Does Government Funding Destroy Philanthropy?

A few days ago an email washed into my inbox from the University of Notre Dame talking about the “Science of Generosity“. I scrolled down to the first block of text and saw they were talking about trying to provide the existence of a “selfish gene”. For those of you who know me well, you can probably guess that I wrinkled my eyebrow skeptically and closed the email. However, instead of sending the email to trash, I put it aside to investigate later … and I am glad I did.

Upon further review, this academic initiative has many interesting objectives including:

  • the sources, origins and causes of generosity,
  • the manifestations and expressions of generosity, and
  • the consequences of generosity for both donors and recipients.

While I am looking forward to hearing more from these researchers, one block of text really grabbed my attention as it relates to the idea of government funding:

“Crowding out,” or decreased donations as a result of government grants is an issue dealt with by many charities. But government grants to charities don’t decrease donations because donors consider themselves to have given indirectly as taxpayers; instead, they decrease because of the reduced fundraising that follows government grants (Andreoni, “The Inherent Sociality of Giving”).

Is it possible that non-profit staff and board members “ease up” on their fundraising focus and efforts in the wake of a big government grant coming in? Is that what accounts for what I’ve witnessed in so many board rooms when volunteers point their fingers at staff during fiscal crisis and say, “If you would just go write another grant, we wouldn’t be in this situation?”

Is it possible that a non-profit organization can get addicted to government funding that their board’s “fundraising muscles” atrophy so badly that they “forget how to fundraise” or refuse to engage in the hard work of resource development?

If this is all true, then I suspect it is because government funding warps the concepts of “urgency” and “accountability” that are two of the nine keys associated with engaging volunteers in the difficult activity we call fundraising. I look forward to hearing more from the University of Notre Dame about this philanthropy principle and so many others.

What do you think about this idea of “crowding out“? Do you think it is real? Have you seen this principle in action in your board room or others? If you think it does exist, what do you think can be done to counteract it and maintain a high level of volunteer engagement in fundraising activities? Should non-profits just stop pursuing government funding and pursue more traditional charitable giving audience such as individuals and corporations? Please take 30 seconds and weigh-in with your thoughts by using the comment box below. We can all learn from each other.

Here is to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847|


  1. Wow! Thank you for the validation of what I felt and saw for several years as an executive director in a small-town non-profit organization. In the State of Missouri, our Department of Economic Development allowed 501c3s to apply for and donors to benefit from state tax credits up to 70% of their gift (i.e., for a donation of $1,000, the donor would receive $700 off their business tax liability at the end of the year!). The program was intended to help non-profit agencies start programs, but it quickly became like heroin for both the organizations (pushers – lovin’ the cash!) and the donors (users). I joked (and may be documented in board meeting minutes) about needing a 12-step program to wean our organization from said government programs, as we received 51% of our budget one year from tax credit-related contributions. It had crept its way into our special events giving, two-thirds of board members made decisions about their personal gifts based on the availability of the credits, and those few board members that were actually makin asks in the community often “sold” the tax credits rather than the mission statement. It wasn’t until a shift in power in Jefferson City which has led to an overhaul of the program, that our board took a long, hard look at what would happen if they were faced with a $140K shortfall (more than 10% of the budget).

    I firmly believe that crowding out is a HUGE issue and can be crippling to organizations. The only real resolution to it is to put into action those principles that you have shared week after week, after week. A Board of Directors must be fully aware and comfortable with its responsibility for fundraising (and sign a commitment annually). They must be courageous enough to evaluate each other and vote folks off the island when they are not caring their weight. However, as non-profit professionals, we have to be willing to see the forest beyond the trees and approach fundraising in the long-term. We can’t rest because we receive substantial government grants – and we certainly can’t become “creative grantwriters” and turn what should be programmatic funds into a a blanket to cover all operational costs! Sustainability has to start on Day One of the grant program – not the day after the money runs out. I would go even further and say that fundraising for sustainability should start before the grant application is even released!

Leave a Reply

Your email address will not be published.