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Taking Government Funds

by Council, posted June 9th, 2009 at 1:38 pm
Ethical Quandary

By: Andrew Schulz

Andrew Schulz, Deputy Counsel, Council on Foundations

Andrew Schulz, Deputy Counsel, Council on Foundations

It is no secret that many in the charitable sector rely heavily on the government. Some depend on government grants for ongoing support. Others count on the vast pool of state and federal funds to take their innovative solutions to a scale necessary to make them truly effective. With billions of dollars in stimulus funding flowing from the government, there’s talk about the unprecedented opportunity it presents to forge powerful partnerships between the charitable and public sectors. Indeed, Rick Cohen’s recent article in the Philanthropy Journal challenges nonprofits to fight for federal funds.

But the relationship is not a one-way street. The government needs you too. You can provide much needed expertise to strengthen government programs.  You can also help the government distribute its resources more efficiently by using existing networks and helping target them to the greatest need or the best use.

Yet the decision about whether or not to pursue government funding and government partnerships is not devoid of practical and ethical considerations. Assuming your governing documents allow you to participate (most do), the accounting and audit requirements alone can be daunting. Beyond the practical issues, there are ethical considerations as well.

Mission Creep

Don’t let the allure of government money inadvertently pull you from your mission and focus.  While flexibility, creativity, and innovation in response to changing times are hallmarks of the philanthropic sector, so too is commitment to your charitable purpose. Government funds are usually targeted. Resist the temptation to go after grants or partnerships where the government’s objectives are not truly aligned with your own. Discipline here will avoid problems with your partners in the government, your donors, your grantees, and your board.

Dependency

Government funding, whether stimulus or otherwise, won’t last forever. Overreliance on federal or state funds without an exit or transition strategy could leave grantees vulnerable once the funding stream evaporates. Funders, too, are vulnerable. Once government funding ends, grantees may look to you to pick up the slack. Or, you may need to abandon the work all together. You can help avoid having to make those tough choices by taking time now to consider what other sources might replace government funds and how you might tap into them.

Letting Government off the Hook

Active participation of private philanthropy in areas that are inherently the government’s responsibility can actually undermine government support. Cash-strapped governments looking to shave budgets may abandon areas where they feel philanthropy can fill the void. By balancing your role, you can make sure that your participation strengthens and complements the government’s role rather than replace it. Without such balance, the charitable sector could be left holding the bag, funding a shadow of the myriad programs and services  government used to pay for.

Influence

Close relationships with government officials may evolve as a result of partnerships between foundations and government. Strict prohibitions on foundation participation in partisan political activity demand attentiveness to expectations and assumptions that may arise from these interactions. While government officials certainly have a multitude of rules they must abide by, it’s unlikely that they are well versed in the rules that apply to foundations. So, it’s up to you to look out for the interests of your organization. An eagerness to please a valued (and deep-pocketed) partner has led more than one foundation astray in the past and is sure to do so again. Avoid these risks by setting expectations early, making clear where you can work together and where you cannot, and keeping well clear of the line in between.

Andrew Schulz is deputy general counsel at the Council on Foundations.

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