Nonprofits for Hire: The Welfare State in the Age of Contracting

Nonprofits for Hire

Nonprofits for Hire The Welfare State in the Age of Contracting

Steven Rathgeb Smith Michael Lipsky

HARVARD UNIVERSITY PRESS

Cambridge, Massachusetts London, England

Copyright © 1993 by the President and Fellows of Harvard College All rights reserved Printed in the United States of America Third printing, 1998 Library of Congress Cataloging-in-Publication Data Smith, Steven Rathgeb, 1951Nonprofits for hire: the welfare state in the age of contracting / Steven Rathgeb Smith and Michael Lipsky. p. em. Includes index. ISBN 0-674-62638-9 (cloth) ISBN 0-674-62639-7 (pbk.) 1. Social service-United States--Contracting out. I. Lipsky, Michael. II. Title. HV95.S585 1993 361.6--dc20 92-26625 CIP

For Penny and to the memory ofJulius and Helen Robinson McClain

Preface

Two generations ago the world of social services consisted of independent privately funded charities and a few government agencies providing direct services through large, impersonal institutions. Today, social service provision takes place through the unwinding of complex relations between legislative appropriations, government contracting, and implementation of public policies by means of nonprofit organizations dependent on public funds. This reconfiguration of social service provision is the subject of our book. We show how the service sector and its nonprofit providers have been traIlsformed under the subtle pressures of the contracting regime. We explain how contracting has contributed to the expansion of the service state and facilitated greater fairness and higher standards in some service areas. Nonprofit providers have changed as well, in their sources of revenue, governance, qualifications of service personnel, and the nature of clients and services. We also explore the dilemmas of managers who must now hustle for contracts, compete with other agencies for scarce resources, and bend their priorities to meet the new demands of their government counterparts. We conclude by showing how the nonprofit sector is beginning to mobilize to counter governmental dominance of the public agency/ private agency relationship, and challenging the strengths and weaknesses of claims that the expansion of contracting has led to greater privatization. In a final chapter we assess the implications of contracting for the welfare state in terms of issues of citizenship, the mobilization of political symbols, and the implications for community. In writing this book we have been guided in part by the hope that people whose work goes into the making of social policy will recognize in the problems we describe issues they face on a daily basis. What do trends in the welfare state have to do with ordinary people? We believe that the experiences and behaviors of the people who

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Preface

work in nonprofit organizations and other parts of the service system, taken together, add up to-in a sense, become-the nation's social policy. We also hope that people engaged in the nonprofit sector may discover answers to the inconsistencies they confront in their work, such as: why do governments say they want our services, but do not pay us enough to do the job effectively? Why do we fight with sister agencies when we basically stand for the same thing? Why have we drifted so far from the purposes to which we were dedicated when we started? Why, despite our best efforts, have we become so dependent on government funds? This book is written in deep appreciation of the men and women whose work consists of serving others through nonprofit agencies, usually for little recognition, either as volunteers or for only modest compensation. Separately, we are privileged to have worked with such people in aid of emotionally disturbed adolescents, developmentally disabled individuals, court-involved teenagers, and young people in need of responsive services. If this book offers any insight into the operations and dilemmas of nonprofit service providers, it is significantly due to instruction we have received over the years from fellow board members and staff of Beaverbrook STEP, Inc., Justice Resources Inc. ORI), and Roxbury Youthworks-Massachusetts agencies we have been privileged to serve. Faculty members of the Massachusetts Institute of Technology to whom we are indebted for guidance and critical response to our work include Suzanne Berger, Walter Dean Burnham, Josh Cohen, Ellen Immergut, Gary Marx, Martin Rein, Harvey Sapolsky, J. Mark David Schuster, Brian Smith, Charles Stewart III, and Rick Valelly. We are particularly grateful to Martha Wagner Weinberg, who brought us together, and Deborah A. Stone, coauthor of an early article (with Smith) on contracting, who have given us good counsel since this collaboration began. Many colleagues and other scholars have been very helpful at different stages in providing reactions to our work. For their thoughtful comments we are grateful to: Barbara Andersen, Charles T. Clotfelter, James W. Davis, Jr., Harold W. Demone, Jr., Arthur C. DeMauro, Cliff Falby, Randy Garten, Robert E. Goodin, Jean C. Greisheimer, Peter Dobkin Hall, Joel Handler, Helen Ingram, Ira C.

Preface

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Katznelson, Joseph Klesner, Ralph M. Kramer, Marc Landy, Laurence E. Lynn, Jr., Reid C. Leifset, Margaret Levi, Jack Meyer, John Morris, Robert Morris, F. Ellen Nettig, Paul E. Peterson, Michael Sosin, Clarence Stone, Melissa Middleton Stone, Richard Sussman, and Edward C. Weaver. We cannot do justice here to the many individuals who have shared information and opinions with us as we conducted research for this book. However, we would be remiss if we did not mention, for their contributions to our understanding of nonprofit organizations, social services, and the welfare state, Richard Hill, HubertJones, Marie A. Matava, Peter Nessen, Helen O'Malley, Jeff Seifert, Marc Thibodeau, Pat Troy, Luis Velez, and Susan Wayne. Steven Smith has accumulated many debts to colleagues while a member of the faculties of Washington University in St. Louis and Duke University. For valued advice and encouragement, he is grateful to David Cronin, David Gillespie, Shanti K Khinduka, Martha N. Ozawa, and Michael Sherraden in St. Louis, and in North Carolina, to Bill Ascher, Bob Behn, Charles T. Clotfelter, Phil Cook, Joel L. Fleishman, Bruce Kuniholm, Helen Ladd, and Duncan Yaggy. For financial support over the years we are indebted to the Ford Foundation, the Donner Foundation (for related work by Lipsky on food banks), the Urban Research Program of the Australian National University (Lipsky), and the Center for the Study of Philanthropy and Voluntarism at the Terry Sanford Institute of Public Policy at Duke University (Smith). The views expressed in the book are ours alone and do not reflect those of any of these institutions. Some of the material in this book has been published, in preliminary versions, in Political Science Quarterly, Social Service Review, the Journal ofHealth Politics, Policy and Law, Child Welfare, and as an article by Smith and Deborah A. Stone in Rernaking the Welfare State, ed. by Michael K Brown (Philadelphia: Temple University Press, 1988).

Contents

Part I: The Turn to Nonprofits 1. Contracting for Services in the Welfare State The Scope of Nonprofit Service Organizations 5 Issues for the Welfare State 11

2. Nonprofit Organizations and Community Nonprofits as Manifestations of Community

3

20 22

Community and the Theory of Nonprofit Organizations Toward a Political Explanation of Nonprofit Organizations 31 Three Types of Nonprofit Service Agencies 37

26

Part II: The Contracting Regime Introduction to Part II

43

46 3. The Political Economy of Nonprofit Revenues Historical Background 47 Impact at the Service Delivery Level 57 The Reagan Era and a Changing Federal Role 62 4. Guardians of Community and Issues of Governance Boards ofDirectors 73 Executive Directors 79 Boards, Executives, and Community 88 5. Service Providers for the Welfare State 98 Professionalization 100 Deprofessionalization and Government Funding 108 Volunteers and Organizational Capacity 111 The New Street-Level Bureaucrats 115

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6. Services and Clients under Contracting

120

Imperatives of Public and Nonprofit Service Organizations 121 Significance ofDifferences between Government and 127 Nonprofits Changes in Practices under Contracting

131

7. Dilemmas of Management in Nonprofit Organizations 147 Understanding the Nonprofit Organization Cash Flow 151 The Dance of Contract Renewal 157 The Question of·Coal Succession 163

148

Part III: Implications for the Welfare State 171 8. The New Politics of the Contracting Regime Individual Agencies in the Political Process 173 The Rise of Associations of Nonprofit Providers 177 The Corporatist Politics of the Contracting Regime 179 The Nonprofit Sector under Attack 182 9. Privatization in Human Services: A Critique lWty Does Government Contract with Nonprofit Agencies? 191 Performance Assessment 199 The Irony of Privatization through Contracting

188

203

10. Government, Nonprofit Agencies, and the Welfare State 206 Issues of Citizenship 207 Contracting as Symbolic Politics 211 Toward a Balanced Approach to Communal Provision Tables Notes Index

233 245 285

215

The task of public agencies is not to achieve a problem-free society and to do so with technical efficiency. Our problems are not simple enough, our consensus not strong enough, and our understanding not grand enough to warrant such an approach to the ills of society. At the same time, our interdependence is so great, our sense of common destiny so fragile, and our hold on the intangible qualities of social life so weak that we can hardly afford to enthrone the market and run the risk of loosening even further the bonds of community. There surely must be an alternative approach. -Clarence Stone, ''Whither the Welfare State? Professionalization, Bureaucracy and the Market Alternative," Ethics 93 (April 1983): 595.

Part I THE TURN TO

N ONPROFITS

1 - Contracting for Services in the Welfare State

Nonprofit service organizations play critical roles in the lives of citizens today. Present in virtually every community, they reflect the d.iversity of American life. They appear as social clubs, foundations, federated charities, church service organizations such as the Salvation Army, and child welfare agencies. From pre-natal clinics to home health care for the frail elderly, they provide services cradle-to-grave. As new social problems are recognized, new agencies are created to meet the need. Agencies for runaway youth, shelters for battered women and the homeless, food banks, hospices for AIDS patientsto name the agencies is to chart the development of the social welfare agenda of the past few decades. In addition to their service functions, nonprofit organizations play political roles as well. As far back as the 1830s, Alexis de Tocqueville, the pent oaring analyst of American society, recognized the powerful contrib lns of voluntary associations to the country's political and intellectual life. 1 Voluntary associations still enable citizens to express their collective interests and solve community problems. Today, in addition, they playa new political role in representing the welfare state to its citizens, providing a buffer between state policy and service delivery. The attraction of voluntary associations to citizens remains undiminished by the dominance of public programs in providing for the bulk of people's needs. Indeed, the inherent difficulties of operating a welfare state that inevitably falls short of expectations and generates conflicts in administration may make the voluntary sector look particularly good by comparison. Nonprofit organizations, moreover, appear to have a legitimacy based on their altruistic origins and an organizational vitality free from the coercion of government laws. So it was that George Bush in the 1988 presidential campaign-and

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THE TURN TO NONPROFITS

later during his first months in office--called upon voluntary organizations ("a thousand points of light") to playa critical role in solving the country's social problems. This phrase invokes a pretty picture-of stars twinkling in the sky, small and independent of one another, coming from nowhere, going nowhere, each illuminating the firmament ever so slightly. But in the late twentieth century this is a deceptive image. Equally deceptive is the concept of the voluntary agency fueled entirely by a neighborhelping-neighbor altruism, because it masks the increasing dependence of nonprofit service organizations on government funding. Rather than relying mostly on private charity and volunteers, most nonprofit service organizations depend on government support for over half of their revenues: for many, government support comprises their entire budget. In contrast to the traditional image of government and nonprofits as two independent sectors, the new relationship amounts to one of mutual dependence. Mutual dependence blurs the lines between public and private. The agencies now often depend on government financing. A 1988 survey of the Child Welfare League of America concluded that government support accounted for, on average, 59 percent of its member agency revenues. 2 A 1991 survey of over 350 nonprofit social service agencies in Massachusetts found that 52 percent of agency income was from state contracts, and an additional 17 percent from nonstate-contract government funding such as Medicaid. 3 A 1991 survey of 276 nonprofit social service, educational, and cultural agencies in the Raleigh-Durham-Chapel Hill, North Carolina, region found that 45 percent of total funding was from government, if hospitals and universities were excluded. Fully one-quarter of all nonprofits in the region received over one-half of their revenue from government. 4 A 1989 survey of nonprofits in the New York metropolitan region found that government funding contributed almost half of total revenue. 5 On the other side of the coin, government relies on nonprofits to provide social services. In fiscal year 1989, 14 Massachusetts state agencies spent over $800 million, about 8.5 percent of the state budget, to purchase from over 1,150 contractors such services as alcoholism rehabilitation, family crisis intervention, instruction in English-as-a-second language, and daycare. Overall, the state recognizes over 200 distinct types of social services in its purchase-of-

Contracting for Services

5

service system. 6 In New York City, several municipal agencies do not deliver direct services at all but wholly depend on purchase-of-service agreements with nonprofit agencies. These include the Youth Bureau, the Department of Employment, the Community Development Agency, the Department of Mental Health, Mental Retardation, and Alcoholism Services, and the Agency for Child Development (daycare and Head Start). The total amount of money disbursed in contracts in fiscal year 1985 was over one billion dollars. 7 The mutual dependence of government and nonprofit organizations raises significant questions for the welfare state. If the state no longer directly delivers services but authorizes private parties to conduct its business, where shall we locate the boundaries of the state? Massive contracting for services should also have significant implications for the limits of government and the autonomy of nongovernmental community affairs. For, unlike the starry image President Bush put before the public, more dependence on nonprofit organizations means not less but more government involvement in the affairs of voluntary and community agencies. This involvement is likely to continue and even increase. Ongoing fiscal constraints will continue to attract policymakers to the contracting option. At the same time, new social policy initiatives are likely to attract planners to the contracting approach, as they recently have done in the areas of child abuse prevention, daycare, employment and training, alternatives to prison, and other social service innovations. Government and nonprofit agencies have been cooperating to produce services for a long time, but the relationship is in flux, primarily because the norm of looking to nonprofits to provide human services, and the substantial dependence of government on the sector, are relatively new. 8 Appreciation of these trends emerges from a review of the size and scope of contracting for services with nonprofit organizations at present, and of the relationship between government and nonprofits over time.

The Scope of Nonprofit Service Organizations The significance of the mutual dependence of government and nonprofit organizations depends upon recognizing the substantial role played by the nonprofit sector in service delivery. It is relatively

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THE TURN TO NONPROFITS

easy to note the extensive reach of nonprofit organizations on an impressionistic level, for evidence of the existence of nonprofit agencies, from alcoholism rehabilitation to zoological societies, is all around us. It is harder to establish precisely the aggregate scope of contracting with nonprofit service organizations. One problem is that one cannot equate the scope of nonprofit agencies' activities and those activities for which government purchases services. If government purchases a certain proportion of an agency's services, is its influence limited to that proportion, or is it more useful to think of government's influence as extending to the agency's whole workload? This question arises particularly when agencies have multiple sources of income. For example, a drugrehabilitation center which contracts with government for half its "beds" is, in one sense, only half under contract with government. Yet it must fully (not half) comply with governmental contractual requirements in service delivery. A second difficulty is that many available statistics apply to the entire nonprofit sector, which includes museums, hospitals, and even universities. We can be confident that the service sector fully shared in the fourfold growth in the amount of gross national product originating in the nonprofit sector from 1960 to 1975 ($10 billion to $45.4 billion). But we cannot say precisely what portion of this economic activity went to human service organizations. Given the relative poverty of service organizations compared to other nonprofit institutions, the sector probably gained a smaller proportion of the increase in total assets, which rose from $975 billion to $2.74 trillion over this period. 9 Nonetheless, some statistics are available that do give an indication of the startling transformation of social service delivery in the last 30 years. For example, government purchase of service contracting with nonprofit service agencies in Massachusetts rose from $25 million in 1971 to $850 million in 1988. 10 A good measure of the economic and social significance of an activity is the number of people employed in it. Overall figures from some cities and states indicate the impressive scope of the nonprofit service sector. In Massachusetts, private social service agencies receiving government funds employed over 66,000 people in 1991. 11 This is estimated to be a far greater number than were employed in state human service agencies. 12 In New York City, employment in

Contracting for Services

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nonprofit human service agencies increased 106 percent between 1975 and 1985, fueled largely by increases in government funding. I3 A 1986 study of the nonprofit sector in St. Louis indicated that there were over 2,500 nonprofit service organizations in the metropolitan area. Eighty-five thousand people, or seven percent of the local work force, were employed in these agencies. I4 A 1985 nationwide survey of 316 community action agencies (which are funded primarily by government) revealed that the total annual payroll of these agencies was over $365 million. The total number of agency employees was 45,058, an average of 123 per agency.I5 Most of these community action agencies did not exist prior to 1965. And, as an indication of the predominant role of nonprofit agencies in social services, 87 percent of all employment (an estimated 143,000 persons) in the social services field in New York State worked in nonprofit agencies in 1987. 16 Nonprofit service organizations playa vital role in the life of local communities and neighborhoods that transcends simple economic interest. The time and money people freely give to service organizations may be thought of as a cost to the donors, but it is also a benefit in providing an outlet for altruistic impulses. The survey of St. Louis area residents revealed that almost half of the region's 900,000 adults volunteered at least once during the year in area organizations. I7 Nationwide, in 1987 an estimated 80 million Americans volunteered 14.8 billion hours in various voluntary organizations. IS The array of services is extensive-from hospitals to homeless shelters to rape crisis centers. Family Service America, an association representing 290 family service agencies nationwide, estimates that in numbers volunteers almost equal employees. Ten thousand individuals volunteered in their agencies during 1988, only slightly less than the 11,000 professionals they employed. I9 The federal Department of Health and Human Services estimates that over 615,000 people volunteered in Head Start programs during 1988, a program operated primarily by nonprofit service agencies. 2o In some service organizations such as emergency food programs, shelters for battered women, and rape crisis centers, volunteers provide the bulk of the actual service to individuals and their families. Often these volunteers give money to these nonprofit organizations as well. Many large nonprofit service organizations also use volunteers in an auxiliary or supplemental capacity in critical areas of

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THE TURN TO NONPROFITS

organizational operations such as fundraising, public relations, and community outreach. Volunteers are also of critical importance to the governance of nonprofit organizations through their participation on boards of directors. Cyril O. Houle, an authority on nonprofit boards, estimated that 1,252,732 boards exist nationwide. Typically, nonprofit service organizations have between 10 and 40 board members. These figures would extrapolate to a minimum of 12 million individuals volunteering as board members across the country (discounted for multiple board memberships for some people), a great many of whom serve as board members of nonprofit service organizations. 21 Donations of money to nonprofit organizations are substantial and represent a key indicator of the relationship between nonprofits and citizens. In 1987, an estimated $89 billion was donated to nonprofit agencies nationwide, with $11.3 billion going to nonprofit social and legal services. 22 In 1985, in the greater St. Louis area, $628 million was donated, including $519 million by individuals. This sum is the equivalent of $261 for every man, woman, and child. 23 In 1985, 353 community action agencies received over $103 million in donated, in-kind contributions. Cash contributions totaled almost $14 million. 24 In 1981, 13 percent (or approximately $11.3 billion) of philanthropic donations were given to health and social welfare institutions. 25 Among large nonprofit service agencies, it is not uncommon for agencies to receive over a million dollars of contributions every year. The New England Home for Little Wanderers, a longstanding child and family service agency based in Boston, raised $1.13 million in individual and corporate contributions and $1.42 million in bequests and gifts in fiscal year 1988. 26 Yet government funding still plays a large role in the budgets of nonprofit service organizations receiving sizable charitable contributions. The New England Home received $5.1 million (or 63 percent of its operating revenues) from government for services in 1988. 27 A 1988 United Way of America survey revealed that mental health agencies affiliated with local United Way chapters received 64 percent of their income from government; the dependence on government of drug and substance abuse agencies was almost as great (62 percent) .28 Even sectarian service organizations receive substantial amounts of government funding. Catholic Charities U.S.A estimates

Contracting for Services

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that 44 percent of affiliate agency revenues in fiscal year 1988 were from government. 29 These examples underscore that voluntary action through donations of time and money is significantly intermingled with government funds and dependent upon government policy for its ultimate efficacy and impact. Nonprofit service organizations of course also serve millions of people. At every stage of the life cycle needy or dependent people turn to programs of nonprofit service agencies sponsored by government contracts. Head Start programs served an estimated 452,314 children in fiscal year 1989, an increase of almost 80,000 children from fiscal year 1980. Since the founding of Head Start in 1965, over 10 million children have been served. 3o There were 16,000 children in foster care in New York City in 1985. Family Service America estimates that its member agencies served more than 3.2 million people in 1988. 31 Again in New York, the Department of Aging served 25,257 meals a day in 1985 through nonprofit agencies funded by government. 32 Two noteworthy developments enrich our current understanding of the government-nonprofit relationship. First, government contracting with nonprofits has expanded to meet a wider variety of needs. For example, prior to the 1960s, public mental health programs were provided almost exclusively through large public institutions. By 1985, a dramatic shift had occurred. State mental health agencies owned or funded 21,948 separate facilities and programs. Private, predominantly nonprofit agencies funded by government represented 20,909 of this total figure. 33 Also, government contracting of nonprofit agencies rose sharply in services previously limited to a relatively small number of agencies dependent on private funds, including daycare, homeless shelters, child protection, counseling, home health, legal aid, family planning, respite care, and community living. Second, the character of the relationship has changed. Historically, government purchased services from charitable organizations and attached few strings beyond those common to many other service purchasers. Today governments contract for whole programs, and even create providers where they otherwise do not exist. There is more contracting today than ever before, and the terms of contracting are more demanding. If in the past government went to the private sector for limited services, today its purchasing power is such

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THE TURN TO NONPROFITS

that it is often in a position to shape the sorts of services offered by private providers. The nature of the funding process and the special nature of contracting organizations create special conditions of vulnerability for nonprofit agencies. First, when governments recognized such emergent social problems in the last 10 years as homelessness,34 hunger,35 and AIDS36 they dealt with them by funding nonprofits. The emergency nature of these issues has made organizations dedicated to working on these social problems dependent on government as one of the few "places" where large sources of support are available. Second, the "blockiness" of contracts makes the potential loss of contract funds particularly hard to take. If an agency experiences a ten percent decline in income from the United Way or private contributions (or for that matter if a contract is funded at last year's level while costs are increasing by ten percent), the agency can adjust incrementally to the shortfall. But the loss of an entire contract may throw the same agency for a loop. Not only will it lose a program segment, but valuable staff may be lost, and portions of contract overhead that paid part of the rent, bookkeeping, and the director's salary will no longer be available. The fact that agencies do not normally expect to lose contracts only slightly reduces their sense of vulnerability over the possibility of contract loss. The federal cutbacks of the Reagan years caused some agencies to shift from being primarily federal to being largely state contractors. Typical is the Franklin Community Action Corporation (FCAC), based in Greenfield, Massachusetts, which spent $2.5 million in 1981, largely from federal sources. Expenditures rose to $3.5 million in 1982, but dropped to $2.7 million in 1984 as the federal cuts were passed through to the agency. (The entire budget is funded from public sources.) But expenditures later rose to $5.1 million in 1988, as the agency obtained state contracts for services. While it might appear that agencies were simply shifting from one governmental payor to another, the move to state and local contracts is more portentous than that. This is because federal grants of the 1970s were often made for demonstration projects with few strings attached, and for programs the agencies championed. In contrast, state contracts are usually negotiated for very specific programs that allow nonprofit agencies little leeway. Third, the sharp expansion of nonprofit service organizations in

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the last 25 years has led to keen competItIon between nonprofit agencies for foundation grants and individual charitable contributions. Consequently, individual agencies find it very difficult to raise major amounts of private charitable contributions. As a result, many nonprofit service organizations, particularly organizations without established ties to United Way chapters and foundations, find that they have little alternative but to pursue additional government funds, either through new contract awards or through renegotiating their existing contracts for a higher rate.

Issues for the Welfare State American social policy is in the midst of a dramatic restructuring of the way public social services are provided. Although government funding of nonprofit service organizations dates to the colonial period, only in the last 25 years did this government-nonprofit strategy emerge as a widespread and favored tool of public service delivery. But entrusting the most vulnerable citizens and the most delicate service tasks to private agencies is not simply a matter of choice between "making" or "buying" services. This might be the case when one considers cOlltracting for pencils, computer services, or strategic weapons. But when it comes to purchasing the care and control of drug addicts, the safety and nurturing of children, the relief of hunger and the regulation of family life (through child protective activities) from private agencies, other values than efficiency are at stake. We contend that the impact of this transformation on the future of the American welfare state has not received adequate attention.

State Power to Private Providers One critical issue is the legitimacy of giving over state power to private providers. Government control and manipulation of vulnerable populations proceeds properly only when sanctioned by deliberate democratic processes and safeguards. Contracting gives away responsibility for important authoritative decisions about vulnerable people. Program monitoring and auditing are often rudimentary and inadequate for assuring program compliance and maintenance of standards. The policy system interposes courts as institutions that

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THE TURN TO NONPROFITS

alone can make the most important decisions-to deprive people of liberty, or take children from their homes. But in a thousand ways service workers act at the margin to make fateful decisions about people; or their reports constitute the primary evidence on which judges rely. Most of the time, in the end, it is the professional commitments of dedicated human services workers that protect society from the likelihood of severe problems of accountability due to contracting. But it is still crucial to examine closely the implications of the transfer of state powers to private agents. When children die in foster care, are public officials equally accountable if the social workers in charge are government employees or private providers under contract? How has the society transferred the police and rescue functions of the state to private agents? To put it more positively, how can the state secure the interests of citizens in being very careful with police pO\\Ters, while pursuing its utilization of private agencies for public purposes?

The Health of the Voluntary Sector A second critical issue is the health and well-being of the voluntary sector. When public funds play so vital a role in private agency budgets, it is disingenuous to think that the nonprofit sector would not be in danger of losing its separate identity. Does it matter whether the private sector maintains unique qualities and configurations? The answer is yes, for the following reasons. (1) Nonprofit organizations represent different values from those held by government. They are free to take action without giving thought to the needs of the entire society or being under constraints of taxpayer preferences. They need not standardize their products. They can do things government cannot do. They can elicit voluntary contributions and inspire citizen action in ways that are very difficult for government to emulate. Indeed, if government does seek to inspire citizen action, it tends to call upon the rhetoric of voluntarism, as in the experience of the Peace Corps and VISTA (the domestic Peace Corps). We should inquire whether the interpenetration of government and nonprofit agencies limits the capacity of society to respond effectively to a variety of social problems by restricting the autonomy of private agencies, even if their capacity for action is enhanced by increases in resources from contracting.

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(2) Nonprofit organizations are now highly dependent on government; consequently, economic downturns at the state or federal levels may result in cutbacks and the subsequent demise of nonprofit agencies as they fail to replace large parts of their program profiles. During the Great Depression many nonprofits experienced severe difficulties because of the loss of income and increased demand. 37 We should inquire whether the increased dependence of nonprofits on contracting poses similar concerns. (3) Democratic governance requires that government adequately hold accountable all agencies that implement public policy, whether they are government bureaus, businesses, or nonprofit contractors. Some analysts are particularly critical of social services contracting because contracts have proliferated without corresponding public mechanisms to hold contractors accountable. 38 We should seek to develop guidelines for program monitoring that protect nonprofit agencies from excessive governmental intrusion, while securing the legitimate needs of government to insure that programs are carried out. (4) Nonprofit agencies have taken over functions previously undertaken directly by public workers, and have assumed program responsibilities in new areas where government workers have never performed. The staffs of nonprofit agencies are the new "street-level bureaucrats": that is, workers who exercise discretion while interacting with citizens in the course of their jobs, whose decisions in assessing, prescribing, and in some case treating citizens' needs are highly consequential, and who act under the cloak of public authority.39 They "deliver" public policy to citizens, and their private coping behaviors, invented to make often impossible jobs manageable, may be said to "add up" to be, in effect, whatever policy is actually put into the field. The implications are even richer, however, than the assumption that the workers in nonprofit agencies effectively make policy. It also follows that workers in the private sector now represent public policy to the people. The policy regarding shelters is represented to the homeless through shelter monitors, counselors, and outreach workers. Child protection policies of the state are represented to distraught parents by workers in private agencies. These are the people who take the heat of client abuse, experience most directly the agony of not being able to serve their clients adequately, and deny client

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THE TURN TO NONPROFITS

claims when they have to. They also socialize clients to have expectations appropriate to the level of resources, and teach them the role of client, implicitly with the dual purpose of helping clients be effective in securing benefits while smoothing out relationships between clients and agencies. In short, private workers now play roles of social control with respect to public rights and claims of citizenship. There is more. These are private workers who are representing the state to citizens, but under the sponsorship of nonprofit agencies whose connections to government and to the average citizen may be very tenuous. At best, citizens would have a difficult time knowing when a matter was agency policy, and when it was government policy. Thus workers in nonprofit agencies buffer public policy to citizens and obscure the realities of public policies, because policies are mediated by nonprofit agencies.

Visions of the Polity At the heart of any difference of opinion over the desirability of growth of contracting are conflicting visions of proper and effective social provision. One view harks back to Tocqueville and the selfsufficiency of the frontier community. Social welfare needs are achieved through voluntary action, and voluntary action in turn generates the civic life that creates the community. In Voluntary Action, a book written in 1949, Lord Beveridge argued that through voluntary action "human society may become a friendly society-an Mfiliated Order of branches, some large and many small, each with its own life in freedom, each linked to all the rest by common purpose and by bonds to serve that purpose."40 Donations of time as well as money connect citizens with one another and build a community of individuals apart from the bureaucratic state. An alternative vision of the welfare state sees the development of public services and large-scale income redistribution through the tax system as the hallmark of a society where everyone is considered to be a social equal and deserving of collective efforts. The British sociologist T. H. Marshall noted that public social services, in their ideal version, represent "the entire citizen body organized in a great mutual aid society. All contribute, and all are entitled to receive benefits. There is no longer any distinction between the privileged

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and the unprivileged."41 Such a society has no need for voluntary action. In this vein, Gifford Pinchot, founder of the U.S. Forest Service, social reformer, and Governor of Pennsylvania, commented in 1932 that "the time is not far off, apparently, when private charity, though essential at times and in places, will be almost obsolete ... Surely that is natural and normal in a nation dedicated, as a nation, to the life, liberty, and happiness for all of its people."42 To Pinchot, Marshall, and many other scholars and policymakers of the mid-twentieth century, the ability of everyone fully to participate in society necessarily entailed "the socialization of the distribution" of social welfare, to borrow a phrase from Michael Walzer. 43 To these writers, private charity was inconsistent, unreliable, and parochial; thus, the state needed to assume the responsibility for the distribution of services through a state bureaucracy of professional workers who would distribute social welfare services as an entitlement rather than a gift. Through this socialization of distribution every person could be a full citizen both of his or her local community and the national community, because each citizen would be entitled to an array of basic services. In Western E'urope and Canada this socialization of distribution meant the extension of state provision and the frequent takeover of nonprofit service agencies by the state. In some cases governments preserved the existing network of primarily sectarian nonprofit service agencies, but replaced private charity with government funds. This arrangement is characteristic of the Netherlands and Germany. These governments take advantage of the capacity of nonprofit agencies to provide decentralized services through local community organizations; they then fund these agencies at a level sufficient for them to offer services on the universal basis characteristic of state bureaucracies. The shift to state funding and provision was regarded by many scholars and policymakers as the highest form of welfare state development. Alva Myrdal wrote in the 1930s: Social reform policies may be conceived of as passing through three stages: a paternalistic conservative era, when curing the worst ills is enough; a liberal era, when safeguarding against inequalities through pooling the risks is enough; and a social democratic era, when preventing the ills is attempted. The first was the period of curative social policy through private charity and public poor relief;

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THE TURN TO NONPROFITS

the second was the period of social insurance broad in scope but yet merely symptomatic; and the third may be called the period of protective and cooperative social policy.44 The United States, with its prominent role for nonprofit agencies and means-tested and targeted public programs, was considered to be regressive. Harold L. Wilensky and Charles N. Lebeaux in their landmark 1965 book on social policy, Industrial Society and Social Welfare, observed that America was a "reluctant welfare state." To them, the welfare state represented "government-protected minimum standards of income, nutrition, health, housing, and education for every citizen, assured to him as a political rights, not as charity."45 America was a reluctant welfare state because it had done much less than other industrialized countries in developing government-protected minimum standards. Until the 1960s, America had relied heavily upon a decentralized system of social protection that emphasized state and local responsibility and voluntarism to address social problems. The federal government's role, except during times of crisis or in selected circumstances such as veteran's pensions, remained limited. The roots of this laggard status lay in cultural values, religious and ethnic diversity, and political decentralization. The writers contended, however, that industrialization would gradually overcome these impediments and lead to a convergence of the United States and other industrialized countries. 46 In short, the welfare states of Europe were regarded as the configurations toward which America would eventually move. As one observer stated, "In the early 1960s, it would have been very difficult to find any long-term forecast not based on the assumption that the growth of the welfare state was just as long lasting-and for that matter just as desirable-a process as economic growth itself. "47 Full citizenship depended on the continued growth of the welfare state. But even as these pronouncements and assessments of the welfare state were being issued, dissatisfactions developed in the United States and abroad. In the 1960s and 1970s, profound disappointment characterized the evaluations of the welfare state and government service delivery. State bureaucracies often denied "citizenship" to recipients of welfare state services by demeaning service and regulations, not responding to community and client concerns, and mak-

Contracting for Services

17

ing clients dependent on state professional services. 48 The growth of government funding of nonprofit agencies throughout advanced industrial countries in the last 30 years is a reaction against the problems of state services. In theory, government funding of nonprofit agencies is a mechanism for marrying two visions of the welfare state: promoting community interests, citizen participation in service delivery, and fellowship through voluntary action, while guaranteeing a minimum level of service regardless of income and social status. Indeed, this rationale served as a justification for the sharp rise in contracted services in the U.S. in the 1960s and 1970s. Community mental health centers, nearly all of which were (and are) nonprofit organizations, were designed in part to bring mental health care, long the province of the very sick and the rich, within the reach of every American. 49 In 1967, when Congress acted to promote contracting for services with nonprofit agencies, it did so in the belief that this was one way to make services widely available, regardless of income. Many programs--daycare, for example-would be delivered by nonprofits because"of their perceived flexibility, lower costs, and community focus. They would have graduated payment schedules to promote accessibility.5o After the subsequent growth of publicly subsidized purchased services, social policy analyst Neil Gilbert contended that America was moving towards a European model for its welfare state because social services were being offered on a more universal basis.51 In the 1980s the Reagan administration precipitated a broad retreat from the idea of universal social services. Instead of a developing union of the universalism of the public sector with the community base and vitality of the nonprofit sector, the two realms of social provision were placed in conflict with one another. The first budget cuts of the Reagan administration were partiallyjustified by the belief that the private sector would compensate for redtlced social spending. President Bush continued this policy with his appeal to a "thousand points of light." The sectors were also placed in conflict when government cutbacks set nonprofits competing against one another to try to maintain payment levels, and as the nonprofits tried to rally as a political force against the undertow of cutback funding. Government funding of nonprofit organizations draws support from across the political spectrum. Liberals join conservatives in backing this public-private collaboration because it is seen as a more

18

THE TURN TO NONPROFITS

effective and humane service strategy than reliance on public sector services alone. Until the reforms of the 1970s and 1980s, state hospitals and state custodial schools were repressive, isolated, and ineffective in service delivery. By contrast, community-based, nonprofit alternatives were small, staffed with committed individuals, and usually integrated into various aspects of community life. To conservatives, government contracting is part of the broad appeal of privatization that promises smaller government and more reliance on private initiative. To liberals, government contracting with nonprofit agencies can be a way to expand the boundaries of the welfare state, especially in areas where the responsibility for addressing social problems was previously borne by the affected individuals and their families. Good examples in this category are daycare, spouse abuse, respite care for families of the elderly and developmentally disabled, and assistance for victims of crime. In these cases, government funding of nonprofit agencies socializes the risk associated with these problems but maintains community delivery mechanisms. Since these social problems are sensitive and sometimes controversial issues that require intervention in the family and individual life, the use of nonprofit organizations is seen as consistent with protecting the privacy and freedom of families and individuals from government interference. Although there may be some consensus on the benefits of contracting for some services, the overall place of contracting in the political economy remains a source of substantial disagreement and confusion. Sociologist Nathan Glazer, for example, argues that the United States has become overly dependent on government for addressing community and individual problems; in his view nonprofit organizations are the key to reinvigorating community and individual responsibility, which will in turn produce salutary results for the American economy.52 Likewise, Peter L. Berger and Richard John Neuhaus argue that voluntary associations are important because they allow "empowerment through pluralism."53 Consequently, they tend to be very suspicious of government intrusion into the nonprofit sphere. By contrast, Robert Reich believes that the reliance of the United States on the "ideology of charity" has produced inadequate, fragmented social programs because citizens in need of relief are not regarded as entitled to social benefits. To Reich, the existing system

Contracting for Services

19

of voluntary and public relief hurts America's ability to compete in world markets, as workers are unlikely to be secure in their jobs because social protection is insufficient. 54 Where government funding of nonprofit agencies fits into a comprehensive view of the modern welfare state remains to be articulated. Reich and other scholars discuss charity and nonprofit agencies as if such organizations relied primarily on private contributions. Glazer refers to government funding of nonprofit agencies as if it were an aberration rather t.han a widely accepted and growing form of service delivery. Those who advocate a larger role for charity (or simply a smaller welfare state) are unprepared to present a blueprint for reduced entitlements. Whatever the perspective, these welfare state critics and supporters appear to neglect the.interpenetration of government and the voluntary sector. 55 Given the extensiveness of government funding of nonprofit agencies, the social, political, and organizational effects of this service strategy are extraordinarily important to the current debate on the future of the American welfare state.

2 - Nonprofit Organizations and Community

Every advanced industrial society has its particular signature, determined by how that nation balances government, community, and market responsibilities. In some countries radio and television outlets are owned by the government, in others the communications industry is privately owned. Some governments run the airlines and railroads, some do not. l Where private ownership prevails, countries also differ in the degree of influence the public sector has over private affairs through regulations, subsidies, and infrastructural development. Citizens of the industrialized countries receive income and social services not only from government but from the business and community sectors as well. In different measures, for example, elderly people may receive income support from private pensions, governmental supplements, or family and nonprofit institutions. 2 In the area of social services, alcoholics may receive counseling through their employers or public agencies, or from chapters of Alcoholics Anonymous, a self-financing voluntary association, or their church. It is the recognition of the important contributions of government, market, and community institutions to citizen well-being that leads many analysts to call attention to the declining relevance of the term ''welfare state," and to suggest alternatives such as "the mixed economy of welfare,"3 the "social division of welfare,"4 or "the welfare economy."5 In every country the particular mix of government, market, and community responsibility can and does change over time. Over the last several decades, social policy in the United States has evolved in ways that favor increased public responsibility in some areas (for example, educating handicapped children, preventing physical abuse and neglect among household members, and providing addi-

Nonprofit Organizations and Community

21

tional land for recreation). At the same time, the country has been reducing the degree of public responsibility for providing or regulating services in other areas, for example, in family planning counseling. Each sector emphasizes different values and operates according to different norms. Public welfare programs are characterized by inclusionary policies such as social security, food stamps, or social services, based upon formula to insure fairness. Because these are government policies, their extent will be determined ultimately by a legislative process, and they will be enforced by law-in the raising of revenues and in their distribution. Welfare provided by the market is usually restricted to employees and their dependents. If not mandated by law, the size of the benefits is determined by the role of benefits in recruiting and retaining workers. Welfare provision by business-say, pensions-is also likely to be more innovative and possibly cheaper than government provision because businesses are better able to search out new approaches and shop for least expensive alternatives. Welfare provision by community organizations may be particularistic in coverage (private organizations need not serve all who ask), but it also can be flexible and responsive to a degree not compatible with norms of governmental fairness or business evenhandedness. Whatever the sponsorship of welfare provision, programs may not seem very different to recipients. Money is money, after all. And with respect to services there is likely to be convergence of therapies and treatment practices regardless of sponsorship. Nonetheless, as this incomplete sketch of the differences between welfare provision in the three sectors should suggest, more than efficiency in provision is involved in program sponsorship. It is consequential whether governmental norms, market practices, or community associations govern social welfare provision in the broadest sense. It is also consequential if the balance in sectoral provision changes. If society sought to depend more on markets and less on government for health insurance, it would likely be seeking greater variety of options and possibilities of cost reductions through competition. But it would probably be trading off reduced standardization of coverage and greater reliance on employment status as a factor in the distribution of health coverage. This book analyzes the explosion in governmental contracting for

22

THE TURN TO NONPROFITS

services with nonprofit organizations, documented in the first chapter, and its impact on the character of the welfare state and American society. Our concerns are consistent with the view that any changes in the relations of the state and the economy (say, deregulation in transportation), the economy and community (business takeovers of proprietary hospitals), or the state and community (the focus of this effort), deserve attention because they are likely to be accompanied by changes in degrees of equity, responsiveness, flexibility, and liberty that one or another of these sectors promotes as dominant concerns.

