The Strength of Individual Donations over Federal Funding

The news articles and emails about the federal and state budget crisis’ and the effect on nonprofit funding are rampant. Many of these are a call for nonprofits to contact their legislators and fight for their service. Others advise nonprofits to plan for the coming funding cuts through various strategic initiatives.

This past week I heard Dave Ramsey interviewed and he noted that if individuals gave more freely to the social sector, it would eventually make the government irrelevant. While this statement might seem too idealistic, think for awhile what happens to your tax dollars before they actually get to a nonprofit.

While nonprofits receive federal monies directly, many—especially the smaller nonprofits receive “pass through federal money” either through the state or through the County. In some cases, the money goes from the federal government to the state, then to the County, then to the nonprofit. Each step involves administrative costs—people, paperwork, compliance issues, etc. And this is in both directions. The nonprofit applies to the County for funding, the County applies to the state, the state applies to the federal government. Even if there isn’t an application, there are contracts signed, budgets agreed to, funding changes, statistical information, federal, state, and county procedures and rules to follow.

If your nonprofit receives government money, while I am sure you are very grateful, you know of the forms and paperwork. Monthly, quarterly, and annual financial and statistical reports. Countless phone calls and letters if your financial information doesn’t agree with their financial information. One client had to submit all invoices and front and back copies of canceled checks in order to get their reimbursement. And someone at each level is reviewing all of that paperwork.

And at year end (this is where we come in)—additional audit procedures are required at additional cost to the nonprofit.

It’s just a guess—but I suppose that less than 20% of your tax dollars that are supposed to go to nonprofit purposes actually make it to the nonprofit’s bank account.

Your tax dollars get so watered down before a tiny piece actually gets to the charity (with tons of redtape, bureaucracy, & strings attached). Give directly and 100% goes to the charity.

Don’t think the individual sector has money to give? I would propose that a number of individuals have not yet experienced the joy of giving and if they were better acquainted with some nonprofits and were asked to give, they would give more.

If you can still get Federal and State funding, pursue it aggresively and secure what you can, while you can. But even more aggressively, pursue your individual donors. Form relationships, find ways to engage the community with your nonprofit, get the word out. Speak out about the benefits and blessings of giving. Federal and state budget cuts are inevitable and individual donations can and should fill the gap.