Here’s a fact little known by the public but very well understood by everyone who works in the nonprofit sector:  Government funding can put programs and even nonprofit organizations themselves at risk.   How? 

Kathleen Enright, executive director of Grantmakers for Effective Organizations  says it quite economically in her recent email to GEO’s member foundations: 

• Government agencies almost universally under-reimburse for the services provided by nonprofit organizations. It’s the nonprofit equivalent of losing money on every person served and attempting to make it up on volume.
• Nonprofits are ill-equipped to float the costs of services until reimbursement arrives up to nine months later, exacerbating already serious cash flow challenges. At the same time, nonprofits aren’t attractive borrowers for traditional lenders because they are so undercapitalized.
• Unlike their corporate counterparts, nonprofits typically are required to return unused funds at the end of the contract period, hamstringing their ability to build a healthy reserve.
• Antiquated application and reporting processes eat into organizational capacity before the work begins

She is concerned that the potential for new government funding from the stimulus bill may further weaken already fragile nonprofits – even negatively affect the whole sector. 
While Ms. Enright speaks most specifically of the situation among human service organizations, I have seen many arts organizations also weakened by a reliance on government funding.  State or federal grant programs are at the mercy of budget cuts.  Nonprofit grant recipients too often learn – after a grant was approved and a project launched, that the funding has been cut back once, even twice over the project timeframe.  Add to this the requirement to launch and complete the program before the government releases the (now reduced) funding for it.

Private foundations are too often asked to step up and fill this gap – which hampers us from working more strategically or creatively with organizations.  Ms. Enright calls for the nonprofit sector begin an effort to re-invent the government grantmaking system so that government funding ceases to weaken the very providers it relies on to help deliver critical services to the public.
One benefit of the stimulus money allocated to the National Endowment for the Arts (American Investment and Recovery Act) is that it is intended to help arts organizations retain critical staff – not to start new or support existing projects.  And the funds are one-time and will not be cut back.  Four Cleveland arts organizations received direct grants from the NEA under the Recovery Act: Cleveland Museum of Art, SPACES Gallery, Cleveland Play House and Cleveland Public Theater. 
The Ohio Arts Council also received nearly $400,000 in AIRA funds and will distribute them to qualified organizations through a competitive review process to be held in Columbus the last week in July.  While this will surely be a help to some, it is accompanied by the sobering news that the OAC’s overall budget has been cut 47%. 
The arts in Ohio will be decidedly weakened as this cut will be passed on to our organizations in the form of reductions to already-insufficiently supported programs and operations.