October 16, 2008 | Read Time: 7 minutes
When Sen. Barack Obama pledged last winter to create a Social Entrepreneurship Agency, the Democratic presidential nominee re-energized a long-running debate over how the federal government should support nonprofit groups.
Mr. Obama says a new agency, housed within the Corporation for National and Community Service, could streamline the government’s dealings with organizations that receive federal grants, foster greater nonprofit accountability, and help remove obstacles that prevent small groups from participating in government programs.
Some charity leaders, however, argue that a more ambitious approach is needed, something akin to a Small Business Administration for nonprofit groups, a move that would acknowledge the financial clout of the charitable world and its status as a lead player in solving social problems.
Others question whether new government programs would really help improve charities’ operations — or would instead stifle nonprofit organizations’ independence and invite further regulation.
Investment Funds
One idea that has gained traction with Mr. Obama and his Republican challenger, Sen. John McCain: awarding federal grants to innovative nonprofit projects that have shown success at solving problems identified by cities as priorities — crime prevention or education, for example.
Senators Obama and McCain are among the co-sponsors of a Senate bill to expand national service that would also create a network of Social Investment Funds.
The bill calls for a proposed budget of $50-million for the 2009 fiscal year, rising to $100-million by 2013. Businesses, foundations, philanthropists, or state or local government would be expected to match each federal dollar before a charity could receive the federal aid.
America Forward, a coalition of 71 nonprofit organizations that focus on health, education, and other causes, has been a driving force behind the call for the Social Investment Funds.
But fears of a deepening economic crisis also color the discussion about new ways for the government to support the nonprofit world.
The bailout of teetering financial companies will probably tighten or curtail new discretionary spending, and many charity leaders — even those calling for greater federal involvement — wonder how much help nonprofit organizations can expect in either a McCain or an Obama administration.
Proponents of the federal government’s increasing its involvement with charities argue that the size and scope of problems facing the United States today requires strong coordination. They say government has a vested interest in helping charities become more effective.
“The federal government has been neglecting this whole piece of the economy,” says Jon Pratt, executive director of the Minnesota Council of Nonprofits, in St. Paul. “If you look at the big picture now of what the federal government is doing to support the development of the nonprofit sector, it could best be described as uneven, unreliable, and quirky.”
Mr. Pratt estimates that at least 150 programs within the federal government are designed to help charities become stronger organizations, but that those programs are very narrowly focused.
“You can see lots of random acts of kindness toward nonprofits,” he says, “but there’s a lack of universal access to information for these organizations.”
Mr. Pratt says that he would like to see a network of resource centers similar to the more than 1,100 small-business development centers run by the Small Business Administration.
Establishing a government agency that provides advice and support to charities would be important because right now the only meaningful interaction the federal government has with the nonprofit world is through oversight bodies, such as the Internal Revenue Service and the Senate Finance Committee, says Diana Aviv, chief executive of Independent Sector, a coalition of national charities and foundations.
Ms. Aviv called on Congress to create a “Small Nonprofit Administration” when she testified before a House subcommittee last year.
The result of the limited interaction, she says, is a focus on scandal and bad actors.
“The work of the charitable sector gets distorted in the process because the only thing that people are reading about is all the things that we’re doing wrong and very little about what we’re doing right,” says Ms. Aviv.
‘Too Many Delays’
Designing a new government program, however, can be difficult, cautions Paul C. Light, a professor of public service at New York University.
“You can just run through the federal organization manual and see the hundreds and hundreds of programs and agencies that were created to achieve one goal that have morphed into mind-numbing obstacles to that goal 20 or 30 years after their creation,” he says.
Mr. Light says that the Small Business Administration strikes him as an outdated, inefficient model to emulate. “It’s just not a paragon of efficiency — too many delays, too much frustration,” he says.
A better approach, says Mr. Light, might be to require departments that make grants to nonprofit organizations to provide additional money for training and assistance to help those groups improve their management and efficiency.
Another federal role, says Alan J. Abramson, a professor of public and international affairs at George Mason University, is to support new approaches to social problems that work.
“It’s nice to have the nonprofits, the social entrepreneurs out there doing the innovation, taking the risks, seeing what works and what doesn’t work, and then government can come in after the fact and pick up on those that particularly work,” says Mr. Abramson, who is also a senior fellow in the nonprofit-sector and philanthropy program at the Aspen Institute. “But it makes sense for government to put in some of the risk capital that allows these experiments to go on.”
For the funds to be successful, grant-making decisions by the local boards would need to be based strictly on merit and program results and not the connections of the organizations applying for the grants or the people serving on the boards, says Marguerite W. Kondracke, chief executive of America’s Promise Alliance, a children’s organization in Washington.
That would be a challenge, she says, given the competing interests that would seek to influence the local boards.
“But you’ve got to find a way to try to insulate them from the inevitable political pressures as much as possible,” she says.
Some critics question whether government should be picking the best new approaches to social problems.
While the federal government does a lot of things well, being entrepreneurial isn’t one of them, says William A. Schambra, director of the Bradley Center for Philanthropy and Civic Renewal at the Hudson Institute, in Washington.
Mr. Schambra says the plan for the local funds is a serious indictment of foundations’ efforts to nurture promising new groups.
“What that proposal suggests is that foundations are doing such a crappy job, the government has to step in to provide risk capital in a way that foundations are not doing,” he says. “It would do a terrible job of that. When has government ever been good at being entrepreneurial, risk-taking, and innovative?”
Leslie Lenkowsky, a professor of public affairs and philanthropic studies at the Center on Philanthropy at Indiana University, says that charity leaders who call for more government involvement in the nonprofit world are well-meaning, but he thinks that they underestimate the strings that come with government money.
“To the extent that a Social Investment Fund is picking winners, it will affect the priorities within the nonprofit sector,” he says, adding that even a program that provides fund-raising and leadership training probably wouldn’t be as “neutral” in practice as it sounds in theory.
Charities should look to foundations and fellow charities, rather than government, for support, says Mr. Lenkowsky.
Some nonprofit policy experts think the discussion about greater federal involvement in the nonprofit world points to underlying tensions in the often ill-defined relationship between government and charity.
Attempts by government over the last 30 years to curtail advocacy by nonprofit groups that receive federal money have left many charities with mixed feelings about working with government, says Gary D. Bass, executive director of OMB Watch, a government-watchdog organization in Washington.
“You get money from government to deliver services, but you want to be able to speak out freely on public-policy issues,” he says.
“On the one hand,” he says, “you want to love it. On the other hand, you’ve got this sort of disdain.”
