Which Nonprofit Gets More Government Funding?

• Author: Jiahuan Lu
• Date: 01 March 2015
• Published date: 01 March 2015
• DOI: http://doi.org/10.1002/nml.21124

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N M  L, vol. 25, no. 3, Spring 2015 © 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/nml.21124

Journal sponsored by the Jack, Joseph and Morton Mandel School of Applied Social Sciences, Case Western Reserve University.

Correspondence to: Jiahuan Lu, Department of Political Science and Public Administration, Mississippi State University,

192 Bowen Hall, Mississippi State, MS 39762. E-mail: jl2509@msstate.edu.

Which Nonprofi t Gets More

Government Funding?

NONPROFITS’ ORGANIZATIONAL ATTRIBUTES AND THEIR

RECEIPTS OF GOVERNMENT FUNDING

Jiahuan Lu

Mississippi State University

Government represents one of the most important funding sources for nonprofit

organizations. However, the literature has not yet provided a systematic understanding

of nonprofits’ organizational factors that are associated with their receipts of government

funding. This study combines interorganizational relationships and organizational

institutionalism literature to examine the determinants of nonprofits’ obtainment of gov-

ernment funding. Based on a survey of human service nonprofits in Maryland, this research

finds that nonprofits with higher bureaucratic orientation, stronger domain consensus with

government, and longer government funding history are more likely to receive government

contracts and grants. Nonprofits’ revenue diversification, professionalization, and board

co-optation might have very limited impacts.

Keywords: government–nonprofit relationships, interorganizational relationships,

organizational institutionalism

FOR MOST NONPROFIT ORGANIZATIONS, GOVERNMENT is by far one of the most

important funding sources (Blackwood, Roeger, and Pettijohn 2012).  is funding relation-

ship between government and nonprofi ts is even more signifi cant for human service non-

profi ts under “third-party government” (Salamon 1987) or “contracting regime” (Smith and

Lipsky 1993).  e increasing role of nonprofi ts in providing human services on behalf of

diff erent levels of governments in recent decades has been widely acknowledged (for example,

Gazley and Brudney 2007; Lu 2013; Salamon 1987; Smith and Lipsky 1993; Young 2000).

We have good reasons to believe this reciprocal dependence in the landscape of social service

delivery will keep growing in the coming decades.  e increasing social heterogeneity calls

for more nonprofi t participation as an alternative in service delivery, satisfying citizens’ ser-

vice needs that are not met by government provision (Weisbrod 1997).  e persistent fi scal

diffi culties of state and local governments, primarily driven by the rising costs of entitlement

and other social programs, would also force governments to rely more on nongovernmental

actors to achieve policy goals.

 e author is indebted to Dr. Duncan Neuhauser and anonymous reviewers for comments on earlier drafts of this article.

Nonprofi t Management & Leadership DOI: 10.1002/nml

298 LU

However, this increasing reliance on nonprofi ts might be disturbed by nonprofi ts’ limited

capacities: they do not have commensurate resources to respond to these expectations.  is

obstacle is termed as “philanthropic insuffi ciency,” a demonstration of voluntary failure (Sala-

mon 1987). It implies that nonprofi ts must fi nd eff ective ways to maintain their fi scal health

and increase revenues. Because most nonprofi ts rely on government funding to some extent,

a pressing challenge is how to secure government funding. Research on this question has

advanced considerably in recent years (for example, Garrow 2011; Stone, Hager, and Griffi n

2001; Suárez 2011), but the literature has not been suffi cient to provide a systematic under-

standing of the determinants.

This article seeks to add to this body of research by exploring nonprofits’ organizational

factors that are associated with their receipts of government funding.  is study fi nds that

nonprofi ts with higher bureaucratic orientation, stronger domain consensus with govern-

ment, and longer government funding history are more likely to receive government con-

tracts and grants. The impacts of nonprofits’ revenue diversification, professionalization,

and board co-optation might be very limited.  e article begins with a discussion of the

theoretical framework and research hypotheses, relying on interorganizational relationships

and organizational institutionalism literature. After that, I describe the research design and

present the results. I conclude the article with practical implications for nonprofi t leaders, as

well as the limitation of this research.

Theoretical Framework

Parsons (1960) and Thompson (1967) suggest three analytical levels of organizational

behaviors: technical, managerial, and institutional. On the bottom, the technical level

focuses on the technical tasks necessary for achieving organizational objectives. At the

managerial level, organizations aim to mediate between various components inside and

outside the organizations that are key to performing technical tasks. Finally, the institu-

tional level focuses on the social system where an organization receives its legitimation to

support its goal.  is classical framework, despite years, is still illuminating and widely

used in management studies (for example, Lune 2010; Lynn 2001; Ruef and Scott 1998).

In this study, because of the interorganizational nature of nonprofit–government rela-

tionships, I hold an open-system logic and base the analysis on both the managerial and

institutional levels. Particularly, how do nonprofi ts cope with the challenges derived from

external environment, and how do these responses affect their receipts of government

funding? Generally, dynamics in organizational environment stem from both task environ-

ment (managerial level) and institutional environment (institutional level). Accordingly, I

adopt two theoretical lenses: interorganizational relationships and organizational institu-

tionalism.

Interorganizational Relationships

Organizations are motivated to develop interorganizational relationships (IORs) with other

organizations in order to buff er themselves from the uncertainties in their task environment

and establish a stable fl ow of resources (Galaskiewicz 1985; Pfeff er and Salancik 1978).

IORs emerge through formal and informal processes by which organizations negotiate their

relationships and commit to achieving joint outcomes (Ring and Van de Ven 1994).  is

implies two research paradigms in IORs studies: the structural perspective (considering a