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When the "Mighty" Fall, a Learning Opportunity Emerges

The recent closing of Chicago's legendary Hull House is a wake-up call to nonprofits that we can no longer expect long-term funding sources—government or otherwise—to simply continue on. As government funding is being slashed all around us, we must be prepared to adapt to survive. Professor Shena Ashley of the Maxwell School at Syracuse University offers some straight talk on the need for revenue diversification... or risking the consequences.

The recent closing of the Jane Addams Hull House Association is a harbinger of the much-anticipated changes to come for government-dependent human service organizations. Retrenchment of the government-funded safety net due to constrained fiscal realities at all levels of government is expected to transform the scope and scale of government funding for the sector.

To date, the nature and consequences of this transformation remain ambiguous. Nevertheless, when venerable institutions with powerful legacies and influential leaders like Hull House cease operations— due in large part to transformative forces in the government funding market—we can gain insights that make the murky horizon of change more clear. The challenge for nonprofit leaders in these uncertain times is to resist reactionary behavior rooted in fear, and to gain wisdom from the insights that surface from institutional decline.

The incremental cutbacks seen today in government funding may soon be replaced by more drastic cuts sooner than expected.

One insight gained from the Hull House case is that revenue diversification may not be appropriate in contexts where the scale of government funding in organizations is so large that it cannot realistically be replaced by other funding sources. This insight is particularly relevant to organizations that grew extraordinarily large because of government funding. Although 60% of organizations with government grants and contracts count government funding as their major source of funding (Urban Institute, 2010), it is likely that those with large-scale government support will find less success in diversification than others.

Another insight from this case is the signal that the incremental cutbacks seen today in government funding may soon be replaced by more drastic cuts sooner than expected. This finding challenges the current coping strategies so widely used today: such as modifying staff and related costs, increasing fees, and adjusting payables. What's called for, and urgently, is contingency planning to face tough choices about serving fewer people, cutting programs, strategic restructuring, or evolving into a different portfolio of activities. As the extent and distribution of government funding changes, nonprofit leaders have the responsibility and now more information from which to learn, adapt, and act.

Citation: The Urban Institute (2010). Findings from the 2010 National Survey of Nonprofit Contracting and Grants. www.urban.org.

Shena R. Ashley is an Assistant Professor in the Department of Public Administration in the Maxwell School of Citizenship and Public Affairs and a Kauffman Professor of Entrepreneurship and Innovation at Syracuse University. Her research is focused in the areas of grant making effectiveness, community change and nonprofit finances. 

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