Nonprofits as Manifestations of Community The term "community" often used very loosely, is for our purposes defined well by Robert Bellah and his colleagues. In Habits ofthe Heart they write that "a community is a group of people who are socially interdependent, who participate together in discussion and decisionmaking, and who share certain practices that both define the community and are nurtured by it."6 Nonprofit service organizations, in this definition, are tangible, significant manifestations of community. This central proposition is essential to understanding why changes in the relationship between nonprofit organizations and governments are consequential for public values. Three qualities of community are especially important in understandin'g the significance of community to nonprofit organizations and public policy. First, a community is self-identifying. People belong in communities if they think of themselves as members. Unlike individuals defined by congressional districts, tribes, professional societies, commodity futures markets, and other forms of social organization, community members are those who elect to consider themselves part of a larger collectivity. Sometimes community overlaps with other forms of organization, such as a neighborhood or ethnic fraternity. When this happens the impression is conveyed that the two are the same, but they are not. Sent to the right neighborhood, an observer might indeed find community. Sent to another, he or she would be disappointed. Many subsections of cities do not have active community lives. Even when they do, some people have nothing to do with their neighbors. 7 The newcomers who are charmed by their working class neighbors in Boston's North End are unlikely to participate in that

Nonprofit Organizations and Community

23

neighborhood's Italian community. And communities do not require residential propinquity. Inner-city churches are often the focal point of active communities whose parishioners are dispersed in the suburbs. A rape crisis center may draw upon women from throughout a geographic area rather than the immediate vicinity where the center is located. The second quality of communities is that they are fueled by voluntary action. People contribute time and money, extend their influence, and otherwise make community organizations work because they want to make a difference. 8 Such voluntary organizations may be particularly strong precisely because they are autonomous and not subject to market vagaries or changing governmental priorities. They also enjoy a special sort of legitimacy because their existence derives from free association rather than law or an ticipation of profit, and because they are thought to arise from the sort of passionate convictions that tend to be respected in politics disproportionately to the number of people who hold the beliefs. Third, communities are important because it is in their midst that our most deeply held values are expressed-literally so, since it is where we engage with other people in common enterprises of the highest salience. Religious communities, for example, facilitate worship by providing a safe and supportive haven. Moreover, communities give expression to those values through the development of informal and formal organizations. For example, religious communities make possible the realization of strongly felt "core" values by establishing schools, charity organizations, orphanages, youth groups, and the like. Communities are not only self-conscious collectivities of shared sentiment. They also take on activities that are consistent with those sentiments. They establish churches, radio stations, study groups, newspapers, community centers, block clubs, and other activities that allow them to inject their values into the society for the benefit of themselves, or others. Communities thus provide the context within which groups can organize to solve common problems. Communities of workers give rise to unions. Women's groups sponsor shelters and advocate for public policy dealing with spouse abuse. Neighbors brought together by environmental threats turn to organizations such as the Sierra Club. If "community" is to signify more than general feelings about

24

THE TURN TO NONPROFITS

common concerns, it must show itself in the activities people undertake to express those shared values. These activities include problemsolving service agencies that communities incorporate as nonprofit organizations: they are communities made manifest. Our emphasis then is different than that of commentators who comfortably use the word "community" in association with the nation-state or global issues. 9 Not every community organization incorporates itself as a nonprofit. The nonprofit designation is a legal category that requires an organization to file forms with the Internal Revenue Service and adhere to regulations on the distribution of earnings and political activity. This legal status also confers many tax benefits and privileges: charitable donations are tax deductible for the donor, and in most states nonprofits are exempt from local property and state sales taxes. In addition, nonprofits can take advantage of reduced postal rates and free "public service" advertising on radio and television. Io Legal status is also a way of joining two important aspects of community: the moral community, in which individuals share certain values and social concerns, and the legal community, which defines the rules of governance and participation for the organization. II This distinction is integral to our discussion because we view nonprofit service organizations not only as service-providing institutions but also as political organizations that play key roles in citizen representation and governance. Many community organizations may not need nonprofit legal status. The local soccer club or the block association may be able to transact business and achieve its purposes without the formal nonprofit designation. Nor are all nonprofits manifestations of community. In recent years some nonprofit organizations have been created by government. For example, the Durham (N.C.) Housing Authority created a new, nonprofit entity to develop low income housing; it was headed by the same board of directors as that of the Authority.I2 Others have been founded by just a few individuals with a novel idea about a way to address a problem. All these voluntary organizations embody some of the most prominent ways by which the rest of the world comes to know communities, and many have assumed nonprofit status. And it is through such organizational expressions that political elites are able to contact and interact with communities when they attempt to aid or contain

Nonprofit Organizations and Community

25

them. 13 In short, these organizations provide a key link between the citizenry and their government, and changes in their character may produce major shifts in the citizen-government relationship.14

Pathways to Participation The most straightforward way to demonstrate that nonprofit service organizations are manifestations of community is to recount the role of individuals in the organizations. These roles are discussed elsewhere in this book and so will be treated only briefly here. First, their boards of directors are drawn from community notables who support the organizations' objectives and are expected to provide leadership. Boards are constructed when organizations are established; later the composition of boards is altered incrementally depending upon the organization's goals and the perceived strengths of the rest of the board. Members are typically chosen for their potential contribution to advancing the organization's mission, including their expected financial contribution, their reputation, or their expertise. A hospital, museum, or orchestra may recruit to its board prominent individuals who will themselves contribute financially to the institution and induce generosity among their friends. A new job training center or youth development agency may recruit socially minded people in business whose ties to banks will help in establishing credit and getting the advice of lawyers and experts in the agency's policy field. An agency with government contracts may recruit individuals with influential political connections to help them retain their contracts and attract new ones. Throughout the nation thousands of people perform these roles in organizational governance. Some may be motivated in part by the social opportunities that accompany board membership. But they are also motivated by the desire to provide service. Board membership is a point of pride among professionals who are already a part of the service community, and among neophytes who are recruited to care about a particular service population. Second, nonprofit organizations make extensive use of volunteers. Hospitals depend upon volunteers to staff gift shops and cafeterias and to greet and direct patients and visitors. Shelters depend upon volunteers to serve meals and make guests feel welcome. Rape crisis centers depend upon volunteers to provide counseling and other

26

THE TURN TO NONPROFITS

support services. From door-to-door solicitations to taking calls during annual telephone drives, volunteers are central to mass solicitation efforts. Moreover, low pay lends a degree of voluntarism to paid work in nonprofit organizations. Third, many nonprofits raise significant parts of their annual budgets from individuals who believe they are supporting community institutions. People walk to raise money for hunger or AIDS relief programs. They contribute to Christmas funds for the homeless or the destitute. They give toys, food, or clothing to a local children's agency. In short, the cash and in-kind donations support the view that these nonprofit organizations are manifestations of community.

Community and the Theory of Nonprofit Organizations Political theorists recognize that social life tends to be held together by "mediating" institutions, including family structures and community organizations, that provide services outside the mandates and force of law implicit in government programs. I5 For such theorists, community organization is prior to government provision of service, coexists with public service provision, and plays a social role that cannot fully be taken over by government. In the absence of government-sponsored daycare programs, for example, families, friends, and neighbors invent childcare arrangements. Without nursing homes, the sick and frail are cared for at home. Without welfare programs, destitute people find succor through church programs for the poor. This theory of "mediating institutions" highlights the capacity of communities to solve their own problems and warns against the danger that government efforts to provide parallel services may undermine spontaneous community initiatives, 16 while public efforts to subsidize them may result in loss of vitality and character. I7 Moreover, these organizations are considered to be an important buffer for the individual against excessive government penetration of society. In this view-which harks back to Tocqueville-mediating institutions are essential to a democratic way of life. I8 This instructive perspective is properly cautionary about the dangers of government intrusion into community affairs, but it can be misguided in failing to understand the need for large-scale responses to widespread social need. It is one thing to recognize, consistent

Nonprofit Organizations and Community

27

with the theory of mediating institutions, that the rise of food banks and soup kitchens were spontaneous community responses to the needs of hungry people. It is another to suggest that food banks using private food donations might be able to feed the hungry and eliminate the need for food stamps. Two views of nonprofits that arise out of the economist's perspective also support our understanding of them as manifestations of community. One question economic theorists seek to answer is why certain goods that benefit large numbers of people are produced by society when their production cannot be explained by market-oriented behavior. To many economists, governments produce collective goods such as roads and lighthouses because these necessary goods cannot be produced by markets. No individual can afford to produce them, nor do people have incentives voluntarily to pay their share, since they can be "free riders" and enjoy these collective goods (if they exist) without contributing to their production or maintenance. Government is able to overcome this "market failure" because it acts through legitimate political processes to force the participation of everyone in contributing to the production of collective goods. In a democracy government is limited to producing only those collective goods which are either accessible to all, or, if targeted to benefit certain groups, enjoy the support of the majority.19 Other goods and services, such as orchestras and ethnic-specific burial societies, are not candidates for public policy because, while perhaps desired by many, they are not preferred by a critical mass. In such cases the "market failure" to produce collective goods is solved by private collective action. It would follow that the number of nonprofits would be directly related to ethnic and cultural heterogeneity. As economist Estelle James argues, the more diverse a society, the more difficult it is to reach consensus on the provision of collective goods. 20 (However, this view overlooks the possibility of pork-barrel policyrnaking: support for benefits to one narrow group is implicitly exchanged in legislatures for support for other projects benefiting other narrow groups.) This perspective on nonprofits is descriptively insightful. It supports our contention that communities desiring collective action establish organizations to meet their needs. It also structures analysis

28

THE TURN TO NONPROFITS

in such a way as to offer an explanation for the intrusion of government into some previously untouched areas. As the popular conception of the role and scope of government has changed, activities once regarded as inappropriate for public collective action are now undertaken by the state. Relatively recent federal support for the arts and for social policy concerns such as special education and child abuse illustrate how conceptions of the proper scope of public action change over time. The notion of nonprofits arising out of market failure may parsimoniously map a part of the world, but it has weaknesses as a guide to the origins of nonprofits. In particular, the theory cannot anticipate that government will want to contract with nonprofits to provide public services. We thus must face. one of two paradoxes. Either activities deemed too specialized for government are in fact properly government responsibilities, or government seeks to provide activities through established organizations because it will not provide them. Starting from the notion that what needs to be explained are departures from free market exchange, economists have also suggested that nonprofits recommend themselves to potential donors and consumers of nonprofits' services because they are deemed trustworthy.21 Their point of departure is the proposition that markets are not able to yield socially optimal results when agreements cannot be entered into because one party cannot judge the quality of goods or services. In this view, a person looking for a nursing home has difficulty assessing the quality of the home and particularly its future service standards. A philanthropist seeking to relieve world hunger has related difficulties in assessing the trustworthiness of a relief agency. How does he or she know that a hundred-dollar donation for famine relief will actually go to feed hungry people? Nonprofit organizations are said to solve this problem of "contract failure" in one of two ways. Some maintain that if no one stands to gain financially by nonprofits' activities, at least in theory, donors (and, ironically, government) can trust (or trust more) that funds will be used for their stated purpose. 22 In another version, clients may be inclined to trust nonprofits to provide high levels of care or service, reliable advice, expert judgment untainted by commercial considerations, and so forth, if they know that the organizations they

Nonprofit Organizations and Community

29

go to for help or otherwise patronize are not motivated by the prospect of distributing profits to the organization's principals. 23 Never mind if the nonprofit nursing home goes bankrupt through mismanagement, or the charity decides to focus its attention on population control instead of hunger relief. At least the bankruptcy and the change in organizational focus did not occur because the nonprofits' directors were trying to maximize their own return on investment. At a general level this view correctly identifies an important strength of nonprofits, particularly in referencing the altruistic assumptions by which many such organizations are guided. It does not, of course, consider the problems of insuring service quality of nonprofits; it only removes one possible contributor to consumers' lack of confidence. Nor does it consider that many nonprofit organizations may actually depart from their stated mission in the actual delivery of services. 24 It also neglects other ways that nonprofits can be used for the aggrandizement of their principals. Fancy offices, inflated salaries, and sweetheart subcontracts can go a long way to making life easier for irresponsible administrators of nonprofit agencies. Client trust as an explanation for the rise of nonprofits also fails to explain why government might turn to the sector, since the political accountability of government might offer greater protection against abuse than private boards of directors. However, the presumed selflessness of nonprofits might actually offer something of an explanation of public interest in nonprofits in an era of skepticism over government capacity and, in some places, distrust of government intentions. A particular weakness of these economic theories is that they take a deductive form (that is, if a collective need exists which is felt by a minority of the political community, then ...). When we seek to apply the theories to actual developments, however, important inconsistencies immediately appear. It seems to make sense that one might trust a nursing home operated by a nonprofit provider more than one run as a business. But it is equally sensible to say that a nursing home run by a business could be more concerned about reputation than the community organization, and thus provide more reliable service. The fact is that we take care of our ill and elderly people in

30

THE TURN TO NONPROFITS

institutions established in all three sectors of society: government, market, and community (through nonprofits). The theory of nonprofits does not help us understand why one nursing home is nonprofit and another is not, or why society continues to support government residences for elderly veterans and other chronic needs populations. Society also maintains public, nonprofit and for-profit hospitals, rehabilitation facilities, and schools. 25 One theorist who has tried to address the problem of market failure theories is Lester M. Salamon. He argues that it is not government but the voluntary sector which first organizes to provide collective goods in response to market failure. Government then subsidizes the voluntary sector in cases of "voluntary failure," when the private sector is unable to provide adequate levels of.collective goods. 26 Salamon's theory is helpful in calling attention to widespread government funding of nonprofit service agencies and the important limitations on service faced by nonprofit agencies dependent solely on private funds. Yet this theory is also unable to explain the simultaneous existence of public, nonprofit and for-profit organizations in many service categories such as residential care for the aged, children, and the developmentally disabled. Historical reflections are also instinctively friendly to this perspective. Most nonprofit agencies addressing the needs of the poor relied upon private funds until the 1960s. Yet the voluntary failure theory would have predicted that government funding of nonprofit agencies would have been much more extensive and widespread throughout American history. Another interpretation is that government funding in response to voluntary failure did arise in the 1960s when public expectations of service adequacy changed. If this perspective is correct, it converts the voluntary failure theory into one that responds primarily to political stimuli and impulses. Finally, Salamon's views are indifferent to the fact that the sources of funding for nonprofit organizations affect the character of services. Aid to the poor provided by nonprofit agencies reliant upon private donations is often fundamentally different from the services to the poor provided by nonprofit agencies funded by government. Another anomaly that confronts the theorist of nonprofit organizations is the intrusion of one form into the space of another. It is fairly commonplace to observe that businesses are setting up on turf

Nonprofit Organiz.ations and Community

31

that has generally been regarded in the past as nonprofit territory. Hospital chains (businesses) are buying up nonprofit community counterparts. Entrepreneurs have entered the daycare business and community residence programs for persons with developmental disabilities. As privatization through contracting continues, businesses may be expected to hunt down the contract dollar. 27 It may be less evident but it is still the case that nonprofit organizations are sneaking into areas that have typically been business territory. The field of management consulting has attracted nonprofit participants, for example. Magazine publishing is also illustrative: both Ms. and Mother Jones were founded as nonprofit organizations, although they very well could have been founded as businesses like their commercial competitors. Other nonprofits, such as the National Geographic Society with National Geographic, and the American Mu.seum of Natural History with Natural History, publish magazines, but they did not start out primarily as publishers. If issues of trust or the possibility of collective action were fundamental, why do the same services, presumably confronted with similar market positions and possibilities of market failure, tolerate such a wide range of organizational forms? Equally interesting is the transformation of the same organization: the choices individual organizations have been making to change their forms. Ms. magazine was sold by its nonprofit owner to a private publisher. Quite a few nonprofits in the mental health field, hoping to get more ready access to capital, have turned into for-profit entities. 28 At the same time, some businesses have reorganized themselves as nonprofits, or have subsumed themselves as units of nonprofit grOllpS. Why would the same organization, providing the same service, change its organizational status if market or voluntary failure explained the origins of nonprofits?

Toward a Political Explanation of Nonprofit Organizations One of the fundamental difficulties of the market and voluntary failure theories of nonprofits is their neglect of the role of government and government policy. To market failure theorists, government policymakers simply implement the demand of the people for collective goods; they have no independent role to play in shaping the nonprofit sector. The theorists of voluntary failure, similarly,

32

THE TURN TO NONPROFITS

ignore the role of politics and the design of dominant political institutions as important factors in determining the nature of the voluntary sector. Yet the complex character of the nonprofit sector in the United States can only be understood as a result of individuals and groups taking actions on the basis of perceived costs and benefits-a process shaped by a variety of political and historical factors. 29 A dominant perspective in analyzing political (and other) behavior takes the view that actions can be explained by taking into account the costs and benefits to individuals. People will be moved to participate in individual or collective action only if the perceived benefits of doing so exceed the perceived costs. People establish and join organizations because the advantage or incentives outweigh the additional costs in personal time and resources required in organizational activity. 30 These personal and small group calculations of costs and benefits are profoundly affected by historical precedent, government policy, the structure of political institutions, and peer and community influences. In this vein political scientist Walter Dean Burnham contends that the decline in electoral participation in the United States may be explained by potential voters' calculations of costs and benefits, which are strongly influenced by government policy.31 An organization's decision to adopt the nonprofit form can be thought of in similar terms. The selection of nonprofit status is a decision made by organizational leaders following historical precedent, anticipatingthe expectations of relevant actors such as government officials and community leaders, and calculating the expected costs and benefits within the constraints and incentives determined by government policy. We will show how the calculation of costs and benefits influences the shape of the nonprofit sector by examining how a few hypothetical individuals (drawn from actual examples) recently tried to achieve their objectives. These are not isolated and autonomous cases; they are typical people who live in a political landscape influenced by their peers, government policy, and historical precedent. Case 1. Upon his appointment to a judgeship in an inner-eity district court, a reformer is determined to bring pre-employment training and counseling services to juvenile offenders so that he will

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have a constructive alternative to sending offenders to jail, setting them free, or simply maintaining them on probation. The judge persuades community leaders to establish a nonprofit youth service agency to raise public and private funds for programs for his constituency. The founders of the new agency are encouraged by the availability of government funding in the juvenile justice area. It never occurs to them to set up anything but a nonprofit-an organization able to enjoy the tax status of a nonprofit in the treatment of its receipts and philanthropic donations, and in a position to meet government contracting requirements. Case 2. A woman with a doctorate in education wants to continue to work in e(lucational research. She is approached to undertake some projects but does not want to bring them to a large consulting firm that would demand too much off the top for administrative overhead. At t.he same time the federal agency, which normally does business with other nonprofit organizations such as universities or the Ra~d Corporation, will not contract with individuals who have no organizational affiliation. The researcher does not anticipate making great profits from educational research. In any case, she is not interested in building a business that would require her to spend too much time making contacts and administering other people's work. She fornIs a nonprofit corporation that satisfies the contracting agencies. She can set her own salary level if she continues to solicit contracts successfully. She is protected from creditors if she fails. Case 3. A man gains recognition for the work his nonprofit corporation has done in placing welfare recipients in jobs. His agency succeeds by ingeniously combining portions of clients' welfare payments (the state gladly pays because welfare costs will go down if individuals become employed) with federal job training grants and payments from employers (whose wage costs remain low while trainees are partially supported by welfare grants). Others are beginning to copy his program. He concludes he might be able to cash in on his organizatio:n's system while performing a valuable service. The climate is right: employment of welfare recipients is a hot topic, while in many places labor scarcity makes his services very valuable to corporations desperate for workers. Inspired by corporate interest in his approach and aware of increased state and federal flexibility in the use of welfare funds, the entrepreneur leaves his nonprofit provider and starts up a business to sell his system.

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THE TURN TO NONPROFITS

Case 4. A nonprofit mental health service organization, consisting of five professionals, wants to move its operations to better quarters. Although it prospers, banks are unwilling to lend the agency money for relocation and expansion. Aware that capital for expansion is more available to prosperous businesses than to nonprofit organizations, the agency disbands and starts up again as a business able to go to the public for capital growth. Case 5. Two physicians start a for-profit residential child care agency for difficult-to-place children rejected by existing public and nonprofit agencies. However, persistent concerns about quality are raised about the program. A new director is appointed to upgrade service quality. As part of his effort to improve the program's reputation, he incorporates the agency as a nonprofit. He also believes that government officials will be more likely to contract with a nonprofit agency than with a for-profit. 32 Although groups and individuals make choices to fit their own interests, patterns in behavior still emerge. For the most part, calculations in choosing organizational status are consistent across service areas, so the decision to opt for nonprofit status may likewise be taken consistently. In some areas-for example, services for runaway youth-there is no conceivable profit to be made, so the issue is moot. In addition, public expectations of the governing structure of service delivery shape decisions in the direction of uniformity of type.

The choice of organizational form may be dictated by calculations of costs and benefits, but the calculations will always be made within specific contexts. Needless to say, they will vary from place to place, country to country, and over time. Four topics influence these calculations: advantages of the nonprofit form, historical precedent, anticipated reactions, and regime characteristics.

Advantages of the Nonprofit Form Nonprofit status can be seen as a legal option which presents a set of constraints and advantages chosen strategically by people who calculate that organizations formed under such conditions will prosper. 33 These constraints are determined in the world of politics and include the political structure of governance and prohibition against the distribution of profits and assets to individual directors. There are

Nonprofit Organizations and Community

35

also restnctlons on the actIVItIes of the nonprofits, primarily on political lobbying and the extent to which they can engage in profitmaking ventures. The benefits include favorable tax treatment and other public subsidies, as well as the advantage that comes with the ability to assert that the organization is not established for financial gain. It is important that the constraints and advantages should be conceptualized not just from the perspective of private actors but also from the perspective of government officials. Nonprofit organizations funded by government provide many advantages to government, including the ability to reward favored constituents, to shift the financial and managerial risk of public services from public officials to private individuals and organizations, and to respond quickly to emergent social problems. 34 These advantages encourage government officials to devote public funds to nonprofit services, which then attracts individuals interested in creating nonprofit organizations to th.is service sector.

Historical Precedent To understand the importance of historical precedent it will be useful to review in brief the development of nonprofit organizations. First, nonprofit organizations predate the existence of modern markets. In the extreme case this makes talk of market failure sound absurd, as, for example, when we refer to the great pre-modern European universities. In the United States the history of nonprofits also appears to have political origin.s. According to historian Peter Dobkin Hall, in this country the oldest nonprofits were founded at an early stage of American development, in the beginning of the nineteenth century, when some Protestant evangelicals and federalist merchants sought ways to cultivate and direct the populist Jeffersonian developments of the period, as well as to create institutions that would feed the needs of new nlercantile interests as they defined them. The institutions were created at a time when these mercantile interests, having lost control in the political realm, sought to maintain their social visions through nonprofit corporations. This suggests that an explanation rooted in political circumstances rather than market failure would be in order.

36

THE TURN TO NONPROFITS

The schools, colleges, missionary societies, libraries, orphanages, and hospitals founded in this period served the twin goal of advancing culture and piety for the enlightened and meeting the needs of the emerging industrial order under the aegis of the privileged classes. 35 Many nonprofit social welfare organizations were also founded by immigrant groups which wanted to maintain their cultural, ethnic and religious identity.36 These impulses carried over into the post-Civil War period with the founding of charitable as well as cultural institutions. 37 The important point is that the bulk of the country's traditional nonprofit organizations developed at a time when the corporation as a legal entitywasjust developing as a means of pursuing collective action. 38 Nonprofit organizations then proliferated, following models previously laid down. A Boston hospital, a Chicago settlement house, a New York charity organization were imitated, and the imitators imitated in turn as the "diffusion of innovation" proceeded.

Expectations of Others The history of the nonprofit sector and the experiences ofindividuals and organizations that interact with it establish certain expectations. People of vital importance to an organization's environment may come to expect that organizations of certain sorts will be nonprofit organizations; new organizations then conform to those expectations reflexively. For example, counseling services for children and families for many years were almost exclusively the domain of nonprofit and public service organizations; no models of for-profit service organizations existed in this area. Another example is battered women shelters. Nothing prevents a shelter from being operated under for-profit auspices; however, the expectations of the community and government are that these shelters should be nonprofit. These expectations may be incorporated into law. When the state of Massachusetts decided to close its training schools in the early 1970s, the state Department of Youth Services adopted a regulation that only nonprofit agencies were eligible to receive government contracts to care for the youth leaving the training schools. 39 This requirement is written into many public programs that depend on contracting.

Nonprofit Organizations and Community

37

Regime Characteristics The structure of the American welfare state also appears to play a role in influencing the nonprofit form. 40 Costa Esping-Anderson characterizes the American welfare state as a liberal regime (in the European sense) in which "means-tested assistance, modest universal transfers, or modest social-insurance plans predominate. In this model, the progress of social reform is severely circumscribed by traditional, work-ethic norms." As a result, the state encourages the market, either passively-by guaranteeing only a minimum---or actively, by subsidizing private welfare schemes. 41 In liberal welfare state regimes, nonprofit service organizations emerge to fulfill three key functions: (1) they supplement government provision; (2) they can reinforce the prevailing government policy emphasizing work norms, self-sufficiency, and markets; and (3) they can serve as a vehicle for pushing expanded government provision. The relationship between nonprofits and the government and market sectors is of key importance to the determination of the shape of the nonprofit sector. This means that major changes in the relations will affect the quantity and role of the nonprofit sector in society. Recent political controversies surrounding nonprofit organizations are in<:licative of the conflict a shift in the role of nonprofits can precipitate. For example, there is considerable controversy over the ext.ent and impact of profit-making activities of nonprofits, such as the gift shop at the art museum or the bookstore at the university.42 And despite some restrictive laws, there is ongoing concern over the lobbying activities of organizations that are supported by public funds in the sense of enjoying a variety of favorable tax treatments. These controversies also seem to be peculiarly American in their protection of private sector interests and their defense of a purist pluralism. As the relationship of nonprofit organizations and government develops outside of the United States, it will be interesting to see if silnilar patterns emerge.

Three Types of Nonprofit Service Agencies The world of nonprofit organizations is vast. It ranges from enormous hospitals and philanthropic foundations to the smallest legally

38

THE TURN TO NONPROFITS

incorporated storefront service centers. It encompasses multinational relief organizations such as the Red Cross and CARE, and food banks on a single site. It includes multifunction organizations such as universities, with their colleges, research centers, libraries, theaters, athletic teams and real estate operations, to single-purpose organizations such as Voices of the Homeless, an arts organization. It embraces complexities and variations so numerous that they would appear to defeat all efforts to generalize. One of the points of identifying empirical anomalies in theories about nonprofits was to indicate how hard it is to generalize about them. If the same organization can be nonprofit at one moment and for-profit the next, it is difficult to discover important changes in service or other organizational behavior attributable to the change in legal status. Likewise, if the sort of organization operating under the same government regulations-say a nursing home-may be operated as a government entity, a business, or a nonprofit, it is difficult to discover what part of its performance is attributable to its "nonprofitness. " The effort to develop theories of nonprofit organizations has to confront the reality that "nonprofit" does not crisply modify "organization" in patterned ways. We need to go beyond simply focusing on nonprofit status as a predictor of behavior. For the purpose of this study we can make progress by distinguishing the category of nonprofits that is most likely to be affected by contracting with government. (A study of nonprofits for some other purpose may well need to develop a different set of distinctions.) Keeping the diversity of organizations in mind should help us avoid difficulties of earlier analysts, who tried to assess the impact of contracting on the nonprofit sector in general without seeing that some kinds of nonprofit organizations might be severely affected, while others migh t be unaffected. We propose to distinguish among three types of nonprofit service agencies, each with very different connections to community. One type is the traditional social service agency, the old-line service association such as the Massachusetts Society for the Prevention of Cruelty to Children (MSPCC), established in 1878 and based in Boston. Founded by affluent civic leaders, this and similar agencies typically were established many decades before the New Deal. They usually have endowments (sometimes very substantial ones), and therefore tend to be less dependent on government funds than other agencies.

Nonprofit Organizations and Community

39

Often they offer many different services and programs and thus are also less dependent than other agencies on demand for any single service. Typically, these agencies have relatively large boards of directors (30 to 40 members) drawn from the political and economic elite of a community. Sectarian agencies such as Catholic Charities also fall under this category. A second type of nonprofit social service organization is the agency founded within the last twenty years, directly in response to the availability of government funds for job training, mental health, and other contemporary services. An example is the Key Program, a large youth services agency established in Boston in 1970 to provide community and residential services for delinquent youth. These agencies usually derive most if not all of their revenues from government. Their boards are often small (fewer than 10 members) by comparison to the traditional agencies. Typically, these agencies do not exist as nonprofit organizations for very long prior to receiving a government contract. And in some instances the founders will reach an understanding about a contract prior to the creation of the agency. In the case of the Key Program, founded by Scott and Bill Wolfe, the Massachusetts Commissioner of Youth Services "hammered out a loose contract with the Wolfe brothers while they were still in the process of creating a nonprofit entity."43 A third type of organization is the agency founded in response to unmet neighborhood or other community needs. These may be organizations devoted to solving problems experienced as local concerns, such as homelessness, hunger, or runaway youth. Or they may be established to solve problems for communities of people who are less identifiable by geography than by some other characteristic: battered women, developmentally disabled individuals, or AIDS patients. Organizations formed to aid these groups tend to be started and staffed by volunteers or underpaid workers out of strong personal commitments to alleviate suffering or to help other people realize their potential when it is otherwise thwarted by social conditions. Particularly at their start, they are typically shoestring operations built on sh.aky financial grounds. Seen from the perspective of their relationship to government these three types of organizations form something of a continuum: at one extreme are the new community-based organizations that tend to act most like volunteer associations-they are nonbureaucratic and held together by the freely given commitments of their mem-

40

THE TURN TO NONPROFITS

bers. 44 At the other end are the organizations founded in response to the availability of government funds. These tend to be rule-bound, concerned with consistency, and highly responsive to the priorities of the government agencies whose grant programs were the occasion for their establishment and development in the first place. These distinctions are important because they suggest that different types of nonprofits are affected by government funding priorities in different ways. The most pronounced shifts and the greatest conflicts with government occur among those agencies that initially resemble government least. This does not imply that the motivations of the founders of the second and third type of organization, or their initial ties to the community, need be dissimilar. Both government-funded and volunteer organizations of the 1960s and 1970s often represented the efforts of social reformers to change society's response to particular problems or policy issues. Whether or not a group of individuals comes together as an all-volunteer organization or a primarily government-funded organization may depend on existing structural factors. In situations where government funding was initially quite scarce, as in the case of shelters for battered women, individual activists organized along all-volunteer lines. Where government funding was ample, as in the case of youth training initiatives in recent years, activists did not form all-volunteers organizations prior to receiving government funding: the funds came simultaneously with the founding of the organization. Once an organization is founded, though, the relationship to the community depends upon the relationship to government. In organizations established through government auspices, the impact of contracting is likely to be relatively modest because the organizations started out having conformed to contracting requirements. In contrast, the newly founded volunteer organizations are not only, by necessity, oriented toward the community, but they also will have had an extended period as autonomous bodies before accepting government funds. For all agency types, however, some degree of change is virtually inevitable as government contracting increases and evolves. As we shall see, government contracts eventually bring administrative and accountability demands which may be at odds with tIle agencies' original visions.

Part II THE CONTRACTING REGIME

Introduction to Part II

his is the era of the contracting regime. Government use of contracting with nonprofit agencies to achieve public purposes in social services has become widespread. When public officials seek to address a new social concern, they tend first to look for a private agency with which they can contract. We use the term "regime" deliberately to indicate a set of stable relationships that transcend simple common practice and reveal assumptions about the way the world works. As we choose to understand the term, a regime is a set of "principles, norms, rules, and decision-making procedures around which actor expectations converge in a given issue-area. "1 The concept has been developed most fully by analysts of international relations to characterize the relatively stable relationships that exist between countries, and between countries and nongovernmental actors such as multinational corporations, despite the absence of a central authority. The notion of regime reminds us that normal systems of interaction, with their own rules, values, and sanctioned expectations, can and do emerge outside the regularized interactions that ultimately are sustained by force of law. AIl actors in a regime do not operate in ternally on the same principles. This is surely evident in international regimes, in which directed econonlies and free market economies, imperial nations and colonies, can still be said to operate within regime parameters. This holds true for governments and voluntary organizations, which operate on different internal values and often seek different objectives, but with respect to each other still act according to expectations generated by the contracting regime. Several additional aspects of the concept of regime are useful for our purposes. First, regimes may be said to have normal ways of

T

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THE CONTRACTING REGIME

solving certain problems. Before the contracting regime was established, newly identified social problems would be confronted, if at all, by voluntary organizations which expected no assistance from government, or, as the welfare state became more firmly established, by governments which would implement programmatic responses directly. Today, in contrast, one may expect demands to address new social problems to be met by government bureaucracies contracting with nonprofit agencies to implement responses. The strength of this impulse is illustrated by the current tendency of governments to create voluntary organizations when none is apparently available with which to contract for services. Second, the notion of regime provides a way to understand regularized interactions among different kinds of entities. Like theorists of international relations who needed to find a way to explain the regularized pattern of behavior found among nation-states and nonnation entities, we seek to understand regularized patterns of behavior among governments and community organizations when the community organizations are constructed on different principles from those of government and when community organizations are not fully responsive, indeed, are sometimes antagonistic, to governmental institutions. Third, participants in regimes are mutually dependent, and (because regimes are not ephemeral or episodic) relationships among them have a degree of continuity. Regimes are also disciplined and self-enforcing in the sense that participants in the regime can and will be sanctioned if they stray, if not by the dominant participants, then by the economic, political, and social realities that bring them into the regime in the first place. As applied to the contracting regime, this means that nonprofit organizations cannot act as freely as if they were in some isolated market for services. Instead, they must weigh the consequences of their propensity to dissent from government policy, since noncompliance might threaten their continued well-being. The mutual dependency of participants in the contracting regime helps explain why an analysis based upon compliance with regime norms through contract writing and enforcement does not fully explain regime behaviors and interactions. Fourth, regimes tend to be sponsored and ultimately directed by a relatively powerful agent. Regimes, in other words, are not simply

Introduction to Part II

45

collections of equal and independent entItles but are heavily influenced by one of the participants in the regime. In international relations, this role is played by some single nation whose values, language, currency, and systems of operations are accepted by (or forced upon) others as valid and governing of relations within the regime. In the era of contracting, this role is played by government. Although contracting between government and nonprofit organizations may be understood as a relationship involving reciprocity, it is by no means a relationship among equals. Just as the hegemonic nation-the United States in the postwar period, or Britain at an earlier time-bends the behavior of nominally independent nations toward its way of doing things according to its preferred economic, political, and social systems, so government gradually influences the behavior of independent nonprofit contractors to accept its practices and preferred :policies. To say that there is a contracting regime is not to imply that relations within it are static. Indeed, one would expect regime relationships to change over time in response to changing needs and new challenges, so long as the fundamental values that are represented in the regime are maintained. In the contracting regime nonprofit service organizations have been changing. Under pressures to secure and maintain funding and in response to the oversight demands of government agencies, they are professionalizing and becoming more businesslike, but at the expense of their responsiveness to clients and their capacity to foster unique community values. Nonprofit human service agencies may now be more expansive than they were able to be in the past, but they are also more securely tied to government and more reflective of public priorities than of the community values they represented in the past.

3 - The Political Economy of Nonprofit Revenues

Government subsidies to private colleges and hospitals predate the founding of the American Republic. In this light some of the most influential analysts of nonprofit activities have maintained that the contemporary rise in government funding of nonprofit agencies is part of a typical American tradition of using private agencies and groups, rather than government, to address public problems. They see the wave of contracting over the last 30 years as evidence of continuity with the past. 1 Our emphasis is different. We argue that the unprecedented scope, pervasiveness, and diversity of the present contracting regime does indeed represent an important break with previous practices. To make our case we first characterize nonprofit service organizations before the advent of widespread government funding. We then go on to describe the transformation of nonprofit service delivery during the 1960s and 1970s, when government funding rose substantially. In the third part of the argument we analyze changes in revenue mix among nonprofit service organizations in the 1980s. To portray adequately the effects of government funding on the finances of nonprofit agencies, we have assembled data on 30 nonprofit service providers in four northeastern states. We studied large agencies in order to assess the affect of contracting on the bulk of service provision. Accordingly, we picked nine agencies from among the 19 agencies with over $500,000 in contract funds from the Massachusetts Department of Social Services during fiscal year 1986. These nine agencies included six of the seven agencies with over $1 million in contract funds. 2 To select representative nonprofit service agencies of small or moderate size, we chose an additional 21 agencies, following interviews with government officials, nonprofit agency executives, and

The Political Economy of Nonprofit Revenues

47

social welfare advocates. Sixteen of these additional agencies are located in Massachusetts, which has one of the most extensive networks of government-funded nonprofit social service agencies in the country. We anticipated that a focus on Massachusetts would be salutary because state commitments to contracting would give full expression to the implications of this approach to providing services. The remaining five agencies in New Hampshire, Rhode Island, and Connecticut were included to alert us to possibly important departures from Massachusetts practices. These agencies were chosen, after consultation with state officials and nonprofit advocates, for their prominence in the service delivery system. 3

Historical Background Nonprofit organizations funded at least in part by government have played a key role in addressing social problems since colonial times. Early hospitals such as Pennsylvania Hospital, founded in 1752, and New York Hospital, officially opened in 1791, offered health care for indigent patients with their expenses paid by local or colonial governments. 4 Private institutions for the mentally ill such as the Hartford (Ct.) Retreat and McLean Hospital in Boston used state and local government funds to provide care for indigent mentally ill patients. 5 In the early decades of the nineteenth century many nonprofit child and family service organizations were founded, especially in the Northeast. 6 Several present-day agencies were established in this period, including Boston Children's Service Association (1833), Parents and Children's Services of the Children's Mission in Boston (1849), and Worcester Children's Friend Society (1849), to name just a few. Typically these early agencies supplemented the services of the public almshouses and reform schools, providing short-term relief, crisis intervention, and long-term custodial care for orphans and dependent children. Some of these agencies received public subsidies for their expenses in caring for children. 7 Government funding of nonprofit agencies was not used as a general tool of public policy, however, but reflected the assumptions of the day that governments assumed only the most modest responsibilities for social problems. States provided limited subventions to private agencies, relying upon them to use private funds to make up

48

THE CONTRACTING REGIME

the difference in the low public subsidy rates. 8 The federal government provided no direct subsidies at all, regardless of the service. 9 The types of services funded reflected social policy preferences during the 1800s and early 1900s for aiding "the deserving poor"the dependent children, the sick, and the aged who received the vast majority of public subsidies. Io Agencies serving people who were simply destitute, with no condition to testify to their worthiness, usually received no public subsidies. Such people were regarded as properly the objects of private charity. The antebellum period witnessed a veritable explosion of nonprofit agencies serving the poor. Many of these agencies were founded by evangelical Protestants or the emergent Catholic Church; some were self-help societies of new immigrant groups. State and local governments provided limited relief directly to individuals ("outdoor relief') or confined individuals and families in almshouses and poorhouses. In the late 1800s many charity leaders made a concerted effort to restrict outdoor relief. The poor were to rely on private charity or face confinement in the almshouses. 11 The officials argued that public relief bred dependence and actually exacerbated the poverty problem. In this vein, Dr. James W. Welk, general secretary of the Philadelphia Society for Organizing Charity, in 1885 expressed the hope that the time was "not too far distant" when public relief would be "supplanted by private charity"; with the end of public relief, he said, "the tap-root of the noxious tree of pauperism" would be cut off. I2 As far as possible the poor should rely upon private benevolence. I3 Similar sentiments led many leaders of private charities, policymakers, and academics to oppose public subsidies to nonprofit agencies. Frank A. Fetter of Cornell University wrote in 1901 that "if the subsidies increase with the number of dependents, as they are likely to do, there is a standing premium to the institutions to keep the inmates longer than is necessary and to develop the work in magnitude."14 He remarked that subsidies to private charities were "a medieval device" that reflected an era when the boundaries between the public and private sector were dim. He hoped that states would become aware of the dangers of public subsidies and thus "escape the evils and the cost which the practice of subsidizing private charities has brought upon every community that has rashly entered upon it."15

The Political Economy of Nonprofit Revenues

49

This view was in line with the Progressive era's reaction against politics and the urban political machine. Like the urban machine and politics ifl general, public subsidies were thought to undermine the virtuous private charitable sector. The result of public subsidies, critics predicted, would be higher costs, increased dependency, and outright corrllption. Yet government funding of private service organizations was not extensive by today's standards. A 1914 survey revealed that "22 states made no appropriations whatever to privately managed charities, fifteen make such appropriations sparingly, and nine place no apparent restriction on their grants."16 The fifteen states in the second category "either deliberately or accidentally, restricted their public subsidies to the care of a few special classes of dependents" such as orphans or alcoholics. The nine states with no restrictions for the most part contributed little money to private nonprofit organizations. Kansas, for example, distributed $15,000 to 61 private institutions. Kentucky contributed $70,000 to three charitable institutions. 17 There were a few exceptions. Pennsylvania contributed $3.7 million to 277 institutions in 1914. 18 In New York many private agencies received large public subsidies from the state, although counties and municipalities also contributed substantial sums. In 1891, for instance, 200 private agencies received $1.2 million from private contributions and investment income, and $2.6 million from public subsidies. 19 The same pattern existed for public subsidies to private hospitals. New York, Pennsylvania, and Maryland spent much more in public funds on nonprofit hospitals than did other states. 20 In general, then, government funding of nonprofit service organizations was quite limited except for a few states and urban areas. The more extensive public funding of nonprofit organizations appears to be primarily related to immigration. Most public funding of private agencies was channeled to sectarian agencies, which were established by Catholic or Protestant immigrant groups. Typically, those agencies tried to limit their clientele to co-religionists. 21 For example, sectarian agencies funded partially by government were the principal providers of foster care for abused, emotionally troubled, and disadvantaged children in New York City. Catholic, Protestant, andJewish children in need of foster care were referred to sectarian agencies according to their fai tho 22

50

THE CONTRACTING REGIME

It is instructive to note that the widely heralded settlement houses of the Progressive era avoided public subsidies. These agencies were established in cities throughout the East and Midwest in the late 1880s and early 1900s. The most famous is perhaps Hull House, founded in 1889 in Chicago. Other well-known settlement houses were the Henry Street Settlement House in New York City and the South End Settlement House in Boston. Although the data on them are sketchy, most settlement houses primarily depended on private funds prior to World War II. Dependence on private funds was consistent with the settlement house philosophy that the community should take care of its own citizens, except for small subsidies or in-kind assistance such as the assignment of a public health nurse. As a 1922 text on settlement houses advises, "wherever possible," the organization of settlement houses "should be composed of local citizens, and the financial charges borne" by them. 23 Hostility toward government even led Progressive era reformers to campaign against public subsidies to nonprofit organizations. By 1930, twenty-six states had constitutional limitations on public funding of nonprofit agencies, although sometimes these restrictions were circumvented. 24 During the Depression, many agencies relaxed their opposition to public subsidies and served as conduits for public relief. But as the Depression eased and relief funds declined, so did the willingness of many agencies to accept public funds, and of many policyrnakers to subsidize them. Permanent public subsidies to agencies dealing with the poor were still resisted or opposed. At the same time, public subsidies to organizations for the sick, the aged, and children continued, albeit on a limited scale except in a few selected urban areas and states.

The Postwar Years In the early postwar period the federal government slowly increased its role in funding social services, either through subsidies to state and local government welfare agencies or through direct grants to nonprofit organizations. These allocations tended to be for research and demonstration projects rather than for subsidies to ongoing activities. For example, Baden Street Settlement House of Rochester, New York, coordinated social services to poor persons in its neigh-

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51

borhood under a grant from the New York State Youth Commission. 25 Overall, public subsidies to social services came primarily from state and local governments. In 1953-54 the federal government spent $124.1 million on social services, primarily for vocational rehabilitation, child welfare, school lunches, and institutional services. By contrast, state and local governments spent $605 million. The bulk of this nloney was spent on institutional support for such state institutions as hospitals for the mentally ill, schools for the developmentally disabled, and training schools for juvenile delinquents. 26 Most nonprofit agencies did not receive any significant public funding. Judge Baker Guidance Center of Boston, one of the premier child guidance clinics in the country, received no public funds in 1950: 47 percent of its revenues came from investment income on its endowment. Likewise, Worcester (Mass.) Children's Friend Society, also lacking public funds, relied on private fees for 40 percent of its revenue in 1948. Absence of public funding of nonprofits remained the norm throughout the 1950s. 27 However, in some service categories such as child welfare, government funding of nonprofit agencies was more prevalent. A 1960 study of 23 urban centers found that "payments to private agencies represented 28.5 percent of all public expenditures for institutional care of dependent children, 8 percent of all public expenditures for family services and foster care, 13.4 percent in the case of institutional care for aged persons, and 100 percent of the maternity home care provided from public funds. "28 Nonetheless, public funds to nonprofit agencies tended to be concentrated in the more urban states with large numbers of providers such as New York, New Jersey, and Pennsylvania. 29 In 1957 public expenditure for foster care to nonprofit child welfare agencies as a percentage of total public expenditures was less than 25 percent in 35 states. In DIlly three states (New York, North Dakota, and Pennsylvania) was the percentage greater than 50 percent. 30 Moreover, even in these states, most nonprofits depended upon private donations from endowments and the Community Chest and investment income. At this time, few agencies existed which were funded primarily by government. The reliance of most nonprofit agencies on private funding at this time is confirmed in examining the income streams in 1960 of 13

52

THE CONTRACTING REGIME

New England agencies we selected for intensive analysis (see Table 1). When government did provide funding, it usually did not cover the full cost of service. St. Mary's Home for Children in North Providence, Rhode Island, charged $20 per week for board and an additional six dollars for clothing and other incidentals for each child in 1962. (It was $10 total in 1955!) This was the fee that the Rhode Island Department of Child Welfare paid for its wards. However, St. Mary's director reported that the actual cost of yearly care was $5,000 per child. State government kept rates to nonprofit agencies deliberately low, expecting these agencies to make up the shortfall from their private revenues and fees from clients. (St. Mary's Home cared for poor children, so fees did not generate much income.)31 Traditional agencies depended heavily on investment income generated by the endowment, private contributions, and United Way contributions. Investment income was limited by the return on the endowment principal. Private contributions were generally bequests and donations from wealthy individuals who were often affiliated with the agency. The broad-based fundraising campaigns by individual agencies characteristic of the 1980s were not then in evidence. The Community Chest, the predecessor organization of the United Way, distributed funds from a pot of money which grew very slowly from year to year. Fees were used extensively, but this source of revenue was limiting because fees came directly from individuals in this period, not from insurance companies as is frequently the case today. Thus many agencies were dependent upon the small group of clients with adequate means. Most agencies were unwilling to raise fees substantially to subsidize public clients for fear of further restricting their already narrow client base. As a result of the incremental and self-limiting character of these revenue streams, agencies were hard-pressed to keep up with rising service costs and demands. Because of the constraints on private revenues, most agencies operated at a deficit or with only a small surplus (see Table 2). To compensate for deficits, agencies dipped at times into their endowment principal, in effect subsidizing the cost of service to agency clients or consumers. Partly as a result, endowments grew very slowly or were stagnant; sometimes they actually declined. In a pinch,

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wealthy boarel members simply made up for agency deficits on their own. Remarkably, agency losses apparently failed to alarm their boards of directors. Spending the endowment principal was an accepted practice, partly because losses tended to be modest, but largely because board members regarded their agencies' missions as having priority over the integrity of the endowment. Out-of-balance financial statements neither precipitated major service cuts nor staff changes, as they would today. 32 The traditional agencies dominated the universe of social service agencies. 33 Tllese agencies usually controlled the distribution of Community Chest allocations and the modest public funding available. Conseqllently, agencies without access to these private and public funds tended to be small. Friendly House, a settlement house founded in 1922 in Worcester, Massachusetts, was this sort of small community-based agency which offered a variety of recreational and social services to neighborhood residents. It struggled along on modest cash and in-kind donations from year to year. The Worcester Area Association of Retarded Citizens (WAARC) was not even legally incorporated as a nonprofit organization; it was just a loose collective of parents who struggled to provide services to their retarded children.

