Providing Public Services Without Relying Heavily on Government Funding: How Do Nonprofits Respond to Government Budget Cuts?

AuthorYuan (Daniel) Cheng,Lang (Kate) Yang
Published date01 August 2019
Date01 August 2019
DOIhttp://doi.org/10.1177/0275074018806085
Subject MatterArticles
/tmp/tmp-17JQGVq774wRTL/input

806085ARPXXX10.1177/0275074018806085The American Review of Public AdministrationCheng and Yang
research-article2018
Article
American Review of Public Administration
2019, Vol. 49(6) 675 –688
Providing Public Services Without Relying Heavily
© The Author(s) 2018
Article reuse guidelines:
on Government Funding: How Do Nonprofits
sagepub.com/journals-permissions
https://doi.org/10.1177/0275074018806085
DOI: 10.1177/0275074018806085
Respond to Government Budget Cuts?
journals.sagepub.com/home/arp
Yuan (Daniel) Cheng1 and Lang (Kate) Yang2
Abstract
Existing studies of government–nonprofit relationships have largely treated government funding as a revenue stream of
nonprofit organizations. However, there is limited empirical research on how nonprofits respond to government spending
changes in a public service subsector where they provide public services without relying heavily on government funding. In
such public service subsectors, government spending cuts, thus, represent a reduction in governmental service provision
rather than a revenue shock to nonprofits in the sector. Utilizing a unique panel data set of park-supporting nonprofits in
large U.S. cities, this study examines how these nonprofits adjust financial management strategies in response to incremental
and dramatic changes in the overall government spending on parks and recreation services in a city. The findings suggest
that nonprofits increase fund-raising efforts and diversify revenue portfolios in response to incremental changes in the
government spending environment. Facing a dramatic government budget cut on parks and recreation, nonprofits are more
likely to reduce administrative expenses and spend more on programs to fill in the gap of service needs. Borrowing and using
reserves seem not to be strategies nonprofits pursue in such circumstances.
Keywords
government–nonprofit relationships, nonprofit financial management, government budget cuts, parks and recreation services
Introduction
tells us how the receipt of government funding influences
nonprofits’ governance structure, financial vulnerability,
Over the last 20 years, there is a surge of academic interest in
independence, and mission attainment (Gazley & Brudney,
the role of nonprofits in public service provision and the rela-
2007; Guo, 2007; Marwell & Calabrese, 2014). However,
tionships between governments and nonprofits (Boris &
government–nonprofit relationships often illustrate different
Steuerle, 2017; Gazley & Guo, 2015; Smith & Grønbjerg,
patterns when funding sources for public service provision
2006; Smith & Lipsky, 1993). Sector-based investigation
vary across subsectors (Cheng, 2018b). What remains
treats governments and nonprofits as two separate sectors in
unclear is how individual nonprofits with less reliance on
a mixed economy (Young, 2000), and answers questions
government funding respond to changes in the total govern-
such as how the size of the government sector influences the
ment spending on a public service subsector.
size and density of the nonprofit sector (Grønbjerg &
This new angle of understanding is especially important
Paarlberg, 2001; Lecy & Van Slyke, 2013; Salamon, 2002)
when government spending cuts not only reduce funding for
and why nonprofits are in place to provide certain kinds of
nonprofits but also create unmet community needs for non-
collective goods (Steinberg, 2006; Weisbrod, 1975). profit service providers to fulfill (O’Connell, 1996; Young,
Specifically, the market niche model suggests that govern-
2000). Governments may at times suffer from fiscal stress
ment failure and market failure create the demand and space
and look for nongovernmental revenue sources and service
for the nonprofit sector to step in and fill the gap (Weisbrod,
providers (Gazley, Cheng, & LaFontant, 2015; Nelson &
1975). However, empirical evidence lacks on what strategies
Gazley, 2014; Paarlberg & Gen, 2009; Schatteman & Bingle,
individual nonprofits take to fill the gap, when facing a rise
of unmet service needs created by government failure.
Existing organizational-level investigation does not answer
1University of Minnesota, Minneapolis, USA
this question directly. This is partly due to its focus on human
2The George Washington University, Washington, DC, USA
services nonprofits where government spending reduction
Corresponding Author:
inevitably means decreased financial resources to the non-
Yuan (Daniel) Cheng, Humphrey School of Public Affairs, University of
profits as they rely heavily on governmental grants and con-
Minnesota, 301 19th Ave S, Minneapolis, MN 55455, USA.
tracts. Therefore, current organizational-level investigation
Email: cheng838@umn.edu

