabilizing force in charitable behavior. As Paul reminds us of Jesus’s teaching, it is more blessed to give than to receive (Acts 20:35).

For those same devout households, we find their giving to secular causes falls a bit more than to religious causes, but again not as much as the income. This is also consistent with biblical commands to look after the poor, the widow, and the orphan. As James 1:27 exhorts us, “Religion that God our Father accepts as pure and faultless is this: to look after orphans and widows in their distress and to keep oneself from being polluted by the world.” Thus, if your organization depends on donations from devout households, donations may be a more stable source of funding. In contrast, we find that giving by non-devout households responds more to changes in income.

What Should a Charity Do?

So where does that leave us? Each organization ought to carefully consider the benefits and costs of private versus public funds. As Proverbs reminds us, “Give careful thought to the paths for your feet and be steadfast in all your ways” (4:26), and “The simple believe anything, but the prudent give thought to their steps” (14:15).

Several questions might help you to identify what is best for your organization:

• Is the state giving unattached money, or is it providing a reimbursement for services or compensation for government mandates? (You can dig further into that distinction here.)
• What is the fiscal situation for the state? Are state budgets stable, or do they fluctuate significantly year to year?
• How reliable have state funds been historically, and are there potential changes to the majority political view in the future?
• Is the use of government funding a short-term stopgap, or a long-term source of revenue?
• Does the nonprofit organization have policies related to hiring or services that might invite government intervention? How important is independence to the nonprofit’s goals?
• What does the donor base look like for this organization? Is it made up of steady, reliable donors, or do donations vary immensely from year to year?

In the end, remember that you don’t depend on the goodwill of government or individuals to meet your needs. It is God who feeds the sparrow (Matt. 6:26) and who owns the cattle on a thousand hills (Ps. 50:10). As you seek to do his will, he will provide the way.