The Advent ofExtensive Federal Funding During the 1950s standards of care in some of the traditional service areas started to come under criticism. State mental institutions came under attack, for example, as did systems of adoption placement dependent upon sectarian community agencies. Child abuse as a societal problem was introduced onto the political agenda during this period. 34 Social welfare advocates attacked the larger traditional agencies for neglecting the needs of the poor and racial and ethnic minorities. 35 Meanwhile, government officials exerted greater regulatory over~ight over private social programs, especially on public safety and staffing issues. While criticism of private social service agencies increased, public financial support for their activities was slow to materialize. Even in the mid-1960s nonprofit agencies were still overwhelmingly reliant

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THE CONTRACTING REGIME

on private funds. A study by the Family Service Association of America in 1965 found that public funds accounted for only eight percent of agencies' income. For the same year, a survey of health and welfare agencies in 13 urban areas found that public funding in all fields only accounted for six percent of revenues. For this period a study of over 800 service organizations found that 80 percent did not receive public funds. 36 The broad disenchantment with existing state and local and private nonprofit services and their financing led to many new initiatives. The Gray Areas Project of the Ford Foundation represented a private effort in selected cities to provide catalytic funding that would mobilize existing community resources to address problems experienced by poor people in New Haven and a dozen or so other cities. 37 Several federal programs emerged from the community mobilization model pioneered by Gray Areas activities: the 1962 amendments to the Social Security Act;38 the Community Mental Health Centers Act of 1963; the Community Action component of the Economic Opportunity Act (1964); and a sharp increase in federal spending on social services for discretionary programs and research and demonstration grants. The Office of Economic Opportunity (OEO), established in 1964 to administer the War on Poverty, was also instrumental in developing new services. Some of this federal money was channeled to state and local governments, which then distributed it to public and private agencies. In the case of community action programs, the federal government essentially created new agencies to provide services to the poor. These several initiatives led to a sharp rise in federal expenditures for social welfare services. Federal expenditures for social welfare services almost tripled between 1965 and 1970, from $812 million to $2.2 billion. (Expenditures on special OEG and other povertyrelated service programs rose from $51.7 million in 1965 to $752 million in 1970.) State and local expenditures rose only modestly, from $1.2 billion to $1.8 billion, during this same five-year period. 39 The federal role continued to expand throughout the 1970s. By 1980 the federal funds comprised 65 percent of total government spending at all levels on social welfare services, compared to 37 percent in 1960. Total federal spending (in current dollars) rose from $1.14 billion in 1960 to $13.5 billion in 1980. Per capita spending (in constant 1988 dollars) rose from $23 in 1960 to $84 in 1980. 40

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A big percentage of the increase in public funding of social services was expended through nonprofit agencies. This development was due in large part to new federal policies. Faced with public pressure to expand social services, particularly for the poor, Congress enacted the 1967 Amendments to the Social Security Act (commonly called Title IV-A) which specifically encouraged states to enter into purchase-of-service agreements with private agencies. 41 These amendments contained a novel provision that allowed states to increase social services by obtaining from the federal government triple the amount contributed by public or private local sources. A nonprofit agency could "donate" $25,000 to the state and receive a public match of $75,000 for a total contract amount of $100,000. Since the $75,000 came from the federal government, a state could either increase services without any cost to its treasury or shift the cost of existing services to the federal government and private sources. The provision about donated services tended to favor contracting with the traditional agencies because they had access to private funds that could be designated as donations. A common practice was for the traditional agencies to assign a portion of their annual United Way allocation for their private match. An agency could receive a contract essentially at no cost. Predictably, federal spending under Title IV-A rose rapidly: from $281 million in 1967 to $1.6 billion in 1972. A 1972 study predicted that expenditllres would reach $4.7 billion by 1973 if the program were left unchecked. 42 Alarmed at the rapid rise of federal spending, Congress enacted an expenditure ceiling of $2.5 billion in 1972. A 1971 study indicated that 25 percent of state spending on social services was for purchased services. 43 By 1976 this expenditure had risen to 49 percent. 44 A 1978 study by the Urban Institute found similar results. 45 The services provided by nonprofit agencies funded through Title XX (the successor program to Title IV-A) included daycare, homemaker/chore, substitute care, counseling, protective services, health. services, family planning, legal services, and services for the developmentally disabled. 46 The financial incentives to combine mostly federal funds with some state monies proved so attractive that states SUCll as Oklahoma, which had hardly ever before purchased social services from private agencies, developed contracting systems. 47 In 1977, 25 states used half or more of their state human service

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expenditures for purchase-of:'service contracts. 48 In the Massachusetts Department of Public Welfare, the dollar amount of purchaseof-service contracts with private nonprofit service agencies more than doubled, from $36 million (and 380 contracts) to $84 million (and over 1,000 contracts), between 1977 and 1981. 49 Many state agencies relied almost exclusively on nonprofit agencies to provide services, especially new and innovative services such as community residential programs, respite care, and day treatment. While these figures reflect substantial growth in government contracting for social services, tiley still understate the increase in contracting in several key respects. First, they miss federal block grant funds that were originally allocated by the lead state agency to a public agency subcontractor (and thus were officially recorded as "public purchase" of services), but then went to private contractors providing services to the subcontracting public agency. For example, the lead state agency for Title XX funds (usually the state Department of Public Welfare) would contract with another state agency such as the Department of Youth Services (DYS) for adolescent care. But these state agencies would often contract with private child welfare agencies as subcontractors. 5o Consequently, the actual level of federal funding of purchased services from private agencies under Title XX was much higher than reported in these studies (probably closer to 60 percent or more). Second, the calculations (10 not include the new federal programs such as community mental health centers, community action agencies, Head Start,51 neighborhood health clinics, drug and alcohol treatment,52 runaway shelters,53 and child and adult protective services. These categorical programs spent hundreds of millions of dollars a year, largely through nonprofit service agencies. For example, federal spending for special OEO and ACTION programs, which included funding for comrrlunity action, rose from $51.7 million in 1965 to $2.3 billion in 1980. 54 The federal Head Start program alone spent $735 million in fiscal year 1980, with a majority of these funds going to nonprofit agencies. 55 Federal funding on community mental health centers rose frona $143 million in 1969 to $1.4 billion in 1979.56 Third, these amounts dicl not include the hundreds of millions of dollars spent by the federal government on research and demonstration grants. Thousands of social service agencies such as rape crisis

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centers, battered women shelters, and child protective services received such grants in the 1960s and 1970s. In many cases these were short-term grants for operating expenses. After the expiration of their research and demonstration grants, many agencies obtained state and local public funds to continue their services. Fourth, these studies do not include state spending on purchased services that is not related to Title XX. This and other federal programs spurred state governments to increase their own social service spending, especially through purchases from private agencies. For example, the deinstitutionalization of state hospitals, state training schools, and in some cases public juvenile detention centers was under way ill earnest during this period. Deinstitutionalization meant transfering services from the public sector to the nonprofit sector. But now funds went to community-based counseling, training, and residential services rather than large public institutions. 57 Overall, state spending on social welfare services (both public and private agencies) almost doubled between 1975 and 1980: from $2.6 billion to $4.8 billion. 58

Impact at the Service Delivery Level Broad national trends in government contracting with nonprofit agencies were reflected in dramatic changes in their revenue mix. The specific effect tended to vary depending upon the type of nonprofit service agency.

Traditional Agencies Traditional agencies tended to take a very cautious approach to the growth of federal funding. Many executives of traditional agencies worried that government funding would compromise and undermine their mission. Harking back to Progressive Era counterparts, Bertram M. Beck, a leading nonprofit executive in New York City, expressed his view of this danger: 'Truly voluntary associations are desperately needed for the revitalization of the democratic process, but they cannot be supported by government funds since governmental funding immediately contaminates their nature and is selfdefeating."59 With Beck, many executives of the traditional agencies saw their mission as distinctly private and separate from the public

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sphere. Executives of traditiollal agencies were hardly in the forefront of the extensive changes in public support for community action and reform of various treatment regimes. Nonetheless, they expressed concern that the advocacy role of nonprofits would be constrained by government fu.nding. 6o Government funding of tra(!itional agencies tended to grow slowly during the early and mid-1960s (see Table 2). In part this reflected the principled objections of critical actors in the sector. In part it was the result of lags between the initiation of key programs and the development of contracting relationships at the grassroots. As the demands for social services burgeoned with the mobilization and social ferment in AInerican cities in the 1960s, traditional agencies experienced pressures from within and without to expand their activities. At first, following policies whose continuation would have placed them in financial jeopardy, the agencies drew from their endowments and began to borrow to meet the new demands. Boston Children's Service Association (BCSA) lost hundreds of thollsands of dollars in the late 1960s and early 1970s as it expanded services to the poor without adequate financing. BCSA essentially miscalculated its capacity to generate adequate revenue. The agency suffered financially for many years as it "worked off the deficit." It was only in the late 1970s with the infusion of hundreds of thousands of government dollars that the agency stabilized financially. Federal funding, particularly through Title IV-A and later Title XX, pushed up revenues throughout the sector (see Table 2). The revenues of one traditional agency, the Massachusetts Society for the Prevention of Cruelty to Children (MSPCC), increased almost fivefold between 1970 and 1980. The growth of government funding clearly bailed out many financially troubled traditional agencies. Recognizing his debt to government funding, the executive director of MSPCC exclaimed in 1974, "Title IV-A has been a financial lifesaver in arresting increasing deficits. "61 With these public funds agencies entered into a new relationship to government. Agencies which for decades had relied on private contributions or small government subsidies were now primarily dependent on government funds. Most of this funding was federal (often administered by the state) , although by 1980 many states were contributing their own funlds. Settlement houses, initially reluctant

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to accept government support, were especially attractive funding targets for public officials because they were usually located in lowincome neighborhoods and offered governments the opportunity to respond quickly to social problems associated with poverty. Many settlement houses across the country received community action funds from OEO, grants to establish neighborhood health clinics, Head Start funds, and subsidized daycare funds through Title IV-A and Title XX. Friendly House of Worcester is a good example of this transformation. It was designated a community action agency in the mid-1960s and received government funds for daycare services for abused and neglected children in the 1970s. By 1980 government was providing 49 percent of the agency's total revenues of $677 thousand. In the late 1970s the wealthy board members who had provided the bulk of financial support for the agency throughout its history resigned; they were succeeded by individuals more comfortable with the substantial dependence of the agency on government funding. As government funding rose, private funding from the United Way, fees, private contributions, and investment income usually rose in absolute terms (see Table 3) but declined sharply as a percentage of total revenues (see Table 4). Government funding of traditional agencies had other major implications for the balance between public and private provision. First, such funding represented a transfer of the costs of social services from clients (and their families), private donors, and the United Way to the federal government, and to a lesser extent to state government. 62 Second, the reduction in agencies' reliance on client fees permitted them to give more needy individuals access to services. Third, government funding freed these agencies from the incrementalism dictated by dependence on private funding sources and fees. Under the old system the agencies could not undertake new initiatives or meet unexpected obligations without running sizable deficits. 63 Government funding through contracting permitted rapid growth and the introduction of new services which sometimes represented substantial policy departures. Nonincremental growth permitted some heady experimentation in agencies often regarded as stodgy. But innovativeness and quick growth were to show their shortcomings during later periods of government contraction. The traditional agencies had now become instrumentalities of govern-

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ment funding, expanding beyond the niches supported by private funds. The transformation in the scale of these agencies meant that they would be less able to cover shortfalls in funding with private contributions or endowment income.

Government-Sponsored Agencies Many of the agencies in this category represent an effort by government officials in cooperation with social welfare advocates and professionals to create new nonprofit service programs that would provide alternatives to the existing public and private agencies. Community action agencies were to be an alternative to the state social service bureaucracies. Community mental health centers would be community-based alternatives to the public state hospitals. New community programs for the developmentally disabled and juvenile delinquents were conceived as more humane and effective programs than the existing state schools and training schools. Spending on these programs rose sharply from 1965 to 1980. As federal funding emerged to support these initiatives, the new government-sponsored agencies grew rapidly. Coastal Community Counseling Center (CCCC) was founded in 1968 with seed money from a federal grant. Total revenues were $296,000, with government funding providing 64 percent of this amount. By 1980 agency revenues had reached $2.27 million, and revenue from private sources had disappeared. 64 While its total dependence on government funding makes ccce an unusual case, most community mental health centers were heavily reliant on government funds. The Community Action Program (CAP) of the federal Office of Economic Opportunity showed similar growth. Prospect House in Worcester, Massachusetts, was founded in 1968 through an OEO grant under the CAP program. In 1975 its budget was approximately $74,000. By 1980 annual revenues had reached $259,000, with 89 percent derived from government. 65 Youth agencies also increased in size. Youth Opportunities Upheld, Inc. (YO.V.), another Worcester agency, was started with a small private grant and a sizable federal grant in 1972. Annual revenues were $100,000. By 1980 revenues had reached $995,000, with government funding contributing 90 percent. 66 Other types of service agencies in this category include drug and alcohol treatment,

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neighborhoc)d health services, homemaker/ chore services, and daycare.

New Community Agencies The agencies we include in this category were created on an allvolunteer basis and originally depended on small cash and in-kind donations. They include organizations for retarded citizens, emergency shelters for youth, battered women shelters, and rape crisis centers. The well-known drug program, Phoenix House, started in this fashion. According to a 1972 Phoenix House report, the founders of the organization were "five addicts, straight out of a hospital detoxification ward and desperate to stay free from heroin. They pooled their welfare checks for rent and food, scrubbed and scoured their rooms, and cadged paint and furniture to make a real home ... Out of a common need to reclaim their lives, they had bonded together. "67 These and similar agencies focused on other social concerns experienced explosive growth in the late 1960s and 1970s, owing to the sharp increase in contracting. Phoenix House grew from nothing in 1967 to a $4.7 million program in 1972, with 48 percent from government contracts and an additional 22 percent from the residents' public assistance payments. 68 The Minute Man Association of Retarded Citizells (MMARC) of Concord, Massachusetts, is another good example. Organized in 1958 by 21 people interested in providing more services for the developmentally disabled, its first year budget was only $3,263.29. It did not hire an executive director (half-time) until 1975. Before that, the agency's only paid staff was a secretary who worked a few hours a week. In the late 1970s the agency entered an organizational "take-off" stage. In 1978 its budget was $98,750; by 1982 revenues had reached $693,000, fueled by $563,000 in government contracts (81 percent of total revenues). This rapid growth in funding was typical of many community agencies. The Ecumenical Social Action Committee (ESAC) of Jamaica Plain, a neighborhood in Boston, was founded in the late 1960s by local clergy concerned about neighborhood youth. Its revenue jumped from $92,000 in 1971 to over $1.1 million in 1980. Government funding accounted for 70 percent of revenues. In short, the new community agencies expanded in tune with the

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dramatic growth in federal and state revenues during the 1970s. Many of these agencies were transformed from relatively small community-based organizations reliant upon private donations, volunteer labor, and in-kind assistance to much larger agencies dependent primarily on public funds.

The Reagan Era and a Changing Federal Role In the first year of his presidency, Ronald Reagan successfully pressed for the enactment of the Omnibus Budget Reconciliation Act. The major budget cutting legislation of the President's first term in office included provisions that affected social services and government funding of nonprofit agencies. • Title XX, renamed the Social Service Block Grant (SSBG), was cut approximately 20 percent. • New federal regulations allowed states more discretion in their funding decisions. • Matching requirements for federal funding of Title XX were eliminated. • The Comprehensive Employment and Training Act (CETA), which provided funding to nonprofits such as child welfare agencies and battered women shelters as well as job training programs, was abolished. • Federal funding for social service programs such as community action agencies and neighborhood health clinics was reduced significantIy. 69 Other social programs, ostensibly supported by the Reagan administration, received only modest increases, inadequate to keep pace with inflation. 7o The Bush administration largely continued the policies initiated in Reagan's first term. The impact of Reagan administration policies on public social expenditures is evident in the shifting obligations of the federal and state governments. Total federal spending on social welfare services through the Social Services Block Grant (SSBG) and other grant programs declined from $8.8 billion in 1980 to $8.1 billion in 1988.

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The SSBG declined in real terms (1990 dollars) from $4.4 billion in 1980 to $2.6 billion in 1991. 71 To compensate for declining federal assistance and rising service demand, state and local spending on social welfare services increased from $4.8 billion in 1980 to $7.3 billion in 1988. Total expenditures from federal, state, and local sources increased from $13.6 billion in 1980 to $15.24 billion in 1988. 72 (These figures understate federal and state funding on social services, since they exclude funding through public health insurance programs such as Medicaid and Medicare.) Federal expenditures as a percentage of total social welfare service expenditures declined from 64.6 percent in 1980 to 52.4 percent in 1988. 73 Despite the overall decline of the federal role in social services, federal funding of some services increased. Federal child welfare expenditures through Title IV-B of the Social Security Act rose from $163.6 million in fiscal year 1981 to $273.9 million (estimated) in fiscal year 1991. Title IV-E expenditures for foster care increased even more sharply: from $308.8 million in fiscal year 1981 to $1.8 billion (estimated) in fiscal year 1991. 74 The continued growth in government funds for child welfare services was reflected in a survey of member agencies of the Child Welfare League of America. From 1979 to 1986 median agency revenues from government rose from $453,000 to $1,032,000. Overall, government revenues represented 59 percent of total revenues for the 238 member agencies, down from 62 percent in 1980 but still more than double the 28 percent of total revenues for 1960. 75 A 1988 study by Family Service America concluded that the proportion of total revenues from government sources was 34 percent in 1979, 30 percent in 1982, and 37 percent in 1986. Overall revenue growth from 1982 to 1986 was 23 percent, outpacing the four-year inflation rate of 13 percent. 76 Other service categories received increased government funding. Congress passed the Stewart B. McKinney Homeless Assistance Act onJune 30, 1987. This legislation augmented funding authority for already existing federal programs to help the homeless and hungry. In addition, the act established two new programs under the authority of the Department of Housing and Urban Development to help the homeless find permanent housing. The act authorized $1 billion in federal funding for fiscal years 1987 and 1988. 77

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A General Accounting Office (GAO) study reported that in 1988, 9,000 shelters and other agencies planned to use funds from the Federal Emergency Management Agency (FEMA) to provide 80 million meals and nearly 14 million nights' lodging to the needy, as well as rental, mortgage, and utility assistance. Small providers relied heavily upon FEMA funds for operating expenses. Over one-fifth of the service providers who responded to a GAO survey had operating budgets of$10,000 or less. These organizations, on average, received 63 percent of their operating funds from the Emergency Food and Shelter (EFS) program administered by FEMA. For 10 percent of these organizations, EFS funds were their only source of revenue. 78 State spending on homeless programs also increased, although the amounts varied across the country. Expenditures on homeless single men and women in New York City, where homelessness was perhaps most acute, rose from eight million dollars in 1978 to $100 million in 1985. The city also spent $100 million on homeless families in 1985. 79 Public funding of drug and alcohol treatment increased substantially. New York State expenditures rose from $309 million in 1985 to $504 million in 1988. During the same period, expenditures in California rose from $202 million to $261 million and in Minnesota expenditures rose from $5.6 million to $46 million. 8o While many social welfare advocates complain about the adequacy of current government expenditures on drug programs, present spending is nonetheless substantially higher than just a few years ago. The revenues of drug treatment agencies from client fees and insurance companies also escalated very sharply. Fee income rose from $21.3 million in 1980 to $157.3 million in 1987, while private insurance payments rose from $20 million to $348.1 million. 81 Nonetheless, total public and private spending on drug treatment programs is only just beginning to approach the level of 1976 spending in real terms. Total spending in 1987 dollars fell from $1.5 billion in 1976 to $1.3 billion in 1987. Demonstrating the sharp decline in the federal portion in the early years of the Reagan administration, federal spending for drug treatment as a percent of total public and private revenues dropped from 42.5 percent in 1976 to 19.5 percent in 1987.82 During this same period, state and local funding as a percent of total public and private revenues also dropped, though much less sharply than the federal share, reflecting the growing role

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of state and local governments in funding drug treatment during the 1980s. A large portion of the public and private treatment funds for alcohol and drug abuse is spent by nonprofit agencies. Nationwide, 65 percent of alcohol treatment units were nonprofit agencies in 1982. 83 The increase in spending on treatment for alcoholism has attracted competition from for-profit providers. However, nonprofit providers still served 58 percent of all clients in alcohol treatment programs in 1987. 84 Drug treatment programs are characterized by a sharp distinction between programs serving private and public clients. Private clients tend to be middle class and upper class and to have private insurance. In 1987,63 percent of the providers serving these clients were hospitals; both for-profit and nonprofit. Public clients, by contrast, tend to be indigent, often with criminal records. In 1987 these clients were served primarily by outpatient programs (63 percent), which were principally provided by nonprofit organizations. 85 In that year four-fifths of the $800 million that went to serve 650,000 clients in drug treatment nationwide came from public sources, including government contracts and Medicaid reimbursement, with the states carrying most of the funding burden. 86 During the last 15 years, deinstitutionalization has continued to reduce dependent populations in state institutions and increase the clients of private providers. In 1977,155,000 of the mentally retarded resided in stat.e institutions, compared to only 93,000 in private facilities and specially licensed foster homes. From 1977 to 1986 deinstitutionalization continued at a rate of about 5,000 per year. By 1986, 129,000 people with mental retardation resided in private facilities and 19,000 in specialized foster homes, compared to 105,000 in state institutions. 87 In New York State over 25,000 people lived in public institutions in 1975. By 1987 fewer than 10,000 people lived in public institutions, and community programs had been developed for 17,000 people previously residing in the institutions or at home. 88 This shift to the community is reflected in the spending data. Total state and federal commitments to mental retardation and developmental disabilities programs increased from $3.5 billion in 1977 to $11.7 billion in 1988. In inflation-adjusted 1988 dollars, this represents an increase of 72 percent during this period. Spending for

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community services advanced much more rapidly than for institutional services. 89 A 1986 nationwide survey of providers of services for the mentally retarded found that about half of the providers were nonprofi t agencies. (Only seven percent were for-profit.)9o In that year 79 percent of revenues came from government sources, and another 10 percent was contributed from federal income maintenance programs such as Supplemental Security Income (SSI) and Social Security Disability Income (SSDI) .91 The shift to community-based programs has been facilitated by federal income support programs for the developmentally disabled. The federal government has also assumed the cost of care for the developmentally disabled (and to a lesser extent for the seriously mentally ill) through Medicaid's Intermediate Care Facility-Mental Retardation (ICF-MR) program, which allows the handicapped to live in small community settings. In 1988, 27,304 persons were served in public or private ICF-MR facilities of 15 or fewer beds. Total federal commitment (excluding the state match) was $543 million. This represents an increase of 56 percent in unadjllsted terms from 1986.92 These programs are especially attractive to state governments because they permit shifting the cost of coverage for the developmentally disabled (and chronic mentally ill), who previously resided in state institutions at state expense, to small-scale residences sllbsidized substantially by the federal government. 93 In summary, in the 1980s the federal government reduced expenditures in some social services areas but increased them in others. State governments assumed responsibility for many services started in the 1970s by federal grants, and increasingly spent funds to purchase services from nonprofit agencies. As state economies recovered from the recession of the early 1980s, state funding rose significantly in many service areas. Consequently, nonprofit agencies remained substantially dependent upon government funds throughout the 1980s.

Differential Impacts and the Search for Alternatives Federal policy changes of the 1980s had differential impacts on individual agencies. However, this decade also demonstrated that

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government has influenced nonprofit service agencies through means other than contract funds, including Medicaid (the public health insurallce program for the poor) and income maintenance payments such as SSI, as nonprofit agencies searched for alternatives to federal funding. In the early 1980s many nonprofits primarily dependent on federal funding were forced to cut their budgets and curtail services. Consolidated Neighborhood Services, Inc. (CNSI) of St. Louis, Missouri, a multi-service agency, lost $750,000 of its $2 million budget almost overnight. 94 Other agencies grew apace (see Table 5). Agencies with substantial reliance on federal programs that were cut, such as job training and placement, experienced declining revenues in .the early 1980s. This was the case with the Center for Human Development (CHD), the FCAC, Jobs For Youth, Boston, Inc. OFY), and the Key Program. ESAC suffered even more severely.95 Despite a drop in federal funding, these agencies were able to increase their revenues after the early 1980s because they switched to state-funded contracts or other federal programs. FCAC picked up the federal cheese-and-butter distribution program and fuel assistance. CHD received substantial increases in Medicaid funding. Other agencies primarily dependent on state funding or a combination of state fUIlding with secure federal funding, such as the Harbor Schools (THS), were able to weather the change in federal social policy without setbacks. They expanded in the 1980s in tune with the expansion of state funding for child welfare services. New sources of contract income are not available to all. With the decline in federal revenues, and with fiscal stresses affecting even states which tried to replace federal funds, nonprofit service organizations are trying to develop other income sources including Medicaid, fees-for-service,96 community fundraising campaigns such as the United Way, and income producing activities such as technical assistance. Medicaid is a particularly attractive new funding source because, as an entitlement program, it is still growing. Total spending (in current dollars) on Medicaid more than doubled from 1980 to 1988, going from $27.3 billion to $60.5 billion. 97 As noted, Medicaid is an important source of funds for many

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nonprofit agencies providing group care for the mentally ill and developmentally disabled. 98 The Medicaid ICF-MR program fueled the growth of agencies for the developmentally disabled across the country. The annual revenues of the St. Louis Association of Retarded Citizens (SlARC) rose from $4 million in 1985 to $5.9 million in 1988. ICF-MR funds comprised 42 percent of its revenues in 1988. Many nonprofit mental health and family service programs have tapped Medicaid for reimbursement for counseling and therapy. The Worcester Children's Friend Society (WCFS), the MSPCC, and the Judge Baker Guidance Center received over 60 percent of their fee income from Medicaid in the late 1980s. Fee income for these agencies rose substantially from 1980 to 1988 (see Table 6). Other agencies such as Family Services of Greater Boston relied more heavily on reimbursement from private health insurers. However, this shift to private reimbursement does not necessarily indicate a shift in clientele, since many traditional agencies prior to the 1980s were not primarily involved in serving the poor. The increase in fees from private insurers represents refinancing of services whereby services previously subsidized by federal and state funds, by individllals, or by private charities are shifted to private insurers. The transfer of costs to Medicaid and private health insurers has implications for policy. To qualify for reimbursement from Medicaid or private insurers, an agency that offers mental health services needs to be certified as a mental health clinic. Clinic status requires that social service agencies use the standard medical classification system (contained in the compendium known as DSM-III) and adjust their practices to conform to medical diagnostic procedures and treatment approaches. This shift to a certain extent results in the "medicalization" of social work and counseling practice. Problems previously regarded as situational are now placed in medical illness categories. Consequently, a social worker's focus may move away from the community or support network or the circumstantial source of a person's difficulty to an individual pathology.99 The rising importance of mental health clinic status to agencies is contributing to the consolidation of providers and the winnowing out of small agencies. The clinic application process is expensive and time consuming. Approval is only granted to agencies that meet fairly substantial professional staffing levels. The newer agencies, which tend to be undercapitalized, find it difficult even to apply.

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Public and .private health insurers are not the only source of fees. Many agencies receive payments directly from individuals. Residential programs, for example, often ask residents to pay their room and board from their SSI or General Assistance payments. Thus SURC received 16 percent of its income from program fees in FY 1988, but most of this fee income was resident SSI payments in that year. IOO The importance of S5I payments for these programs grew during the 1980s, because these payments (a primarily federal program) continued to increase in real terms while other sources of revenue declined. lOl Despite the search for fee income for public and private sources, fees remain a relatively small percentage of agency budgets. A 1991 survey of over 300 Massachusetts agencies found that client fees accounted for only six percent of all revenue. I02 An Arizona survey concluded that client fees represented 13 percent of agency income with less than half of the almost 200 surveyed agencies reporting any income from client fees. I03 Further, many fee-dependent services are losing money because of reimbursement limits by public and private insurers, which fail to pay the full cost of service. Private charity has also failed to keep pace with rising costs and demand and has not been able to substitute for lost federal or state funding. Charitable donations climbed in the 1980s, but haltingly.lo4 Giving to the United Way rose from $1.7 billion in 1981 to an estimated $3.2 billion in 1991, but the latest year-to-year increase failed to keep pace with inflation. I05 Philanthropic giving to all human services agencies rose by less than four percent in 1990, a drop of one percent in real terms. I06 A 1988 survey of the CWLA agencies concluded that the United Way share of total agency expenditures was up slightly, from nine percent in 1980 to 10.4 percent in 1987. The median percent of total income from contributions rose from two to five. 107 Many social welfare organizations find the recent experience of the Holy Family shelter in Indianapolis typical. Public funds for homelessness helped increase the capacity of the shelter, as the Wall Street Journal reported, but capacity still falls far short of keeping pace with the rising demand for shelter. United Way funding has fallen and community volunteers are sorely lacking. lOS Overall, United Way funding is a relatively small source of total revenues for nonprofit service agencies. A 1991 survey of over 350 Massachusetts service agencies found that United Way funding com-

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prised four percent of agency income, compared to 52 percent from state contracts and 17 percent from nonstate contract government funding such as SSI and Medicaid. 10g A majority of agencies do not receive any United Way funding, because the United Way allocation process is resistant to change. United Way agencies tend to be organizations previously affiliated with Community Chest, long before the explosion of government-sponsored and new community agencies. Only one of the government-sponsored or community agencies we surveyed received any United Way funding in 1988. 110 In sum, by the early 1990s, despite changes in the mix of federal and state support, nonprofit service providers still depended heavily upon government contracts. Unable to diversify because of undercapitalization, staff limitations on fundraising, and lack of access to private charity, the newer agencies still receive most of their funds from contracts (see Table 7). The picture for the traditional agencies is more mixed, but on the whole it shows the strong continuing influence of contracting. The only traditional agencies whose total revenues declined substantially were Children's Friend and Service (CFS) and WCFS: they lost substantial government contracts. In response, these agencies aggressively tried to raise more private funds, but with only partial success. III (See Table 8.) Even the agencies with significant revenue growth from government experienced severe fiscal distress, because their costs rose faster than their revenue. Several factors pushed up costs during the 1980s: more demanding government regulations, increases in wages, payroll taxes and insurance, and programming for a more needy client population. In addition, agencies reliant upon COIl tracts were often persuaded to accept responsibilities that were not entirely matched by contract reimbursements, as they sought to maintain their programs rather than close shop.

Conclusion The changing revenue mix of nonprofit service organizations heralds little noticed but profound changes in American social policy. Prior to the 1960s nonprofit agencies were primarily dependent upon private donations, endowment income, and in-kind assistance. This situation reflected prevailing social policies that emphasized a minimal federal role in funding social services, a circumscribed state

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role, and voluntarism. Private charity was the primary provider of social services, except for traditional concerns such as institutional care ofjuvenile delinquents, the mentally ill and mentally retarded, and child protection, in which state and local governments played critical roles. This decentralized and largely private structure of responsibility for social services produced incremental change and a limited service system. During the 1960s and 1970s the federal government undertook to overcome the historical limits of state and local governments and private charity in meeting social service needs. Nonprofit agencies became agen ts of government in the expansion of the American welfare state. 112 The Reagan administration reversed course by cutting federal spending on rnost social services and halting the growth of the federal role. It initiated an extensive reallocation of funding responsibilities between levels of government (federal to state) and rearranged some responsibilities between government programs (social service to health). Nonprofit agencies once again became more dependent on state and local funding. Private charity was asked to do more. The cutbacks of the Reagan and Bush administration were also "absorbed" by nonprofit workers whose salaries declined in real terms, and by clients who are no longer served, have to wait longer, or receive poorer service. The decentralization of many social programs to the states makes the financial health of nonprofit agencies highly dependent on the fiscal health of the states. In the 1980s the capacity of state governments to increase their funding to nonprofit service agencies grew with their growing economies. But as state economies slump, nonprofit agencies are increasingly squeezed as states try to hold down social spending. 113 The result is further consolidation among nonprofit agencies, and staff and service cutbacks. In 1990 Prospect House, an agency founded as a community action agency in the 1960s, declared bankruptcy. In 1991 the WAARC took over the government contracts of three other faltering service providers. Social services are now more dependent on state economies that are more vulnerable to shifting economic tides. And, like other state welfare expenditures, social services are now caught in the grip of a federal logic in which states compete with each other to keep taxes IOW. 114

4 - Guardians of Community and Issues of Governance

Nonprofit organizations are important to our concepts of community and citizen empowerment because they represent the efforts of people to take collective action outside the umbrella of government. But nonprofit organizations do not set goals or make decisions as such; it is important to avoid the fallacy of stating that organizations can think or act, although we often make such assertions to facilitate ease of expression. On the contrary, nonprofit organizations can only be said to articulate their objectives and formulate their plans when their governors-their boards of directors or executive officers-take action. The rise of contract income in the support of nonprofit organizations has transformed nonprofit organizations, literally, into agents of the state. Most nonprofits today expect to conform their operations to public purposes and priorities and to come under the partial control of public officials. Some recently formed nonprofits-from youth shelters to drug programs to poverty agencies-have actually been founded as vehicles to carry out public purposes. There is potential tension between governing nonprofit organizations as agents of community and operating them as agents of government. This tension is expressed in different ways, including changes in the composition of boards of directors, changes in the qualifications and recruitment of executive officers, and changes in the relations between boards and executive officers. In general, contracting tends to accelerate the organizational development of nonprofits, in the course of which authority shifts from the board to the executive director, allowing executives greater discretion and more opportunity to be "entrepreneurial" in program management. The organizational structure then resembles to a greater extent that of for-profit organizations. However, since the market for social ser-

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vices is dominated by government, these internal organizational changes also make· nonprofit organizations more susceptible to government influence and control. Government contracting with nonprofit agencies is at one level an administrative procedure: government selects a nonprofit agency to provide public services. However, it is also a political act, because it masks the exercise of government influence and power and shifts authority within the organization. Consequently, contracting involves complex tradeoffs: while contracting may help expand services, it also undermines the role of nonprofit organizations as distinct entities separate from government and market organizations-the socalled mediating function of nonprofit organizations. These changes should be of substantial interest to analysts of American democracy who have regularly located the vibrancy of the Republic in the distinctive role of voluntary associations as vital links between citizens and the state. Alexis de Toqueville and contemporary theorists such as Robert Dahl have applauded the virtues of community action, particularly the political stability promoted by popular participation in independent intermediary institutions. 1 The virtues of these self-directed organizations continue to be touted because they are perceived to be legitimate; the institutions are closely tuned to community needs and sentiment and are therefore ultimately more effective than government in resolving certain social problems. From the community mental health movement and community action poverty program of the 1960s, to the contemporary community development organizations and public-private partnerships of today, nonprofit organizations are thought to offer special advantages in addressing community concerns.

Boards of Directors A nonprofit organization comes into being when a small number of people get together to pursue what they take to be community interests. They do not expect to benefit financially and indeed are barred from doing so. Traditional nonprofit service agencies typically were founded by members of the elite who took on the mission of providing for the poor and other unfortunates. Some agencies were founded by patricians acting on behalf of the popUlations of whole cities or towns in an era in which government assumed a

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narrow range of public responsibilities. Others were founded on behalf of religious or ethnic communities of interest. The generalization continues to hold even though conceptions of what constitutes a community of interest and who properly represents that interest have been changing. Boards of directors, more than any other aspect of nonprofit organizations, embody and represent community interests. Formally, this is the case because the board members are volunteers-a status that implies their commitment to fight the problems of the community by giving unremunerated time and effort to the organization. Perhaps more important, however, board members are selected, and are understood to be selected, on the basis of their allegiance to the ideas and values embodied in the organization's character, history, and current purposes. Here we continue to take a broad view of "communities" as selfconscious collectivities of shared sentiments that take on voluntary activities consistent with those sentiments. This broad definition permits us to accept the variety of definitions of community that nonprofit organizations apply to themselves. Thus at one time the Protestant clergy of an entire city may undertake to establish an orphanage for their co-religionists. At another time the clergy of all denominations may establish a social service program for a particular neighborhood. The essential point is that the community of interest represented by the nonprofit organization takes its priorities from an analysis and concern over particular needs, without reference to the needs and priorities of the political system or its administrations, although the recognition of a particular need may reflect the perceived failure or inadequacy of an existing government policy. A broad definition of community also accommodates the wide range of backgrounds of the people who sit on nonprofit boards. In different proportions boards may count among their members service providers, community influentials, people deemed potentially helpful to the organization by virtue of their skills or occupation (such as public relations specialists and lawyers), and even clients. A change in board composition, however, may signal changes in conceptions of community or the relationship of community to the state. Boards of nonprofit organizations often differ substantially from one another, generally in ways that correspond to the three basic types of nonprofit service organizations: traditional agencies, agen-

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cies founded primarily in response to government funding, and agencies established by community leaders in response to unmet community needs. 2

Traditional Agencies Traditional agencies date to the last century and early part of this century. They belonged to one of two basic types: secular and religious. The former were typically founded by wealthy civic leaders who had a particular vision of addressing a social problem and decided to support the creation of an organization to further this vision. Because of historical circumstances-favorable state laws in the last century and greater affluence-these traditional organizations are more common in the Northeast and Midwest. Current examples include many child and family service organizations such as the New England Home for Little Wanderers and the Massachusetts Society for the Prevention of Cruelty to Children. 3 The religious agencies emerged from immigrant communities of the last century, such as Catholic Charities or Lutheran-affiliated agencies such as the Lutheran Family and Children's Services of St. Louis, or they represented the extension of a church's overall religious mission, such as The Salvation Army.4 Governance of these agencies generally was conducted by members of the affiliated church or denomination. In 1960, prior to the major expansion of federal funding of nonprofit agencies, governance of the secular traditional agencies was distinctive in several ways. They had large boards; 30 to 40 members was not uncommon. Most members were wealthy; in this respect they were not representative of the community. Boards tended to be self-.perpetuating: new members were generally selected by the board, with the support of the executive director, from the ranks of the same social class. Board members tended to take an active part in governing their organizations. They were also intrusive. The Board of the New England Home, founded in 1865, personally approved the salaries of the entire staff each year during the 1950s. 5 By contrast, board members of the religious agencies tended to be more removed from daily agency operations. Board members of secular and religious agencies shared a suspicion of governme:nt and viewed the mission of their organizations as

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essentially private. Even in situations where agencies received government funds, as they did in urban areas in the Northeast, accountability demands were innocuous so that government intrusion was thought to be tolerably minima1. 6 Board members saw their task as keeping the agency financially and organizationally stable. 7 In secular agencies, board members were not reluctant to make up deficits with their own personal funds. In religious agencies, budget shortfalls were reduced or eliminated through contributions by parishioners or, in the case of The Salvation Army, public appeals. Extensive fundraising through community solicitation was relatively rare, in part because it was considered unnecessary. Revenue demands were particularly modest among the many small agencies. For example, the annual expenditures of Cambridge (Mass.) Family Services were only $49,000 in 1959, 77 years after its founding. The large secular and religious agencies usually faced little competition for Community Chest funds or parishioner contributions.

Government-Sponsored Agencies Starting in the 1960s, many nonprofit agencies were founded in direct response to government funding. At times, government officials actually articulated the need and then created the organization in concert with interested social activists. Many current nonprofit programs for the poor, mentally ill, and developmentally disabled fit this model. The boards of these agencies are quite different from the boards of the traditional agencies. Many of their key features are similar to those established to run businesses. As Myles L. Mace observed, for-profit boards tend to play "relatively passive roles" in the governance and operation of their organizations. 8 Forprofit boards also tend to be small (10 to 15 members) and often meet on a quarterly basis. The Key Program, a large youth agency funded primarily with government contracts, is a good example of the similarity between nonprofit and for-profit boards. The board of Key, based in Framingham, Massachusetts, consists of 10 members. Two board members-the founding brothers of the agency-live in Washington, D.C., and fly into town for quarterly board meetings. None of the board members is particularly wealthy; none is the wife of a corporate executive. Instead, the other board members are professional people who provide advice and counsel to the executive

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director. A local attorney is on the Key board to advise on legal issues and other related matters. As is the case of many for-profit boards, the executive director of Key also sits on the board. 9 Other government-sponsored agencies we studied in depth, such as Dynamic Action Research Enterprise (DARE), the Harbor Schools, the Center for Human Development, and the now-defunct Coastal Community Counseling Center, are similar to Key in their board structure and role in agency governance. Board members arrange creative real estate deals to benefit the agency, obtain new bank financing, and facilitate meetings with prominent political leaders. The executive director runs the agency and sets the agenda of the board. For example, the board of DARE during the 1970s boasted some of the most influential political leaders in Massachusetts. Yet as one observer noted, Gerry Wright, the founder and executive director, "ran the organization from day one."IO The board believed in the executive director and were dedicated to helping him succeed. This powerful position of the executive director also .reflects the origins of the organization in government financing. Often government financing is given to a powerful or charismatic individual and his or her supporters. As a result, the executive director is usually able to hand-pick the board members. Nonetheless, these boards are more descriptively representative of the community than the traditional boards. II Members of these boards are less affluent than were board members of traditional agencies, in part because they are not expected to contribute their own money to an organization funded primarily by government. The new board members tend to come from more diverse racial and ethnic backgrounds. Some of these boards have client and consumer representation.

New Community Organizations When the new community agencies are established, the board is typically the organizing committee for the organization, a group of like-minded people who want to address a particular social problem. Shelters for battered women and rape crisis centers, for instance, were established in the early and mid-1970s by feminists dedicated to offering a politically radical service alternative to victims of rape and battering. In the beginning these shelters were not mainstream

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activities but the organizational expressions of community activists. 12 Similarly, many youth service and poverty agencies were dedicated to changing the social and political order. A good example of these agencies is the Ecumenical Social Action Committee in Jamaica Plain, Massachusetts, a neighborhood in Boston. As suggested by its name, ESAC was founded by church leaders who came together in 1965 out of concern over the lack of recreational and support services for adolescents and children in the community. The agency also was involved in community organizing on behalf of local Hispanic residents with the goal of developing a "Spanish-speaking power base in Jamaica Plain." In 1971, 16 out of the 17 board members were church leaders from the neighborhood. The board was heavily involved in running the organization, since it lacked money for a paid staff. ESAC is typical of these new community agencies insofar as the initial board emerged from a community of like-minded people who wanted to address a social problem. The first board of the Minute Man Association of Retarded Citizens (MMARC) , founded in 1958, was made up of eight parents of retarded children from the Lexington-Concord (Mass.) area. The board ran the agency with the help of other volunteer parents and interested citizens. The agency did not even have an executive director (half-time) until 1975. This situation was typical of many associations of retarded children around the country.I3 Many of the new community agencies, including ESAC, existed for a period of time without official legal status. The Worcester Association of Retarded Citizens (WAARC) began monthly meetings in 1950 and operated recreational programs after 1955 but did not legally incorporate until 1961. Many agencies did not incorporate until government funders or private donors required them to establish themselves as legal entities. These new community agencies should thus be seen as emerging from the informal system of communal provision characteristic of family, neighborhoods, churches, and community members. 14 Often, the agencies are legally part of the formal system of care but in practice operate their programs like an informal support group. This is a major distinguishing characteristic of these agencies. While government-sponsored agencies have always been part of the formal system of care and were responsive to government priorities from the beginning, the new community agencies emerged spontaneously

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and followed their own norms rather than government expectations and rules.

Executive Directors Management demands on nonprofit organizations have been changing, largely as a result of heightened accountability requirements arising from government contracting as well as from the United Way and accreditation organizations. The role of executive director, responsible for day-to-day management of the organizations, has been changing accordingly.

Heightened Accountability Requirements In the last decade government regulation and oversight of nonprofit service organizations have grown substantially. The general effect of these initiatives has been to require nonprofit organizations to be more accountable to the public. To the extent that these demands dominate nonprofit agency practice, they shift organizations away from community norms and toward government norms and expectations. The demand for greater accountability among nonprofit service agencies is part of a broad trend within the American welfare state, affecting public agencies as well as private providers. In recent years the federal government has initiated many new regulatory efforts, including Diagnostic Related Groups and other schemes to control health care expenditures;15 quality control initiatives in Aid for Families with Dependent Children (AFDC), food stamps and other income transfer programs;16 and performance contracting for private and public agencies providing services funded through the Job Training Partnership Act (JTPA).17 The new regulatory presence sharply breaks with past practice. Until the 1960s government regulation and control tended to be quite minimal: government deferred to the private agency to monitor client progress, service quality, and admission and discharge decisions. This deference to the private sector fit with the prevailing view that public social welfare expenditures should be kept to a minimum. Regulation began to increase during the 1960s and 1970s, when

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the federal government passed legislation which forced or encouraged private service agencies such as community mental health centers or child welfare agencies to adhere to guidelines on the selection of clients and types of services provided. However, the bureaucratic infighting that took place during that period between federal, state, and local officials meant that many private agencies were able to ignore or circumvent the new regulations. I8 Several factors account for the shift in government regulation in social policy during the 1980s. Among them are attempts to control expenditures in popular programs that could not be cut severely or eliminated; increased public pressures to justify program expenditures; and increased public suspicions, fueled by Defense Department scandals, that government is unable or unwilling to hold contractors to account. Public officials who are closer to the scene of service provision have their own reasons to pile on accountability mechanisms. Faced with rising demand for service and reduced funds, state administrators use regulations to "ration" services in a way that is consistent with state service priorities. I9 Two primary forms of government accountability requirements are (1) fiscal and (2) programmatic. Contract organizations have always been subject to demands that they demonstrate accountability in these areas, but the combination of fiscal stringency, competition for funds, and increased range of agency responsibilities has made governmental accountability demands more acute. This is the case even when government agencies still tend to lack the personnel fully to monitor program quality, although new management information systems have allowed state agencies to process much greater amounts of information with fewer staff members than they had used in the past. Fiscal demands on contract organizations have increased. A service provider may have multiple funding sources, each with its own, noncompatible billing requirements. These several contracts require that shared and central costs be properly allocated. Bigger agencies must now deal with salary, fringe benefits, social security tax reporting, and insurance issues for a larger workforce. Personnel policies, affirmative action policies, grievance procedures, and other management systems require what for many organizations is unprecedented attention. Demands have also increased for programnlatic accountability. As

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a condition of maintaining funding, public agencies and other sponsors insist that contract agencies develop and keep track of indicators of program success. Government agencies increasingly favor performance-based contracting as a means to spur contractor achievement. 20 But even under conventional contracts program audits become one important way for government to keep track of contractor performance. Responding effectively to these new demands again requires executives to command new skills. An effective executive now must identify measurable stages of client progress, design improved recordkeeping systems, and insist that staff keep better records, track client success, and summarize client outcomes in ways that satisfy sponsors (and, it is to be wished, aid the agency in improving performance). To be sure, the United Way and other funders have also increased their accountability requirements for nonprofits. In general, United Way chapters tend to focus on financial issues and measures of program stability such as the number of corporate executives and community notables on the board of directors. However, since most social service agencies do not receive United Way funding, the impact of these new regulations has been confined to the relatively restricted universe of United Way affiliate agencies.

Executive Directors of New Community Agencies The effect the contracting regime has on governance is most clear in the case of executive directors of new agencies founded in response to community initiative. This is because these leaders closely fit prevailing perceptions of nonprofit directors: they are executives chosen from within the founding community, embodying its ideals and goals. Executives of organizations for developmentally disabled people, for example, tended to be either concerned parents or social activists committed to the idea that developmentally disabled people should live in community settings. Executives of battered women shelters were typically chosen from the feminist community that formed the founding support base for the organization. After a group in Somerville, Massachusetts, had worked for over three years to create new service opportunities for youth, it chose one of its number to direct Shortstop, Inc., the new organization. Government funding directly and indirectly contributes to

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changes in this pattern of executive recruitment. When new community agencies are founded, executives stress programs that begin to realize the vision of the founding group. Less attention need be paid, early on, to program and financial management. The emphasis is on starting activities, not on guaranteeing their fiscal and programmatic integrity. By dramatically changing the scale of the organization and its revenue demands, government funding forces executives of nonprofits to shift attention to organizational management. When a Boston juvenile court judge started an organization to serve the young people who appeared in court, the new organization hired an executive who was successful at community relations, establishing work programs for teenagers, and relating to neighborhood youth. Several years and contracts later, the organization had to replace the founding director with a man who, in addition to these skills, had experience in financial management, personnel systems, and fundraising. When community programs for the developmentally disabled have been persuaded to take on intermediate care facilities (ICF) for severely disabled adults, they have been forced to acquire financial management capabilities in order to negotiate the complex, rule-bound Medicaid reimbursement system. Since the ICF program is very costly, these executives spend a great deal of their time worrying about their cash flow, with little time left to explore program innovations. Governments demand attention to program management as well as fiscal responsibility. As the level of government funding increases, public officials come under increasing pressure to justify program expenditures. Outside critics demand accountability of contract management, a place where the contracting system is notoriously vulnerable. And of equal or greater importance, the scarcity of program resources drives public officials to insist upon demonstrations of performance. However, evaluating the outcomes of nonprofit service programs is difficult. Outcome measures for many services are not easy to determine. Some programs have multiple goals. Others have goals that are long-term and hard to assess within the lifetime of the con tract. Others may have goals-such as preven ting further crime

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by juvenile delinquents-that an agency may be considered to have met, even if it succeeds only modestly. Consequently, government officials tend to focus on ensuring that the process of service delivery is defensible to other public officials, legislators, and outside watchdogs of government activity. Process evaluation entails establishing standards that can be easily assessed by observing what the organization does, rather than what it produces. This includes setting regulations and contract standards involving personnel credentials, client nutrition, physical space requirements, and so on. The cumulative effect of such regulation is to create an almost overwhelming pressure on nonprofit organizations to hire professional managers as executives, especially persons with previous experience, perhaps with advanced degrees in management or business. In some cases founding executives of new nonprofit service organizations possess professional credentials. However, many new organizations were established by lay persons, social activists, or human service workers with no formal training in organizational management. 21 Over time, regulatory and financial pressures on the newer organizations lead to the transformation of their administrations. In some cases, a gradual displacement of the founding executives with professionals arid professional managers occurs. In 1984 MMARC selected a man with business education training and government administrative experience, making a sharp break from earlier executives who were rooted in the local area and had been thoroughly involved with the developmental disabilities community. In other agencies, the administration of the agency expands by the addition of an assistant director, a full-time bookkeeper, a program director, or other administrative personnel. The effect is to allow the executive, with the help of an enlarged staff, to cope better with the growing administrative demands of the agency. At this stage in an agency's organizational life, many executives seek out the services of a management consultant who specializes in nonprofit agencies. Many agencies also work closely with their outside accountants to improve their financial reporting systems. The shift in agency administration has been abetted by recent cutbacks in government funding, which have resulted in terminated programs, financial losses, and greater competition between service

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organizations for remaining funds. The result is an acute awareness among boards and staffs, especially in the undercapitalized newer agencies, of their financial vulnerability and the importance of demonstrating fiscal integrity. A key feature of the contracting regime is the increased emphasis on professionalism among executive directors. 22 Professionals bring many assets to an organization. They presumably bring state-of-theart knowledge in their field and continuing access to future developments. They bring a capacity to assess other service providers. They bring the respect of outsiders. Professional managers presumably have the skills needed to operate nonprofits in a period that stresses accountability. These are qualities without which many service-providing organizations cannot function effectively. Contracting has accelerated the trend toward professionalism for yet another reason. The essence of professionalism, from one point of view, is that society defers to an occupational group in its area of specialization. Backed by extensive periods of study and command of specialized knowledge, professional status is a claim of unique capability in a given area. 23 It should therefore be no surprise that public officials and others come to demand that people with professional credentials occupy top roles in organizations from which government purchases services. "Professional" management provides "proof' of sound contract practices because the symbolic assurances of expertise have been put in place. While professionals claim authority in their fields, they are sometimes challenged by lay people who are not convinced that professionals have all the answers, and who often regard deference to professionals as undermining of clients. Professionals bring norms and values that often conflict with the orientation of the community. Managers who are professional social workers, for example, typically support therapy, counseling, and a hierarchical counselor-client relationship. This focus also supports demands for accountability from outside funders and assures them that sound practice methodologies are in place. The professional social work orientation may contradict the orientation of some community organizations such as battered women shelters and programs for the poor and hungry, which are founded on philosophies of self-help, political action, and lay control of services. A manual from the Ann Arbor Women's Crisis

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Center from the early 1970s summed up this alternative sentiment well: By self-help we mean getting away from traditional therapy. At the heart of traditional therapy is the idea of a person with troubles going to someone more skilled and submitting herself to that person. In place of this approach, we have a philosophy of peer counseling. This means that one does not depend upon another to make one's decision. A person has to decide for herself the best way to deal with her problems. The counselor is there to listen to a woman and to reflect her feelings back to her. 24 This belief in the benefits of peer counseling as an alternative to conventional professional services has been characteristic of many of the new community agencies. It also reveals their roots in the informal care system. In any event, professionals bring to the organization a network of colleagues, peers, and expectations that are outside the founding community of the organization. Of course, some professional social workers are supportive of self-help programs. However, the regulations and requirements of the contracting regime make it difficult for these social workers to sustain an alternative, nonprofessional model of service delivery. State governments, for example, provided funding for rape crisis centers through a modest grant program from the federal Center for Disease Control during the 1980s. Typically, as a condition ofreceiving funding, the states required the centers to adhere to certain regulations. In. fiscal year 1987 the Massachusetts Department of Public Health funded 16 centers around the state. These centers were required to provide the following services in order to receive funding: (1) a 24-hour-a-day telephone hotline; (2) short-term counseling; (3) information and referral; (4) case management; (5) interagency coordination with medical, law enforcement, and the criminaljustice system; and (6) preventive education. 25 These regulations pushed the centers to integrate their operations with the existing professional service system, even if the individual executives and board members embraced the self-help philosophy. In effect, these regulations shifted the rape crisis centers into the formal care system. The pressures of the contracting regime also bring increased attention to cost-effectiveness and efficiency. This orientation conflicts

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with the commitment to the client and a particular mission which provides the raison d'nre for many community organizations. Many hospitals have attracted attention in recent years for closing their emergency rooms because they were losing money-decisions taken despite the longtime commitment of the hospitals to their communities. Many child and family service agencies were started as facilities to provide counseling and relief to particular communities or neighborhoods. Today, however, many of these agencies find that they lose money on their clinic services (due largely to low Medicaid reimbursement rates). Consequently, many agencies have restructured their outpatient programs. Some have curtailed their operations; others have targeted groups with greater profit potential such as large local employers, hospital referrals, or paying patients. In another recent development, professional counseling agencies have restructured their staffing in order to limit the number of full-time, professional employees. Instead, they now employ an increasing number of workers on a "consultant" or "per client" basis; thus social workers are only paid for the time they actually see clients. Professionals have a stake in working within the established political and social welfare system. Their peers work in many of the existing public and private social welfare agencies. Career advancement depends on working well with these peers. Their sense of social progress often runs to the advancement of professional practice, not to the fortunes of any individual organization. Thus professionals who lead nonprofit service organizations face crosscutting disincentives for aggressive political action and are not inclined to provide services substantially at variance with prevailing professional norms. The professionalization of nonprofit management also leads to the rise in executive salaries over time. Before widespread contracting, many executives worked part-time or donated a substantial portion of their time in the form of uncompensated hours or low salaries. Contracting often allows agencies to pay their executives a much higher salary. Where in the past nonprofit executives in new community agencies were primarily concerned with providing services and advocating on behalf of clients, material incentives now make their purposes more complex. The effect in some cases is to make executives more cautious politically for fear ofjeopardizing their jobs and career prospects. To be sure, government officials and the citizens have every right

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to expect accountable, effective management in nonprofit service agencies receiving government funds. However, there are significant costs to achieving this goal, because in the tradeoffs between effective management and the agencies' founding objectives the former can sometimes overwhelm the latter.

Executive Directors of Other Agencies. The other two types of nonprofit service organizations-the traditional agencies and agencies primarily dependent on government funding-are subject to similar pressures to "professionalize" their leadership. In traditional agencies professionalization dates to the early part of the century, when many community agencies moved away from social reform as their main mission and adopted counseling and psychotherapy by professional social workers. 26 Until the mid to late 1970s, the executives of these agencies tended to be trained clinicians, expert in the agency's service methodologies, who worked well with the staff and board. Executive tenure tended to be relatively long, with many chief officers staying at an agency their entire professional lives. Few of these executives possessed formal training in management. Jean B. Greisheimer of WCFS is typical. Hired initially as a social worker for the agency, she was executive director of the agency for 36 years, from 1955 to 1991. In the 1980s the traditional agencies, finding themselves under fiscal pressure, began to seek chief executives with management training. In 1989 Family Services of Greater Boston hired an officer with Master's degrees in social work and business. These agencies also reached out to tap individuals with government experience since contracts 'had become a much bigger part of their operations. In 1986 the MSPCC hired as director a woman who had previously worked in clinical and administrative roles in the state and federal government. Her selection as executive director represented a departure for the agency, which for many decades had hired executives with traditional agency backgrounds. Similar trends can be traced among agencies originally founded through contract funding. Initially, executives of many of these agencies were social activists with no management background, strong ties to government, or professional credentials. In the 1980s, these agen-

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cies found themselves in greater competition with other agencies for government contracts. An executive with professional credentials lends credibility, if not prestige, to the agency and thus serves as a surrogate measure of program quality. With most of agency money coming from government, an executive who enjoys a positive reputation with government officials could be helpful in maintaining existing contracts and winning new ones.

Boards, Executives, and Community Despite the diversity of the three types of nonprofit service agencies, the advent of government contracting appears to have certain common effects on high level personnel. Government funding has shifted power within the organization away from the board and toward the executive director, for several reasons. (1) Government funding changes the scale of the organizations. Prior to government funding, nonprofit service organizations tended to be small (or in the case of multiservice organizations, smaller than they are presently); it was possible for the board to monitor an organization's activities. Government contracts usually result in an expansion of service or the addition of new services. As organizational size increases, it becomes much harder for a volunteer board to exercise close oversight. Thus boards must give up day-today management and focus instead on fundraising and strategic planning. WAARC was once a small agency with a 3D-member board that was very involved in its operations. During the late 1970s and 1980s the agency grew into a multi-million dollar organization dependent on several different government contracts for over 80 percent of its revenues. To cope with this growth the agency restructured itself, forming a holding company with subsidiary operations. The board focuses on long-range planning, but because of the sheer scale and scope of the contracts it is no longer in a position to set the agenda for the agency. Another example of the transforming effect of government funding is the typical experience of a residential agency for the developmentally disabled that received a construction grant from the federal Department of Housing and Urban Development (HUD). During the 1970s and 1980s HUD provided construction loans and rent

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subsidies to community programs to build or renovate community housing for the developmentally disabled. This program was very costly and had many intricate regulations. HUD even required recipient agencies to establish separate bank accounts to handle the loans and rent money. But the complexity and expense of these programs meant that boards of directors found it exceedingly difficult to exercise any oversight. In a sense, the HUD program became an untouchable program. (2) Government funding substantially increases the administrative demands. Government contracts usually require the addition of staff. For instance, battered women shelters have been required to provide 24-hour coverage as a condition of receiving a contract. In New York City, AIDS service agencies interested in providing home care to AIDS patients had to demonstrate "a capacity to provide 24-hour home care."27 In addition, increased revenues and expectations of government officials on the accountability of government funds often require the agency to hire a bookkeeper and seek more expensive outside accounting assistance. Webster House, a residential agency for children in Manchester, New Hampshire, was founded in 1884 but never had a certified audit until the late 1970s, when it started to receive extensive government contracts. Webster House also had to comply with state regulations that mandated certain degree requirements for child care workers and minimum staff-toclient ratios. Staffing requirements of this sort are typical of many state contracts across the country in a host of service categories. More generally, state governments usually require agencies that receive government contracts to provide evidence of effective management capability. In New York City service agencies providing home care to AIDS patients had to demonstrate "financial and program management capacity; feasible operational planning, including sufficient staff and appropriate procedures to manage the program; and adequate provisions for worker training, support and supervision."28 Moreover, agencies are required to meet detailed and extensive staff requirements. A contractor must be able to provide either directly or through subcontracting a host of services, including "high-tech nurses to provide sophisticated medical therapies involving intravenous administration of medications and medical and/or psychiatric social work services provided by social workers with a Master's degree in social work."29 For many AIDS organizations

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founded by lay religious groups or the gay community, the fulfillment of these requirements entails dramatic restructuring. The cumulative effect of these requirements is substantially increased overhead expenses, greater administrative demands, and a more powerful executive office. Wolf Wolfensberger, an expert on the development of voluntary associations of retarded citizens, commented on the impact of public funding: Soon, full-time staff in official offices with paid secretaries can do many things very efficiently that were formerly done inefficiently but with dedication, enthusiasm, flexibility, informality, and often glory, by volunteers. Because of this new staff efficiency, the volunteers rely increasingly on staff, often to such an extent that eventually the staff rather than the Board of Directors controls the association and sets policy.3o (3) Government contracts involve the agency in regulation-writing, the legislative process, and government budgeting cycles. Most board members of nonprofit agencies are unfamiliar with these practices. By contrast, the executive and his or her staff are paid to keep abreast of government policies and, if possible, influence these policies for the benefit of the agency. The result is an information gap between the board and staff which favors the staff. (4) Many of the newer organizations founded through volunteer efforts required the commitment of dedicated individuals over a period of years. Government funding puts the organization on a more stable financial footing, at least in the short-term. With government contract in hand, board members may believe that the organization is no longer struggling. They may feel that they have "earned a rest," especially if their goal from the beginning was greater governmental involvement in their program area. This was indeed the case for many parents of retarded people, who worked for years through local associations to force government to expand community programs. (5) Finally, as Gabriel Chanan of the Community Development Foundation in London points out, contracting increasingly involves "the restriction of funding to prescribed policy outcomes." The effect is "to consolidate the voluntary sector as being solely the professionalised organisations. Some of these will be volunteer-using, but

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they cannot be volunteer-controlled because the objectives of the activity will have been determined outside the organisation. "31 For example, the Job Training Partnership Act authorizes the federal government to contract with social welfare organizations for job training. However, JfPA requirements stipulate that contractors will only be paid for successful job placements. 32 This performancebased contract model has proliferated in the last 10 years as the contracting regime has evolved. Many community mental health centers are paid in accordance to a set of performance criteria that includes the number of hospital days avoided. 33 Performance-based contracts have been implemented out of concern for contractor accountability. But the effect is essentially to remove the board of directors from any involvement in the program, since the board is incapable of influencing the programs goals or priorities. The board's role theIl moves from program planning and development to the review of the performance of the executive and her staff in implementing the contract. When power moves toward the executive director, many crucial decisions are made below the level of board scrutiny. If a decision is presented to the board, the board can only ratify it. Otherwise it risks embarrassing the director or forcing a discussion of confidence in the director. The board still has ultimate responsibility, but it is tempered by increased delegation of authority to an individual whose interests are less congruent with those of the original organization than was the case before the contracting era. This shift of power is by no means always easy or inevitable. Many organizations are riven with strife and internal dissent as they try to cope with the management consequences of government contracting. Often a crisis will precipitate an open clash between the board and the executive. The ensuing power struggle may lead to the departure of the executive or part of the board. Miscues by the executive, such as misjudging the cost of a contract or the ability of the agency to serve new government referrals adequately, may cause board members either to fire the executive or substantially increase their involvement in agency management. In the traditional agencies the shift in power to the executive is sometimes successfully resisted by influential and wealthy board members. Government-sponsored agencies are the best examples of the tendency of contracting to shift power toward the executive, since from

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the agency's inception the board saw the mission as tied to government and the fortunes of the executive. Conversely, the organizational evolution of the new community and traditional agencies funded by government provides visible evidence of the change in governance, even if in some cases this move to the executive is contested. These internal changes, even if incomplete, may significantly alter the representation of the community by the nonprofit organization. Seymour Martin Lipset called attention to this many years ago, when he argued that internal organizational democracy and conflict within voluntary organizations may promote cohesion and solidarity in the larger society. His argument raises the possibility that, to the extent the contracting regime reduces internal democracy within nonprofit service organizations, citizen representation in society may be fundamentally affected. 34 The contracting regime may also affect the representation of the community by redefining the organizational mission. A distinguishing characteristic of many nonprofit service organizations is a commitment to a specific mission-for example, helping the homeless, offering residential services for emotionally disturbed children, or facilitating low-income housing in an impoverished neighborhood. Agencies dependent upon private charity and volunteers find that personal resistance and resource constraints can be obstacles to carrying out new missions. Change occurs incrementally. Government contracts offer an agency the financial resources to transform its mission dramatically. For example, Boston's ESAC was founded by community volunteers to provide recreational and counseling opportunities for low-income youth. With contracting, the agency over time has diversified its services and geographic area. It now operates after-school programs, housing rehabilitation, and home care for the elderly through government contracts. Likewise, the WAARC began in the 1950s as a summer day camp, sustained through the volunteer efforts of parents. Now it is a multiservice agency for the developmentally disabled providing respite care, residential services, and counseling. The MMARC was forced by changes in contract language to serve a broader geographic region that the agency originally intended. MMARC, over time, no longer was an agency of the Lexington-Concord community but an agent of government policy serving a much wider area.

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These developments mark the willingness of nonprofit boards to accept and facilitate governmental priorities for their broad constituencies. In one sense the priorities represent a break with the organization's original mission. In another sense, however, they offer opportunities for programs of new and broader scope to these same constituencies. Thus, paradoxically, government can increase nonprofit responsiveness to community by providing targeted resources, although it may induce a shift away from traditional concerns. Government funding of nonprofit agencies may indirectly strengthen ties between the board, the agency, and the community in another way. Government funding politicizes the relationship between nonprofit agencies and government: agencies usually want to keep their contracts and often will lobby government administrators, legislators, and others if necessary. Federal cutbacks and the greater competition for public and private funds have, if anything, encouraged nonprofit agencies to be even more aggressive politically. An important ingredient in successful lobbying efforts is community support, especially from local business leaders and political notables. Newer agencies, founded through government or community auspices, often lacked this extensive support in the community. Some, such as community action agencies and battered women shelters, were actually founded in opposition to the local social service and political establishments. Other agencies simply ignored the mobilization of broad community support. Newer agencies, established with the help of government or foundation seed grants and volunteer labor, often did not need to cultivate local community ties. In the current environment this is changing. With the downturn in government funding, broad-based community support is much more essential to nonprofit agencies. Increasingly, the United Way and community foundations also look for evidence of community support when they review applications for funding. Several indicators point to this shift in agency-community relationship. Agencies recruit local business and political leaders for their boards of directors. ESAC, as noted, was started by church leaders in Jamaica Plain. By 1985 only nine out of 25 board members had church links, and the president and vice-president were corporate executives. Agencies join the local Chamber of Commerce. Agency

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board members are more involved in local politics. Agencies such as Somerville's Shortstop, Inc., establish "friends of the organization" affiliates to broaden community support for political and fundraising purposes. The result is again paradoxical. Originally, many of our organizations represented quite narrow communities of interest-a small neighborhood or a population in need because of a narrowly defined interest, life circumstance, or condition affecting its ability to function in society. The organizational requirements necessary to operate under contracting have induced many nonprofits to expand their definitions of clients and recruit champions of their clienteles from a broader base. This transformation of the board, and more generally of the linkages between the agency and the community, that results from government contracting should also be viewed as a central tendency. Many agencies strive to bring corporate executives or political leaders on to their boards but are unsuccessful. In this regard, the new community agencies are the best example. The activist, undercapitalized, sometimes alternative roots of these organizations may make it difficult for them to attract community notables to their boards. This problem in turn creates difficulties for them in obtaining United Way financing and puts them at a disadvantage in the increasingly competitive world of government contracting. The impact of government contracting on the leadership of nonprofit service agencies is also evident in the diversification of the agency management. Prior to widespread government funding, social work dominated executive leadership. Government funding, however, suggested the necessity and provided opportunities for executives from a variety of backgrounds. Executives of social welfare agencies now bring a wide array of educational credentials to the position. In addition to social work, current executives have degrees in psychology, education, counseling, human services management, and business administration. Of the 15 government-sponsored and new community agencies surveyed, only one agency had an executive with the traditional Master's in Social Work background. Some executives are now recruited from business without any training or experience in human services. In the opinion of Jorge Luna, a former Puerto Rican businessman and now the executive of a Hispanic service agency in Cambridge, Massachusetts, there is "no difference

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between managing a for-profit and a nonprofit enterprise."35 This perspective represents a significant break from previous management views that nonprofit organizations were distinct and different from for-profit agencies. 36 Luna's comments capture a new emphasis on market norms of profit and loss among nonprofit agencies. It is true that some nonprofit agency executives would disagree with equating nonprofit and for-profit management. The traditional agencies, for example, continue to tap executives with social work degrees and prefer individuals with previous experience in managing traditional agencies. Nonetheless, even executives who would disagree with Luna are taking steps to nlake their agencies more conscious of "bottom-line" profit-and-Ioss m.easures. In the early 1980s three of the 15 traditional agencies we studied dropped residential programs for youth that they had operated for many years, after these turned unprofitable. In the late 1980s and early 1990s many agencies are curtailing services and reducing staff levels in response to declining state assistance. 37 Another consequence of the contracting regime is the promotion of a professional network of executives and administrators that transcends public and nonprofit boundaries. Executives are linked by their interest and personal stake in government policy and funding of nonprofit service organizations. They may still be linked to their communities and clients, but their loyalties are now more divided. Rather than focus on responding to the organization's founding commitments, executives now grapple with organizational survival and professional career advancement. Nonprofit executives have more reason to be cautious: they fear the potentially deleterious effects of political activism on their organizations and individual careers. Over time, executives begin to look beyond the original commitments of their organizations and to expand the scope of their services. The community represented in the organization's founding impulses-whether it is a neighborhood, an ethnic group, or a group of like-minded citizens interested in services to a particular population-diminishes in importance. This goes hand in hand with the diminished power of the board in organizational affairs, as well as the transformation in operations in response to the government's demand of adequate accountability for the expenditure of public funds. Also, the interpenetration of the public and nonprofit sectors

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means that nonprofit executives, knowing that their future career paths may be in government, may want to be more involved with government.

Conclusion Contracting with government to provide services has abetted significant changes in the governance of nonprofit organizations. 38 In traditional agencies boards of directors have become more broadly representative of community interests, as the organizations they serve have had to deal more actively with their environments. New community agencies have also become more representative, taking on board members who can help them succeed in the political environment of contracting without necessarily underwriting all of their founding ideology. Executive directors have also changed. They increasingly come from management rather than program backgrounds and give direction to their agencies in a much more complete way than did their predecessors. It might be argued that these changes were inevitable, the predictable result of organizational growth and development. 39 But this cannot possibly be the whole story. For one thing, it is absurd to discuss maturation of an organization over the last twenty years when some of our subjects are over 150 years old. Some of the new community agencies changed very little for 25 years and then very quickly after the receipt of government funds. Thus it seems fair to conclude, at the least, that government funding dramatically alters the revenue opportunities of and demands on the agencies and thus accelerates the process of organizational development. As recipients of government money, nonprofit organizations must institutionalize more quickly than if they had stayed small and reliant upon private revenues. 40 But institutionalization means more than simply increasing administrative capacity. It carries consequences for the programs and roles of the nonprofit sector and for their representational character. 41 In the process of responding to the demands of contracting, nonprofit service organizations often reorient themselves from governance by people who represent their founding orientations (which are often narrow) to being run by representatives of the broader community-

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for example, businesses, professional occupations, city council and state legislative districts. The secular traditional agencies were founded by wealthy elites in the nineteenth and early twentieth centuries. The traditional leaders were able to maintain control of these agencies until recently owing to the lack of public funding, their monopoly position in the service system, and their control over United Way allocations. Government contracting tends to shift control in the traditional agencies from the board to the executive director and within the board from the old type of elite to younger corporate executives and political leaders. Government funding of nonprofit organizations tends to transform nonprofit organizations from representatives of minority interests to representatives of broader constituencies. These developments shed light on the pressures that seem to cause nonprofit organizations to experience their increasing convergence over time with the norms and practices of governmental organizations. 42 However desirable or inevitable this development, it represents a significant challenge to theorists of nonprofit organizations who maintain that nonprofits exist to represent narrow interests which cannot or do not wish to seek public support. 43 Under a contracting system nonprofits do seek public support, and conform their governance in order to be in a better position to do so.

5 - Service Providers for the Welfare State

The welfare state is not simply the policy that makes a shelter available to someone without a home; it is the intake staff, the social worker, and the employment counselor who translate the policy into reality for the client. Under the contracting regime the welfare state has been extended through thousands of nonprofit providers. These new providers in an important sense "represent" the state to citizens. Workers in these organizations are the new "street-level bureaucrats." In diagnosing problems, prescribing courses of action, and offering direct services, they transform welfare state policy into clients' individual experiences. l Consequently, the characteristics of nonprofit staff become a critical factor in the capacity of the state to deliver services. While this is true for every welfare state service provider, it is a particularly interesting proposition when applied to workers in nonprofit organizations, for several reasons. First, contracting with nonprofit providers often is attractive to governments because contracting appears to reduce service costs. The appearance of cost savings is often related to the nonprofit organization's use of volunteers. Thus implementation of state policy is placed in the hands of people who are not accountable, through salary and associated obligations, to the organizations for which they work. Yet such ties are essential to bureaucratic accountability.2 Second, to the extent that nonprofit organizations arise in communities which are not exclusively dedicated to service provision, but also embrace ideological and community values, they may be run by managers and workers who are not necessarily the best providers from a government point of view. Indeed, to the extent that government is attracted to contracting with nonprofit providers because of the legitimacy they have acquired in local communities, it is likely

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that there will be a tension between governmental and community standards of service and care. Third, what constitutes appropriate standards of care is of course a matter of conflict and dispute. While government agencies and professional associations often articulate a consensus over "best care" standards, they are not necessarily the last word on the matter, and disputes fester. Consider that midwifery, acupuncture, mainstreaming of special needs students, community living for the mentally retarded and mentally ill, and organic gardening were, within recent memory, all practices that dominant professions regarded as dangerous or at best inappropriate. It is hardly surprising that government agencies and nonprofit organizations, which arise in very different settings and out of very different experiences, often have different notions of appropriate practice. It is true that government might be expected to contract only with nonprofit organizations that share its notions of appropriate practice. However, government agencies contract with nonprofit providers for many reasons, which mayor may not include agreements on service philosophies. Government may be indifferent or ignorant of service philosophies when contracts are initially let, as has been the case when administrations have sought to mount emergency services on a crash basis. Or governments may seek to impose service standards after years of relative unconcern, as has been the case with the efforts of the federal government to standardize such services as foster care,3 job training,4 and health care 5 and of the states to regularize child protective services. 6 In sum, workers in nonprofit service agencies increasingly "deliver" the welfare state to citizens, but under circumstances that .sometimes render them even less accountable to central authority than are street-level bureaucrats in direct government employ. As governments have gained experience in the contracting regime, and as the practice has given government an increasingly dominant role in contracting relationships, they have attempted to control service delivery by nonprofits through regulating the service delivery personnel. These efforts include increased professionalization and greater specialization of nonprofit agencies; deprofessionalization of the traditional nonprofit service agencies, where professionalization contributes to what governments regard as excessive costs; and reduction and restriction of the responsibilities of

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volunteers. These initiatives bring nonprofit organizations more into line with governmental expectations of practice. But they do so at the expense of the autonomy of the voluntary agencies.

Professionalization The Impact on Nonprojits The extent to which nonprofit organizations embrace or succumb (depending upon one's point of view) to pressures to professionalize has been a central concern for many analysts in understanding the evolving place of nonprofit organizations in the welfare state. Sociologist Nathan Glazer, for example, worries that government funding of nonprofit agencies displaces community volunteers with paid professionals. The result is higher service costs, reduced services, and a distancing of the client from the organization. 7 If some observers emphasize the loss of community authenticity and subsequent effectiveness with clients, others stress the reduced potential for advocacy that results. Supporters of women's organizations such as rape crisis centers and battered women shelters believe that the hiring of more professional staff and the displacement of volunteers leads to a more conventional social service approach than the one with which these organizations started. 8 Another concern is that professionals themselves may be the primary instigators of the image of nonprofit organizations and may inappropriately try to insulate their organizations from accountability. Giandomenico Majone suggests that professionals find nonprofit organizations particularly attractive as work settings because they provide opportunities for autonomy and commitment to clients that are unavailable in governmental agencies or businesses. 9 In their research on nonprofit and for-profit health enterprises Regina Herzlinger and William Krasker go so far as to argue that professionals use nonprofit organizations to maximize their incomes rather than emphasize effective service. IO Although most service nonprofits do not present significant opportunities to maximize income at the expense of service delivery, this research is still suggestive of the possibility that it will be difficult to achieve public accountability where professionals dominate organizations.

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We share some of these concerns. But we locate the problem not in professionals' drive for autonomy or government's drive to bring nonprofit organizations to heel. Rather, we locate the problem of nonprofit personnel policies in the demands of government to establish service standards and hold providers accountable to them. Pursuit of these objectives results, among other things, in professionalization of service staffs. The effects are most noticeable in the new and community based organizations that have emerged from volunteer and lay endeavors. In traditional organizations the effects are mixed, primarily because some" traditional organizations were well on their way toward professionalization before the advent of government funding. Because government staffing standards are sometimes lower than those of established nonprofits, government funding may actually have the effect of encouraging deprofessionalization of staffing. Prior to widespread government funding in the 1960s, three factors contributed importantly to increasing professionalization of nonprofit service agencies. Professional practice and standards developed independently in social work, psychology, and other service areas in which nonprofit organizations played important roles. Other trends, including increased government regulations and changes in the client pool, were related to interactions with the public sector. Social welfare agencies began to professionalize as social work began to be formally organized in the late 1800s and early 1900s. Some social welfare agencies championed the development of a science of social work, promoted and cooperated with schools of social work, and began to seek professional social workers to fill positions. This development paralleled similar occurrences in public health, city planning, public administration, and other fields that accepted the notion that the construction of society would be improved by the preparation of practitioners with specialized, graduate-level training. II Starting in the 1920s, professionalization proceeded at a steady but slow pace. The New Deal took over the efforts mUltipurpose private welfare agencies made to relieve abject poverty, a responsibility which in any case they were not able to discharge. Private welfare agencies were shifting away from emergency assistance and relief to provide psychologically oriented casework, delivered by trained social workers with Master's degrees to troubled families and individuals. Simi-

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larly, vocational rehabilitation agencies pushed an "individualized approach" to intervention. I2 The shift in program was accompanied by a change in the sorts of people who were recruited to work in the nonprofit organizations. Increasingly, the agencies sought to replace volunteers and workers lacking academic credentials with professional social workers. Meanwhile, more people with professional degrees presented themselves for employment. The ranks of professional social workers rose from 40,000 in the 1930s to over 250,000 in 1978. 13 A specific illustration of this development is provided by the statewide Massachusetts Society for the Prevention of Cruelty to Children. From 1950 to 1974, while the MSPCC staff rose modestly from 110 to 125, the number of social workers on staff more than doubled, from 25 to 69. 14 Federal and state governments played key roles during this period by developing policies to upgrade service standards. In the 1950s the federal Children's Bureau provided money to state governments to improve licensing standards for such services as foster care, residential care, and adoption. I5 This initiative was supported by directors of the modernizing agencies. In Massachusetts the Division of Child Guardianship worked closely with the Massachusetts Council of Child Care Providers to develop and implement new standards that called for hiring of more social workers. Although governments sought to influence providers' standards, their role was not intrusive. Federal influence had to be mediated by the states and at the time was limited in its capacity to insist on tough standards. Moreover, state and local social welfare bureaucracies were small, and they devoted themselves primarily to the administration of public welfare rather than to the provision of social services. In addition, the state and local officials who would have to oversee new standards were usually not social workers themselves,16 and may have been resistant to the idea that only people who had gone to graduate school could help people with their problems. A change in the kind of clients and their problems supported the view that more professionally trained workers were necessary. In the 19508 many nonprofit agencies began to encounter an increasingly needy and disturbed client population. The executive director of Rhode Island's St. Mary's Home for Children made the connection between professional staffing and the severity of clients' needs in her 1960 annual report: "In line with the national trend, we are getting

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more requests to accept children who need to be removed from the community because their behavior is not tolerable or treatable at home. We should be able to absorb some of these children provided our Staff is adequately trained and we have more professional staffSocial Workers and Psychiatric Consultants."17 Likewise, Father John Cronin, from 1962 to 1974 executive director of St. Vincent's Home for Children in Fall River, Massachusetts, observed that his agency in the 1960s was serving a much more "acting out" child with severe behavior problems. To cope with this situation, his agency added more professionals and increased the qualifications necessary for direct service positions. St. Vincent's Home thus replaced nuns and houseparents with professional personnel trained to work with emotionally disturbed children-a shift that Father John wholeheartedly endorsed. I8 The change in clientele resulted from changes in governmentnonprofit relations. The child welfare agencies were heavily dependent on government referrals for the children in their care. That these agencies saw more children with more severe problems resulted largely from shifts in government referral patterns. In some combination more needy children were coming under government aegis, and government lacked the capacity to deal with them. Another factor, predictably following the growing psychiatric orientation of service personnel, was that troubled children were newly defined as requiring a higher level of professional training. Nonprofit agencies still enjoyed substantial autonomy from government, despite their dependence on government referrals. The longstanding deference of government to private charitable organizations, particularly sectarian agencies, continued to prevail. Consequently, professionals in these organizations were able to practice with substantial autonomy, whereby nonprofit agencies gained a favored status as a destination for professional social workers and human service professionals.