676
American Review of Public Administration 49(6)
2015; Yandle, Noonan, & Gazley, 2016). In the meantime,
development, and parks and recreation. Due to factors such
nonprofits operate under increased financial pressure and a
as market cyclical pressure, industrial structure changes,
high expectation of accountability and improved performance
demographic shifts, and increasing pension costs, real local
(Salamon, 2015; Smith, 2010). The tension between resources
government general revenue rose by only US$3 per US$1,000
and expectations challenges nonprofits in performing their
of personal income from 1977 to 2004 (Chapman, 2008).
desirable social functions in the community, especially in
Facing fiscal imbalances, local governments often respond
policy subsectors such as parks, education, and art where
by cutting budgets and reducing expenditures (Buettner &
direct government funding to nonprofits is limited, and they
Wildasin, 2006; Yang, 2017).
are expected to raise private capital to fund public services.
Public finance literature found that local budget compo-
Brecher and Wise (2008) raised the concern of “the inequali-
nents are differentially prone to expenditure cuts during
ties in the availability and quality of services” (p. 146) as non-
times of fiscal stress: functions unrelated to day-to-day ser-
profits supplement the resources and responsibilities of public
vices and “non-essential,” which often include parks and rec-
agencies. Facing such challenges, it is imperative for scholars
reation, are more likely to suffer. Surveys of municipal
and policy makers to understand how the overall government
personnel directors in West and Davis (1988) showed that
spending environment affects nonprofit partners and how
parks and recreation was the most targeted program for
nonprofits make strategic financial management decisions to
expenditure reduction. Jordan (2003) found that develop-
cope with a tightening government spending environment
mental functions targeted at long-term community develop-
and unmet demand for public services.
ment, including parks and recreation, were more likely to be
Informed by literature on the strategic response of non-
interrupted by local policy agenda shifts and nonincremental
profit organizations to uncertainties, this study identifies sev-
changes in government expenditure. Among the largest 38
eral financial management strategies nonprofits may take
U.S. cities, government spending on parks and recreation
facing government budget cuts in a public service subsector.
experienced nonincremental changes of 20.8% of the time,
Each of these strategies is examined in the context of more
and budget cuts were also more likely than increases. More
than 200 city park-supporting nonprofits in large U.S. cities.
recent research provides corroborating findings. For exam-
Besides providing an organizational-level investigation of
ple, Skidmore and Scorsone (2011) found that stronger bud-
the well-known sectoral relationship between governments
getary responses to the Great Recession occurred in parks
and nonprofits, this study contributes to the literature on gov-
and recreation than other local government functions. Local
ernment–nonprofit relationships and nonprofit finance on
public park and recreation facilities throughout the nation
empirical grounds. First, this study extends the inquiry of
share commonalities but could differ in their specific designs
nonprofit organizations’ response to funding uncertainties to
(The Trust for Public Land, 2018). For example, playgrounds
a new context where nonprofits play important roles in sup-
are the most popular kind of facilities in city parks, whereas
porting and providing public services without receiving sig-
facilities that are more costly to build and operate (swim-
nificant government support for public service delivery.
ming pools and golf courses) are less common. Some cities,
Furthermore, the parks and recreation subsector experiences
such as Newark, NY, have parklands completely created,
ample changes in the government spending environment
constructed, and managed for human use, whereas others
because it is often first in line to be cut during times of gov-
have opened natural areas to the public.
ernment fiscal stress (Skidmore & Scorsone, 2011).
Second, by differentiating between incremental and dra-
The Emergence of Park-Supporting Nonprofits
matic government spending changes, this study captures
both the linear and nonlinear impact of government spending
Facing a turbulent budgeting environment, city parks and
cuts on nonprofit financial management strategies. Nonprofits
recreation departments may attempt to find alternative fund-
...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT