How does government funding affect nonprofits' program spending? Evidence from international development organizations

AuthorJiahuan Lu,Jianzhi Zhao
Published date01 May 2019
Date01 May 2019
How does government funding affect nonprofits' program
spending? Evidence from international development
Jiahuan Lu
|Jianzhi Zhao
Rutgers UniversityNewark, Newark,
United States
Fudan University, Shanghai, China
Jianzhi Zhao, School of International Relations
and Public Affairs, Fudan University, Handan
Road 220 Yangpu, Shanghai, China 200433.
Funding information
National Science Foundation of Shanghai,
Grant/Award Number: 18692103100
Under the new governance models, the scope of government funding of nonprofit
activities in service delivery and policy implementation is extensive. There is a long
standing concern that government funding may compromise nonprofit operations
and lead to unintended consequences. This research examines the concern by explor-
ing the effect of government funding on nonprofits' spending on programs and ser-
vices. Existing theories and empirical evidence propose competing arguments
concerning the relationship between government funding and nonprofits' program
spending. Using a 20year panel dataset of international development nonprofits reg-
istered with the United States Agency for International Development, we find that
nonprofits receiving more government funding spend significantly higher proportions
of their organizational resources on development programs. Government funding
seems to increase nonprofits' program spending and to make them more focused
on their missionrelated activities.
government funding, governmentnonprofit relations, international development, program
The emergence of new governance models, such as collaborative gov-
ernance, new public governance, publicprivate partnerships, and
thirdparty government, presents new landscapes for public adminis-
tration (Ansell & Gash, 2008; Kettl, 2002; Osborne, 2010; Salamon,
1995; Savas, 2000). Public administration activities currently are no
longer carried out completely within traditional government institu-
tions but frequently extend beyond government boundaries (Kettl,
2006). Through hollowing outof the state, public services are
increasingly provided by nonprofit organizations through collaborative
networks (Brinkerhoff, 2002; Milward & Provan, 2000). Within this
broad context, there is growing government financing of nonprofit
activities in service delivery and policy implementation across a variety
of policy areas (Salamon, 1995; Smith & Lipsky, 1993). Government
agencies fund a host of nonprofits through contracts and grants,
instead of providing public services directly to meet public needs,
thereby sharing responsibilities for service delivery. As a result, for
many nonprofits, government funding represents a significant share
of their revenue. According to one recent estimate, government sup-
port (i.e., contracts and grants) constitutes onethird of total revenue
for the nonprofit sector in the United States (McKeever, 2015). A sim-
ilar share of government funding in nonprofit sector revenue can be
found in many other countries around the world (Jing & Hu, 2017;
Salamon, Sokolowski, & Haddock, 2017; Struyk, 2002).
Although government funding brings various tangible benefits to
nonprofits (Salamon, 1995), the nonprofit sector's significant reliance
on government funding arouses concern that government funding
could modify nonprofit operations and create undesired conse-
quences. Scholars have tried to delineate the complex nature of
Received: 26 June 2018 Revised: 30 October 2018 Accepted: 3 March 2019
DOI: 10.1002/pad.1849
Public Admin Dev. 2019;39:6977. © 2019 John Wiley & Sons, 69

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