Projessionalization and Specialization Government funding of nonprofit social welfare agencies often contributes to existing tendencies among nonprofit organizations toward professiollalization and specialization. Under contracting these agencies not only are spurred to hire more professional social work-

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ers; depending upon the type of organization and services provided, organizations are also induced to hire professionals with more focused skills and training, including psychologists, psychiatrists, psychiatric nurses, professional counselors, special education teachers, educational consultants, and therapists of all stripes. Three interrelated processes contribute to this trend. Governments facilitate professionalization by making funds available. They require hiring of professionals. And they engender the hiring of professionals, as nonprofit contractors seek every advantage in the search for scarce resources. Facilitating professionalization. Government funding as a facilitator of professionalization is most visible in the new agencies started by laymen and volunteers. Thus, for example, the original core of the WAARC consisted of the parents of the developmentally disabled served by the organization-circumstances typical of Associations of Retarded Citizens (ARCs) across the country. These parent volunteers struggled for years to provide programs for their children. In 1975 WAARC began a respite care program to allow parents of developmentally disabled children a period of relief. Initially the respite program was small and relied primarily on private contributions. In 1977 the Massachusetts Department of Mental Health began funding the program and has provided ever-increasing funding for this activity ever since. Government funding allowed WAARC and other agencies providing respite care to stabilize and expand their operations, attract more qualified respite care workers, and increase the level of professional supervision. Although state regulations regarding respite care programs existed, the level of care was determined less by the regulations than by the opportunity the funding presented to the executive and her staff to raise the consistency and quality of the program. Other traditional agencies such as Children's Friend and Service of Providence, Rhode Island, Child and Family Services of Hartford, Connecticut, Boston Children's Service Association, and the Family Service of Greater Boston have used government funding to expand services, offer higher pay, and hire more skilled staff. Nonprofit agencies often welcome professionals in their service mix, but it may take the government contract to permit them to realize this objective. Professionalization costs more, and these amounts cannot be obtained through marginal increases in private

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contributions, time-bound local foundation grants, or client fees. Government funding gives the contract agency the resources to make long-term commitments to new and more highly paid staff members. Requiring pro..fessionalization. To obtain a government contract, nonprofit agencies often must agree to professional staffing levels. Even if the agency itself considers that professional staffing is desirable, this requirement frequently represents an important shift in the orientation of the organization. This change in orientation is particularly apparent in the new community agencies. Two Massachusetts organizations that were heavily involved in community organizing in the 1960s and 1970s, Concilio Hispano de Cambridge and Prospect House of Worcester, offer examples. In the early 1980s both agencies were awarded contracts for alcohol and drug abuse counseling of minority populations. To comply with contract requirements the agencies added professional counselors to their staffs-a significant departure from their nonprofessional origins. Rape crisis centers, battered women shelters, and AIDS service agencies have experienced similar transitions. Professionalization comes about in more subtle ways. When nonprofit organizations accept government funds, they often agree to serve clients who are needier than those the organization had previously served. To provide for these clients adequately, nonprofit organizations broaden the qualifications of their staff, adding salary expenses which mayor may not be paid by government. Residential programs provide good examples. In coping with changing government referral patterns and service expectations, St. Mary's Home for Children converted from a group home program to a more intense residential center for emotionally disturbed girls and a school staffed by special education teachers. In an even more dramatic shift, Boston Children's Service Association converted a recreational camp program for children in Plymouth, Massachusetts, to a residential center for emotionally disturbed children. Even the wealthiest private social welfare agencies add professionals to their program in response to government funding. Perkins School for the Blind in Watertown, Massachusetts, is one of the most distinguished residential programs for the blind in the country, with an endowment of over $40 million. It was founded prior to the Civil War and accepted referrals from state and local governments in the

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Northeast and private referrals from all over the world. In the late 1960s and early 1970s private and public referrals dropped because of rising costs and the development of special education programs and other educational alternatives. To compensate, Perkins started formal contracting with the state, which promptly referred a more needy and impaired clientele to the school. Soon, under government contract, the state wanted Perkins to serve not only the blind. Perkins responded by changing its original charter, which restricted the agency to serving the blind. To be able to serve its new client population adequately, the agency expanded the professional staff from eight in 1978 to 50 full-time equivale11t staff in 1986, without any appreciable change in the agency's census. Some of this increase was dictated by government contract requirements, but some of it was the response of the agency to the heightened severity of client needs. 19 Projessionalization as advantage in seeking contracts. Professionalization plays a key role in the competition for contracts. Nonprofit agencies seek advantage by commanding the expertise demanded by governments. And some seek to use professional licensing as a tactic to exclude others from the limited pool of preferred providers. A good example of the efforts of nonprofit organizations to anticipate governmental demands is provided by child welfare agencies in applying for mental health clinic status. Clinic status allows organizations to collect third-party reimbursements from public sources and private insurance companies. It also requires more intensive diagnosis and treatment by psychiatrists and psychologists than is traditionally offered in child and family service agencies. Clinic status entails the addition of more professionals and specialists to agency staff. Since clinic reimbursement requires the use of the psychiatric diagnostic system, agencies are also forced to spend money on training programs for social workers and other staff members. 2o As state budget crises remain unrelieved, many child welfare executives are concerned that state governments in future may require eligibility for third-party payments as a precondition for receiving a contract. Another reason nonprofit agencies move toward professionalization is that it gives government administrators greater confidence in the legitimacy of the service contract. With the quality of social services difficult to measure and available performance indicators open to multiple interpretations, public officials fall back on process

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measures such as the number of professionals who actually deliver services. They reason, without much justification, that service quality is related to the level of professional skills in the organization. Over time, this strategy can profoundly affect an agency. DARE, the large multimillion dollar agency based in Somerville, Massachusetts, grew dramatically in the 1970s by offering community-based services for troubled youth as alternatives to prevailing professional practice. But, after encountering financial and contractual problems with the state, the agency has more recently steered a more conventional course by hiring professional social workers and specialists. 21 A similar example, the Key Program, Inc., an agency for delinquent youth in Framingham, Massachusetts, added more professionals to its staff (and applied for mental health clinic status) in response to government complaints that Key lacked sufficient clinical expertise. Nonprofit agencies are not above using government regulations of professional capacity to protect their share of the contract market. Traditional agencies, which have the most to lose by the growth of the government-sponsored and new community agencies, sometimes make use of government standards to question the eligibility of the new organizations to receive or provide services. For example, in 1976 the traditional child welfare agencies in Massachusetts waged a successful fight to override a veto by Governor Michael Dukakis of a bill requirirlg that adoptions be handled by licensed child welfare agencies. The executives of the traditional agencies believed the governor's veto would result in more adoptions shifting to unlicenced competitor agencies with lower professional standards. More recently, in New Hampshire, the traditional residential programs for children were able to influence the development of new regulations governing residential programs. Agencies with more conventional staffing now face greater difficulty in winning state contracts. With some of the longtime services stagnating or declining, some traditional agencies use their political influence to vie for the business of the newer agencies. In many states, for instance, government services to battered women can only be delivered through residential shelter programs. However, in some states, traditional child and family service agencies have tried to rewrite state regulations so that nonresidential programs like theirs may be allowed to offer counseling services to battered women.

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A political battle, over professional versus nonprofessional standards has also been waged over personnel standards for services. In many states professional social workers and counselors have tried to win legislative approval of regulations that would require a professionallicense to be a counselor in an alcohol or drug abuse program. This effort has been resisted, sometimes quite vigorously, by lay people including recovering alcoholics and recovering addicts, who argue that lay people can be better counselors than professionals. 22 Government regulations, in other words, do not always represent the agenda of government officials; they sometimes turn out to be the political agenda of influential nonprofit groups and individuals. 23

Deprofessionalization and Government Funding The professionalization of nonprofit service agencies reflects the drive by government officials to implement minimum standards of professional care to ensure quality service delivery. However, many traditional agencies, which have always prided themselves on their autonomy from government and superior levels of professional service, are troubled by this paradox: government contract standards and government funding of new services have confronted these agencies not with professionalization but with deprofessionalization. A few examples illustrate this point. Worcester Children's Friend Society, an agency steeped in professional social work practice, received a state protective services contract in the 1970s for abused and neglected children. In the early 1980s state officials argued that WCFS did not need as many Master's-level social workers as the agency said it needed to be effective. Eventually, WCFS lost the contract. On another contract, WCFS staff vigorously objected to the demand by state officials that the troubled youth in a particular program only needed short-term (and hence less expensive) treatment rather than the long-term treatment that WCFS was accustomed to providing. 24 Some traditional agencies overcome the problem of government willingness to pay for only minimum standards by using their private funds to subsidize the cost of higher professional standards. Webster House, in Manchester, New Hampshire, has a one-to-five staff-toclient ratio and requires a Bachelor's degree for entry-level positions.

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The state only requires a one-to-six ratio and two years of college. Many other traditional agencies, including the Perkins School for the Blind, Child and Family Services of Hartford, Connecticut, and the New England Home for Little Wanderers also use their substantial private funds to subsidize the cost of higher standards. This subsidy is increasingly difficult to sustain as public funds have declined. Governments even sponsor practice models that provide services with less intensive professional involvement. The Key Program, which derives almost all of its revenues from government and is promoted by government as a low-cost service alternative, hires entry-level workers on a 16-month contract. Although many of these workers "graduate" to permanent positions within the agency, the contract system builds in a level of turnover which many traditional agencies find unacceptable. The Harbor Schools of Newburyport, Massachusetts, is another example. Since its founding in the late 1960s, the agency staff has offered residential alternatives to the traditional agencies. In this way it has ensured that the prevailing professional biases of the traditional agencies would not be a major obstacle to the agency's services to children. The Harbor Schools has been supported by state officials as a competitor to agencies that depend to a greater degree on professional treatment. Two other developments in government interactions with nonprofit agencies have the effect of compromising professional autonomy. First, contract monitoring requires extensive documentation of the behavior of service providers. They are sometimes required to keep excruciatingly careful records of the number of "service delivery units" performed, the types of clients served, and the reasons for recommended treatments. They are limited in treatment options and deprived of control over admission and discharge decisions. Their judgments are reviewed and called into question by government auditors, independent accounting firms, and public officials who lack the training of those whose practices they may challenge. 25 These tensions will be familiar to people who have pondered the problem of controlling costs submitted by professionals whose specific judgments are difficult to question because the legitimacy of the service depends upon professional autonomy. In effect, the changes in staffing within nonprofit agencies are related to the changing boundaries between government, commu-

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nity, and markets. Prior to the contracting regime, nonprofit agencies existed largely outside the government and market spheres. Government contract requirements and impositions of service standards restructure the relationship between government and community. For the new community agencies such as rape crisis centers, battered women shelters, or AIDS service agencies, contracting with government leads to professionalization, because at the start they were rooted in self-help, peer support, and political action. The traditional agencies, in contrast, originally were governed by higher professsional standards than government required and were free to interact with clients without the pressures of bureaucratic or market accountability. The contracting regime, then, has been a bitter pill for the traditional agencies, which find their longstanding practices and norms under assault. Tendencies toward professionalization of nonprofit service agencies resulting from government funding become evident in the organizational development of nonprofit service agencies wherever amateur efforts come into conflict with public demands for standards. Deprofessionalization, however, may be more closely related to the type of welfare state under discussion. In the United States consensus on entitlement to social services is weak. Government officials can impose treatment limits or certain minimum rather than maxirrlum standards because Americans are not perceived to be entitled to, and are not organized to demand, a high level of care. By contrast, with a much higher level of government commitment, many European welfare states such as Holland and Germany put fewer restrictions on professional decisionmaking in social services and are less willing to impose treatment limits. There is some reason to think that deprofessionalization is a product of the contracting regime rather than of government funding of nonprofit agencies as such. Over time, contracting may reward agencies that offer low costs when quality of service remains difficult to judge. European countries with extensive government funding of nonprofit agencies, again such as Holland and Germany, do not really have a contracting system. Instead, nonprofit agencies have almost monopoly status within their service jurisdiction. These agencies are reimbursed for their costs in accordance with prevailing laws which respect their autonomy. As a result, agencies in these countries do not experience the bidding and contract competition character-

Service Providers .for the Welfare State

III

istic of the United States, which places downward pressure on agency costs and creates incentive~ for deprofessionalization. In effect, the contracting regime introduces the market into the community sector, with major consequences for the type of service provided by nonprofit agencies.

Volunteers and

Org~,nizational Capacity

The image of nonprofit agencies evokes a picture of volunteers working diligently to provide needed community services. Neighbor helps neighbor to deliver meals-on-wheels, provide disaster relief through the American Red Cross, or teach illiterates to read. Surely it is the image of the volunteer that shines in the "thousand points of light," President George Bush's memorable phrase. Volunteers remain essential to the performance of many nonprofit organizations under contracting, but it is not clear that nonprofit organizations can maintain the voluntary spirit and community self-reliance that makes them distinctive. Reference to a "thousand points of light" implicitly approves of the motivation and level of compensation of workers in nonprofit organizations, but it ignores or takes for granted issues of organizational effectiveness and workers' competence.

Voluntarism in Nonprofit Organizations The role of volunteers in nonprofit organizations can be divided into direct and support services. The direct service role is most characteristic of organizations providing emergency help and crisis intervention: soup kitchens, homeless shelters, rape crisis centers, battered women shelters, and telephone hot-lines. The support role is more widespread, including activities such as fundraising, serving on boards, helping with mailings, and political lobbying. In general, government funding of nonprofit agencies produces a separation of direct and support service roles and tends to shift volunteers out of direct service and into support roles. When nonprofit organizations are newly founded, their direct and support services are usually performed by the same people. The new community orgaIlizations provide the best examples because of their ties to the informal sector. Local ARCs across the country were

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typically created by parents of the retarded who performed direct and support service roles. Many nonprofit social welfare organizations with origins in social movements also merged direct and support roles. Rape crisis centers and battered women shelters were organized by women's collectives in the 1970s. These organizations usually had no administrative hierarchy or executive director; board and staff substantially overlapped. The structure of the organizations was loose, reflecting the organizers' deliberate rejection of hierarchy and the rootedness of the organization in the informal sector. In this sense, rape crisis centers and battered women shelters are similar to informal self-help groups such as support organizations formed by victims of particular diseases and misfortunes, or by people who share similar life circumstances such as divorce. 26 Often these selfhelp groups have no permanent leader or hierarchy. It is not uncommon for board members or friends of the organization to keep track of the books or audit the agency on a pro-bono basis.

The Changed Rnles of Volunteers As noted, government funding tends to broaden the services of

nonprofit organizations beyond the original membership, enlarge the scale of the organization, and substantially increase administrative demands and overhead. The combined effect of these changes is a profound change in the role of volunteers. In many nonprofits, including ARCs, community action agencies, community mental health centers, and some drug, alcohol, and youth programs, a separation of direct and support roles occurs with volunteers moved primarily into a support capacity. Direct service roles are performed by paid staff. Although volunteers go into prisons to teach and out on the streets to feed the homeless, sometimes they are unprepared and disinclined to work with the more difficult, poor, or multihandicapped clients who are referred by government to nonprofit agencies. The Perkins School for the Blind has experienced a long-term decline in its volunteers that dates to the onset of widespread government contracting in the mid-l 970s. It is not that fewer volunteers are available because more women have entered the work force; according to a former school official, it is more the transformation of the clientele served by the organization. 27 The shift of volunteers away from direct service provision also

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occurs because government agencies are skeptical of the accountability and reliability of volunteer service providers. Concilio Hispano de Cambridge was primarily a volunteer organization with a small paid staff during the 1970s. Problems with the volunteers eventually undermined the agency, and the state terminated its contracts. The agency was revived, with most of the staff on salaries, during the early 1980s. Homeless shelters and soup kitchens are able to keep volunteers in direct service roles and still retain their government funds. But the service provided by the volunteers in these agencies is noncontroversial, unintrusive, and fairly routine. Public officials are less sanguine about volunteers in sensitive positions, such as hot-line operators at rape crisis centers or workers at battered women shelters, and encourage or require agencies to increase their volunteer monitoring, training, and supervision. The separation of direct and support roles is part of the process of specialization and greater role definition precipitated by government funding. This process is evident even in organizations such as shelters and soup kitchens that continue to rely on volunteers after the advent of government funding. Volunteers are now "managed" by a paid staff. In essence, the changed role of the volunteer is part of the shift from informal to formal service provision. Informal provision, in its ideal type, is characterized by a lack of task specialization and by loose organizational structures. Informal care is based on "personal ties where the person receiving care is treated as an end in themselves and receives help on the basis of some kind of personal relationship, not for instrumental reasons (such as the performance of ajob). Usually sU.ch caring activities are unorganized and spontaneous. "28 Despite its virtues, informal care has the disadvantages of being uneven and unpredictable. Informal care tends to give way to formal care wheIl government funding flows into an organization previously structured predominantly along volunteer, informal lines. This is not simply an inevitable turn in the course of organizational maturation. Many organizations that are part of the informal care network, such as Alcoholic Anonymous chapters and other self-help groups which do not accept government funds, have been able to exist for decades without significant professionalization or formalization. 29 For the volunteer the change resides in the move away from direct

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service and administrative roles. Government funding has little effect on the varied but less central support roles filled by volunteers, because their performance and reliability is not consequential to government officials. Because traditional agencies were usually quite formalized prior to government funding, the use of volunteers changed little with the onset of contracting; their volunteers were already used primarily in support roles. The formal traditional agencies such as the New England Home for Little Wanderers, Massachusetts Society for the Prevention of Cruelty to Children, and Child and Family Services of Hartford, Connecticut, have continued to use volunteers to operate thrift shops, run special events, conduct fund drives, and serve on agency committees. Despite a substantial increase in government funding of these agencies in the last 20 years, volunteer involvement in support roles is at an all-time high. Many of the newer organizations such as WAARC and MMARC also rely upon volunteers in support roles despite a heavy reliance on government funds. Conservatives have long criticized government funding of nonprofit agencies out of concern that such funding would displace voluntarism-in effect shrink the informal sector and promote an ever-expanding formal sector dependent upon public moneys. This concern is not unfounded. Government funding does displace volunteers who previously performed important direct service roles in nonprofit agencies. Many volunteers, disillusioned with the changes in the organizations, simply leave. Other volunteers remain within the organization, but their involvement in agency affairs diminishes. In some of the new community agencies the changed role of the volunteers often precipitates internal conflict and divisiveness, as members struggle over an agency's future. Other volunteers accept the transformation of the agency as the price to be paid for more reliable, extensive, and consistent service. They often remain with the agency in a different volunteer capacity. The conservatives' fear about government funding is rooted in their preference for the informal sector over the formal sector and community over government provision. 3o The informal sector of voluntary associations and family and kin groups is seen as limiting demands on the public purse, avoiding the deadening hand of bureaucracy, and promoting self-reliance. 31 But the conservative critique does not address the drawbacks of voluntarism and informal

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care in treating social problems. Informal care can be uneven, unreliable, and inconsistent. Moreover, clients are not always able to connect with an informal care network. 32 Informal care, through the voluntary groups, addresses particular groups and problems; it is not an inclusive form of communal provision. For example, although WAARC was available to all, the founding parents concentrated on programs for their children. Similarly, battered women shelters were established in the early 1970s by feminists who recognized that their programs may not appeal to every battered woman. It was the recognition that their particularism was an insufficient response to social needs that pushed many of these organizations, WAARC among them, to look for government contracts to allow the organization to expand service, professionalize, and in general transcend its own particularism. Voluntarism is inadequate as a policy response when specialized skills are required to address social needs. For example, the initial response to the ~AIDS epidemic was through nonprofit agencies that relied primarily upon volunteers. However, many volunteers found they were unable to address the intensity of medical and emotional needs of AIDS patients without professional help and intervention. 33 To be sure, informal work continues to be crucial to society's response to AIDS and other social problems. The informal sector must be "interwoven" with the formal sector if an effective, sound policy is to be developed. 34 We will discuss this interweaving in more detail in the concluding chapter.

The New Street-Level Bureaucrats The world of contracting is made up of many types of individual service providers. They range from the highly trained professional psychiatrist in a IIlental health center, to the case worker in a support program for troubled youth, to the volunteer working the floor of a homeless shelter. The individuals who now bring into reality the service side of the welfare state are the new street-level bureaucrats. Like their public sector counterparts, many workers in nonprofit agencies interact directly with clients and perform their jobs despite severely limited resources. Also like their public sector counterparts, they work in agencies with ambiguous and conflicting goals, perform tasks which

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are difficult to measure, and are undisciplined by client and consumer preferences. Like teachers, police officers, and welfare workers, service providers in the nonprofit sector manage scarce resources by coping with their jobs in such a way as to render them not simply implementers of public policy, but "makers" of public policy. Workers in nonprofit agencies receiving government contracts are now agents of government. Although the range of experience is vast, a few generalizations are possible about the implications of this new role for social policy and for the future of the American welfare state. Government contracting with nonprofit agencies represents a major shift in the provision of public services, from a system based on public organizations to a system with a very large role for nonprofit service organizations. The way it works, the United States has essentially transferred workers from public organizations with relatively good pay, good benefits, and job protection to nonprofit agencies with lower wages, fewer fringe benefits, and job insecurity (especially under the recent wave of state and local funding cutbacks). Inadequate wages and benefits are most evident in the younger, community agencies, which are pressed to professionalize and formalize their operations in response to government contracting requirements and expectations. Government demands for service quality have led these agencies toward more uniformity in service provision, in ways that mirror prevailing standards of practice. Community organizations providing services under contract now look more like each other in any given service arena, and standards for professionals have been upgraded. Since these organizations were initially lodged in the informal sector, their operations undergo greater change following government funding than do the practices of the government sponsored agencies. In general, then, to the extent that contracting represents a shift in service provisions from the public to the nonprofit sector, salaries are likely to be lower. However, whether or not salaries in individual agencies go up or down depends upon the starting point of these agencies. The community agencies started through volunteer auspices may experience increased wages. Some traditional agencies, by contrast, may encounter severe pressure on their costs, leading eventually to a decline in staff salaries.

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The traditional agencies still look different from the newer organizations because of their access to United Way contributions, other private sources, and in some cases their endowment income. However, many of the traditional agencies have lost the "edge" that set them apart from public organizations and other private nonprofit agencies. Acting on the undeniably legitimate objective of maximizing the distribution of scarce resources to larger numbers of clients, public officials have rejected open-ended funding models of professional practice in favor of limiting and distributing assistance more broadly. Thus the traditional agencies have moved closer to the other types of agencies in any given service category. The restrictions on professional practice in all types of nonprofit agencies receiving government funds combined with low wages, job insecurity, and intractable social problems have made nonprofit agencies in general less attractive work environments for human service workers. Loyalty to the agency fades when there is no advantage to working in one place rather than another. Exacerbating the problem of maintaining a strong workforce is the higher compensation in the public sector and in the large for-profit and nonprofit organizations such as hospitals and health maintenance organizations. Why should a social worker continue to work for a nonprofit agency when she can increase her salary by 20 percent working for another type of organization? Many human service professionals now eschew working in a nonprofit service agency altogether, or they obtain an entry-level position in a nonprofit service agency and then leave for another type of agency or private fee-based practice counseling individuals and groups. Private practice is attractive to many human service professionals because it offers the opportunity for professional autonomy in the selection of clients and treatment program, a longstan.ding characteristic of the traditional nonprofit service agencies before the emergence of the contracting regime. 35 In addition, when governments continue to try to extract the same levels of services with smaller budgets or offer stable budgets in periods of rising costs, organizational morale is eroded. Relatively low salaries and high caseloads and budgetary uncertainties exacerbate the situation further. This is demoralizing to the staff that remains in the organization and has implications for the continuity of client services. What are we to make of the fact that workers in private agencies

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now represent the state to citizens? From the perspective of policymakers governments have simply engaged agents who are bound by contract to implement public policy. Laws and responsibilities for policy guidance remain public. From the point of view of welfare state clients, however, the state has disappeared from view. In its place are community agencies charged with fulfilling public mandates and private purposes. Distinctive public policies become clouded as nonprofit agencies mix public funds with other resources. Citizens become clients of the nonprofit organization, not of the government agency whose policy is being administered. "When a single nonprofit mixes funds from a state's youth agency, mental health agency, and social services department, how do clients or advocacy groups locate political responsibilities if they have grievances? This is not to say that political accountability has vanished. Public agencies remain accountable, particularly for highly visible policies, such as child abuse, to which elected officials may be expected to pay close attention. Issues of funding a policy area, such as drug treatment, can continue to find a forum in legislative circles. It is to say, however, that the connection between the state and citizens gets eroded when private agencies produce public services. Workers for nonprofit agencies now mediate citizen claims to public services. If a citizen is denied access to service or receives shabby treatment it is the private worker or volunteer who must manage the discontent. At the hands of private providers citizens' rights and appropriate expectations are more tenuous than they are in government agencies. However dedicated to clients are workers in nonprofit organizations under contracting, the governing influence of public institutions is partially buried by the contracting relationship. A few examples drawn from actual cases illustrate this point. A developmentally disabled adult who previously resided in a state insitution lives in a private community residence home funded almost entirely by the state. The adult tragically dies due to staff neglect. Is the state at fault? A worker in a nonprofit agency dependent on government funds is unfairly dismissed from her job. Is the state liable? A community residence for the developmentally disabled dependent entirely on government funds opens several group homes over neighborhood opposition. Eventually the homes and their residents are accepted by their neighbors. Local community leaders

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laud the program. Do government officials receive the credit? A government program administrator develops an innovative program idea for preventing child abuse. She decides to contract with a nonprofit orga11ization to provide this prevention program because of the flexibility and quick start-up provided by the contract route. Is government regarded as innovative? In essence, contracting with nonprofit agencies diffuses responsibility for public services. To be sure, public services are not always responsive to citizen complaints, but at the very least the locus of responsibility is clearer. If the public welfare agency fires a worker unfairly, this very agency will be the focus of efforts to obtain redress. The practice of contracting with nonprofit agencies, however, fragments the public service system and obscures the role of government policy in the delivery of public services by nonprofit agencies. It shifts the risk and responsibility of service delivery to the private agency and creates the nonprofit contract agency as a buffer between the citizenry and the state. Thus government officials will not be blamed for service problems or errors in judgment and management by the private agencies, even if government underfunding is responsible for private agency problems. Moreover, the very perception of government may be affected. It is popular to regard government officials as incompetent bureaucrats. Yet effective contracting programs are not perceived to be part of government and hence do little to counteract negative stereotypes of government. Thus when government officials need public support for funding of the contracting system, it may be lacking. It is for all these reasons that the new street-level bureaucrats may be said to provide a 4istinctive buffer between citizens and the state.

6 - Services and Clients under Contracting

Before 1960 voluntary service agencies focused on the provision of residential treatments such as homes for the blind or the mentally impaired, or on services that were consistent with the predominant psychiatric casework models of the time, notably family counseling, foster care, and adoption. 1 In some places neighborhood institutions, following an earlier model of community intervention, continued to offer a broad range of services, from teaching English to offering recreational programs for youth. The era of contracting changed forever the service profile of nonprofit providers. As conceptions of service needs expanded and public priorities set the agenda, traditional agencies responded by providing a greater diversity of services, while new agencies were created to take up the contract dollar. But nonprofit agencies have lost control over the central aspects of the way they provide services. The contracting regime has not only altered financing, governance, and staffing of nonprofit organizations: it has also changed what nonprofit agencies do and whom they serve. This is why we conclude that what American society actually provides in social services has been significantly altered under contracting. In this chapter we identify the important ways in which nonprofit organizations have changed their service practices and client profiles under the contracting regime. First, we take up the different orientations toward service provision: of governments agencies on the one hand, and of nonprofit service providers on the other. These differences lead directly to conflicts, which governments tend to dominate, over the character of services. We go on to discuss the diversity of service provision that is engendered by contracting. We also consider the increase in governmental control over programming and the

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growth of client populations served by nonprofit agencies that has developed in the contracting era.

Imperatives of Public and Nonprofit Service Organizations All organizations that serve the public are guided by the need to process clients through systems of eligibility, disposition, and treatment, and to field a staff to administer those systems. In carrying out these tasks they are obliged to honor at least five different objectives. 1. Equity. They are expected to be fair, to honor norms of equity in their distribution of benefits. 2. Responsiveness. They are expected to accommodate likely and unanticipated complexities, that is, to be responsive to developments that are often appropriately treated exceptionally. 3. Accountability. They are expected to be true to their mandated purposes, including implicit obligations to act responsibly in the public interest, even when they have no clear formulation of what the public interest is. 4. Efficiency. They are expected to find an optimal balance between cost and service provision. Note that efficiency is a relationship between cost and the quantity and quality of the thing produced. It is not the same thing as cost minimization, although that is how the term is often used in public discourse. To seek efficiency is always to seek a condition in which the ratio of cost to quality and quantity is more favorable than that of an alternative condition. 5. Fiscal Integrity. They are expected to be both open and honest in their operations. 2 Simultaneous pursuit of these objectives is likely to bring them into conflict with one another. Adherence to rules may insure equity, for example, but too close adherence to rules will reduce responsiveness. An employment counselor may be fair in allocating to each client exactly the same amount of time, but this formula, the antithesis of responsiveness, would be counterproductive if some clients needed little help and others needed special attention. Modern governments must use universalistic criteria in client selection or develop elaborate rationales for favoring one group over another. 3 To operate effectively nonprofit organizations must also

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select clients on the basis of explicit criteria consistent with their missions. But they are more free than are government agencies to pick and choose their clients on the basis of particular characteristics such as residence or ethnic background. Both public and private agencies may engage in targeted selection of clients, but to do so public agencies require a rationale based upon efficiency or fairness. For example, governments may reserve places in a program for those who are most likely to benefit from a program, or for the neediest in a population. Private agencies, on the other hand, are freer to select clients on the basis of group identity, staff preferences, or other characteristics associated with their founding purposes. Both government and private agencies may seek to be responsive to clients' individual needs, but government agencies are more constrained than private agencies in this regard, because challenges on the grounds that all clients are not receiving the same services are more potent in the public sector. In sum, nonprofit and government service organizations should not be characterized as responsive to entirely different sets of values in their approach to clients. They should be understood instead as responsive to the same organizational service norms, although in different measures. To understand the effects of government "contracting out" to nonprofit organizations we must start therefore with an appreciation of the different weights that governmental and nonprofit agencies accord to organizational imperatives.

Equity and Responsiveness in Government and Nonprofits In the distribution of social policy benefits, government is overwhelmingly driven by concerns of equity. So long as scarcity of resources requires government to make choices among claimants, policymakers will seek to impose norms of equity or at least give the appearance of fairness in resource distribution. Public officials must legitimize the use of public resources that will help some and not others. Government requires not only unambiguous eligibility criteria, but also unambiguous indicators that people meet those criteria. Even if eligibility categories are clear, proof in meeting those standards must be unambiguous if benefit distributions are to be fair. Unambiguous indicators include age (over 65 in social security, three to 21 in

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special education), and prior government service (for example, veteran's status). Slightly more ambiguous but still able to meet the appearance of fairness are indicators of income and assets. Government, to be sure, also pays attention to responsiveness. But the primacy of equity is illustrated in the ways in which policies designed to be responsive historically have been structured to conform to norms of equity. Consicier, for example, public welfare payment rules that attempt to respond to unique family circumstances and differences in work-related expenses, housing costs, and assets. To achieve responsiveness within. the strictures of equity, public welfare agencies have developed policies that recognize differences but are articulated in incredibly elal)orate formal rules. Nonprofit service agencies weigh equity and responsiveness differently from the way government does. Indeed, the traditional nonprofit organizations were distinguished from providers of public benefits precisely because they \vere particularistic in their choice of clien ts. We are reminded of this particularism by the names of many of these agencies that have co:me down through the years-The Catholic Charitable Bureau, anel the Jewish Family and Children's Bureau in Boston, for example. Consistent with this particula:rism, nonprofit agencies often are less concerned than government to serve all clients within a specific target group; instead, nonprofits focus on serving clients compatible with the agency's service mission" For example, shelters for battered women tend to conceptualize tlleir role as offering an important service alternative to established health and welfare organizations. Government, in contrast, prefers that all agencies providing counseling service to abused women provide similar service so that a minimum standard of equivalent care prevails across all agencies. Furthermore, nonprofits have mllch less need for independent verification and much more trust. in clients' testimony than do government agencies. Nonprofit agencies consequently invite criticism from government officials that service is being provided inefficiently or inequitably. These general approaches of nonprofit agencies lead to two different responses to clients that s,ometimes result in conflicts with government agencies. First, if people say they are hungry, or homeless, or have been recently assaulted and are fearful for their safety, nonprofit organizations are inclined to accept such testimony as

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sufficient. Government officials, upholding the equity requirement, cannot tolerate such an accepting attitude. To be sure, nonprofit organizations recognize potential problems arising out of a generous intake policy. If challenged, nonprofit organizations deal in various ways with the possibility that some people will take advantage, or become "freeloaders." They may acknowledge that there are costs to having permeable barriers to eligibility, but calculate that they will accept a small degree of "advantage-taking" because the work it takes to reduce it is relatively low in comparison to what it would cost in organizational effort and morale to eliminate it. They may point out that they put up certain barriers to clients seeking aid. Entry into the orbit of a homeless shelter, for example, may mean losing privacy, or agreeing to accept counseling, taking a make-work job, giving up one's weapon, or exposing oneself to a religious message. The nonprofits may also reduce the accessibility of services by raising the eligibility threshold or even cutting back services if too many untargeted clients begin to appear. Rather than directly confront clients who seemed to be freeloaders, for example, a mobile van feeding the homeless in Boston simply moved to a new location when too many people who did not appear to be homeless (but may have been hungry) began to line up for a free meal. A second response of nonprofit agencies to clients is to reject those deemed incompatible with their service mission or to restrict their intake to clients within their primary mission area. The former may lead to "creaming"-that is, referring, let us say, the very poor or severely disabled to other programs. The latter may limit services to a specific community (for example, co-religionists) and ignore the need for service by citizens of other denominations. Either situation can lead to charges by government officials that nonprofit agencies are not providing service to the "neediest" clients, who unambiguouslyare deemed by government officials to be "deserving."4

The Primacy of Responsiveness The primacy of responsiveness over equity in private, nonprofit agencies derives from their origins, the people who work for them, and their structure of accountability. Here we will show how the volunteer

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nature ofwork for nonprofit organizations translates into responsiveness toward clients. Many nonprofit social service providers tend to be neighborhood or community-based. Workers or volunteers in these agencies are more likely than government workers to know individual clients, their families, and their circumstances. The very strength of the private organizations lies in th.eir workers' interest in claimants as individuals, even if they do not know them personally. For example, a shelter for battered women would be staffed by other women who empathize with the victim's plight and want to make her feel safe through personal contact. Thus they offer help to people who seek it in a holistic way. Unlike government administrators of rule-bound eligibility standards, providers in private service agencies resist reducing clients to their bureaucratically relevant characteristics. Supporting these proposition:; is the voluntary nature of personnel in nonprofit organizations. When workers cannot be presumed to be motivated by bureaucratic incentives, other mechanisms to insure conformity to organizational tasks must operate. For workers such mechanisms include a sense of\\rell-being derived from the value and importance placed on their work, and the support they get in their desire to give expression to altrllistic impulses. It also means that, if the organization depends upon them for labor, volunteers and workers who are not primarily motivated by income considerations have a certain power in the organization. (It also follows that as agencies "outgrow" their dependence on volunteers they will not have to cater so much to their implicit deman.ds.) 5 Many forms of volunteerism in nonprofit agencies affect their organizational priorities. The newer agencies are often founded by social activists, some of whom may belong to religious communities, and who are committed to solving certain social problems, sometimes at great personal sacrifice. They may receive no pay for their efforts and work unusually long hours. Many shelters for battered women, for example, were foundled by volunteer women who had a particular vision of addressing the problem of spouse abuse. Founders of hospices for people who have contracted AIDS display similar commitments. Aside from agency founders, social service agencies are often staffed by volunteers (possibly former clients) whose work is given at least in part in exchange for the feeling of well-being they get from

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helping the organization. For some who work in nonprofit organizations, the transactions between providers and clients themselves may be the point of their involvement in work that otherwise seems hopeless. People volunteer or work for low pay in drug treatment storefronts, foodbanks, and legal advice centers not because they expect fully to solve the problems these agencies address, but because they find altruistic behavior rewarding. Cynics stay away from working with people in need because, they say, if the problems of one person are resolved there are always so many more to take their place. Workers in voluntary agencies find gratification in providing aid to people one at a time. In the more established agencies, professional staff members often work for low salaries by comparison to what they could earn in government or elsewhere. In Massachusetts, for example, salary disparities between the private and the public sector for direct care positions are said to range from 12 to 29 percent. Thus many workers in nonprofit agencies must be considered at least in part volunteers, who take at least some of their compensation in nonmonetary form. The volunteers on the boards of human service agencies may be quite single-minded in their willingness to pursue the interest of their organization's clients. Board members of traditional agencies, for example, in the past regularly permitted their organizations to make up deficits by spending the endowment, believing that they were trustees for needs that had to be met. (They were also surprisingly tolerant of management that incurred annual losses.) Likewise, board members of the new community agencies may have come out of a social movement environment that leads them to support, perhaps even more aggressively, the responsive policies of their agencies. The responsiveness of nonprofit agencies occurs within the particularism characteristic of nonprofit communal provision. Thus nonprofit agencies emphasize responsiveness to their clientele as defined by the agency's mission. A neighborhood agency will focus on responsiveness to members of their neighborhood. An ethnic group will establish a service agency to address its members' immigration problems. It is important to note that government may be more responsive to the range of social problems presented by a municipality or a society. Given this distinction between government and nonprofits, it follows that government-sponsored agencies would

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be responsive to broad, inclusive government priorities rather than to a specific clientele, neighborhood, or ethnic group.

Significance of Differences between Government and Nonprofits Several corollaries that find their way into actual practice follow from these differences in orientatiorls between government and private, nonprofit agencies. First, in contrast to government, nonprofit agencies are more tolerant of client selection procedures that are not based upon rigid standards of equity-both in client selection by staff and client self-selection. Nonprofit organizations are more willing to say that they can help some people and not others.. Private agencies are also more comfortable with self-selection. They act as if first-come, first-served is an adequate decision rule when resources are scarce and rleed is great. If they apply rationing mechanisms to discourage peoI)le who perhaps are less needy, the mechanisms tend to be advisory rather than definitive. Second, nonprofit agencies strive to be responsive to individual clients even at the expense of other policy objectives. Government agencies, though, try to spread resources more evenly over affected populations. For example, many child welfare advocates complained over the years that the long-term involvement of some nonprofit agencies with their clients led to inappropriate, excessive treatment of many children, both in residential centers and foster care. This practice also meant that there ,vere fewer resources available to a burgeoning client population. Irl the 1980s, government control of the purse strings and a reaction against long-term treatment have produced new policies aimed at limiting the length of time children spend in residential centers and foster care. Likewise, government officials would rather help many neighborhoods a little than one neighborhood a lot, unless they can justify helping one specific neighborhood on the grounds of fairness. For example, government agencies justify targeting housing assistance to the South Bronx because the area is so impoverished.. Third, both public and private agencies are likely to limit the range of clients to the agencies' ability to be effective. But government agencies are more likely to define the client population following the

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criteria of equity rather than effectiveness. This tendency is noticeable in as least two separate instances. In one instance, government will define unrealistically large catchment areas that, while providing formal "coverage" for all, cannot, because of distances, reasonably serve many of the people in the areas. This commonly happens to homeless shelters, mental health services, and food distribution centers in many rural and other underserved areas. It also occurs when the catchment areas served by small service programs in city neighborhoods are expanded to "cover" the entire city without receiving corresponding increases in resources. In another instance, government will seek to narrow eligibility criteria-for example, by lowering income limits or imposing more severe distress thresholds-in order to be able to serve a greater number of people in the pool. Thus government will appear to assist a larger proportion of those clients defined as eligible to receive assistance under the policy. Conversely, nonprofit agencies are more likely than government to prefer a large pool of potential clients, primarily because it allows a nonprofit agency to manage its client selection process in a way that is consistent with its sense of mission. Thus a large number of potential clients for shelters for battered women means that the shelters will be able to serve women who respond to their particular treatment orientation. Shelters will also be in a stronger position to reject potentially disruptive individuals. Strong opinions on the proper scope of client pools are true of workers in other nonprofit programs, including group care for children, emergency shelters for adolescents and the homeless, family counseling centers, and drug programs. Financial considerations also enter into the preference for a large client pool. Since most nonprofit agencies are of modest size and severely undercapitalized, a small pool of potential clients may be insufficient to guarantee a steady stream of clients-and hence revenue-into the agency. The differences between government and nonprofit agencies regarding the appropriate size of a nonprofit agency's client pool is evident in the recent political conflict over participation in the Women, Infants and Children Supplemental Nutrition Program (WIC). Federal officials have tried to target aid to the poorest and

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most distressed women and c]~ildren; nonprofit WIC distributors have wanted to retain a more expansive definition of eligibility. This conflict between government aJld nonprofit agencies is also evident in the assignment of public daycare slots to welfare recipients. In the program to distribute surplus agricultural products to the hungry, federal officials sought to persuade states' to restrict eligibility to families with low incomes so tllat a higher proportion of eligibles would receive free cheese and t.utter. Important political considerations influence conflicts over the size of the client pool. If one's objectives include maintaining pressure on public authorities to act more vigorously with respect to a target population, it makes sense to support an expansive conception of the needy group. The larger the number of people who cannot receive help from a program for which they qualify, the more pressing the claim that not enough, resources are being applied to a recognized problem, particularly if need cannot strictly be defined by income. This is why it is disingenuous for public officials to maintain that their interest in restricting eligibility to the "truly needy" in any program is based solely on their desire for more effective targeting. To limit program eligibility criteria is simultaneously to reduce political pressures to expand program resources to meet the need. Within the mandate of policies designed to help the most needy, governments sometimes target resources to achieve ancillary goals. The Massachusetts Department of Social Services (DSS) reduced the number of contracts that permitted nonprofit agencies to take client referrals from any source (kno'Nn as open referrals) and instead required the agencies receiving contract funds to take referrals only from DSS staff (closed referrals). The state did the same thing with its daycare slots to support its employment and training programs for welfare recipients, and it restricted use of some of its subsidized housing vouchers to support its ])olicies to reduce homelessness. In so doing the state acted as ifits earlier identification of state priorities could be imposed as equivalent to criteria of need in other programs.

The Primacy ofAccountability Any purcha~er of services, public or private, whether accountable to a departmental administrator and legislature or to a director and

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board of trustees, will be guided by the organization's mandated purposes. These purposes obviously include whatever is appropriate to the specific service provided, for example, to secure proper placements for wards of the state. They also include adherence to unstated norms, such as securing the best services available, insuring that they meet prevailing standards, and taking advantage of resources. Acting in trust to purchase human services requires that purchasers find providers with the following general attributes, which only sometimes are articulated as requirements. (1) They are reliable. Their product is well-regarded and produced on a consistent basis. It is not "here today, gone tomorrow." Politically, reliability involves minimizing public notoriety and exposure. (2) They are effective. They can be counted upon to produce good value for the money paid. (3) They are responsible. In the negative sense, this means assurance that the service providers can and will protect clients from harm. As the director of licensing and daycare for West Virginia remarked, "I feel strongly that if the public is paying for the services, we ought to ensure that those services are safe. To that end, all subsidized care should be regulated."6 Likewise, the state of Florida has required since 1972 that all subsidized daycare centers have at least one worker for every 10 children four to five years old. At daycare centers not receiving public money, one worker was required for every 20 children. 7 In the positive sense, this means that the providers will exercise care according to the highest prevailing standards within the scope of their services. This is particularly important for government purchase of service, but would be true as well of any purchaser of services making decisions about dependent people. (4) When resources are scarce and claims are many, purchasers must be able to defend purchasing decisions according to a strategic rationale that makes sense within the policy framework. This requirement is most frequently and notably relaxed during periods of program initiation, when it is more important to get a program running then to worry about targeting or following the program's rationale. These are not necessarily imperatives that derive from differences between government and nonprofit agencies. A university or residential treatment center purchasing mental health services for its students, a youth training center purchasing a benefits package for its staff, a business purchasing child care for its workers-all would apply similar criteria to its purchasing decisions. However, some of

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the applications of these imperatives certainly display important differences, depending on the sector in which the purchaser is located. Public officials who fail to monitor contracts adequately are more vulnerable to public criticisms than are the administrators of private funding or grant-making organizations. For example, the largest recipient of United Way funding nationwide is the American Red Cross. Yet the serious management problems of the Red Crosss in recent years have not been blamed on a lack of adequate oversight from the United Way.9 How do purchasers determine whether a provider meets the standard? At times certain providers will enjoy a reputation for excellence or for a "state-of-the-art" approach. At other times, program purchasers will seek to establish what constitutes high standards of accountability in service areas, and will then impose those standards on programs. For this reason public officials who purchase services are expected and strive to be deeply knowledgeable about their service areas. There are times, however, when no consensus has been formed as to what constitutes reliability, effectiveness, responsibility, or legitimate targeting rationale. Mter all, measures of performance in human services are notoriously hard to come by. When such consensus is lacking, all parties may agree that standards are desirable but disagree over what the standards should be. It remains imperative for service purchasers to articulate standards which they can hold up for inspection, to be in a position to claim that they have faithfully pursued the interests of their organizations. When consensus is lacking, we may see purchasers of service impose standards and expectations by fiat in order to facilitate the emergence of genuine agreedupon standards on modes of service, and in order to give the appearance of having standards to guide decision making. There may be no demonstrable relationship between the imposition of a requirement and the objective in whose name it is imposed. But the organizational imperatives to be effective and claim accountability in program administration are powerful influences on the behavior of government services purchasers.

Changes in Practices under Contracting In general, contracting offers nonprofit organizations the opportunity for organizational diversification while at the same time creating

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greater homogeneity within specific service types. Diversification can result from the increasing preference of government for contracting coupled with the expansion of the social policy agenda. The increase in control over the activities of nonprofits, on the other hand, is attributable to the play of organizational and policy imperatives we have just discussed.

