Most non-profits have become an extension of local, regional, state and Federal government.

I have been donating to a local homeless shelter but discovered the majority of their funding actually comes from government contracts and grants. Less than 10% comes from individual donations. Yet they bombard us with frequent emails, texts and postal mailing soliciting more donations. Since we are already funding them – as taxpayers – should we also be giving to them directly when it doesn’t even make up much of their funding? Yet the fundraisers imply our small donations are essential. But are they?

Many non-profits/non-governmental organizations are misleading – a significant or even most of their money comes the government and they have become an extension of the government. They engage in community fundraising as a way to present themselves as being part of the local community. When the reality is that many are basically a outsourced government contractor.

This post was created mostly with AI assistance and edited by me.

How many nonprofits rely on government money?

According to the 2024 National Survey of Nonprofit Trends and Impacts, summarized in the Urban Institute’s 2025 report:

• 2 out of 3 nonprofits received at least one government grant or contract in 2023.
• The average nonprofit gets 25% of its revenue from government sources.
• More than one‑third of nonprofits get over 25% of their revenue from government.
• About 20% (one in five) get more than half of their revenue from government.
• Of human-services nonprofits that receive government funding, up to 40% report they get more than half of their funding from the government (based on 2022 IRS Form 990 filings).
• Individual donations to non-profits vary from 10-30% of revenue. Hospital/health foundations, universities, and some large human services non-profits receive 10-20% from individual donations. The former receives most of their non-profit revenue from fees for service, or tuition.

At the end of each year, many of us receive multiple requests to donate to various charities. However, among some of these charities and non-profits, individual contributions may make up little of their funding, regardless of how they have worded their plea to donate.

Individual donations – and requests for donations – help the organization appear more closely tied to the local community. Individual donations, unlike government grants, are typically “unrestricted” funds.

For some organizations, individual donations may seem a little like double dipping – they get our tax money and our donations.

How big is the government–nonprofit financial relationship?

The National Council of Nonprofits states:

• The nonprofit sector earns about one‑third of its total revenue by providing services under government agreements.

This aligns with the Urban Institute’s findings and confirms that government funding is a core revenue stream, not an exception.

Why does this happen?

The search results highlight a structural interdependence:

• Governments rely on nonprofits to deliver services “that would be more costly if provided by others”.
• Nonprofits rely on government funding to sustain those services.
• Federal funding freezes or cuts immediately threaten thousands of nonprofits, revealing how dependent they are on public dollars.

This is not accidental — it’s the result of decades of policy choices that outsourced social services to nonprofits.

Is this dependence a problem?

The Philanthropy Roundtable report argues that it can be:

• Growing reliance on government funding “threatens nonprofit independence” and risks turning nonprofits into “bureaucratic arms of the state”.

This is a long‑standing concern in civil‑society research: When nonprofits depend heavily on government money, their mission, advocacy, and independence can be compromised.

How extensive is the issue? A synthesis

What this means in practice

1. Most nonprofits are financially intertwined with government.
   Two‑thirds receive government money.
2. A significant minority are heavily dependent.
   One in five gets more than half its revenue from government.
3. Government outsourcing has reshaped the nonprofit sector.
   Many nonprofits now function as service‑delivery arms for federal, state, and local programs.
4. Nonprofit independence is increasingly fragile.
   Funding freezes or policy shifts can destabilize entire subsectors.
5. This dependence varies by field.
   Human services, housing, health, and education nonprofits rely most heavily on government.
   Arts, culture, and advocacy nonprofits rely least.

When nonprofits depend heavily on government funding, incentives shift

Government grants and contracts often become a core revenue stream, not a supplement. When that happens, nonprofits naturally develop incentives to:

• maintain existing programs
• advocate for continued or expanded funding
• demonstrate demand for their services
• frame social problems as persistent or worsening

This doesn’t require bad intentions. It’s simply how institutional incentives work.

When a nonprofit’s survival depends on government dollars, it becomes harder to imagine — or advocate for — solutions that would reduce the need for those dollars.

Individual donations are often a minor part of their financial structure.

Volunteers and affiliates often become informal advocates

Volunteers, staff, and clients often:

• share stories about the importance of the nonprofit’s work
• advocate for funding renewals
• participate in awareness campaigns
• contact legislators during budget cycles

This isn’t always coordinated lobbying — often it’s organic. People who believe in the mission want the organization to survive. But the effect is similar: a constituency forms around the continuation of government-funded programs.

Many nonprofits are, functionally

• government contractors
• service providers
• quasi‑public agencies
  …even though they present themselves as:
• community charities
• donation‑driven organizations
• volunteer‑powered missions
  

The nonprofit sector grows continuously

This is one of the most striking long-term trends:

• The number of nonprofits has grown for decades.
• Government contracting has expanded alongside that growth.
• Many nonprofits become permanent fixtures rather than temporary problem-solvers.

This is sometimes called “mission creep” or “organizational survival logic.”

Once an organization exists, it tends to:

• expand its scope
• add new programs
• seek more funding
• justify its ongoing relevance

Even if the original problem doesn’t shrink.

Why do many social problems show little improvement?

There are several structural reasons:

A. Nonprofits are often tasked with managing problems, not solving them

Government contracts frequently fund:

• services
• mitigation
• crisis response

…not solutions.

B. Funding cycles reward activity, not outcomes

Grants often measure:

• number of clients served
• number of programs delivered
• number of workshops held

…rather than long-term change.

C. Solving a problem can eliminate the need for the organization

This creates a subtle but powerful incentive to treat symptoms rather than eliminate root causes.

Again, this isn’t about bad actors — it’s about institutional design.

Does government funding lead to lobbying for more government programs?

In practice, yes — but often indirectly.

Direct lobbying

Some nonprofits do engage in formal lobbying (within legal limits).

Indirect advocacy

More common is:

• public awareness campaigns
• messaging about the severity of social problems
• mobilizing supporters to contact legislators
• publishing reports highlighting unmet needs

These activities shape public opinion and political priorities.

Structural effect

The result is a feedback loop:

1. Government funds nonprofits
2. Nonprofits highlight the need for more services
3. Public and political pressure grows
4. Government expands funding
5. Nonprofits grow
6. The cycle repeats

This is why the sector expands even when outcomes don’t dramatically improve.

This is a systemic pattern, not an anomaly

• Government outsourcing creates nonprofit dependence
• Nonprofit dependence creates advocacy for program continuation
• Program continuation creates sector growth
• Sector growth does not necessarily produce problem resolution

This is not about individual organizations behaving badly — it’s about the structure of the system.