96: Unexpected Gift

"... If donors are largely unaware of fluctuations in the grants received by charities, then reductions in fund-raising becomes a sensible explanation for crowding out..."

This week, I came across a large scale research article from 2009 titled, “Is Crowding Out Due Entirely to Fundraising?”

Reflection questions:

• If your organization suddenly lost significant government funding, what unique strengths, especially through your donor relationships, could you leverage to better serve your specific community's needs?

• The nonprofit sector has faced profound shifts before.  Will you ponder with me how our current challenges could bring unexpected gifts as well?

Reflection on quotes

The last three months have highlighted a critical challenge many nonprofits face: the delicate balance between government funding and private donations. Many nonprofits have built programs around federal grants, only to see them reduced or eliminated, leaving the organization scrambling to fill the gap.  So many of my coaching sessions have centered around this issue.  One striking statistic from this 17 year look-back research is that every $1000 grant reduces giving by $727. So, I invite you to join me in reflecting on how the reversal of "crowding out effect” that federal funding has on fundraising may actually help us build more sustainable funding models for the future.

Let's be honest – the loss of federal funding creates real hardship. When grants and contracts disappear, the impact is immediate and often devastating. Programs get cut, staff positions eliminated, and communities lose vital services. I've worked with many organizations facing this exact situation, and I want to acknowledge that rebuilding fundraising capacity takes time – often multiple years – and private donations rarely replace federal dollars on a one-to-one basis.

But here's what I am pondering.  Smaller, local nonprofits have something that larger institutions often lack: nimbleness and deep community connections. When a nonprofit is no longer bound by rigid federal guidelines, the nonprofit gains the freedom to design programs that truly reflect their community's unique needs and strengths.

I've witnessed a remarkable transformation when an organization shifts from "We need to design this program to meet grant requirements" to "We need to design this program to meet our community's actual needs." This pivot often leads to more innovative, responsive, and ultimately sustainable services.  This pivot also tends to engage our donors more deeply into the mission.

This engagement could create a more diverse and loyal donor base. Unlike government funding that can disappear with budget cuts or changing priorities, community-based support tends to be more stable and adaptable over time. Our donors become true partners in our mission rather than just funding sources.

To explore fundraising coaching deeper and to schedule an exploratory session, visit ServingNonprofits.com.

Music credit: Woeisuhmebop

Transcript

Welcome back. Fundraising can be lonely with seemingly endless to-do list. This podcast isn't about best practices or trends. It's about the deeper wisdom of the beautiful space where generosity occurs, a weekly five-minute reflection to ground you for the week ahead. If you like these Reflections on Generosity, I would love to hear from you. Just click on the “What do you think?” link in the show notes.

The last three months have highlighted a critical challenge many nonprofits face: the delicate balance between government funding and private donations. Many nonprofits have built programs around federal grants, only to see them reduced or eliminated, leaving the organization scrambling to fill the gap.  So many of my coaching sessions have centered around this issue.  This week, I came across a large scale research article from 2009 titled, “Is Crowding Out Due Entirely to Fundraising?”  One striking statistic from this 17 year look-back research is that every $1000 grant reduces giving by $727. So, I invite you to join me in reflecting on how the reversal of "crowding out effect” that federal funding has on fundraising may actually help us build more sustainable funding models for the future.
Quote
When a charity receives a government grant there can be two paths that lead to lower donations to the charity. First is direct crowding out of givers. Donors who count their contributions through taxation as part of their total contribution will reduce their voluntary contributions to offset the grant. The second path is by crowding out the fundraisers. If charity managers find fund-raising a 'necessary evil,' or fear it may hurt their evaluation from charity watchdog groups, then a government grant will allow them to redirect efforts from fund-raising to providing charitable services. This means that after getting a grant, charities may simply cut back fund-raising. If donors are largely unaware of fluctuations in the grants received by charities, then reductions in fund-raising becomes a sensible explanation for crowding out.

Unquote

Let's be honest – the loss of federal funding creates real hardship. When grants and contracts disappear, the impact is immediate and often devastating. Programs get cut, staff positions eliminated, and communities lose vital services. I've worked with many organizations facing this exact situation, and I want to acknowledge that rebuilding fundraising capacity takes time – often multiple years – and private donations rarely replace federal dollars on a one-to-one basis.

But here's what I am pondering.  Smaller, local nonprofits have something that larger institutions often lack: nimbleness and deep community connections. When a nonprofit is no longer bound by rigid federal guidelines, the nonprofit gains the freedom to design programs that truly reflect their community's unique needs and strengths.

I've witnessed a remarkable transformation when an organization shifts from "We need to design this program to meet grant requirements" to "We need to design this program to meet our community's actual needs." This pivot often leads to more innovative, responsive, and ultimately sustainable services.  This pivot also tends to engage our donors more deeply into the mission.

This engagement could create a more diverse and loyal donor base. Unlike government funding that can disappear with budget cuts or changing priorities, community-based support tends to be more stable and adaptable over time. Our donors become true partners in our mission rather than just funding sources.
Let’s reflect on two questions: 

If your organization suddenly lost significant government funding, what unique strengths, especially through your donor relationships, could you leverage to better serve your specific community's needs?

The nonprofit sector has faced profound shifts before.  Will you ponder with me how our current challenges could bring unexpected gifts as well?

Share this podcast if you enjoy these five-minute reflections and subscribe to receive these reflections released every Monday. To explore fundraising coaching deeper, visit Serving Nonprofits dot com. See you next week.