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Wednesday, June 8, 2011

Government Funding and the Potential Consequences on Nonprofit Boards? - Tori

In a recent op-ed, David Neumeyer, president of the James River Council for the Arts and Humanities, challenged a Lynchburg News and Advance editorial supporting a recent Virginia Attorney General’s Advisory Opinion that would prohibit state funding of nonprofit arts and cultural organizations. The editorial board of the paper concluded in a Manichean tone that unlike education, public safety, or transportation, the arts are simply not a core function of government. Therefore, arts and cultural organizations should rely on private contributors for support. Put simply, the market should the arbiter of which arts and cultural organizations receive support.[1] Neumeyer, however, counters that arts and cultural organizations do provide an essential government service as an economic development tool. According to Neumeyer, corporate America evaluates a region’s arts and cultural offerings when making relocation decisions. In addition, Neumeyer cites a 2009 report from the National Endowment for the Arts that found that patrons of cultural organizations are more likely to be active in civic affairs like voting. Ultimately, he implies that the editorial board has a myopic view on the role of government. If a vibrant arts community improves quality of life, government would be foolish not to support arts and cultural organizations.[2]

This rhetorical war of words over the core function of government has certainly gained prominence as the debate over the national debt has intensified in recent years. Yet, combatants on both sides of this ideological divide are seemingly overlooking another critical aspect of this issue - How does government funding influence the independence and behavior of nonprofit boards that receive government funding? In a 2002 Journal of Policy Analysis and Management article, O’ Regan and Oster study how board practices of nonprofit contractors in New York City were impacted by government funding. Among their key findings:

-While there is little evidence that government funding influences time spent per month on board activities, there is a significant impact on fundraising. O’Regan and Oster find that board members are less likely to fund raise from private donors, corporations, or fees for service.

-As government funding increases, the likelihood of private giving and the size of gifts significantly decline. According to O’Regan and Oster “board donors consider their funds less necessary to the organization in the face of government funds.” [3]

-Board members of organizations with a greater reliance on government funding stated that they believed operational or possibly financial oversight were among their top responsibilities.

-In a survey of member’s subjective assessments of their boards, members of organizations receiving more government funding were significantly more likely to describe their boards as passive. [4]

While many advocates of nonprofits will continue to pursue government funding, O’Regan and Oster offer a cautionary tale. The uncertainties of the market create unique pressures that boards must navigate carefully. However, high degrees of government funding can also impact board behaviors in ways that may not be in the best long-term interest of the organization.

[1] Editorial, The News and Advance, 29 May 2011.

[2] David Neumeyer, Terri Cornwell, and Krista Boothby, “Arts are Essential Services,” The News and Advance, 5 June 2011.

[3] Katherine O’ Regan and Sharon Oster, “Does Government Funding Alter Nonprofit Governance? Evidence from New York City Nonprofit Contractors,” Journal of Policy Analysis and Management, Vol. 21, No. 3, Summer, 2002, p. 370.

[4] Ibid. p. 374.

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