Diversification Two sorts of evidence make it clear that the contracting regime promotes greater diversity of an agency's programming. First, traditional agencies, chasing the contract dollar to secure their fiscal well-being, have become much more varied in the sorts of programs they offer. Consider the example of the Boston Children's Service Association. In 1960 it served children in need through the breadand-butter of traditional children's services: foster care and adoptions. It also sponsored day camp activities and had a small group therapy component. By 1985 the agency had added residential treatment, protective services, after-school programs, specialized home care (for developmentally disabled children), single parent services, information and referral activities, and counseling through a center for therapy. These new activities, particularly residential treatment, protective services, and specialized home care, were the priorities of government officials. Indeed, these agency programs have one buyer: government. This is how diversification, through contracting, creates a vulnerability to government influence; no alternative customers exist for the agency's contract programs. In addition to old agencies doing new things, new, governmentsponsored agencies proliferated in response to the availability of contract monies. Halfway houses, detention and court diversion programs, residential treatment for aggressive children, respite care, and emergency shelters are cases in point. Some of the new agencies offer services that were historically neglected by the traditional agencies. Others administer services that were simply not imagined before the con tracting era. To some extent, the new services transferred to the voluntary sector responsibilities that were previously discharged by other sectors. Developmentally disabled adults previously cared for in state institutions were now domiciled in new nonprofit community living

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programs. Nonprofits also took on services such as respite care, home care (for the elderly), and daycare (for children and for dependent adults)-services which, if discharged in the past at all, used to fall within the obligations of the family. Now they became the fiscal responsibility of government and the programmatic responsibility of the nonprofit sector. 10 In some traditional service categories diversification is evident in the way client profiles have shifted. Prior to government funding, foster care and adoption services for the most part were for white and essentially healthy children. Government funding of nonprofits has facilitated changes in client mix; agencies now focus attention on children from minority groups, and on children with developmental and emotional disabilities. The children in the care of the New England Home for Little Wanderers and the famous Perkins School for the Blind are much more disturbed and handicapped today than were the clients of these traditional agencies prior to widespread government funding in the 1970s. The urge to diversify is a central tendency of many nonprofit agencies, regardless of the availability of government funds. Nonprofits often try to develop new programs with private donations or foundation grants in order to serve clients better and place their agencies on broader financial bases, particularly if they fear excessive reliance on government. They may offer new services in the hopes of making money or at least keeping them going on a fee basis. They may even dip into endowments to start new programs they regard as particularly necessary. Some of these initiatives struggle on, yet most fail to thrive. Lowincome clients are unreliable as a base for fee-for-service programs, particularly if these compete with public services. Endowment income or individual charitable contributions can never be a sustainable basis for program development. And foundation grants are short-term. In the end, the program diversity that has developed among nonprofit service agencies in recent years has overwhelmingly been sponsored by government funds. Ironies of diversification. While diversity is facilitated by government funds, it would not have developed without the interaction of government and nonprofit agencies. A relationship exists between the development of contracting and the imagining of innovative programs. Thinking up new ideas and identifying who will be responsi-

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ble for implementing them are part of the same process. When the only choices for government were to hire a new public workforce to operate new programs or to locate new programs in public agencies, it was much harder to dream up program ideas. The case of court diversion programs is instructive. When Herbert Sturz first sought to channel New York City youths who were first offenders into a program of counseling, training, and job finding, on the theory that their encounters with the law were attributable to their dim life prospects, he started the Vera Foundation to do the screening and perform the training that the new program required. He did not leave the idea in the hands of the city's probation department, which could not be expected to treat the clients of this program differently from the way it had treated them historically. The same could be said for deinstitutionalization of mental health facilities. It would have been theoretically possible, but in practice unimaginable, to transfer the staffs of the large men~al hospitals to outpatient programs and small-scale cottage environnlents. To conceive of deinstitutionalization required a vision of what should happen to mental patients, and what kinds of institutions would be responsible for implementation. II It is enlightening to consider as well two related propositions: that private agencies are more innovative and better equipped to address social problems than government; and that government is sluggish and, lacking competition, is conservative and uninventive in comparison to other sectors. Yet far from being major sources of innovation, the traditional nonprofit agencies would have been unable to diversify their service profiles without government funding. The new cOlnmunity agencies, to be sure, have been inventive in program development, but (sometimes after assistance from foundations) have ultimately had to turn to government to sustain their initiatives. Without government funding, diversification would not have taken place or would have withered after a short time.

Control over Service Programming Critics of government contracting often express concern that nonprofits may compromise their original service mission in the process of responding to government priorities. This is an entirely legitimate concern. Sometimes the compromise will occur because

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an organization is forced to bend toward government preferences. More often, changes take place even though the goals of a nonprofit agency are entirely compatible with those of government. In essence, nonprofit organizations over time often give up their homegrown notions of what constitutes effective service delivery in order to conform to governmental requirements. Two caveats about these generalizations are important to keep in mind. First, the extent to which nonprofits will be forced to change by government demands will depend upon whether the agencies had originally been independent of government influence. Second, while we focus discussion on differences between governmental and private conceptions of service, we do not mean to imply that contracting parties invariably clash, or even that nonprofit agencies are always troubled by variances in perspectives when they arise. However, our stress on the places where differences in perspective are most likely to occur draws attention to the conflicts inherent in the contracting regime. Greater uniformity in programming. While nonprofit organizations have developed diversity in their programming under the contracting regime, they have also tended to display more uniformity of approaches. Organizations that have taken adversarial positions toward conventional service delivery methods have been contained. Services also tend to look more alike over time within individual service categories. Uniformity has the effect of diminishing the extent to which the voluntary sector functions as a laboratory of innovation once a service area has been established as appropriate for government funding. The most dramatic instances of greater uniformity in program administration can be found, predictably enough, in programs that originally were most audacious. The experience of the remnant service organizations of the 1960s poverty program is illustrative. The community action agencies (CAAs) of the War on Poverty were founded in controversies that almost from the start resulted in efforts to rein in their advocacy orientations. Abolition by the Nixon administration of OEO and its replacement by the new Community Services Administration was primarily directed against the advocacy character of the community action agencies. But throughout the 1970s these CAAs continued to expand by taking advantage of federal block grant programs, which permitted them to sponsor services

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according to local conceptions of need. Although the Nixon administration fought (and the tenor of the times mitigated) against advocacy, the CAAs were still able to innovate in service provision. Two general developments began to operate against innovative service provision in the CAAs and other community group contractors. State policymakers and citizen watchdog groups began to raise concerns that state governments were not able to hold nonprofit agencies accountable in administering their innovative programs. To deal with this problem, the policymakers tightened financial and programmatic controls. They imposed greater requirements for uniformity among specific services and articulated minimum levels of program quality.12 The other development with implications for innovation and program variety was the severe cutback in federal funding for community services during the Reagan years. The CAAs now turned to state funding, at a time when states were looking for vehicles to carry their new program ideas. Increasingly the CAAs began to offer the priority state service programs: crisis intervention, emergency shelter and feeding programs, housing referral, daycare, and protective services. This 'fas an era when advocacy and community organizing was on the wane, so it is not surprising that funding for such activities was less and less available. That the CAAs continued to have substantial programs at all reflects the availability of state funds in search of nongovernmental organizations to carry out programs. The community action program was a national initiative. But homegrown advocacy organizations also have had to choose between an advocacy and a service agenda. In Boston, to take two examples, ESAC has gone from an organization founded in the 1970s to seek public resources for the multiethnicJamaica Plain neighborhood, to one that provides a variety of services in response to official recognition of the original demands. The militant anti-establishment DARE, which was founded in the 1960s on the theory that troubled adolescents should live in their own neighborhoods under the supervision of nonprofessionals with similar backgrounds to the youth, has also been tamed. In the late 1970s state officials worked to bring DARE to heel. They were concerned about its management and confrontational tactics (on more than one occasion the DARE executive director mobilized his clients

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to participate in public protests over state funding). DARE's willingness to mount programs quickly and inexpensively had once been attractive to state officials; now they felt threatened by DARE because of the state's heavy dependence on the organization as a provider. The executive director of DARE was eventually ousted in the early 1980s. Since then DARE has moved toward the service agenda of the state. To remain viable the agency had to retain its state contracts, requiring it to abandon its original experimentation with community living programs. It also needed to develop management capacity to overcome state officials' doubts about its fiscal integrity. By the 1980s government regulations and pressure had moved the agency closer to the more established agencies providing the same services. These agencies were supported by government and lacked the alternative programming and politics that had once characterized DARE. I 3 This agency is also a good example of the shift in programming among agencies which emerged from the informal sector. DARE was founded as a haven for troubled youth, with the idea that they would serve as support group for themselves under the guidance of adults. The agency was so poor that the youth donated their work earnings to help keep it running. The strength of the agency was its commitment to youth as individuals, a typical characteristic of informal care. But other aspects of the informal sector such as its unpredictability and spontaneity make government officials uneasy. Government officials are bound to strive to impose greater predictability in the services provided by contract agencies through regulations, negotiation, and oversight. Consequently, the alternative services of DARE were transformed into more mainstream services. This same process has occurred in many other service categories: rape crisis centers, battered women shelters, daycare, child protective services, and drug and alcohol abuse. Facilities. Community-based services are often located in unlikely places. Although sometimes they are housed in multiservice neighborhood centers with good facilities, they are also found in church basements, dilapidated storefronts, and even private homes. Government funding is often accompanied by demands to upgrade the quality and extensiveness of the facilities. These demands, which range from fire code compliance to better cooking and washing standards, derive from regulation enforcement where standards have

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previously been promulgated, and where they have not, from a need to identify minimum requirements for people who are served or quartered under government auspices. In themselves, government demands on facilities may be valid. But, as in the current debate over federal "mandates" to the states, the demands often are not accompanied by full financial assistance needed to meet them. One effect is to create absolute requirements for some concerns, while leaving other program components to be satisfied with what is left over. A shelter that is required to remodel its kitchen may not be able to buy the used van it needs desperately to help homeless residents search for housing. The reasoning applies to staffing demands as well. If a program must hire a clinical psychologist as director at$30,OOO per year, it may not be able to hire more night staff to keep order. Demands on facilities affect programs in other ways. The parents of a developmentally disabled adult who lives in a community residence know that the residence has to conform to state regulations on public safety, health, and staff coverage. These regulations reassure them that their child is living in decent surroundings. But compliance with these regulations makes it less likely that nonprofit agencies will offer unusual service packages or take special interest in particular clients, since this set of specifications creates high revenue demands on the agency for the number of service units it handles. Indeed, simply complying with reporting requirements is already expensive. The result is an inexorable shift away from flexibility to greater attention to the efficient use of staff and resources within existing state requirements. In some cases service organizations may have to invest in facilities that they would not otherwise develop, although they have no promise of reimbursement. Residential treatment programs may remodel facilities only to find themselves stuck with them if the program is closed down or their contracts are not renewed. Community organizations have obligated themselves or used scarce fundraising resources to obtain trucks, freezers, and other food storage facilities to serve their constituents. Yet they may not otherwise be in the emergency feeding business. As the surplus commodities distribution program for which storage and freezer facilities were built becomes smaller over time, community agencies that were forced to invest in food handling are left with excess or useless capacity.

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Control over the Client Base If they entertained the idea at all, prior to 1960 public officials were ineffective in forcing nonprofit agencies to take specific clients or bend to government's client priorities. Most nonprofit agencies were supported by private funds and were not dependent on public monies. Moreover, public officials lacked the financial and personnel resources to force voluntary agencies to change their priorities, even if they had wanted to. Also, most public subsidies only partially covered the cost of providing service, thus putting public officials in a weak position to impose demands on the private agencies. Perhaps most important, however, those who concerned themselves with service delivery issues tended to take for granted that the services provided by voluntary agencies were for the good. Public funds were passed along to support their activities as a matter of course. However, the work ofvoluntary agencies, which took responsibility for crucial matters of social policy but were ineffective in addressing the problems of poverty and racial isolation, began to concern public officials and social welfare advocates in the late 1950s. The creation of the Ford Foundation's Gray Areas Project, which soon gave way through separate pieces of federal legislation to the community mental health centers and particularly to the community action programs, signaled profound disillusionment with the traditional voluntary agencies. In this analysis, local governments also came under attack for their inability to deliver or coordinate social services to the poor. 14 The new agencies were envisioned as innovative vehicles for the delivery of services to the poor and racial and ethnic minorities, and they were to assist these populations in developing their own political voices. The federal initiatives were the first major examples of the use of nonprofit agencies, funded almost exclusively by government, to serve clients deemed to be the responsibility of the public sector. The creation of nonprofit agencies to receive government funds was auspicious, but conflicts were predictable as public officials wished to assert their own agenda. It is to be expected that in periods of scarce resources government officials will seek ways to justify spending funds on some clients and not others. They will strive to demonstrate that government-sponsored programs are based upon equity or some established principle of fairness, and they will pres-

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sure service providers to establish eligibility standards or make them firmer, and to improve and enforce eligibility verification. They will also seek to restrict the amount of services any single recipient can obtain, so that a larger number of clients can receive at least some services; thus, again, claims of equity and targeting according to some accepted principles become paramount. Some of the ways these generalizations work out in practice can be seen in the following sketches of policy development in four areas: deinstitutionalization, child and family services, emergency shelters, and the great cheese giveaway. Deinstitutionalization. Toward the end of the 1960s state officials in Massachusetts, urged on by social welfare advocates, created a network of new agencies to serve state clients who were institutionalized in the state training schools, hospitals, and schools for the mentally retarded. The new agencies provided government officials with an opportunity to use nonprofit agencies for clients who previously were institutionalized. To ease the transition to deinstitutionalization, the first clients referred to the contract programs tended to be the most manageable. Cooperation was easily secured. Eventually, however, state officials referred more difficult clients, sometimes sparking confrontations as the agencies resisted state control of client referral and admissions procedures. The outcome of these encounters varied widely, but over time the state gained the upper hand in referrals. The reasons were simple: there were no alternative funding sources, and the state increasingly linked the receipt of state contracts with state control over referral procedures. Child and family services. The Massachusetts Department of Public Welfare (DPW) followed a slightly different path in its dealings with nonprofit child and family services agencies. When DPW officials began funding nonprofit agencies on an extensive scale in the 1970s, they continued the historical practice of giving traditional child and family service agencies broad discretion in client referral and admission decisions. Contributing to the welfare agency's willingness to give the nonprofit agencies a free hand in client recruitment decisions were the following: a desire to spend federal money quickly, the small administrative staff of the Department, and the generous belief of the period that all citizens were entitled to a core of gov-

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ernment services, so that within reason any client of a nonprofit agency could be considered appropriate. I5 The DPW situation was untenable. By the late 1970s the general explosion of government contracting with private agencies had produced widespread public criticism of the Department as well as of other state agencies for failing to monitor the quality of programs and the financial status of contract agencies. Many child welfare advocates were convinced that official indifference to the priorities of private agencies actually perpetuated inappropriate, even harmful services to children and youth, such as long-term institutional care rather than foster care of lesser duration, and long-term foster care when adoption would be preferable. They also contended that the state could not effectively respond to rising public concerns about child abuse unless it had better control over funds allocated for child welfare. 16 The attacks on the DPW contracting philosophy and procedures were responsible in part for the creation in 1980 of a new agency, the Department of Social Services (DSS), whose job was to oversee child welfare and family services programs. I7 Backed by popular demands to focus agency resources on preventing child abuse, DSS staff moved to gain greater control of referrals and admissions to private agencies. Over time, the client profiles of DSS contract agencies conformed more closely to the priorities of DSS administrators. This was achieved through greater control over client referrals by restricting them to DSS officials. I8 In today's era of vigilance over accountability for the expenditure of public funds, the absence of equity considerations as the driving force within nonprofit agencies is more and more difficult for government officials to tolerate. Consequently, government administrators strive, through regulation, negotiation, and coercion, to make the services and clients of nonprofit agencies funded by government compatible with the government's goal of targeting for equity and effectiveness. Administrators of DSS define "priority clients" according to several criteria: income, seriousness of presenting problem or illness, and risk (often of abuse or emotional deterioration). These criteria make sense to a public agency devoted to targeting its limited resources. 19 Imposition of these criteria can conflict with the norms of the

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traditional and new community nonprofit agencies, which seek to be responsive to the individual within the parameters established by agency mission and the likelihood of successful treatment outcomes. This commitment to the individual, though, means that nonprofit agencies try to serve clients without regard to bureaucratically imposed criteria. Government contracts, however, introduce such criteria into nonprofit agencies and specifically into the decisionmaking process of nonprofit staff regarding access, treatment duration, discharge, and, in some cases, the choice of program models. To be sure, nonprofit agencies without government funding are not without constraints or limitations on service provisions. Resources are not infinite. Government contracting, though, introduces a fundamentally different form of rationing into nonprofit agencies. The emergency shelter system. A good example of the conflict over equity and targeting is provided by the emergency shelter system in Massachusetts. The present system dates to the late 1960s and early 1970s. During this period many emergency shelters were established by community activists to provide troubled youth with a respite from chaotic and destructive family situations. The activists conceptualized the centers as informal residential alternatives for early intervention to prevent serious emotional problems or flirtations with crime. Many were explicitly conceived as using nonprofessionals in helping roles. They were to be "drop-in" centers where adolescents discussed their problems and participated in recreational activities. They were free to stay only briefly, if they so chose. To survive, these early centers applied for and eventually received money from public sources, such as the now-defunct federal Law Enforcement Assistance Administration. In the 1980s the decline of federal support for social services forced shelters to turn to the states for support. The growing dependence on state funds, and the accompanying demands that the shelters be responsive to state referrals and treatment expectations, has led to an ongoing clash. Emergency shelter staffs charge that the state is compromising the preventive function of these shelters by forcing them to accept seriously disturbed adolescents in need of very intensive services. State officials concede that the shelters have been led away from their founding missions. However, they regard the.shelters as an important service option for emotionally troubled adolescents under state supervision. For public officials, care of these very needy youth takes

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priority over the purposes for which the youth shelters were originallyestablished. 20 Government officials here employ a referral principle based upon the most acute need for services: the most disadvantaged should be served first. The shelter staffs are committed to preserving the mission and integrity of their programs, which they can do only by controlling the barriers of client referrals and discharge. Nonprofit staffs are especially concerned that targeted referrals will bring about excessive government intervention and control, because clients referred by government tend to need more intensive and specialized services. Acceptance of government clients raises the costs of service to nonprofit agencies as they add specialized staffs and make changes in physical plant to provide secure detention or to "harden" it against vandalism. Having spent extra money, an agency needs to enroll the more costly referrals because they come with higher reimbursements. Even if an agency is able to renegotiate its contract to cover the higher costs, it still must maintain a flow of the more expensive clients. Thus an agency finds it more and more difficult to turn away government referrals because they have become essential to agency income. 21 Government's domination of the market for shelter services, then, allows government to intervene in struggling shelter programs, even when it refrains from aggressive, heavy-handed regulation or state management. The great cheese giveaway. In 1982, when the federal program that would eventually become known as the Temporary Emergency Food Assistance Program (TEFAP) was just getting started, it emphasized giving away as much cheese, butter, nonfat dried milk, and other surplus commodities as possible through networks ofvoluntary agencies. These agencies had to be identified and persuaded by state agencies to participate. However, fifteen months later, when food retailers complained that the program hurt their sales, the program was cut back sharply (although it remained substantial, averaging monthly cheese distributions alone of some 35 million pounds). At this point the federal Food and Nutrition Service (FNS) began to worry about the gap between the number of people eligible to receive food and the amount of food available. Accordingly, it promulgated regulations which required states to establish more precise and restrictive eligibility guidelines, and it started procedures to insure that those guidelines were being followed. The FNS later

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proposed regulations that would further tighten the loose verification procedures of the food banks and soup kitchens. These regulations were anathema to the charitable community groups for whom self-declarations of need among the recipients of surplus foods were entirely sufficient. 22

Conclusion Under the contracting regime, services provided by nonprofit agencies have increased in number and diversity. Traditional agencies now offer a broader array of programs, while single service agencies addressing new needs have found support in public funding. Services available to citizens in the welfare state have consequently increased in quantity and variety, notwithstanding periodic withdrawals of support for services at the state and federal levels. Contracting has also meant greater uniformity of services and considerable public oversight of the activities of the voluntary sector. In the conflict between public agencies and nonprofit organizations in the character and allocation of services, government has gained the upper hand. 23 In places with limited contracting experience, the conflict continues as government and voluntary agencies grope toward accommodation. Where contracting has been in place for many years, public officials have imposed government standards of client selection and treatment over the desire of nonprofit agencie5 to respond to clients more selectively and more consistently with the clients' presenting needs. 24 Several developments within contracting practices contribute to government dominance. First, some nonprofit organizations, such as the food banks that refused to handle government surplus commodities or the community organizations that declined to distribute home heating vouchers, have simply decided not to participate in the contracting regime. It is a decision that has placed organizations at great disadvantage in comparison to their peers, but they do exist. Indeed, some have even been able to capitalize on the reputations they acquire for being unwilling to take government money. Second, nonprofit organizations that obstinately fought with government officials over service practices have lost favor. Meanwhile, the agencies willing to accept state client priorities have grown. Often, these agencies--the ones that were created in tandem with

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the expansion of contracting--eclipse in size the traditional agencies that formed the initial core of contracting efforts in the late 1960s and early 1970s. Some small agencies continue to occupy unique service niches or continue to be supported because of political connections, but they are often less prepared than are the new agencies to respond flexibly to changing government priorities. Third, the recruitment of former managers of nonprofit agencies to high level public service positions has contributed to the homogenization of views between the two sectors. Former workers in the voluntary sector, now employed in the public sector, come to recognize the imperatives of government as they assume the burden of distributing resources over the entire service area. At the same time that they persuade their former colleagues in the private sector of the need for government priorities (sometimes they are regarded as traitors to the cause), they seek to ameliorate government policy in directions favored by voluntary agencies. Fourth, control over government purse strings allows public officials to dominate the policy debates in at least two areas. One is simply to determine where the greatest need exists. A decision on this question often dictates which agencies are most appropriate for funding; for example, in urban America rapid shifts can occur in the course of deciding which immigrant groups are most in need of services. A second lever of power is being in a position to decide which service philosophies are most appropriate in the light of current fiscal realities. At present, it might be said, that service is best which is most effective at lowest cost. For better or worse, cost effectiveness was not the main issue among private service providers in the days before contracting. Such a perspective leads to convergence in service philosophies. It also tends to drive out the kinds of innovation and experimentation encouraged by the pilot projects that flourished in earlier eras of social policy experimentation. Yet conflict continues, as one would expect it to do where interests and resources diverge. At the programmatic level, as government officials gain control over referrals to agencies, conflict shifts to the client discharge process. Some state officials charge that contract service agencies resist government intake policies by discharging the difficult clients and keeping those that are easier to handle, thus readjusting work loads to achieve greater balance between required

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effort and compensation. 25 The staffs of the nonprofit agencies respond that public officials place the wrong clients at their agencies and prematurely stop clients' treatments to save money or to make way for more needy cases. And even in situations where government controls the referral process, conflict can persist. For example, government officials will intentionally refer a client they know is inappropriate for the agency. The nonprofit contract agency objects. In response, the government official relents but only after winning a concession from the agency on another issue. Or government simply does not refer any client in response to the nonprofit objection. The nonprofit agency then experiences a loss of income and may be more willing to take the next referral from government. In short, the changes in clients and services in nonprofit agencies due to the contracting regime should be seen as part of an ongoing process with many skirmishes along the way. Nonprofit agencies may win a few of these skirmishes. But ultimately they are at a disadvantage in their relationship with government contracting officials because of increased regulation, funding cutbacks, and greater competition among nonprofit agencies for public and private dollars. Nonprofit organizations are more sllsceptible to government influence because they are financially more vulnerable; this is a by-product of the contracting regime and the changes in state and federal policy. The looming public policy problem for the coming years is that the twin developments of more regulation with less money will make many of the smaller nonprofit service agencies unable to survive. The result will be a consolidation of the universe of nonprofit service agencies into mega-agencies dominating contracted services. Clients will have fewer service choices. And ultimately the public will pay higher costs as the smaller, lower cost agencies disappear.

7 - Dilemmas of Management in Nonprofit Organizations

The boards of two nonprofit organizations gather for their monthly meetings. One meets in an airy, sunlit, tastefully furnished, high-ceiling room with potted plants and framed woven wallhangings. The other meets in a cramped basement recreation area where a pingpong table has been shoved to one side and posters of sports heroes look down to inspire achievement among admiring youth. Both boards, different as they appear, are likely to share two permanent items on their agendas. One is how to handle the all-too-familiar cash flow crisis. Receipts from government agencies are in arrears while bills are mounting. Questions come from around the table. What are the prospects government will soon pay what it owes us? What has the government officer promised? Does he or she have authority to say that reimbursement is imminent? Does the board know any government official or legislator who can help free the agency's funds? How should the executive director handle the situation if reimbursements continue to be delayed? A second item common to both boards is a familiar conversation about renewing or possibly seeking further contracts. A government agency wants to level-fund its programs across the board (give no rate increases); or it wants to cut back all contracts by five percent. Can the organization cut back and provide current services at last year's funding levels despite cost inflation? How far should the organization go toward recon~guring services to meet government's new priorities? What will the costs of such changes mean for the organization's integrity? A cash flow squeeze may have a specific cause. The state or city is in a fiscal crisis and has difficulty paying its bills. New government personnel have frozen payments until they can sort things out. Per-

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sonnel cutbacks in the finance division of the state agency have delayed payments. The government's computers are down. The wrong paperwork was submitted. The organizations' attitudes toward demands to change program priorities may vary. They might be perceived as challenges or misfortunes that arise because of a fiscal crisis, intense new government priorities, or other specific developments in the policy world. Or the organization may well share with government officials a view of the needs of the region and thus accept the legitimacy of new priorities even when those priorities require it to expand its program base. And it needs the money if it is to retain central office staff and other key personnel, and maintain core functions. Nonprofit agencies that contract with governments tend to experience these problems regularly. At least, every nonprofit agency should expect to encounter them if it becomes involved in contracting. These are not issues that arise out of poor management in the public or voluntary sector, although poor management may sometimes be found. What at the level of individual organization appears to be bad luck, parlous t.imes, or inept management is in large part rather a matter of coping with chronic problems of the contracting regime. It is perhaps significant that the only periods in which these problems do not arise are periods of rapid growth in contracting, when government officials are eager to initiate programs and identify agencies willing to accept service contracts. To be sure, nonprofit agencies do not experience contracting dilemmas to the same degree. The frequency and severity of the problems are likely to be greater the more an organization depends upon contracting for its income, and the less diverse is its resource base. Some organizations will have minimized contracting problems because of an unusual relationship with a government sponsor. For example, in the case of long-term residential placements, government agencies that rely on nonprofit organizations for continuous services may have long-established relations with their service providers. Other agencies may have powerful advocates within the legislative or executive branch or in the commissioner's office.

Understanding the Nonprofit Organization How do our boards of trustees and executive directors get themselves into situations in which they continually live on the edge of financial

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crisis and programmatic compromise? A useful point of departure in the analysis of organizations generally is to think of them as oriented toward maintaining themselves and, where possible, making themselves stronger. Organizations therefore tend to seek out opportunities for growth and budgetary stability while seeming to be indifferent to possible inconsistencies such opportunities present to their missions. This organizational perspective would predict that nonprofits will accept a newly offered contract in order to grow, and agree to conditions imposed on them by government in order to increase their program capacity.l However, although the assertion that nonprofit organizations seek to secure their interests is a useful guide, other motives drive them as well. In particular, voluntary agencies are typically influenced by a strong sense of purpose and commitment. Thus nonprofit organizations are torn between organizational maintenance and pursuit of their purposive objectives. 2 If nonprofit organizations were not purposive at least to some degree, then government demands that they change their program or client profiles would hardly pose any problems for them. The tension is acute in more zealous and recently founded organizations, whose original social commitments are still intact. But they are evident as well throughout the full range of nonprofit organizations, from the struggling shelter to the affluent family service organization. In considering whether to accept initial contracts, officers of nonprofit organizations are mindful that raising money the traditional way, through sources other than contracting, is no easy task. Going again and again to the same donors and putting together raffles, auctions, and annual drives can be exhausting and hard to sustain year after year. Also, many of the newer community-based organizations are controversial and undercapitalized; thus they are unattractive to established donors such as foundations and the United Way. Private alternatives to charity such as fees from clients and insurance agencies are limited sources of revenue. While government contracts entail some risks at the beginning of the contracting relationship, they represent a welcome infusion of substantial funds, with certainty of ultimate delivery, and a release from the grinding annual problems of raising money. Leaders of the organization may also believe that they can continue to raise funds from traditional sources while adding on a government contract component.

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A few additional comments are in order to modify this crudely schematic outline. First, we do not want to suggest that nonprofit agencies were the hallmarks of fiscal stability before the development of government funding. Nonprofit agencies typically had to cope with uncertainties associated with unexpected demands on staff, financial miscues, and the difficulty of generating adequate fees and charitable contributions. But these problems tended to have less serious implications for fiscal stability and agency autonomy for three reasons. Nonprofit agencies were smaller, thus possible financial losses tended to be less serious. Because of the "blockiness" of government contracts, a contract loss can have more profound implications for agency operations than simply the inability of the agency to generate sufficient fee income or receive its entire requested United Way allocation. Furthermore, sources of private revenues for nonprofit service agencies such as the United Way, local foundations, and individuals were usually very reluctant to try to intervene directly in agency operations. Second, we do not mean to suggest that every nonprofit agency is willing to bid for a contract simply because funds are available. The organization will consider whether the contract will interfere with existing programs, whether the agency has the capacity to fulfill a contract, and even whether it can develop a competitive proposal in time for the submission date. Nonetheless, a nonprofit will find it difficult to turn down an opportunity to expand in established program areas, particularly if it has some reason to think it might land the contract. Its commitments in the area, and the potential for expanding services to its target population, present too great a set of incentives to be passed up easily. As suggested above, some nonprofits are clearly more vulnerable to the instability resulting from contracting than others. Most vulnerable perhaps are the new community organizations that live hand-tomouth while initiating new services to new groups, and which have only recently received government funds. These groups may be nursed along by public agencies up to a point, especially when their policy specialities are in great demand. But they become vulnerable when the salience of their services or clients begins to fade from public view,3 or when governments encounter a fiscal crisis. At times, the ability of nonprofits to mobilize political resources neutralizes their vulnerability to the erratic and unreliable nature of

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contracting. For example, programs for children with severe physical handicaps whose parents have effective lobbying organizations may be able to withstand pressures to change or accept contracts for less money. In contrast, respite care for welfare parents of homebound infants and children is a service whose clients are not able to mobilize effective political support. Programs that administer services in areas of unequivocal government commitments may be another example of those able to withstand contracting pressures. A case in point might be a program for the education and development of youthful offenders in juvenile corrections system, a problem population which cannot be ignored or swept under the rug. However, even these organizations are vulnerable to pressures to restructure their agencies as the scope of the contracting regime grows.

Cash Flow If we think of a contract as an agreement between two parties free to enter into such an arrangement, we might think that the test of the contract is the extent to which each side produces what it said it would produce. In social services, this means that the voluntary agency must produce the service it promised, in exchange for money. Conceptions of contracting of this sort underlie the concern of many critics that government agencies are not able to hold contractors accountable. 4 A great deal of ink has been spilt over the particular ways in which government may fail to insure it is getting value for money: lack of performance measures for service providers,5 and the understaffing and general inadequacy of government audit capacities,6 for example. Much less is said about the other side of the equation: the extent to which government undermines contracts and contractors by failing to fulfill its part of the bargain to make payments in a timely fashion.' For if reimbursement is delayed long enough to add significantly to the cost of providing services, government effectively rewrites· the terms of the contract unilaterally. Moreover, if these delays weaken the financial condition of the agency, the agency may be forced to take government clients previously not covered by the initial contract understanding. This shift in agency policy is further encouraged by the agency's bank and creditors who want a demonstration of financial soundness.

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To be sure, nonprofits often collaborate in the contracting difficulties they experience with government. While they may know that they will encounter problems in making ends meet, they choose to seek the extra resources and accept the pains that go with them rather than do without. When combined with the often fragile capacities of voluntary agencies, government reimbursement practices and providers' acquiescence lead to a weakening of nonprofit service agencies that ultimately stunts the ability of the state to provide for its citizens. Keeping in mind that we are generalizing over a vast range of organizations and relationships, we offer a few ideas about why nonprofit organizations are chronically confronted with cash flow problems, and how they distort themselves and sometimes get into trouble in their attempts to cope with the consequences. Nonprofit agencies sometimes enter into contracts below levels of funding that would allow them to provide service of appropriate quality. This remarkable development occurs for a combination of reasons. The agency executive may misjudge the organization's ability to cut expenses or generate client contacts. She may incorrectly believe that she will be able to renegotiate the contract once it is secured. And the executive may yield to the pressure of public officials because she believes that the agency can build a long-term relationship with government for which the present contract is only the first installment. In any case, the opportunity to diversify may have gains that balance the initial uncertainty over the ratio of costs and revenue. Some payment schemes place providers at a disadvantage. Payment on the basis of monthly or nightly censuses, for example, place contractors at a disadvantage because they are paid on the basis of the clients they actually serve, while their costs are not variable but fixed. This payment method works to the benefit of both parties if intake is reliable. The state only pays for what it gets, and the contracting agency has an incentive to maintain the numbers it serves. But what happens when, through no fault of the contracting organization, the census fall off? It could fall off because the service it provides is not required evenly across time. For example, the need for shelters for the homeless declines in the summer. An organization providing shelter may have overestimated the numbers that would be seeking shelter as the calendar moved into spring. Or

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another shelter may have opened which temporarily draws clients away from the first. More troubling from the point of view of nonprofit providers is the problem of depending for referrals on other agencies. Many providers, as in the case of referrals within the criminal and juvenile corrections systems, are entirely dependent on referrals from other agencies to make up their clientele. Some state agencies will only contract with agencies that agree to restrict their referrals to the state agency funding the contract. But personnel difficulties or policy disputes within the agencies may leave contractors with unfilled beds for weeks or months at a time. Through no fault of the organization, they will be paid less during such a period. All would be well if the contractor had mostly marginal costs and could simply spend less money during a low census period. For example, it could buy less food or reduce the subcontracted psychiatric hours it buys if it temporarily had fewer clients. But almost all costs are not of this type. The organization still needs the same number of custodial staff people and must heat its buildings to the same temperature. So the organization must carryon with essentially the same costs but lower revenues. As in any enterprise, irregularities in client flows could be anticipated and arrangements made for ensuring that the contracting agency was able to overcome them. 8 Yet the dynamics of contracting usually result in such considerations being "off the table" in contract negotiations. Both parties may be aware of the risks associated with client flows, but both will proceed on the more optimistic assumptions that client flows will remain stable. Government will do this to maximize service availability; the nonprofit organization will do this to maximize income and avoid what its director expects will be a losing argument in light of the pressing and unfunded public needs of which it is aware. Costs may increase unexpectedly during the terms of the contract. This is a hazard of all contractors, from the private as well as the voluntary sectors. It is noteworthy here only to the extent that nonprofit contractors may be reluctant to insist that the contract build in expected yearly increases into the terms of the contract; and in a multiyear period government may seek to change the terms of the contract by "level-funding" future years, despite previous expectations that it will provide for cost-of-living and inflation increases.

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Government can do this while private parties cannot, because while contracts may be for two or more years, government can plausibly seek to renegotiate terms after the first year, claiming that it does not have the money. Nonprofit contractors then find themselves in the position where they must accept receiving less money or risk overturning the entire arrangement. Government officials also realize that nonprofit staff are committed to addressing a certain problem or helping a specific disadvantaged group; thus they are unlikely to protest their frustration with government by closing their programs. These concerns represent defects that are built in from the start of the contracting arrangement. Others follow not from the structure of the contract but from the process of obtaining payment. Reimbursement may be delayed, sometimes seriously.9 The most severe form this problem takes is when government deliberately exploits its systems for providing regular contract payments or for reimbursing contractors upon the ·submission of vouchers to withhold payments in order to solve governmental fiscal problems. The questioning by the government agency of the claims of contractors about services provided or costs incurred also results in holding up reimbursements. Voluntary organizations with substantial resources may have reserves that allow them to cope reasonably well with the regular delays in reimbursements that they experience as contractors. Ironically, this is one of the reasons government officials often prefer to limit their purchase of services to the more stable and affluent providers: these contractors are more likely to be able to withstand the hardships that experience teaches will probably occur. Unfortunately, many contractors do not have the resources to ride out periods of reimbursement withholding. Moreover, they are not allowed to build up reserves. IO As nonprofit organizations they are not in a position to do so; funds established to bear them through rough times might appear to be undistributed and inappropriate "profits." Public agencies may take amiss an organization's financial claims if reserve balances are too high. Moreover, as service-providing organizations they have internally generated reasons to abhor reserves when there are underserved clients who could be assisted. Further compounding the problem is the difficulty nonprofits experience in gaining lines of credit. Banks are often reluctant to lend to nonprofit agencies because they are undercapitalized, with

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government contracts as their only significant asset. Since these contracts can be cut or even terminated, banks will not regard them as secure assets. Consequently, the bank often requires an extensive track record from a nonprofit before it will provide a line of credit. Additionally, banks tend to dislike such lines of credit because even though they earn market rate interest from them, the handholding and work entailed in dealing with nonprofits sometimes makes the loan line unprofitable on balance. For these reasons, the bank may grant only part of a line of credit request, leaving the nonprofit still vulnerable to major delays in payment. In self-defense, nonprofit organizations develop coping devices to try to sustain themselves over the rough times of high standard costs and reduced revenue flows. While the nonprofit is experiencing cash flow problems, its own creditors must be managed. Nonprofit organizations are run by people who are artists at avoiding paying the nonessential bill. One set of rules for governance developed by nonprofits is creating payment priorities. Staff salaries usually have first claims on limited cash resources. Employees of nonprofit organizationsdaycare workers, counselors, custodial attendants, cooks, for examples-tend to be lowly paid and even more lowly paid than their counterparts in other sectors. The organization will put their needs first partly because they are among lower income workers, but mostly because it is often so difficult to recruit staff to some of these unrewarding, entry-level positions in human services. Still, directors of some of the more zealous nonprofit agencies have been known to seek temporary pay holidays if the entire agency is up against the wall. Some creditors are treated as absolute, while others are regarded as more forgiving and flexible. The landlord and telephone company may be treated as requiring timely payments, while others may have to be satisfied with partial payments and sustain regular backlogs of debt. When the agency comes under fiscal stress, creditors will be strung along, put off as long as possible, and receive a downpayment on the mounting debt when absolutely necessary. Up to certain limits, nonprofits often treat bank loans as flexible debts, foregoing repayment on the principal of the loan while maintaining interest payments. Like business lenders, some purveyors and banks may be owed so much that they continue to support the nonprofit organiza-

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tion for fear that if the organization collapses they will never receive what they are owed. Real trouble arises when nonprofit managers begin to overlook their debts or to pay expenses for one account from funds allocated for another. Paying salaries for people on one project from another project's allocation is one expedient to which the nonprofit manager may resort. Failing to pay required taxes is another. In the 1980s Massachusetts Fair Share, a citizen action organization, was fatally tarnished with charges of mismanagement. Among other things, it had failed to pay its employees' social security taxes. In 1988, the New York Urban League also came linder charges of fiscal mismanagement and failing to pay its social security taxes. II Many other nonprofits have also got into trouble over social security taxes in recent years. 12 Is it coincidental that important, and in their way quite distinguished, nonprofit organizations have come to neglect this particular obligation? On the contrary, the incidents reflect the systemic problems of the nonprofit agency. Faced with revenue shortfalls and ongoing, continuing obligations, buoyed by the hopes of their directors that saving devices would materialize, reluctant to cut back on activities when the message was that the needs the organizations were addressing were great, managers may have understandably given in to immediate financial pressures by neglecting regular tax payments in the hope that they would be able to make them up in the near future. The troubles outlined above are not the product of mismanagement by poorly trained executives of nonprofit agencies, although this is the usual charge. Undoubtedly there are ways in which the voluntary sector could be more sophisticated in administration, but the problem is more systemic. Nonprofits are virtually expected to cope with erratic revenues, underfunding, and slashes to established budgets. One might say that through contracting, nonprofit agencies are enlisted into an alliance with government to manage the failures of the public sector to deal with clients reliably and consistently. It would be abhorrent if a pensioner receiving, say, five hundred dollars per month in a given year received three checks one month late, one check that bounced and was cleared only after several tearful telephone negotiations, and two checks late in the year that were each short fifty dollars because the government was strapped

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for funds. Yet this is the situation of the nonprofit organizations expected to serve the pensioner population with home care aides, meals-on-wheels, daycare and transportation services. One episode in the ongoing fiscal crisis of Massachusetts illustrates the ways in which the nonprofit sector is clearly expected to participate in the uncertainty of public sector service provision. In 1989, with the state's budgeted expenditures significantly out of line with anticipated revenues, public officials announced a series of program cutbacks to keep spending in line. This was hardly remarkable, however regrettable it may be. What seemed particularly wild, however, was the state's decision that, for a period, nonprofit organizations could be paid what was owed them only if they had a note from their banker that they had exhausted all available opportunities to borrow money to help them bridge the period in which funds were unavailable. As agencies throughout the state tried to see into the future to figure out which employees to try to keep and which to let go in anticipation of further program cutbacks, the state administration seemed helpless to deal with the wreckage state revenue withholding was generating. The point is not that a state should not be able to reduce expenditures in human services. It is that the treatment in the state budget process of the supposedly autonomous private voluntary agencies reveals the extent to which they were expected to collaborate in the crash.

The Dance of Contract Renewal Some buyers may go into a market once, seeking the best value for money, never needing or intending to return. Others may be required to go back into a market again and again. They may go back because the number of suppliers may be limited. The costs of going elsewhere, to the next town, say, may be too high. The buyer may have a stake in keeping a reliable supply coming to market. Like a country purchasing arms or a homeowner intent on preserving the neighborhood hardware store, the long-term interest of the purchaser may constrain his wandering off in search of bargains. This is the case with government nurturing of contractors in many service areas. Suppliers of some services are limited, and government must have suppliers ifit is to maintain reliable contractors. Ironically, while government has a stake in maintaining reliable suppliers, it

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regularly undermines voluntary agencies through a dance of contract renewal which leaves the organizations in flux and uncertainty. Contracting parties are perhaps most autonomous when a first contract is arranged. The voluntary organization has not yet come to depend upon public funds, and government has not yet come to depend upon the voluntary organization to supply services. While the lure of government contracts may be attractive to some organizations (and of questionable value to others), the signing of the first contract is not particularly destabilizing. Once the match is consummated, however, subsequent interactions frequently cause debilitating uncertainties and require managerial acrobatics on the part of nonprofit officers to minimize the often high costs of doing business with the state. I3 It may be possible for some organizations to maintain stable and mutually supportive relationships with government, particularly when governments fully accept their dependence on the voluntary organizations-for example, in the case of health centers and correction agencies. Moreover, governments increasingly recognize their growing dependence on nonprofit agencies and the severe instabilities they often impose on these organizations. Nonetheless, normal relations in contract renewals are characterized by difficulties that the nonprofit partner is expected to bear. These difficulties exist despite a generally high rate of contract renewal. For example, an agency for the developmentally disabled received a contract for residential group care in 1980. The agency still had the contract in 1991. But this seeming stability masks the profound uncertainties and difficulties the agency experienced in the course of contract negotiation and award as well as the differences in the substantive content of the contract over the II-year period. Voluntary agencies that contract with government seek stability in programming for several reasons. They are expected to provide government with reliable service "supplies." As conscientious service organizations, they desire stability in their programming. And they need to offer stable programs in order to present themselves to the public and their own constituencies as reliable. But like the problem of maintaining adequate cash flow, the vicissitudes of contract renewal are destabilizing for systemic reasons that are built into the logic of government actions in the contracting regime.

