The Importance of Performance Assessment in Local Government Decisions to Fund Health and Human Services Nonprofit Organizations

Article excerpt

INTRODUCTION

American governments at all levels have a long history of cooperative relationships with nonprofit organizations. At the same time, the number of nonprofits continues to increase. Between 1989 and 1994, although the population as a whole grew at an annual rate of 1.1 percent, the total number of charitable and religious organizations grew by 6.3 percent annually (De Vita, 1997). Between 1996 and 2006, the number of nonprofits increased further by an additional 36.2 percent to almost 1.5 million organizations (NCCS, 2007). In 2008, organizations in the area of health and human services represented 31.5 percent of all registered nonprofits (NCCS, 2009). As governments increasingly rely on nonprofits to provide services through fee-for-service contracts and continue to support their activity through direct budget appropriations, government-nonprofit relations have important implications for the study of public policy and administration.

Funding is one of the primary aspects of government-nonprofit relations. Government grants and fees-for-services comprised 29.4% of nonprofit revenues in 2005 (Blackwood, Wing, and Pollak, 2008). A survey of 800 nonprofits found that 61 percent experienced cuts in government funding in 2008 ((Bridgeland, McNaught, Reed, and Dunkelman, 2009). This is particularly troubling for human services nonprofits because of their reliance on government as a primary source of revenue.

Additionally, according to Thomas H. Pollak (2009) of The Urban Institute, the endowments of major foundations shrank nearly 30 percent between 2007 and 2008 resulting in lower levels of grant funding to nonprofit programs at a time when private donations are expected to decline significantly and state and local governments are experiencing budget crises brought about by the economic downturn. While their revenue streams are constricting, nonprofits, particularly those in the area of health and human services, are experiencing an increase in demand. Therefore, these nonprofits increasingly find themselves in need of government support at a time when cities and counties are facing difficult choices as to whether to continue funding nonprofits and if so, at what level. To make these difficult choices, local government managers are becoming more interested in utilizing assessment tools to evaluate nonprofit performance.

In times of fiscal crisis as demand for health and human services increases while revenues shrink, funders focus more intently on identifying the most successful organizations in which to invest scarce resources. A successful nonprofit is a subjective determination, so in order to begin to assess return on investment pertaining to nonprofits it is important to first identify what local government managers expect in terms of optimal nonprofit performance. Once identified, the strategies employed to measure the extent to which the attributes are present in local nonprofits must be examined. This research assists local government managers in making nonprofit funding decisions by focusing on two primary questions: 1) what is a successful nonprofit organization and 2) what type(s) of performance assessment tools are the most useful.

The research explores the use of performance evaluation by local governments as they make decisions to fund nonprofits by surveying local government members of the nonprofit Alliance for Innovation. The findings regarding nonprofit performance assessment provide valuable insight for understanding how local governments and nonprofits interact.

LITERATURE REVIEW

Government--Nonprofit Relationships

Federal, state, and local governments have long worked with nonprofit organizations to provide goods and services to American citizens (Young, 1999). When the federal government began to provide substantial sums for the provision of social services in the 1960s, nonprofits were often stipulated to be the service providers. …