How Social Service Managers Respond to Fluctuations in Government Funding

Background and Purpose: Government grants and contracts remain an essential revenue source for many social welfare agencies, despite drawbacks such as late payments, administrative burdens, and low payment rates. An expansive body of research has been conducted on how social welfare agencies respond to changes in government funding. However, this research has often overlooked that agencies with different revenue profiles (in regards to dependency and growth) may respond to exogenous pressures very differently. This research addresses that problem by identifying and comparing the strategies of organizations that have had a clear trend in their revenue profile over the past five years. Those groups are: 1) increased revenue, decreased dependence on government funding, 2) increased revenue, increased dependence, 3) decreased revenue, decreased dependence, and 4) decreased revenue, increased dependence. Through studying nonprofits with clear funding trends over time, we can better understand the processes influencing nonprofits’ strategic decisions, important information for determining the trajectory of the sector and the stability of the safety net. 

Specific research questions include: 1) Are changes in organizations’ revenue and government dependency associated with specific management strategies? 2) What, if any, strategies are tied to specific revenue/dependency profiles? 3) What strategies can be identified as promising, and for which type of organization?

Methods: In order to control for policy and funding environment, we selected one specific type of human service nonprofit in a single metropolitan area for study: children and youth serving nonprofits in Chicago. Using publically accessible Form 990, we identified 18 children and youth serving organizations that experienced more than a 10% change in both revenue and dependence on government funding over the five fiscal years between 2008 and 2012. Those organizations comprise our sample and were categorized into the four types described above. The digitally recorded and transcribed interviews were then analyzed using a grounded theory approach.

Results: Management strategy differs in important ways across the four groups. For example, agencies with increasing revenue and decreasing dependence on government funding typically invested heavily in soliciting and sustaining private donations through board members, increased investment in performance measurement, diversified private funder-driven services, and actively engaged in advocacy activities. In contrast, organizations that were increasing in both revenue and dependency often positioned themselves as the best local service provider, relying heavily on reputational strategies to attract both public and private funding. These patterns were based on managers’ complicated mental and economic calculations of dynamic regional politics, organizational reputation and autonomy, and the potential for future relationships.

Conclusions and Implications: This paper discusses the underlying strategy and suitability behind social service managers’ choices by focusing on agencies that demonstrate clear trends in total revenue and dependence on government funding. Preliminary results show that social service agencies with different funding trends used different management strategies to position themselves in a competitive environment and to allocate limited resources to their advantage. By identifying the knowledge and practice gaps in managers’ behaviors, this paper provides direction for improving social service agency management and public-private partnerships.