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We recognize that there are exceptions to the dynamics of contract renewal we sketch below, and times when the dynamics are more evident than others. Some service areas (say, child abuse investigations) are more vital to government than others (say, English-as-asecond-language for new immigrants), which may be currently fashionable but not part of core governmental functions. Nonetheless, we will proceed to describe the archetypical case, as a way of illuminating an important dimension of the contracting regime which is not captured by statistics or general discussions of how nonprofit organizations may be changing over time. Nonprofit organizations cannot rely on government to maintain funding levels or provide increases consistent with reasonable expectations for cost of living and price index inflation. For one thing, government agencies are constantly under a series of pressures: to meet the needs of underserved populations, to expand into underserved areas, or to extend services to new populations. Furthermore, old constituencies may identify new needs and have the political clout to require attention; government may have become committed to making long-called-for improvements in existing services. Meanwhile, the demand for services seems to expand to meet the capacity of the society to provide services,14 and this too puts pressure on government to seek slack funds for improvements or expansions of current activities. Moreover, government seeks to achieve higher and higher degrees of equity and public accountability, which translates into seeking to spread resources as much as possible to deserving or needy groups. The desire to secure additional increments of service, instead of, say, improving the quality of the ongoing services, also leads to systematic efforts to hold the line on contract costs. Politically this objective is modestly supported by inflation. An agency that receives the same amoun t of money today as in the previous year actually is receiving less in real terms. At the same time that government agencies are motivated to spread resources over a broader client base, legislatures in their role as keepers of the public purse maintain a tight grip on the budgets of line agencies such as the Department of Mental Health or Social Services. On occasion, the politics of a jurisdiction will yield placeholding salary adjustments or other increments in recognition of inflation or increased costs. Or a particular service area may become

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recognized as requiring shoring up and receive a budgetary allocation disproportionate to those of other service areas (as in the case of protective services in Massachusetts in 1989). But otherwise, the process of funding ongoing contracts results in squeezing current providers, because government agencies do not have enough money to meet all pressing demands, or they wish to expand programming in some areas by nibbling at the budgets of current providers in others. 15 Nonprofit organizations cannot rely on government to sustain its priorities over time. New constituencies arise to compete for funds within the compass of ongoing agency budgets. New ideas are developed which appear to offer innovative ways to serve old constituencies. The new ideas may be untested, but their novelty has the appeal of permitting government agencies to represent themselves as having innovative approaches to service. From the point of view of government, this is all legitimate. It is a hallmark of the contracting regime-and to government a prime attraction of contracting-that over time government can have maximum flexibility to move funds around. But what to government is flexibility is to the nonprofit sector an important source of instability. With the knowledge that government will seek new approaches to old problems and policies for new constituents, nonprofit agencies will strive, if possible, to turn their program profiles toward the apparent preferences of government. There are undoubtedly many reasons for this. One is the straightforward belief that governmental preferences are correct for the target population. In some instances, the agency or groups of agencies may have participated in discussions with government in which the new priorities were hammered out. A second is that a contract for services is likely to represent a large part of an organization's budget. Its loss would affect not just the program in question but the organization's core functions as well. And, as noted, nonprofit agencies often find it difficult to tap alternative sources of funds such as fees or private charity. A third is the desire to diversify so as to maintain fiscal health. Executives of nonprofit organizations widely believe that the only way to maintain the core functions of their agencies is to increase the number of contracts they hold. New contracts will pay current costs at a time when cost-of-living increases may be difficult to obtain under existing contracts. Thus agency directors can try to stay even

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with current expenditures. In·addition, contracting with several public agencies provides partial insurance against coming into disfavor with any single agency, or the collapse of a single agency's contracting capacity. Many contracts, especially in today's strained budgetary climate, allocate insufficient money for administrative expenses. Consequently, a nonprofit executive may seek a new contract in the hope that the additional increment for administrative expenses may be enough to hire the bookkeeper, the assistant director, or the new program coordinator. Frequently, though, the executive guesses wrong: the new contract may allow the agency to hire the new staff but the demands on the agency have increased as well, so the agency has not substantially improved its financial position; or the agency finds that even with the addition of the new contract it still cannot fund its needed administrative expenses. In the worst-case scenario, an agency will obtain a new but substantially underfunded contract (because government knows that the agency dearly wants the deal), and the agency loses money from the day it assumes the contract. The agency is then in an even more vulnerable position vis-a-vis government. A particularly desperate part of the dance comes when contract renewal bids have been made, and the process of deciding the awards is in process, but for one reason or another the government agency is unable to make a timely decision. As the period covering the current contract winds down, months may go by without a decision. Our agency director now must do some fancy footwork. As she waits for assurances that the agency's contract will be renewed, she risks losing staff, particularly the better and more experienced workers whose skills are in demand elsewhere. The program may be severely eroded as staff members become unwilling to continue to take the risk that the program will not be renewed. Whether or not individuals are themselves looking for new jobs, staff morale suffers, with implications for program and clients. Aside from waiting and offering hollow reassurances, our director can take some actions, although they may have a degree of desperation attached to them. She may begin to juggle personnel among contracts in order to keep important staff and maintain organizational continuity. This strategy may be most plausible in service agencies that have relatively coherent programs so that such substi-

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tution makes a degree of sense. Although disruptive to programs and demoralizing to staff because it confirms that the organization is in trouble, this remains an effective albeit difficult step the director can take. A parallel course of action is to seek other funding and move the organization in directions tangential to its stated mission. In doing so, our director hopes to salvage something of the agency's objectives on a sounder footing. 16 This approach may be pursued at the moment contracts come up for renewal; more likely it will be followed in anticipation of losing contracts as the director comes to see that a program area is being abandoned, or that it has become an unreliable source of support. Having obtained the board's consent, perhaps after much agonizing by stalwart founding members who recall the original purpose of the organization, the director asks leave to move into a new program area. She is willing to trade a degree of directional purity for greater certainty of survival. Thus the organization may go from experimenting with alternative sentencing arrangements for troubled youth, to serving youths already in custody who have severe psychological needs. The organization is still serving youth in trouble with the law, but, with no funds available from government, it has abandoned its original agenda to provide alternatives to jail for first offenders. This shift is facilitated by the professionalization of management following the receipt of government funds. Professional managers tend to be less committed to the founding mission of an organization and thus are more likely to advocate a change of direction in agency purposes in the interests of organizational preservation. Important cues on proper performance in the contract dance are given by the contract award decision. Mter months of time and energy the nonprofit agency has devoted to keeping or obtaining a particular contract, government may decide to award the contract to another agency. Sometimes this decision is purely political-the other agency may have better, more influential political connections. Other awards will be decided on substantive grounds. For example, a developmental disabilities agency lost a contract because government officials decided, on the basis of new treatment theories, that the behavioral approach of the agency was an outdated treatment method. Thus government awarded the contract to a second agency, which was more willing to adapt to new government treatment pri-

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orities. Subsequently, the first agency sharply reduced its behavioral focus in the hope of scoring points with government for future contract award decisions.

The Question of Goal Succession Diversification of revenue sources clearly is desirable for nonprofit service organizations. Alternative sources of income, such as endowment or fees for services, buffer organizations from total reliance on contracts. If contracts are the main source of income, however, the greater the number of contracts, and the more diverse the sources of contracting, the more likely is the organization to withstand the difficulties of any particular contract renewal experience. Yet the current austere fiscal climate for government social programs is such that even agencies with a relatively low government funding (25 percent for example) may feel that they need to "dance" with government officials for their contract because of the difficulty of raising outside revenue. When an agency loses a contract, even if it is for a small portion of its budget, it not only loses money for direct service to clients but money for overhead expenses such as utilities and the director's salary. Faced with fickle governmental policymaking that maximizes policy flexibility at the expense of support for ongoing organizations, nonprofits themselves will develop devices to cope with uncertainty. They will seek alternative means of support, as suggested above. They will organize politically so they can lobby government collectively to reform the contracting process. I7 And they will look for ways to diversify their operations so that the effects of fickleness in any single issue area may be contained by the variety of other activities. Thus there may be some truth to the charge that nonprofit service organizations are opportunistic-that, to overstate the case, they are willing to bid on anything that moves. But it is an opportunism that arises in part from the position in which they find themselves in the contracting regime. It is not a far reach from this conclusion to recognize that today a critical source of goal succession in voluntary organizations is the preferences and behavior of government. If in general the goals are determined by the structure of opportunities available to an organization as it seeks to maintain itself, in the era of contracting goal

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displacement of otherwise autorlomous organizations is attributable to the choices made by governments about what will or will not be funded. Are nonprofits that accomodate demands to change or tailor service directions "guilty" of goal succession? That is, should they be taken to task for shifting their emphases away from their original goals in favor of goals which will allow the organization to continlle to prosper? Is the apparent abandonment of original purposes cause for alarm or censure? This is not simply an academic question. People who work in and for the voluntary sector regularly raise the issue when organizations appear to be drifting away from their founding purposes.I 8 Classic examples of organizations that undertook or accepted goal succession include the Foundation for Infantile Paralysis, the Red Cross, and the Young Men's Christian Association (\MCA). The Foundation experienced a crisis when its campaign to develop a polio vaccine actually succeeded, leaving its extraordinary fundraising machine, the March of Dimes, without purpose. It solved its crisis by adopting birth defects and arthritis-other crippling conditionsas its new concerns. The Red Cross, which started as a disaster relief agency, was in danger of losing members' interest and support until it adopted preservation and improvement of public health as its overall calling. The YM:CA started out to improve the "spiritual, mental and social condition of young men," but has developed into an organization that is more interested in recreational and cultural development than it is in the spirituaLI9 Noticeably, the classic cases in the sociology of goal succession are nonprofit organizations. The question might well be raised whether nonprofits are will-o'-the wisps which can easily be turned from one activity to another. It should be remembered that when a nonprofit organization is considering a government contract, it is not entirely in charge of its environment. It is weighing its future in recognition of the increased resources it would have to have to pursue its work, and also in view of the likelihood that funds for programs it would like to pursue may not be available. The nonprofit organization is not in charge of the policy climate either, although it seeks to contribute to it. And it is in a bargaining position with government agencies that can assist or decline to assist the organization's work. In this, nonprofits depen-

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dent on government funding are not particularly different from the "classic" organizations that have been described as going through goal succession, because these organizations also had to be concerned about their sources of support. Thus nonprofit organizations under contracting offer a specific case of one of the primary reasons organizations are said to change their goals: to meet the demands of other organizations with which they have implicit negotiations. 2o We should also bear in mind that organizations and social policy environments change over time; indeed, change sometimes is quite rapid. Views on the proper disposition and care ofjuvenile offenders, for example, have embraced large reform schools, probation and court diversion, small-scale, home-like settings, "tough" army-like regimens, and other developments, suggesting how quickly fashions can change in one policy field. Methadone maintenance programs were heralded as an innovation in the 1960s and 1970s but have been overtaken by the crack problem. Government, too, changes over time. Why should voluntary agencies be rigid in programming approaches while the rest of the world is innovating? It seems reasonable to suggest that nonprofit agencies should be changing, not the other way around. If we keep in mind that people, not organizations, make the critical decisions, we should look at the actual behavior and testimony of officials of nonprofit organizations who have to consider accepting government contracts. Directors of nonprofit organizations do not casually or cynically drive their organizations to change goals, but are often fully aware of the possible costs that contracting may involve for their agencies. They anticipate the possibility that they will be forced to compromise service values, and they accept contracts only after agonizing consideration. Some nonprofits reject government contracts so as to avoid the anticipated loss of autonomy. Other organizations that receive government contracts resist a change in the organization's mission in response to new priorities. In this vein, some methadone treatment programs have resisted taking crack addicts. Daycare programs under contract to provide services to low-income families have resisted taking protective service cases. Ultimately, whether it is regrettable that an organization changes its goals cannot be stated in the general case. In any particular instance, some partisans of an organization's orientation may regret

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a change, but other supporters will welcome or tolerate a choice that favors the maintenance of the organization over an insecure future. Consider the classic cases of organizational succession that we raised earlier. We cannot know whether, had the Red Cross and YMCA held to their original purposes, they would have prospered as modern versions of their original selves. And it would probably be the rare person indeed who would have favored closing down the March of Dimes if continuing it could mean supporting research on serious health problems other than polio. Likewise, how many would not favor the reach of the Red Cross into the general public health field, or would want the YMCA to maintain its original purposes if to do so were to consign it to historical irrelevance? Countless child welfare agencies which previously focused on adoption of babies desirable to the middle class now concentrate on adoptions for children with special needs. Do these transformations call for censure? Unfortunately, many agencies do not make a switch easily or well because of certain aspects of the "dance of contract management." Government officials usually want agencies to take on new responsibilities for a minimum of additional funds. Government often achieves this goal because nonprofit agencies are unable to develop alternatives to government referrals and support. Thus an emergency shelter may have started as a respite place for troubled youth. Faced with escalating demands for placement of severely disturbed young people, government officials manage to change the service of the agency without giving it additional funds needed by its new client population. The result may be a deterioration in the quality of the agency's service. It is in this sense that the arguments of the methadone clinic that resists or refuses to accept crack addicts may be more than simply nonprofit parochialism. The clinic may contend that it does not have the expertise to treat crack addicts, and that in any case government is not going to provide enough funds to deliver adequate service. To accept the proposed contract for crack addicts might lead to a decline in all of the agency's programs. In a sense, underlying this dilemma is the difficult question: what are the public obligations of nonprofit agencies? Should nonprofit agencies address pressing public problems such as AIDS or crack even if government does not provide sufficient resources?21 Finally, we should recognize the possibility that government con-

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tracting may actually facilitate nonprofit organizations' founding purposes. Some might say that the inner-city settlement house which follows its ethnic group of origin to the suburbs instead of staying within the city to serve new immigrant groups has changed goals. In the past, some settlement houses did move to the suburbs because that is where their sources of support were. But today they might stay put even if their original constituency moves out, because government contracting may allow them to pursue their mission to new inner-city migrants.

Part III IMPLICATIONS FOR THE WELFARE STATE

8 - The New Politics of the Contracting Regime

Contracting for services to many analysts appears to offer governments at once flexibility in programming and the opportunity for reduced program expenditures. In many cases, these advantages are not fully realized because the number of providers is limited, and new providers cannot readily be brought into the market for social services. 1 However, this is not the only important explanation for the failure of contracting to produce the expected flexibility and cost savings. At least as important is that, as nonprofit organizations become clients of government, they begin to exercise influence in the politics of contracting and social services. As they do so they are best defined not as sellers of services in a market, but as players in a political process. The political status of nonprofit organizations depends upon two critical factors. First, they are able to develop support among elected public officials and influential private citizens, because they serve large numbers of people throughout the states and localities where they exist. They also have moral claims that can be leveraged for political purposes. The well-known director of an inner-eity service organization does not need to "turn out the vote" in order to get the attention of politicians worried about crime and youth employment. Second, government depends upon nonprofits for policy implementation. Social services increasingly are "co-produced." Moreover, public officials have a great stake in the health of the nonprofit sector, since they are increasingly dependent on the sector and unable to field programs directly. Thus we have the contradiction that shows up in defense contracting and perhaps all areas where government buys goods and services it deems essential: the short-term interest in obtaining goods and services at the cheapest price must

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be balanced against the longer-term interest in insuring the health and well-being of the sector as a whole. In the for-profit sector, according to author John D. Donahue, contracting is inadvisable when the service to be contracted is difficult to evaluate, the service market is uncompetitive, and monitoring by government poses substantial problems. 2 His argument is that under such conditions politics can easily intrude into the contracting relationship and undermine efficiency, because government officials will be in a weak position relative to private, for-profit providers. The contracting situation is different with respect to nonprofit service agencies, even though they provide services which are difficult to evaluate, the market is uncompetitive, and monitoring is often fraught with problems. While service agencies can develop substantial political resources, they are also constrained in using them. Nonprofit agencies under contract are often heavily dependent upon government financially and cannot easily develop new sources of revenues. They also may depend upon government for client referrals. Thus nonprofit agencies find that they must remain on good terms with government, even though they can sometimes mobilize political support to fight unfavorable decisions. The result is a complex relationship of unbalanced reciprocity. Government and nonprofit contractors may be interdependent, but government dominates the relationship; in contrast to nonprofits, its survival and stability do not depend upon contracts. Some political activity of nonprofit organizations is devoted to securing their particular interests. But political activity takes other forms as well. One is advocacy on behalf of clients, as illustrated by the activities of community action agencies, associations of retarded citizens, and battered women shelters. Many of the newer agencies founded in the last 30 years have been quite critical of government. In the case of battered women shelters, their opposition to government policies was part of their raison d'etre. Contracting promotes the collective identity among nonprofit service agencies that leads to the creation of statewide bodies to lobby on behalf of their member agencies. These associations have emerged as key players in policymaking regarding nonprofit contract agencies and the general social issues with which they deal. Government officials often invite policy consultations of this sort. Indeed,

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the new relationship of shared policymaking on critical sectoral issues resembles the corporatist politics of Western European countries such as Germany and the Netherlands. The results have been empowering in some respects, but have also made nonprofits more vulnerable to state influence.

Individual Agencies in the Political Process Targeting the Executive Branch The earliest American nonprofits receiving government funds were nearly free from government interference, as we have already said. In the 1960s, as the contracting regime began to consolidate, many observers expressed concern about the independence of nonprofits, fearing that government would overwhelm them. 3 In many respects these fears were well founded; nonprofits all too often have had their programming priorities dictated by funding agencies. However, these critics did not anticipate the dependence of government officials on nonprofit agencies and the reciprocal influence that flows between the sectors. Public officials and administrators of private agencies often recognize the desirability of developing programs jointly. Administrators may even seek the help of nonprofit executives in gaining funds for the policy area, getting rate increases, or pursuing requests for more staff. This is the mutual back-scratching that is part of the daily contracting relationship. The lobbying efforts of nonprofit contract agencies can be a great boon for government officials who cannot directly lobby for their areas. A substantial portion of the work of a nonprofit executive may be to establish good working relationships with government administrators. The typical day of a nonprofit executive may include calling the local administrator to check on the status of the agency's monthly funding, preparing or reviewing documents that detail service provided the past month, attending a regional or statewide meeting on next year's state budget, and participating in a night meeting on local community needs sponsored by the citizen board that oversees the allocation of public funds to nonprofit agencies. Nonprofit executives frequently call upon their influential volun-

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teer board members to represent the agency at important meetings. They reach out to local political and business leaders to develop broader support for their agency. It is not unusual today for community agencies to be members of the local Chamber of Commerce and take part in community parades and annual festivals. Nonprofit executives and their board members sometimes participate in local political campaigns as a way of helping their agencies. Efforts to influence are not just found on the nonprofit side. Government program officers are not above participating directly in nonprofit affairs. Nonprofit boards, for example, may ask government officials to collaborate in executive searches, for they realize that the executive selected must work well with government. At the extreme, government officials may try indirectly to engineer the removal of a private executive who is performing inadequately. Administrators can delay payments and in this way destabilize agency finances, a situation which then reflects poorly on the executive. They can also oppose expansion plans and deny requests for higher rates or renegotiation of a contract. Administrators may even intervene directly with an agency's board to oust the director. While rare, such interventions provide an interesting perspective on the extent to which market models prevail in contracting. Here, instead of switching suppliers, public officials instead act to alter management in the provider agency. Challenges to competency in social service administration can lead to sustained controversy, because it is difficult to evaluate social service delivery outcomes beyond the demands of fiscal accountability. A program officer may charge that the executive must leave or undertake reforms to increase service quality. Nonprofit executives may counter that service quality is within professional norms and that the government simply wants a more malleable or less politically active executive. Nonprofit executives and their boards may at times try to "go over the head" of the local administrator by lobbying his or her superiors to overcome or reverse his decisions. In this situation community support from business leaders, state legislators, and other influentials can be quite helpful. Decisions about individual agencies can be made at the highest levels of authority. One child welfare agency received tentative permission from state program personnel to develop a new program for

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sexually abused children. The agency then proceeded to raise the money to build a facility for the program. The legislature balked at providing the money, however, and only reversed itself after an intervention by the governor that was initiated by the nonprofit agency. In turn, nonprofit executives at times actively participate in electoral campaigns. Dependent as they are upon public contracts and in the well-being of their service sector, they have the motive to do so. And with thousands of employees dependent upon public appropriations and hundreds of influential citizens as board members, executives of nonprofit organizations have the means to participate significantly in electoral campaigrls.

Targeting the Legislature Starting as long ago as the colonial era, some nonprofit agencies concerned with child welfare and training and care for the blind received annual state legislative appropriations. These institutions obtained and kept their appropriations by nurturing close relations with legislators. Theyjealously guarded their monopoly status. Established child welfare agencies tried to control entry of newcomers into the fields of foster care and adoption by urging legislators to adopt their standards into law. By this ploy they have hoped to make it difficult for newer agencies with fewer staff to obtain government contracts or offer particular services. The American Red Cross successfully gained monopoly status for its control of the nation's blood supply.4 More recently, the reductions in federal support have made individual nonprofit agencies much more aggressive in seeking federal aid. In the 1990 session of Congress many nonprofit organizations received millions of dollars in funding, despite the severe budgetary problems. A soup kitchen in Kansas City received $1 million to help it relocate. Children's Hospital National Medical Center in Washington, D.C., received $4.7 million, and" Mount Sinai Medical Center of Greater Miami was awarded $1.75 million. Many of these grants were direct congressional appropriations, bypassing" the regular grant review process. 5 Not all nonprofit service organizations have been politically active, however. Historically, many were strongly opposed to public subsidies either to their organization or to their clients, and so they did not

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take an active interest in legislative issues. Other agencies were simply too small to become active in political matters. And as the range of social service issues that was the province of the public sector prior to the 1960s was quite narrow, government simply was uninvolved in many social issues relevant to nonprofit agencies. Today, lobbying is a major activity of the larger, well-financed nonprofit organizations. If a great deal of money is involved, state legislators may expect to be asked to intercede on behalf of their new organizational constituents. They may be asked to assist nonprofit agencies in securing favorable treatment by state agencies, speeding up contract renegotiations, obtaining sites for programs engendering community opposition, and defending an agency against attacks by public agency officials. Legislators can restructure services in a way favorable to nonprofit interests by placing limits on the staff of public institutions, writing legislation to encourage government contracting with nonprofit agencies,6 limiting business competition with nonprofits,7 and granting nonprofits a monopoly in certain service areas. State legislators may also be asked to give nonprofit agencies support by passing laws that address nonprofit capital requirements,S prevent government officials from using charitable contributions or endowment income in figuring contract rates, or ease the liability threat to nonprofit agencies, especially to their board members and staff. Nonprofits use advocacy to their advantage by having their members sit on committees established by state agencies to investigate particular issues such as child abuse or homelessness, on boards of other agencies in the community, and on citizen oversight panels for public agencies. Some of the larger agencies establish advocacy offices. Child and Family Services of New Hampshire (CFSNH) has an advocacy office that gets involved in many social welfare issues. So does Family Services of Greater Boston, Boston Children's Service Association, and the Massachusetts Society for the Prevention of Cruelty to Children. These advocacy offices are interested in many issues, such as AFDC, low-income housing and payments to foster parents, that are not directly related to their host organizations. However, prominent advocacy of tangential issues may help with relations with government officials because advocacy offices may engage in political lobbying that government administrators cannot undertake.

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In contrast to the well-heeled agencies, the small nonprofits face great problems in affecting political institutions. The small agencies are often financially precarious and have to spend energy simply staying afloat. They typically have few administrators and thus the executive directors are more directly involved in daily operations than are their counterparts in larger organizations. And the smaller agencies do not enjoy the organizational "slack" that the larger agencies deploy to gain resources and pursue advocacy activities.

The Rise of Associations of Nonprofit Providers It is virtually a law of public policy that every new program generates an organized recipient group to protect and try to extend it. Testifying to this generalization at the federal level are the National Association of State School Lunch Administrators, the National Association of School Lunch Officials, the National Association of Community Mental Health Centers, the National Association of Community Health Centers, and the National Association of Addiction and Treatment Providers. Early examples of such organizations in the social welfare field include the National Association of Housing and Redevelopment Officials, which arose to support and extend urban renewal, and the National Association of Community Action Agencies, which arose in the immediate wake of the first community action grants in the early days of the poverty programs. These national associations play critical roles in interpreting programs, keeping members informed about ongoing developments, and providing feedback about policy to public officials. Through their networks of board members and other community notables, they can mobilize political support in all of the congressional districts where their programs are located. Development of such organizations is not related only to contracting, but takes place whenever a sustained policy initiative is undertaken. Nonetheless, the rise of contracting has hastened their proliferation. They have added substantially to the policy fragmentation that political scientists such as Hugh Heclo associate with the development of issue-specific, ephemeral networks that weigh in policy debates without the accountability that more stable structures of influence might display.9 Some federal officials may regret the development of these associ-

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ations because the officials' notions of program flexibility include the option of significant spending cuts. Others, however, welcome the new associations. They recognize that the continued health of their programs may depend upon the strength of the constituencies that can be mobilized if they are threatened. Associations of constituent program officials develop at the state level as well, and here the connection with contracting seems entirely evident. Some associations are program-specific, such as the Massachusetts Association of Home Care Providers or the North Carolina Association for Home Care. These interest organizations of nonprofit agencies have proliferated in recent years with the growth of contracting, the decentralization of many federal programs to the states, and state assumption of a larger portion of total social service funding. The associations strive to influence issues that affect their member organizations, such as funding levels, rates, regulations, and service priorities. In addition, they assist their member agencies with a variety of organizational concerns such as agency liability and taxes. In some cases these associations arrange joint purchasing of goods and equipment or reduced rates on insurance. The California Association of Nonprofits is an important statewide lobbying organization. Its executive director (in 1990) was also the chairperson of the National Council of Nonprofit Associations, which represents nine statewide associations and 19 local and regional nonprofit groups.IO The Massachusetts Council of Human Service Providers (MCHCP) represents nonprofit human service agencies on general issues as well as particular service categories such as mental health and developmental disabilities. The organization's board of directors is dominated by the new government-sponsored agencies. The traditional agencies tend to have more diversified bases of support; thus apparently they have less need to contribute to a statewide political organization. Many of these agencies have traditionally shunned direct political confrontations in which the MCHSP sometimes engages. II The peak associations offer only a constrained advocacy. They are limited by conflicting demands on their constituents. The membership's practical concerns about funding, regulations, and specific organizational issues encourage the associations' leaders to focus on these issues rather than on broader policy questions of vital concern to social service agencies, such as providing low-income

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housing and raising welfare benefits. Association executives also find that they cannot be too militant. Member agencies are often concerned that overly aggressive postures will alienate government officials upon whom they depend for funding and favorable treatment. The leadership of MCHSP would hesitate to call a march on the state capitol for higher rates because too many of its member agencies would fear an adverse government reaction to their participation. 12 In the small world of social services, many nonprofit executives are former colleagues and sometimes personal friends of state officials, and this propinquity further dampens the inclination of nonprofit agencies toward political militancy. Despite their constraints, nonprofit peak associations have had a significant effect on the contracting process and social service spending. Perhaps even more than their federal counterparts, the state associations have been involved in campaigning to protect or enhance their programs, and working with public officials to shape their programs as regulations are written and implementation proceeds. As service providers become organized, public officials have an even greater incentive to work with provider communities on the details of program and program oversight. They hope not only to achieve the best program, but also to avoid the negative consequences of disaffected providers appealing to top executives and the legislature.

The Corporatist Politics of the Contracting Regime The emergence of a new relationship between government and nonprofit providers suggests that the United States is developing a corporatist politics of service provision. In a pluralist order policymakers act after weighing the arguments and influence of groups competing for favor, whereas corporatism places at the table of policymaking the key actors affected by the policy under consideration. Public officials and sector leaders join in a bargaining relationship. Public policy is made with close consultation of affected parties; those consulted are expected to, and would have a stake in, the agreed-upon arrangement. Corporatism would make service providers more powerful, but it would also constrain their advocacy.13 This new corporatist-like politics appears to relate to the growth of contracting and the interpenetration of government and the

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nonprofit sector. This development has given both government and nonprofit personnel the incentive to develop a patterned working relationship that resembles the corporatist politics of Western Europe in the arena of social policy. Claus Offe provides a guide to the classic characteristics of corporatism. He argues that corporatism has four key parts: the extent to which the resources of an interest organization are supplied by the state; the extent to which the range of representation is defined through political decision; the extent to which internal relations between rank-and-file members and executive members of the organizations are regulated; and the extent to which interested organizations are licensed, recognized, and invited to assume a role in legislation, policy planning, and implementation. 14 The contracting regime in the United States possesses these characteristics, but they are not of equal weight. Nonprofit agencies are dependent upon government for a large part of their revenues. And the clients and services of nonprofit contract agencies are increasingly determined by political decisions. Nonprofit associations are also invited to participate in the formulation of policy on an array of issues affecting their member organizations-from rates to funding levels to contract procedures. In New Hampshire, for example, nonprofit residential agencies worked with state officials to draft regulations governing the program standards and rates of nonprofit residential programs. In Massachusetts, battered women shelters, rape crisis centers, and daycare centers have worked with state officials to revise regulations and procedures applicable to their services. Only with respect to the regulation of internal relations is the applicability of Offe's conditions for the development of corporatism problematic. It is undoubtedly important to corporatism that executives who bargain with public officials can expect those they represent to accept the deals that are struck. Yet the relations between members of provider associations and executives vary depending upon state and locality and policy service area. In this respect the machinery of corporatism in social service in the United States is incomplete. Although the potential benefits of the market model partially drive the trend toward privatization, public officials promote corporatism to protect themselves from the disadvantages of unregulated compe-

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tition. Is In social services these include uncertainty in follow-through and possible unreliability of supply. It was to promote the capacity of private providers that Peter Goldmark, then secretary of the Executive Office of Human Services in Massachusetts, sponsored establishment of MCHSP in 1975. That state had recently created an extensive contracting system by closing its training schools for youth and deinstitutionalizing the state hospitals and schools for the mentally retarded. The existence of MCHSP facilitated the resolution of important policy questions affecting contracting that might have paralyzed a more fragmented provider constituency. Formalized negotiation between government and the private sector also illustrates the public role in organizing private interests. In Connecticut state and local officials and nonprofit providers entered into a multiyear bargaining relationship during the 1980s for the purposes of allocating federal funds received through the Social Services Block Grant program. I6 A similar highly structured bargaining process was used in Massachusetts in an effort to restructure the state's Public-Private Partnership Program. I7 In the new corporatist relationship, the extensive restructuring of the service system as attempted in Connecticut and Massachusetts tends to be the exception. In most places technical issues tend to predominate. I8 What should be the formula for rate increases? Should battered women shelters be required to be open on a 24-hour basis? What is an appropriate contract award process? What should be the duration of contracts? What qualifications are necessary for the agency executives? What are the minimum space requirements for daycare centers? These issues have substantial policy implications. Extensive requirements for daycare centers give an edge to large service providers, thus diminishing the role of community-based agencies. 19 Battered women shelters have fought regulations mandating round-the-clock coverage in the belief that such regulations undermine the goal of independence they are trying to foster among abused women. Another symptom of the development of corporatist relationships between government and the nonprofit sector is the exchange of personnel between the sectors. As noted, executives in nonprofit associations and nonprofit agencies keep getting recruited by government for their experience and connections, and vice-versa.

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Knowledge of nonprofit operations is helpful for government administrators who now depend upon private agencies for policy implementation. In a sense, the costs of training public administrators is now being borne partially by nonprofit agencies, which in turn are funded by the state. 20 The corporatist character of the contracting regime has resulted in a more robust state service sector. The state builds upon the capacity of nonprofit organizations to invent and administer programs. The outcome is a service sector of greater scope and, arguably, higher expenditure levels. While we cannot know how high expenditures on services would have been in the absence of the development of contracting, we have strong reason to think it would be lower, as we examine the dynamics of corporatism in the service economy. This perspective is consistent with the work of scholars such as Harold Wilensky, who suggests that corporatist democracies are likely to have higher social expenditures than countries with fragmented noncorporatist political arrangements. 21 Historically, the United States has been included in this latter category, but the growth of contracting is changing the historical fragmentation between government and the nonprofit service sector. 22 To be sure, provider groups in the United States still do not exhibit the same internal discipline as many of their European counterparts. Nonetheless, the corporatist relations that have emerged in response to increases in contracting seem to have solidified the hold of contracting in remaking social welfare policy in the United States.

The Nonprofit Sector under Attack The privileged position and growing strength of nonprofit agencies has engendered hostility and crystalized opposition from some policymakers, private groups, and individuals. Two separate lines of attack have been pursued: attempts to limit nonprofits' advocacy, and challenges to their privileged legal position. Attempts to limit nonprofit advocacy. Nonprofit organizations often represent client constituencies to government, including some clients who are too distressed, disabled, or disorganized to represent themselves effectively. Legal services agencies have sued the government to prevent unlawful denial of benefits. Community action agen-

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cies have criticized government for failing effectively to address problems of homelessness and hunger in their communities. During the mid-1980s, national feeding organizations helped persuade Congress to increase surplus cheese purchasing even though the Reagan administration wanted to reduce dairy subsidies. The CWLA, representing nonprofit child welfare agencies across the country, has led efforts to increase federal funding for daycare and the Family Leave bill, which President George Bush vetoed in 1990. Advocacy of this sort by elements of the nonprofit sector may partly explain why the Reagan administration, whose rhetoric assigned a larger role in succoring the needy to the nonprofit sector, would back initiatives to weaken the sector. 23 One attack has taken the form of attempting to restrict the advocacy potential of nonprofits. Under federal law, nonprofit organizations which qualify as charities under the Internal Revenue Service's 501 (c) (3) category are prohibited from spending more than a quarter of their budgets on political activity. In 1986 the IRS proposed rules which would have drastically broadened the definition of political activity. For example, the distribution of an analysis of poverty, sent to other groups to influence public opinion and legislation, would have been considered political activity under the proposed rules. Stung by fierce opposition to these proposals, the IRS retreated and proposed less onerous rules in 1988 and 1989, which were adopted in 1990. 24 Although the stated intention of the proposed 1986 rules was merely to define previous congressional intent, the effect was to make nonprofit organizations more cautious in their public announcements and political endeavors. 25 To an administration facing public hostility to its social welfare cutbacks, blunting nonprofit agency advocacy was consistent with its political agenda. Advocacy has also been directly affected by cutbacks. During the 1960s and 1970s community action agencies received federal funds for advocacy and outreach efforts on behalf of the poor. In the 1980s aid for these activities had largely been eliminated. Cutbacks thrust many of the newer agencies into a daily struggle for survival, leaving little time for advocacy on behalf of clients. Nonprofit providers receiving government funding have been challenged by policymakers who believe that the relationship between nonprofit agencies and government is "too cozy," in having

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allowed nonprofit agencies to enrich themselves at the expense of the taxpayers. 26 The view that contractors have not been sufficiently accountable has led to governmental investigations, more stringent audits, and restructuring of the contracting process to promote greater competition. The charge that nonprofit organizations are getting rich off the contracting system is not aimed directly at advocacy, but it still has a muting effect. For the most part, nonprofit service agencies are underfunded in their administrative staffing, reserves, capacity to cope with contingencies, and ability to plan. Yet to pursue policy reforms in these areas risks exposure to claims of self-serving organizational behavior. This dilemma leads many agencies to rely on surrogates for their advocacy efforts, including provider associations, lay supporters, and influential legislators. The attacks on nonprofit advocacy reflect profound changes in the role of nonprofit service organizations in social policy. Until recently, nonprofits stood as a distinct alternative to the welfare state. The nonprofits offered social services based on charity, individual need, and supportive self-reliance. With some exceptions, nonprofit agencies were not particularly active politically prior to the advent of contracting. Now, nonprofits are taking positions in support of an expansion of the welfare state. Many people now question the actions of nonprofit organizations, particularly when they advocate collective solutions to social problems while retaining privatized delivery mechanisms. 27 Challenges to nonprofits' legal status. Representatives of organized small business have challenged the right of nonprofit organizations to raise money through sales of goods and services which are also produced by commercial counterparts. They complain that the nonprofit hospital that takes in laundry without having to pay taxes on the net income, and the magazine of a nonprofit organization that enjoys postal dispensations are competing unfairly with business. 28 For-profit health clubs have sued the YMCA over its recreation activities;29 bookstores, office supply stores, and computer equipment stores have complained about the unfair advantage enjoyed by university bookstores; commercial health insurers have successfully challenged the tax-exempt status of the nonprofit Blue Cross/Blue Shield chapters across the country.30 The federal Small Business

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Administration has championed these complaints through reports and congressional testimony. 31 For the most part, this small-business offensive has not been aimed at service providers. Most new service providers are usually undercapitalized and cannot compete with for-profit firms. The new agencies also typically provide services such as respite care or residential care for abused women that for-profit firms do not offer. Although traditional agencies sometimes provide services such as outpatient counseling that are sold by for-profit organizations and private practitioners, direct attacks against traditional agencies are rare. Service providers have nonetheless been affected by the campaign to curtail or eliminate nonprofit tax benefits. Nonprofit agencies which own real estate now must be more careful about how they develop their property and what they do with the income. A nonprofit agency might decide to sell a property rather than get involved with the tax complications and potential attacks from small business that would result from developing the property. A nonprofit might shy away from entering a new service area out of fear of possible challenges from for-profit firms. Nonprofit agencies are thus in a more difficult position to raise money to meet rising costs and replace cutback government funding. The result is somewhat paradoxical: as certain avenues for raising money have become less attractive, nonprofit agencies have an even greater incentive to lobby government. Thus nonprofit agencies be,come more politicized even as policymakers are trying to reduce this politicization. Nonprofits have also been challenged on their use of charitable gifts and their accounting for these gifts. For example, the Financial Accounting Standards Board, a seven-member board established in 1973 to set standards for accountants in auditing nonprofit agencies, recently proposed that pledged income must be booked on a nonprofit organization's financial statement as soon as it is made rather than when the gift is received, which is the current practice. Another proposal would require nonprofits to put a dollar value on volunteer labor and to include the amount in revenue statements. 32 These proposals could have far-reaching consequences for nonprofits and their relations with government, because their effect would be to inflate the reported revenues of nonprofit agencies.

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Thus an agency such as a battered women shelter, which uses volunteers extensively, would appear to be much '\vealthier" than it actually is, an image that would distort its real need for outside funding. This effort to revise accounting standards for nonprofit agencies is philosophically compatible with the challenge to nonprofits of small businesses, because the accounting rules would make nonprofits "more like" for-profits in terms of their disclosure requirements. Adoption of new accounting rules would contribute to the transformation of voluntary agencies away from their ad hoc community orientations and toward conformity with their governmental and for-profit counterparts. Finally, nonprofits have been criticized for their failure to deliver sufficient charity care. 33 However, this criticism neglects to address the inadequacy of nonprofits' revenues. The ability of nonprofits to serve the needy hinges on government funding. With the stagnation and cutbacks in government funding in many service categories, nonprofit agencies have been sorely squeezed and their capacity to serve the poor and disadvantaged undermined. The critics seize upon these deficiencies to advocate for-profit service provision and a smaller role for nonprofits in social policy or use them as a reason to restrict or eliminate nonprofit tax benefits.

Conclusion Before the rise of the contracting regime nonprofit service agencies were properly understood as held together primarily by the nonmaterial incentives that inspired workers, volunteers, and contributors. Simply put, they were striving to accomplish group purposes. If workers were actually paid, they were typically paid below market wages. If they advocated on behalf of clients, their advocacy was relatively uncomplicated by calculations of organizational self-interest. In the contracting regime the isolation of voluntary agencies is compromised. Nonprofit organizations now must engage with government to protect and expand their financial base. Individual agencies now lobby government to maintain and extend their scope of service. They create and join provider associations to present collective perspectives and pursue sectoral interests. If they engage in advocacy they do so with the knowledge that their fate as organiza-

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tions, not just clients' interests, will be affected by such initiatives. The material interests of nonprofits under contracting tend to reduce the ideological character of political advocacy and shift it to technical issues relating to rates, funding levels, and regulations. This situation helps explain the paradox of agencies gaining political strength while at the same time becoming more vulnerable to government influence. Nonprofit agencies have been relatively successful in preserving their organizations even in the face of budget austerity; they have been less successful in preventing government influence and control of their operations. Moreover, the loss of control tends to be accepted by agencies and executives of provider associations that have, over time, come to accept or have been recruited for, roles as implementors of state policy. The greater visibility of the nonprofit sector in actually delivering policy also makes the sector more vulnerable to attack. Voluntary agencies have lost some of the protection previously provided by the cloaks of charity they wore in public. As suppliers to government, they are now criticized for any departures from cost-effectiveness. As clients of government, they are vulnerable to charges of bloated administration and other pocket-lining indiscretions. Their advocacy can now be portrayed as self-serving, for indeed public allocations of monies often directly translate into salaries, rental payments, and overhead. This new relationship, where private agencies are both stronger and weaker, is characteristic of corporatist arrangements. Private organizations are politically organized and have influence and strength to voice their positions to government leaders. But they are linked to the decision-making structures of the state and, in the case of contracting, are financially dependent.

