The federal government directly funds some nonprofit organizations with grants and contracts to provide goods and services on its behalf. Nonprofits often are appealing financial partners for the federal government because they have greater flexibility and expertise to respond to evolving social needs, as well as more direct access to those who need services.1
There is little data available to determine how much of the federal spending in these areas is a subsidy. In the absence of this information, Subsidyscope provides data on all direct expenditures to nonprofits through grants and contracts as a way to illustrate the total amount of government spending in this sector. This total figure is the most money the subsidy could be for these programs. In most cases, however, the subsidy is only a small portion of the full grant or contract. In many cases, especially for contracts, there may be no subsidy at all. For the purposes of this research, the amount of money included in subsidy program spending is higher than the actual subsidy amount for the specified grants and contracts. This issue is discussed in more detail below.
Additionally, there are problems with the quality of federal spending data on direct expenditures, especially omissions.2 According to the Government Accountability Office (GAO), this leads to an incomplete and unreliable picture of the extent to which federal funds reach the nonprofit sector.3 Even with incomplete data, however, spending through grants and contracts on nonprofits is clearly significant, according to GAO.4 Subsidyscope presents data on federal spending to nonprofits, although it is likely to be an underestimate of total spending on this sector. However, it provides perspective about the size of the potential subsidies that may exist, as well as a starting point from which to analyze the federal government’s funding of the nonprofit sector through direct expenditures.
Source: Subsidyscope analysis of data from USAspending.gov.
Based on available federal data for fiscal year 2008, the federal government gave grants totaling $38 billion directly to nonprofits, 8 percent of all government grants (see Chart 1 above).5 During the same period, direct contracts to nonprofits totaled $18 billion, 3 percent of all government contracts. Of those contracts, nearly $10 billion, over half, were not competed.6 Such non-competed contracts are more likely to have a subsidy component than contracts that undergo full and open competition.
Although subsidies may be delivered through government grants, many government grants to nonprofits, such as funding community violence prevention activities, would not be considered a subsidy using Subsidyscope’s definition because the federal benefit does not support an economic enterprise.7 Even if a grant does provide a subsidy, government estimates of the subsidy are often not calculated or made available. Given these limitations, we present all federal spending on grants that can be found, as it is the upper bound of what might potentially be a subsidy to nonprofits for these programs. However, as previously mentioned, many programs are missing from federal data bases, or may not be accurately reported as having gone to a nonprofit, and are therefore not counted. Further, Subsidyscope does not include payments made through the Medicare or Medicaid programs that indirectly benefit nonprofit health care providers.8 Subsidyscope will present more detail on these two programs when we examine the health care sector.
Click here to explore Subsidyscope's grants database.
In addition to grants, the government contracts with nonprofits to provide services for the government, either on behalf of the government or for the government directly. Under a contract, a subsidy generally occurs when the government pays more than fair market value for a good or service—a situation that is relatively unusual. While it may not always be clear that a contract does not include a subsidy, it is sometimes clear that a contract does include a subsidy component. For example, federal procurement rules explicitly favor certain types of businesses, such as those that are minority-owned, and certain types of goods, such as recycled paper. But, in many cases it is difficult to determine when a subsidy is included as the fair market value may be a matter of opinion.
Subsidyscope does not attempt to determine which contracts have a subsidy component or measure what that component may be. We do presume, however, that competed contracts—contracts that are subject to an open bidding process—generally do not have a subsidy component, even though the bidding process may include certain preferences. Thus, we concentrate on those contracts that are non-competed and make this information available to the public. This does not mean non-competed contracts contain a significant subsidy, only that it is more likely to be the case. Click here to explore Subsidyscope's contracts database.
Source: Subsidyscope analysis of data from USAspending.gov.
In addition to examining federal spending data on USAspending.gov—which includes the Federal Assistance Awards Data System and the Federal Procurement Data System—government support for the nonprofit sector can be examined through Internal Revenue Service (IRS) filings. This information adds further context for understanding the sector’s financial relationship with the government. Most nonprofit organizations submit financial data to the IRS every year, including how much money they received from government sources. However, since this government funding includes all government sources, there is no easy way to determine what amount of money came from federal versus state and local governments. Even if a distinction could be made, some federal money is funneled to nonprofits indirectly through state and local governments and there is no simple way to determine how much of the state and local support may ultimately be coming from a federal source.
Nonetheless, the IRS data provide useful information regarding the scope of the sector and the impact of funding from government sources. A survey by the Urban Institute of IRS filings found that federal, state and local governments provided $323 billion to nonprofits in 2005—nearly a third of all nonprofit revenue. Seventy percent of the revenue was spent on health care services. For nonprofits providing non-health related services, government funding accounted for 9 percent of all revenue.9 This estimate of government funding going to nonprofits is significantly higher than the estimate of federal funding from USAspending.gov. This discrepancy is, in part, because it includes state and local grants and contracts, as mentioned above, but the difference is further evidence that the USAspending.gov database may be missing significant information—an issue that Subsidyscope has previously written about and will continue to examine.10
Subsidyscope’s estimate of federal spending on grants to nonprofits includes an adjustment made to prevent a potentially large underestimation of grants going to nonprofits due to a constraint in USAspending.gov records. When reporting grant data, USAspending.gov requires agencies to select either “nonprofit” or “higher education” as recipient types. It does not allow both categories to be selected for the same grant. This choice presents a problem because many colleges and universities are also nonprofits. According to GAO, 95 percent of recipients labeled “higher education” in USAspending.gov are also nonprofits, but USAspending.gov records do not reflect this dual categorization.11 To address this problem, Subsidyscope combines these categories in its analysis of the nonprofit sector, acknowledging that a small number of for-profit recipients will be included as a result—a method also used by GAO. The estimates are significantly affected by the treatment of this category. For instance, Subsidyscope estimates that in 2008 organizations labeled “higher education” accounted for 46 percent of all federal grants within the nonprofit sector, meaning that a significant portion of contracts within the sector would be missing if the “higher education” label were not included.12
