Net impact of government funding on nonprofit fiscal health: burden or benefit?

This study examines the impact of federal grant awards on the financial health of recipient nonprofits. Although a modest body of research finds that government grants are beneficial to nonprofit fiscal health, a large Urban Institute study (2010, 2013, 2015) found that nonprofit managers receiving government grants consistently report fiscal harm due to awards that do not cover all program costs, late payments, and significant administrative burden. Those findings raise the question of whether government funding leads to net benefits or net harm for organizations given the administrative and fiscal burdens identified. This study tests that question using a large panel of federal grants to estimate the impact of government awards on three measures of nonprofit financial health. We find that government grants promote an increase in nonprofit size, improve operating margins, and increase financial reserves for recipient organizations. These benefits endure after the receipt of the award.