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The Peril of Relying on Government Grants

by Joe Garecht

Fundraising EmergencyFor decades, some fundraising consultants (including me) have warned non-profits not to rely too heavily on government grants. This warning was based on facts, not politics.

Writing government grants takes an inordinate amount of time, and these grants involve far more legal and accounting risk than non-governmental grants. Federal, state, and local government grants are inherently political (even if non-profits pretend they aren’t), meaning that government grants are always at risk when legislatures or executives change. All grantmakers are fickle, and government grantmakers are no different: budgetary funding can grow or shrink, priorities can change, and preferred grantees can quickly lose favor.

On the federal level, these facts have been largely hidden for the past three decades because, despite party differences, most of our recent Presidents and legislative leaders have held similar views on the general types of non-profit funding they wanted government to provide (with a few notable exceptions). But this wasn’t always true at the state and local levels, where cuts to non-profit funding based on political preferences happened, but didn’t always make the 11’clock news.

Over-reliance on government grants has always been a mistake, doubly so for the thousands of non-profits that receive 50% or more of their funding from government support. As fundraising consultants, books, and classes have preached for two decades or more, non-profits need to build a robust multi-channel fundraising program, emphasizing major individual donors.

Is This Really a Surprise?

Now, the chickens have come home to roost. The current administration is taking a hard look at federal government grants, freezing significant funding while seeking to cut back on government expenditures. But should this really be a surprise? Wasn’t it inevitable that organizations that relied on government support (and government is, by necessity, political) would at some point be at risk from a political realignment? And regardless of your political leanings, wasn’t it clear to all of us that many legacy funding programs were full of bloat, paying out millions in grants with very little accountability?

No doubt that many well-meaning organizations are worried about losing government funding – but even if your government grants continue, now is the time to diversify your fundraising as much as possible. We’ve warned non-profits for years not to rely too heavily on grant funding, particularly government grant funding. If that warning fell on deaf ears, now is the time to build a new fundraising strategy that relies on less fickle support.

The Path Forward for Government-Funded Organizations

If your non-profit receives a significant amount of its funding from government grants at any level (local, state, or federal), I want to encourage you to move swiftly to diversify your funding. In order to do so, I recommend the following:

First, write a new fundraising plan. If your current strategy relies on government funding, write a plan that does not.

Second, focus on building a more significant major donor program. Put more time and resources into finding and engaging new individual major donors for your organization. This is probably the most important thing you can do. Get started now, because it takes time.

Third, look at other funding streams to round out your efforts. Most of your funding should come from individual donors. Some can come from government grants. But you should also be looking to expand your foundation grantwriting, corporate fundraising, annual fund / low-dollar donor program, and planned giving efforts.

What If Your Non-Profit Has to Rely on Government Funding?

A few small categories of non-profits have to rely on government funding. These organizations have essentially taken over a role from the government, which then funds their work. Some of these organizations actually can raise more money from other sources than they think. But some can not. What should these organizations do?

If your non-profit has taken over a role from the government and relies on funding from that government to carry out its work, you should realize that this is part of that package. Just as a government agency or department can be cut at any time, depending on who gets elected, the same is true of funding for your organization. It’s part of the deal. You must be aware of this situation if it applies to you, and have contingencies in place for either winding down operations or pivoting to different programs should the political winds change.

Loss of funding has always been a risk for government-funded non-profits, even if many organizations didn’t want to acknowledge it.

Photo Credit: Jason Leung

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