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

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.