9 - Privatization in Human Services: A Critique

Only in a narrow sense should one characterize government funding of nonprofit service agencies a.; an isolated strategy to remake public service delivery. It is, as well, exemplary of major trends in public policy in advanced industrial countries. In recent years public discourse in the United States, in many of the European democracies, and, evidently, in Eastern European nations and the former Soviet Union as well, has been dominated by the belief that the public sector has been overextended, inefficient, and destructive of savings and investment initiative and innovation. Some analysts have argued that the welfare state was in crisis because the growth of the public sector was producing a downward spiral of stagnant or declining economic growth, falling tax revenues, and a resultant inability of government to meet its obligations. 1 A dominant domestic policy perspective advanced to resolve these concerns has been advocacy of privatization, a broad policy impulse which seeks to change the balance between public and private responsibility in public policy.2 Privatization is embodied in two interconnecting themes. We may call them the "competition" theme and the "load-shedding" theme. The competition theme emphasizes the efficacy of market dynamics and the desirability of competition. This view promotes the notion that, wherever possible, the private sector should be responsible for the distribution of goods and services. While competition among private organizations is said to have the salutary effect of fostering innovation and minimizing production costs, monopolistic government bureaucracies tolerate inefficiency and destroy initiative. Without the spur of competition, it is said, government programs languish with little care for the quality of services or the costs of producing them. Not only is government inherently inefficient, but it is said as

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well to foster inefficiency in the private sector when its interference with private activity through regulation leads to higher and unnecessary costs. Privatization has been the ideological umbrella under which the United States has pursued deregulation of the airlines, trucking, interstate bus transportation, and other areas of economic activity previously subject to more extensive regulation. 3 Of greater relevance to this study is the call, under the banner of privatization, for "load-shedding." This is the practice of allocating to the private sector work previously carried out by public agencies. In the service sector, load-shedders have been asking whether there are private alternatives to government provision. Indeed, the federal government and many local governments have adopted policies that seek as much as possible to engage private companies to do work previously carried out by government. 4 Thus federal agencies have been contracting with private agencies to provide auditing, computing, and other services when there already exists a private capacity. The subway system in metropolitan Boston has increased its payouts to minority workers by contracting with local businesses to clean its stations. At the local level, garbage collection has received a good deal of attention as a service area in which private companies may outperform public agencies. 5 Most discussions of privatization focus on fostering competition or load-shedding because in the popular mind the private sector is equated with business. To most people, privatization means enhancing private enterprise and decreasing the influence of government in the economy. However, some advocates of privatization go beyond the efficacy of the market to express the belief that government is an inevitably dominant and coercive influence and should play only a minimal role in society. And they are supported by widespread (but by no means universal) public opinion that governments are not necessarily good at performing many tasks. This view of privatization underlies four specific approaches to public policy. One, which in modern times goes back at least to the antifluoridation campaigns of the 1950s, advocates minimal government involvement in such areas as gun control, mandatory seat belt and motorcycle helmet laws, off-road vehicle regulation, and other areas in which governments seek to restrict individual choice to achieve widespread collective benefits. A second applies the cautions against big government to fears that the "heavy hand" will fall fatally

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on community organizations and other private initiatives. 6 A third champions the development of policies that maximize choice when governmental policy is regarded as warranted. This approach supports voucher systems and payment schemes to individuals, as in Medicaid and daycare tax subsidies, which allocate public monies in a way that permits individual choice of provider while fostering competition among private parties.' A fourth direction identifies the public sector with institutions such as public welfare bureaucracies, state hospitals, state schools for the developmentally disabled, and training schools for juvenile delinquents. These institutions are said to oppress the poor, the developmentally disabled, the mentally ill, and the disadvantaged. Nonprofit organizations with their community roots, voluntarism, and often greater professionalism are seen as more effective, humane vehicles for caring for individuals in need. 8 The extraordinary growth of government contracting for services with nonprofit agencies is an expression of these perspectives on privatization. A guiding premise of contracting with nonprofit agencies is that competition for contracts among private providers will lead to greater consumer choice, innovation, more effective service, and cost reductions. And if we mean by "privatization" consigning public sector activities to individuals and organizations that are simply not part of government, we immediately see the appeal of government contracting with nonprofit agencies to analysts and policymakers predisposed to favor nongovernmental policy development. The dramatic rise of the nonprofit sector in the United States has of course received some attention. But with few exceptions,9 commentaryon this development only obliquely comprehends the problem as a development of welfare state configuration. Some works are narrowly (if understandably) focused on the utility of the market model as applied to privatization through contracting. IO Others are broadly focused on the development of the nonprofit sector as such, encompassing organizations with such diverse purposes as hospitals, museums, orchestras, think tanks, charitable foundations, and the like. II Both approaches usually fail to address a central question raised by contracting in human service delivery: what are the implications for society when governments increasingly seek to achieve social welfare objectives through private agents? And more broadly, how

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does privatization affect the boundaries between government, community, and markets? Does this form of privatization indeed yield the benefits heralded by privatization advocates? Partly by reviewing the direct evidence assembled in earlier chapters, and partly by analyzing the relevance of market logic to contracting in social services, we are able to reach some broad conclusions about the efficacy of this form of privatization to achieve public purposes. In a perfect market, buyers and sellers might have no interest in each other beyond the exchange itself. In contrast, governments which go to market for services must nurture nonprofits (to ensure quality and quantity of supply). Nonprofits go beyond setting prices for standardized services by lobbying governments (thereby affecting the demands of the buyer) . Above all, both parties share expectations that reasonable performance will be rewarded with contract continuity. Mter recognizing that contracting in human services establishes nonmarket relationships, we may start by inquiring into the effects of contracting on the functions of government, and then consider the nongovernmental interests: those of the organizations that enter into agreements with government, and those of the sector of society of which nonprofits are a part. Throughout, we should be alert to the ways in which developments on one side of the relationship generate responses on the other side.

Why Does Government Contract with Nonprofit Agencies? The ideology of privatization intersects with conventional concerns of public officials to produce a complex rationale for the efficacy of contracting. Among the common rationales for government contracting with nonprofit agencies are the following. (1) Contracting may be cheaper. This is a paramount reason that liberals and conservatives alike initially support this way of achieving public purposes. /fit is cheaper to contract for services, this may be so for one of several distinct reasons. The dynamics of market competition may lead contractors to pare down their costs in order to win or retain contracts. Or private providers may be able to provide services at lower cost because they operate in a different environment than does government. Specifically, labor may be cheaper because private providers are not bound by civil service hiring require-

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ments or public employee pay scales. Or government may have an aging work force with an higher average salary than a new agency operating with relatively young and inexperienced workers. Government agencies may be tied into expensive long-term leases, in contrast to community-based agencies. (2) Contracting may provide greater flexibility. It is often politically and administratively difficult for government agencies to initiate new programs with existing staff, hire new staff, and locate facilities for new programs. Contracting for services places the work of starting up new programs on private providers. These may be able to respond with a flexibility that government bureaucracies do not normally exhibit. Among a dozen private providers of child protective services, it may be easier to find several that would be able to mount new programs than it would be to get a single state agency to do it. If governments are under pressure to mount new services quickly-say, to provide job counseling for Spanish-speaking teenagers-it may be easier to call upon private Hispanic agencies than to hire and train workers within prevailing government procedures. Government agencies normally strive to display a degree of service uniformity across jurisdictions. Contracting for services radically solves the problem of tailoring the program to fit local conditions. Letting contracts to community agencies may facilitate local organization program design in accord with community need and sentiment. Quite aside from tailoring programs to local conditions, contracting permits governments to acquire special expertise and talents for which there is insufficient demand for hiring in permanent government positions. A search for a Vietnamese-speaking translator for the criminal courts may be more easily accomplished through private contracting than hiring through civil service procedures, particularly when the extent and the duration of the need is uncertain. The desire to develop flexible program options surely commended contracting for services to those who sponsored and carried out the deinstitutionalization movements of the 1970s. 12 Closing down the state training schools and mental institutions could not have been accomplished by remaking enormous state bureaucracies and service staffs into lean decentralized state facilities. The possibility of contracting with private agencies made deinstitutionalization "thinkable."

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An additional aspect of flexibility is the capacity to change direction or cut back quickly if government priorities change. If the employees in new service areas work for private providers, they may be cut back or eliminated when a contract is not renewed. It is much more difficult, and the political consequences are more severe, when public officials attempt to cut back public employment. When Massachusetts communities cut back on public employees in the wake of a state tax limitation referendum in 1980, the public outcry was intense. Public sentiment is rarely so pronounced, if it is given voice at all, when the employees of private agencies are laid off because of reductions in government spending. (3) Contracting appears to limit government growth in that it allows government to extend services without generating growth in the government workforce. Public officials may welcome contracting because they can extend the reach of government programmatically without directly employing new workers. Contracting may also limit the appearance of government growth. Public criticism of government growth tends to focus on taxes, expenditures, and, as a measure of growth, the number of government employees. Contracting for services insures that government employment will not rise substantially, particularly (as tends to be the case) if the growth in contracting is not accompanied by growth in the number of government workers employed to monitor contracts.

The Claims of Cost Savings For carrying out some public policies, a general case may be made for economizing through privatization. However, the problem of producing human services of high quality on a sustained basis is so different from the problem of producing standardized products at a fixed price as to call into question the simple proposition that government will increase its general effectiveness by stimulating competition through purchase of services. Purchase of service in the long run may turn out to be a positive development. But in any event it will not be because of the greater efficiency of the private sector or because contracting spurred competition among private providers. Consider the assertion that purchased services are cheaper. In straightforward service areas such as garbage collection, car towing, and grounds maintenance there is evidence that it may pay cities to

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contract for such services rather than perform them with public employees. I3 But the model of inducing salutary competition through contracting does not apply to human services. For one thing, unlike service activities for which there already is a demand, human services providers may not already exist in large numbers in the private sector. When government in the recent past sought to contract for services to battered women, homeless people, and jobless youth, there were few if any private agencies providing the required services, still fewer with enough administrative capacity to allow prudent contract offices to have confidence in prospective contractors. Every city may have one or several traditional multiservice charitable agencies, but they are hardly numerous and in any event do not necessarily already provide the services government is seeking. For example, in the 1960s and 1970s many established agencies were either reluctant or refused to serve the developmentally disabled and the chronic mentally ill-two groups for which government desperately needed community services following deinstitutionalization. But if potential bidders are few, the logic of achieving innovation and cost-savings through market dynamics falls apart. Competition is also reduced by the cost of entry into the field. Examples of social welfare programs with particularly high entry costs are residential treatment programs. Community residences for people who are different and despised, such as the mentally ill, the homeless, or those in trouble with the law, must acquire occupancy licensing and pass through a gauntlet of community opposition before they can be certified. Competition in the human services field is therefore often restricted to a few agencies that are already running specialized programs. True, the higher the price government is willing to pay for services, the more potential suppliers are likely to bid for contracts. In reality, however, cost restrictions limit this logic as a guide to government action. Another reality of human services intrudes to reduce the chances of salutary competition. Some human services, particularly those involving residential placement or long-term therapeutic relationships, depend upon continuity of care. In these service areas, responsible state officials must temper their interest in generating competition and cost savings with concerns for the client-provider relationship.

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Still another reason to question the logic of market competition in contracting for service has to do with the ongoing intimate involvement in policy and practice of nonprofit contractors with their contracting agencies. A public agency responsible for investigating complaints of child abuse and making recommendations to remove children from their homes, for example, is charged with one of the most sensitive, delicate, and urgent tasks in government. Public officials experience excruciating pressures to make soundjudgments to protect children and at the same time support the family unit. Meanwhile, lurking in the background is the threat of exposure in the press when, inevitably, one out of thousands of decisions proves faulty and a child is hurt or killed. When a public agency contracts this work to a private child protective services agency it becomes dependent upon the agency in the most fundamental way. Close ties develop and public officials find themselves deeply involved in the affairs of their contractors as the nonprofit agency becomes, in a sense, part of government in the discharge of the contractual obligations. Such relationships of mutual dependence are hardly the arms-length transactions envisioned by market theorists. Finally, nonprofit provider executives deal directly with legislative and executive affairs for the purposes of influencing payment rates, service standards, and other policy matters. These activities are enhanced by job exchanges of top personnel moving between public and private sectors. In summary, if there are few bidders, restricted entry into the market, buyers with a stake in relationships with previous sellers, and sellers who actively participate in structuring market demand, the efficacy of competition is severely dampened. The legitimacy of this view is enhanced if we take a closer look at the claims for privatization in services where cost savings do seem to be realized. It appears that the principal reason private firms can provide service more cheaply than government is that they pay workers less. 14 Private firms do not have to pay government scale wages, conform to civil service job definitions, retain another and therefore higher paid workforce, or offer full-time employment for work which is episodic, seasonal, or, like rush hours, has predictable, significant variations in daily demand. Thus the superior cost/benefit ratio of private providers is not so much the result of their leaner organizational structure ac-

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quired in a competitive market; rather, it is because these providers are free from public laws and prevailing government practices that cannot be, or at least in the present political environment are slow to be, repealed. In theory, governments could achieve the same savings if they had more flexibility in establishing wages and the terms ofwork. 15 No wonder public employee unions regard privatization as an anathema! When we turn to claims of cost saving in human services specifically, we find additional reasons to doubt that privatization ultimately will be cost-effective. Private agencies may pay workers less than public agencies, but they can do so only so long as working for a private agency itself constitutes a psychic benefit or provides compensating advantages that induce workers to accept wages below public wage scales. (Consider the lower salaries of private school teachers who presumably prefer to work in the more refined, sheltered private school environment.) Three developments may conspire to render the practice of lower private agency salaries obsolete. First, if the attractiveness of working in private agencies diminishes as they become more regulated and lose their original quasi-voluntary character, the willingness of skilled professionals to work in the nonprofit sector will diminish, forcing wages up or the quality of services down. Second, when job markets are tight, it will be hard for private agencies to attract and hold workers if they can make significantly more money elsewhere. Third, a vigorous nonprofit sector is likely to organize to reduce wage disparities. These three propositions summarize the Massachusetts experience of the mid-l 980s. Wages in nonprofit agencies in the state were so low compared to wages for comparable public sector jobs that nonprofit providers could not attract or retain staff, experienced destructively high turnover, and often allowed jobs to go unfilled for long periods. Many nonprofit organizations were forced to turn to temporary help agencies at a high cost to fill essential staffvacancies. Mter tolerating these growing disparities for a decade, the Massachusetts Council of Human Service Providers gained support for state budgetary redress to achieve wage parity. Many public officials conceded that the state could not continue to provide reliable human services to citizens and save money at the expense of workers in private agencies. Low private sector wages also bring higher turn-

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over rates and longer time periods in which jobs go unfilled, resulting in loss of care continuity. Agencies forced to turn to temporary help had to hire workers who were completely unfamiliar with the individual needs of particular clients. They incurred higher recruitment costs as well. Faced with a tight human service labor market, some Massachusetts mental health providers went looking for prospective employees in Pennsylvania and Great Britain. The decade of the 1990s opened with a severe fiscal crisis in Massachusetts and many other state governments, for a time obviating concern over the balance of public and private wage rates. However, the experience of the 1980s suggests that savings from privatization arise from conditions structuring wages in the public and private sectors, not from market-driven logic. In the long run, lower wages paid by private agencies should be seen as a temporary and transient feature of privatization. The dynamics of privatization contain within them pressures that will eventually surface to reduce or end wage disparities.

Flexibility Some human service policy areas change slowly, primarily in response to gradual change in conceptions of professional responsibilities. There are not likely to be swift changes in program preferences for facilities for profoundly retarded people, for example. Some service areas may change rapidly. Shifts in the ethnic background of urban newcomers generate relatively swift perceptions of necessary changes in social policy. Thus Southeast Asian, Cuban, Haitian, and other immigrants have stressed service needs in recent years, adding on to the ongoing requirements of older urban populations. Shifts in perceptions of needs also generate demands for scarce service resources. In recent years hunger, homelessness, child abuse, domestic violence, and community crime prevention have gained high places on the policy agenda. So have alcohol and drug education and abuse prevention. To provide new services, public agencies may receive new appropriations. But just as likely, they will be expected to juggle existing funds to cover new priorities. Shifts in the relative responsibilities of federal, state, and local governments have placed new pressures on state and local governments even when general social policy concerns are stable.

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Contracting for services provides government with flexibility in programming. In every budget cycle government agencies can assert new priorities by amending or fully changing their program profiles. In successive budget cycles a state department of youth services can freely change priorities from drop-in centers to mobile vans, to AIDS education, to gang workers. The same nonprofit agency can provide the services or different agencies can accommodate changing policy priorities. Contracting out permits public agencies to change directions without firing staff or deploying inappropriate staff members in new assignments. It has long been observed that organizations may fail to adapt to new circumstances because they are comfortable with what they currently do and the costs of change (in firings, learning new skills, and so forth) are too high. In a way, contracting out insulates public agencies from these classic rigidities. However, the genuine advantages of flexibility are sometimes compromised. The dependence of public agencies on private providers limits the extent to which government officials are willing to move funds around. If the High Street Boys Club depends upon state contracts for half its revenue, public officials will be reluctant to jeopardize the fiscal health of the agency if they are dependent upon the Boys Club for some of its services. If the Club is one of the only providers in a small city, officials will be very cautious about taking actions that might jeopardize the existence of one of the few organizations with the capacity to deliver private services. The need to retain a capacity to treat certain classes of clients creates an incentive to continue contracting with important providers rather than to see each contract period as a fresh opportunity to buy this year's bundle of service requirements. When they consider cutting funds for the Boys Club, public officials also must confront the political pressures, particularly from powerful community supporters, that will be brought to bear to insure that the Club has a reasonably stable funding stream. Like many other complex government decisions, therefore, contract reviews are approached by public agencies in the spirit of incremental adjustment. Most contracts are renewed if the providers seek renewals. A few are adjusted upward to reward good performance or to express greater public interest. Some are marginally reduced to sanction inadequate performance. Major shocks to the

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provider networks tend to be avoided, and this is more true the more government depends on particular providers for service delivery.

Performance Assessment The model of market competition as a means to improve government effectiveness through contracting fails for the good reason that in human services it is particularly difficult to measure performance. 16 This is the case typically in services which consist of the discretionary judgments of human service workers in such areas as intake, diagnosis, and treatment. I7 Many contracts for service essentially provide for the purchase of the discretionary judgments and actions of workers who interact with citizens by selecting them, assessing them, and carrying out one or another individualized intervention. This is obviously so in protective services (assessing family strengths and children's risks) and mental health services (diagnosis and treatment). One can hold a social worker accountable for making a visit to a family, following up with phone calls, and performing other appropriate tasks. But one cannot know if her judgment was sound and her intervention ultimately effective. This is why social service agencies seem so vulnerable to criticism when a child abuse case tragically ends in the death of the child: it is very hard to demonstrate that routine practice of the agency is effective. Admittedly, the state often contracts with nonprofit providers whose work may be assessed simply by recording the production of service units. For example, state government may fund a homeless shelter solely for the purpose of sheltering and not the improvement of a client's social skills or coping abilities. If the state is also indifferent to which homeless families receive shelter, then a shelter's contract performance can be straightforwardly assessed by taking a nightly census. IS Rarely but increasingly, where valid client outcomes can be assessed, genuine performance measures govern contract appraisals. 19 Employment training agencies whose contracts call in part for reimbursement according to the number of job placements are illustrative. Agencies may be judged, say, on the basis of the number of clients placed in full-time jobs who have retained those jobs for at least a month (or 90 days, or a year).20 Another example is provided

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by mental health centers. In recent years, some states have implemented performance-based contracting with community mental health centers by rewarding them for good performance on key indicators such as the number of hospital days prevented. 21 Success in such programs is readily verifiable, although government may rely excessively on agency reporting rather than spend money on independent auditing of the agency's claims. Performance-based contracts in employment training, mental health, and other social policy areas are currently the object of intense interest among policymakers. Performance-based contracting is often opposed by providers, who fear that the evaluating measures are unrealistic or not geared to effective practice. They also worry that they will be held to performance standards without being given the resources to achieve their quotas. They are concerned as well that performance standards will require them to accept clients who are inappropriate for their agency. It is not entirely surprising, therefore, that private agencies are often reluctant to leave the cozy shelter of mutual dependence on the state for the cold world of performance assessment. 22 But most services cannot be judged on the basis of decisive client outcomes. They cannot be standardized in their treatment approaches, nor can auditors effectively intrude into the interactions between workers and clients to determine whether decisions were made appropriately and were consistent with existing policy. Thus in many cases it is impossible for government to know whether it is getting effective selection, diagnosis, and intervention. What happens to contracting when one party cannot know whether it is getting the value for which it pays? Even if the public agency could know what it wanted, it would be defeated in monitoring the providers. While government contracting for services has vastly increased in volume, the program auditing capacity of the public sector has not kept up. Contractors typically file reams of reports which, except for basic fiscal information, are ignored. There is little independent auditing of the accuracy of program numbers submitted, and hardly any capacity to assess the effectiveness of contractors' programs. Thus the public sector may not know what it is purchasing even when it can define what it wants. 23 Public officials seeking to obtain services which cannot be tested

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against performance criteria still need to fall back on some reason to support their choice of one or another contractor. Let us accept that public officials seeking to purchase services experience severe difficulties in measuring performance. Let us say further that they are motivated not only by a desire to obtain high quality service (as they define it) but also by a need to justify their choice of contractors and maintain a stable provider environment in future. Given these assumptions, the following observations follow. (1) Public agencies accept process measures as surrogates for performance. The number of beds, places, seats, and slots filled by clients are accepted as instances of treatment or policy delivery without extensive inquiry into how they were filled or what happened to clients. (2) Government officials try to control the inputs into the agency. For example, governments may establish procedures which give them control over the placement of clients in the agency. Thus the contract agency does not have the authority to turn down clients whom it deems incompatible with its mission or staffing capabilities. (3) Official service standards are accepted as standing for quality. Perhaps the state cannot determine whether battered women or homeless mothers are getting good advice and counseling. It can, however, require that the battered women's shelter maintain 24hour, round-the-clock operations and regular training sessions for all volunteers. Adherence even to minimal process requirements can come to stand for quality in the absence of a better alternative. (4) Orderly administrative processes are important when it comes to justifying contracting relationships. If public officials cannot truly know how effective their contractors are, they can at least give weight to the agency's ability to relate to its contract office. The timely and orderly submission of documents, ingratiating relations with agency officials, and swift return of telephone calls all contribute to the agency's standing in the eyes of public officials. These impressions are supplemented by information gained through site visits and anecdotal evidence of successful client outcomes. And they certainly are affected by any negative publicity generated by the agency. (5) Reputation of the agency in the specialized community in which it works becomes important as public officials look to contract with "good" agencies and nurture the long-term capacity of the community to provide services.

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Consider a formal contract bidding process in which evaluators award "points" to proposals to lend the assessment a degree of apparent rigor. Weight is typically given, as it should be, to what is actually being proposed. But consideration will also be given to feasibility of the plan, organizational capacity, and previous performance, all of which relate simply to the agency's ongoing reputation. The futility of regarding human services contracting through the prism of cost savings through competitive bidding is most apparent when "sellers" of contract services are limited or nonexistent. To insure service continuity, for example, governments sometimes negotiate the renewal of existing contracts without opening up the process to new bidders. And under some circumstances, such as providing services for emergency needs, contracts can be let without any competition at all. The Massachusetts Department of Public Welfare created an unprecedented network of homeless shelters not through a process of soliciting competitive proposals but, as an emergency matter, by working with as many community groups as possible to develop acceptable proposals and get them funded. In the end, despite the unavailability of objective measures of performance quality, public officials tend to have surprisingly firm and, in their perception, accurate views of contractors' performance. They tend to agree on which programs are "outstanding," "so-so," and "in trouble." But these beliefs in contractors' performance are largely the opinions of craft. 24 Public officials know programs are good because they have run well-regarded programs themselves, or have considerable experience in comparing impressions of similar programs over a long period of time. To be sure, the public benefits from canny and experienced administrators. The problem with relying on craft knowledge, however, is that it is unevenly distributed. Effective program evaluation depends upon the individual talents of the program administrators. The goal of more consistent program evaluation across geographic areas and jurisdictions is a major reason for the push for more performance-based contracting and evaluation, despite the acknowledged difficulties. In sum, the case for privatization based upon market dynamics is undermined by the problems involved in performance assessment. Unlike a market exchange where buyers and sellers are able to evaluate the product and the terms of the exchange, human services

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present enduring problems of information and evaluation. Moreover, the politics of performance assessment and staff and client concerns with the contract agency severely constrain the ability of government officials to award, renew, and terminate contracts according to market principles of efficiency and effectiveness.

The Irony of Privatization through Contracting For public officials, particularly those with a conservative ideological bent, the appeal of contracting with nonprofit organizations resides in the ability to accomplish public purposes without enhancing the role of government and increasing the size of the public workforce. Government intrusion into society can be minimized because private agencies will do the work. This form of privatization appears to combine the pragmatic objectives of keeping costs down and maintaining flexibility in policy options with the ideological objective of minimizing government's role in society while turning to charities and other community agencies to play their traditional roles. However, only in the limited sense that the public workforce has not expanded greatly can it be said that the government role has been curtailed by this version of privatization. And, it should be noted, government has at times been severely criticized for its unwillingness to expand in order to manage its new responsibilities. The failure of government to increase its oversight capacity with the expansion of contracting has subjected it to criticism for inadequate accountability and oversight. 25 In two other respects privatization through contracting has resulted in increases in government roles. First, governmental expenditures in human services have expanded enormously, as we already indicated in detail. Contracting for services may actually be credited with facilitating growth in public services beyond what it otherwise might have been. Contracting has permitted the expansion of the service sector unconstrained by the difficulties public agencies would experience in hiring a huge number of new workers for new tasks. Expansion was all the more free in the absence of popular opposition that might be mobilized against a rapid increase in the public workforce. Politicians are regularly criticized if the number of public employees has increased while they have been in office. They are

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virtually never criticized if the number of employees working for agencies under contract to the state has increased dramatically. Up to a point, contracting hides the growth of government from public scrutiny: the press and government critics are not accustomed to making contract employees an issue. And the issue remains obscure in part because contract employees often work for private agencies that receive funds from many sources. In private agencies supported by endowment, fees, and charitable contributions as well as government funds, the total workforce is not the equivalent of the number working under contract. Thus statistics on employment increases attributable to contracts are hard to obtain. Second, privatization has led to government penetration of the private sector through the regulations, obligations, and restrictions that accompany contracts. It has created rules and regulations for private agencies that otherwise would not be subject to government control. Privatization has also led to the emergence in the private sector of whole agencies that accept government restrictions and standards from the beginning. Some of these agencies have never had another source of support. One might call these "pre-penetrated" private organizations. Moreover, the proliferation of these organizations in the last 25 years has increased the pressure on other nonprofit organizations to adopt government norms and standards as well. 26 This is the irony of privatization through contracting. Supported by some as a device to reduce the size and influence of government, privatization as contracting instead has resulted in unprecedented involvement of government in the affairs of nonprofit organizations. Instead of shrinking the role of government and making the provision of public services subject to market discipline, contracting has actually diminished and constrained the community sector by government intervention in nonprofit organizations. Contracting also alters the boundaries between community and markets. Although the system does not follow market principles, the requirements of the contracting process such as bidding, cost justifications, and demonstrations of good financial management shift the attention of the agency toward concerns about costs and the efficient internal allocation of resources. As a result, nonprofit contract agencies move away from a primary concern with the individual client to efficient utilization of resources. Thus contracting can be

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said to increase the role of market norms of efficiency in the provision of social services, even though the actual contracting process does not follow market dynamics. This is the second irony of privatization. As nonprofit service providers are forced to be more business-like, they become more rule-bound and more intent on the bottom line of fiscal health at the expense of responsiveness. Contracting may have transformed nonprofit agencies into organizations whose norms are consistent with public policies that seeks to limit citizen claims on government and government-funded agencies. It may have pushed individuals onto their own resources or those of family and friends. But it will not have done so by engaging community organizations, as advocates of privatization would urge, but rather by requiring community organizations to be less responsive to community.

10 - Government, Nonprofit Agencies, and the Welfare State

The current contracting system developed out of thirty years of piecemeal reorganization of social service provision. It was assembled through incremental changes in the relations between public and private sectors. No one decreed that government take the upper hand in the provision of social services. Public officials looked to private agencies as alternatives to moribund public bureaucracies. Directors of nonprofit organizations welcomed chances to expand program activity. Advocates for dependent populations looked forward to budget expansions and greater opportunities to affect service policies. Individuals in need of services welcomed development of new community facilities, although undoubtedly they had only the dimmest awareness that the architecture of service provision was fundamentally changing. Lost in the month-to-month details of grantmaking, periodic audits, and government budget cycles are larger questions about the changing nature of the political community in the contracting regime. We argue throughout this study that the balance between public and private responsibilities for meeting the service needs of citizens is changing. Government priorities and controls increasingly structure the procedures and priorities of nonprofit providers. Many nonprofit providers are now dependent on government; others, nominally private, are overwhelmingly subject to public priorities and preferences. What are the implications of saying that the balance between public and private is changing in service provision? First, a much more substantial private sector now depends upon government to sustain it, conforms to governmental expectations of service modes, standards, and client selection, and bends its internal structures toward ably performing as contracting partners. Critics who would see the private nonprofit sector as representing an im-

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portant alternative to state action must recognize that the sector is significantly compromised in its ability to offer clear alternatives. Second, from the perspective of the state, government has been redefining its fundamental relationship toward citizens while the contracting regime has been taking greater hold.

Issues of Citizenship Let us say that "citizenship" summarizes the relationship between people and the political system of which they are a part. Let us say further that citizenship is a reciprocal give-and-take, which includes obligations of citizens toward government and obligations to citizens on the part of the polity. Citizenship requires participation in political life, in other words, and provides a set of protections and privileges in exchange. The contracting regime raises important questions about the nature of citizenship. The connections of individuals to the political system in aggregate are changing beyond the immediate interests of public officials, service providers, and recipients of service, and independently of an assessment of the quality of service production under contracting. The obligations of the polity to citizens are affected by the contracting regime in several ways. For one thing, the contracting regime in the current period has eased the slow drift of the American welfare state toward more fully articulated entitlements. For a time, as we suggested in chapters 1 and 3, the American welfare state was becoming more like its European counterparts in service provision as the federal government took up responsibilities previously discharged by local authorities and private charities, and as it moved toward offering services in selected areas to all and making some services available as entitlements. Although contracting continued to develop rapidly in the 1970s, it was separate from the impulse to expand entitlements. With the possible exception of services for special education (increasingly under attack as of this writing), governments contracted with nonprofit organizations, but without defining services as universally available. If contracting supported greater comprehensiveness of eligibility and coverage of welfare state activities in one period, it aided in undermining such developments in another. The social policies of

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Presidents Reagan and Bush were efforts to return to the pre-1960s era, when social services were funded primarily by state and local governments and private charity. They were direct rejections of the idea that America should move closer to the European welfare states with their extensive networks of publicly financed social services, and that full citizenship hinged upon government-guaranteed social rights. As federal funding for social services provided by nonprofit agencies was reduced in many service categories, responsibility for many of the remaining federal programs was decentralized to state and local governments. The voluntary sector was cajoled and forced by circumstances to assume greater responsibility for addressing social problems. In essence, these administrations appropriated the concept of community. Community would not be a rallying point for demanding public provision of more comprehensive state services and increasing the equity of the service system. Instead, it would be a vehicle for devolving social services to nongovernmental providers to enhance individual responsibility and reduce claims for public spending. Entitlements would be reduced, the variation across geographic regions would rise because communities and states would differ in their willingness to provide services, and nonprofit agencies would have to seek greater support from community donations and volunteerism. Contracting with nonprofit organizations is not logically incompatible with broadening entitlements, to be sure. Yet it seems reasonable to suggest that the cuts of the Reagan-Bush years were facilitated by the very flexibility which supported the contracting system during its years of growth. If contracting provided opportunities for public officials to expand service provision rapidly in one era, even when the belief prevailed that public funds were in very short supply, it could also ease the difficulties of enacting cutbacks when they had to be made. Future historians will perhaps conclude that the expansion in the 1960s of the welfare state into the service area in the United States was supported by a slim reed. By some measures, the Reagan and Bush administrations were quite successful. Federal spending as a percentage of total social service spending dropped substantially. State and local governments compensated for federal cuts and assumed greater responsibility for social programs. Fee income is up in some nonprofit agencies, indi-

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eating a shift back, at least in part, to family and individual responsibility for social problems. But the shift to private charity appears to be only incremental. Many nonprofit agencies responded to federal cutbacks in some areas by obtaining new federal and state contracts in others. Despite the widely publicized cutbacks in federal spending, especially in the 1981 budget act, government funding of nonprofit service agencies in many service categories has continued to rise. This applies to child and adult protective services, drug and alcohol treatment, services for the mentally ill and developmentally disabled, home care, early childhood education (for example, Head Start), and daycare. These increments indicate continuing political support for service programs for vulnerable populations. It is particularly conspicuous, however, that ongoing support in these areas is not accompanied by notions of citizen entitlement, as the limited availability of daycare slots and the long waiting lists for drug treatment placements attest. Even citizens who fall into program categories that enjoy continuing support may be affected by contracting. Choice is reduced because services are now more homogeneous, especially services at variance with the dominant professional orientations favored by government. Equity, the equal treatment of similarly situated individuals, is another dimension of state obligations to citizens that is distorted by the contracting regime. Contracting makes the achievement of equity problematic by imposing a series of intermediary institutions in service provision. Nonprofit organizations, in a relation of mutual but unbalanced dependency with governments, are able to shade public officials' commitments to equity in service provision by championing the legitimacy of their private notions of eligibility and treatment. While this is a contested area in which governments tend to have the upper hand, the contracting relationship nonetheless limits the ability of public officials to insist on absolute norms of equity, and indeed excuses them from making such demands. Still another way in which the nature of obligations of the state to citizens is structured is through organizations that mediate between states and citizens. Government accountability to citizens is undermined when responsibility for admission, treatment, and outcomes seem to be in the hands of private organizations. It is possible to

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imagine monitoring and reporting systems that allow public officials to hold nonprofit contractors accountable. But in practice citizens do not experience nonprofit organizations as under the hand of government managers who insure service quality from a distance. Citizens' impressions that governments remain distanced from insuring provider performance are strengthened, of course, by widespread and essentially accurate beliefs that governments typically do not adequately invest in oversight capabilities; moreover, that it is difficult to hold service organizations accountable because of problems in measuring service performance. Ultimately, accountability in service provision depends upon professional standards and development. This is small comfort to citizens dependent on the contracting system, and in any event poses equally challenging problems of democratic accountability. Ifwe turn to the obligations of citizens to the state, the contracting regime poses additional issues. Political scientists have puzzled for some time about the apparent increase in participation in singleinterest politics at the same time that electoral participation is declining and American political parties are in disarray. It would seem that as the electoral system appears unable adequately to incorporate citizen concerns, people turn to interest groups, community activities, and social movements to articulate their collective interests. The move toward privatization may exacerbate this trend. On the one hand, the structure of contracting tends to obscure the details of the service state; citizens may be unable to fathom a service provision system that so intermingles public and private responsibilities. Private agency errors are not straightforwardly public mistakes under contracting. On the other hand, successful public policy in social services now requires healthy private organizations, which must be supported in good times and bad times. Contracting requires concerned citizens to invest in community organizations in order to obtain effective public policies. For as we have argued throughout and particularly in the previous chapter, governments cannot simply step out into the service mart and pick up a few treatment units for autistic children or youthful sex offenders. In a sense, and paradoxically, the practice of contracting forces citizen energies into private sector concerns. For the concerned citizen, the politics of the service sector now requires not only making demands on public officials but also wor-

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rying about maintaining healthy, capable private institutions. It is one thing, and undoubtedly a good thing, to advocate vigorous citizen involvement in public institutions. It would seem to be quite another matter to create a system in which public policy depends, in all places, on the quality of private organizations. One might conclude at the least that the contracting regime introduces to the citizen a layer of complexity which is not evident in welfare states that are less dependent on community organizations. While citizens concerned about public policy must invest in private institutions, in one sense contracting diminishes their capacity to act. The contracting regime has reduced the role of members of the founding community in the governance of nonprofit agencies by shifting power within the organization to the executive director; at the same time, the norms of the organization shift to priorities favored by the state. As this sketch of some of the issues for citizenship raised by the contracting regime should suggest, the mingling of public and private activities raises profound questions for the future of the American welfare state, and for other welfare states where similar issues arise. These questions are likely to be with us for some time, as there is little prospect that the political system will soon move radically toward one or the other poles in service provision. The task for the analyst and the concerned citizen is to find a balance between the interests of state and community that exploits the advantages of contracting while minimizing the costs to effective services, community responsiveness, and concerns for equity.

Contracting as Symbolic Politics The search for a balance must proceed against the noise generated by the symbolic dimensions of privatization, which often obscure critical issues of service effectiveness and impacts on private interests. For the most part, the symbolic values associated with privatization have been firmly controlled by the conservative side of the political spectrum seeking leverage to reduce the size and scope of domestic policy responsibilities. When recent presidents have extolled the virtues of the voluntary sector, they have reinforced the common view that volunteerism and voluntary organizations are firmly in the conservative domain. In this, they have ignored the growing depen-

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dence of voluntary organizations on public financing when they advocate the substitution of vigorous volunteer community agencies for public programs. Privatization has long been advanced by conservative theorists. In the 1970s the privatization movement toward nonprofit agencies received a great deal of attention at the American Enterprise Institute. Support was recorded as well by scholars who believed that community organizations played an important "mediating role" as a buffer between individuals, families, and government institutions. In this version of privatization, community groups support social welfare needs mOl e responsively than governments while minimizing bureaucratic stagnation and institutional indifference. l Yet like so many aspects of the welfare state, claims to ownership of ideas and reform impulses depend upon how loudly and effectively they are made, and who makes them. It seems remarkable that the voluntary sector and nonprofit organizations have been appropriated by the Right. Starting only in the 1960s, one might point out, the community mental health and juvenile justice reforms, which led to extraordinary expansions in these service areas, were championed by liberal reformers. Community action, the centerpiece of the much maligned but undoubtedly important poverty program, was founded on the notion that empowerment of poor communities depended upon their having some control over service resources. It was the liberal political activists, over conservative opposition, who supported maximum feasible participation of the poor in affairs affecting them. These same political actors established VISTA (the domestic Peace Corps) and under PresidentJimmy Carter championed voluntarism by bringing VISTA, the Peace Corps, Foster Grandparents, and other federally supported volunteer programs together into the ACTION agency after they were neglected and defanged by the Nixon presidency. The social policy innovations of the last twenty years, including women's shelters, homeless shelters, food banks, hospices, daycare, and others are all developments supported by activists who champion an expanded state role in supplying social services and support government contracting as the means to achieve this objective. Moreover, organizations as diverse as the Alliance for the Mentally III and Daytop Village, organizations devoted to self-help, appeal to the antiprofessional bias of many liberal reformers.

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Citizen action organizations, ranging from the environmental activists of Greenpeace and the Public Interest Research Groups to community reformers, also flourish through voluntarism. These organizations, and the voluntary sector more generally, provide day-today grassroots opportunities for people to become involved in public affairs. Looking to the near future, the success of the Family Support Act of 1988, the bipartisan welfare reform legislation, depends upon the development in the fifty states of nonprofit organizations able to supply job training, remedial education,job finding, and child care. Indeed, when public officials-state, local, and federal-want to provide social services today, they expect to seek out nonprofit organizations to provide them. And when individuals seek to contribute to social welfare betterment through their choice of occupations, they may well expect to seek out nonprofit organizations for employment. In short, liberals champion privatization through voluntary organizations when they can emphasize grassroots politics, the potential for empowering disfranchised people, and welfare state expansion. In 1990 some Bush administration operatives began to speak glowingly of a "new paradigm" for social policy, a perspective that problems were best addressed at the community level through private organizations, mediating institutions, and enhancing family responsibility.2 Again the symbols of privatization were trotted out for political advantage despite the interpenetration of government with many of the private providers on which the new paradigm would have to rely. In a sense, President Bush and his fellow conservatives were trying to recapture the sharper distinction between the public and private sectors characteristic of American social policy prior to the 1960s. To them, nonprofits became part of the welfare state in the 1960s and 1970s, contributing to an overload of demands on government. The appeal to the "thousand points of light" is an appeal to altruism and philanthropy rather than the professionalism of government supported nonprofit services. (The proposal by some congressmen to reduce the tax exemption of nonprofit hospitals if they fail to provide enough "charity care" is a good example of the mixing of altruistic demands and statutory requirements.)3 The call for people to rely more on altruism also enhances the

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role of the individual and the market in social provision. A counseling agency created in the 1970s through government grants is forced to restructure its programs when a government grant is reduced. To keep staff and services intact, it raises its fee structure, requiring individuals to pay more for service. As fees rise, some individuals are denied services while others may be inclined to take their business to for-profit competitors who offer more convenient and perhaps more discrete service. It is in this sense that the appeal to altruism and the "thousand points of light" represents a reconnection of the link between citizenship and social class. As the cost of service to the individual rises, access to service becomes more dependent on financial resources. In the United States, this exacerbates the already existing trifurcation in service access: the very poorest and disadvantaged are served through publicly funded programs; the affluent pay for service; and the working and middle classes are squeezed as they try to cope with rising costs associated with social and health benefits. The ongoing contest over the meaning of contracting is consequential for public policy development. We have described at length conservatives' deployment of privatization claims. Liberals are also implicated in the selective mobilization of symbols. They champion community action, the needs of the social welfare constituencies that are typically served by private, nonprofit organizations, and the activities these organizations perform. The Stewart McKinney Act of 1987, which provides relief for hunger and homelessness through shelters, food banks, and other nonprofit organizations, provides an example. But liberals have not contested conservatives' claims to carry the banner of the voluntary sector as such. Thus, as in the case of issues involving "the family," liberals have little to say about matters that are vital to many people to whom they would like to appeal and about whom they say they care. The result, ironically, is to further reduce and limit popular support for government. On the one hand, government is not fully credited with providing services because policy implementation takes place through private parties. This is the negative side of allowing nonprofit organizations to buffer the relations of citizens and state. If government is credited, it is criticized in the popular mind for being unable to control expenditures and secure accountability among contractors.

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On the other hand, supporters of expansive state activity tolerate governmental domination and at times the immiseration of the organizations which reflect the self-help, autonomous impulses of communities. In fiscal crises, conservatives have thus been able to use their command of the symbol of community as a weapon to curtail the welfare state, with disastrous results for the vulnerable groups liberals usually believe they champion.

Toward a Balanced Approach to Communal Provision For a while, contracting appeared to be a model for a marriage of the best of the public and nonprofit sectors. The public sector would provide the financing and the nonprofit sector would deliver the services. Hence service could be provided flexibly on a broad scale while still retaining community oversight, volunteer involvement, and alternative service programs. Yet contracting over time has evolved into quite a different policy strategy, with extensive government intervention in the affairs of nonprofit agencies, a shift of many nonprofit agencies from the informal to formal care systems, greater homogeneity of services within particular service categories, a diminished role of ~he board of directors in agency governance, and destabilization among nonprofit agencies. It would be undesirable and as a practical matter virtually impossible to overthrow the contracting regime altogether. Conservative theorists will not prevail in turning back the clock to restore systems of informal care The professional, family counseling agencies or the drug abuse treatment centers affiliated with local community mental health centers are central to society's response to social need. These nonprofit agencies are part of the formal care system comprised of professionals and clients. Informal care is not an adequate response to pressing social problems for several reasons. 4 First, it depends on voluntarism, which is most responsive to need in middle-class areas. Second, reliance on informal care is inconsistent with current trends in employment and the family unit as well as developments in suburbanization and urbanization. These trends have meant a more dispersed kinship unit and much greater mobility than in the past. As Martin Bulmer observes, "For a considerable proportion of the population, the street or neighborhood is the place in which they live, but their most

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significant informal social relationships are not, in general, with their co-residents." 5 This means that the dispersed kinship unit is less capable of caring for its members than were the more cohesive arrangements of the past. Of course, people still form self-help groups and sponsor charitable activities. But increasingly local attachments to particular areas tend to be what Bulmer calls communities of limited liability. People will join the parents' association at the local school or a neighborhood association to fight a highway expansion into their neighborhood, but they will tend to avoid community attachments that are not motivated by shared social characteristics or self-interest. In short, "the responsibilities for others which people acknowledge tend to be narrow and fairly specific, not broad and universal." 6 Historically, the liberal response to the inadequacies of informal care was expanded public sector responsibility for social policy and more formal provision through the public and voluntary sectors. Yet this response no longer appears viable either. The use of nonprofits in service provision has gone too far. Throughout the industrialized world, the citizenry is looking for alternatives to public sector programs. Moreover, there has been a generalized reaction against the formal care system, with citizens demanding greater control over their own treatment and services as a result of dissatisfactions with the cost and value of professional services. If we are to see the world as it is instead of wishing it were otherwise, we must focus on the current contracting regime, recognize its weaknesses, and look for avenues for improvement. In the following pages we offer commentary and proposals to preserve the useful aspects of contracting while minimizing its deleterious effects on nonprofit agencies, their clients and staff. In some places we recommend consolidating current practices so as to complete the modernization of the nonprofit service sector. In other places we urge measures that would preserve the sector's special character.

Sorting Out Issues ofEquity The first task in contemplating reform of the contracting system is to come to grips with the tension between the universalism of public policy norms and the particularistic tendencies of private agencies. As we stated in Chapter 6, governments and nonprofit organizations

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emphasize different norms. Governments are primarily concerned with fairness. They establish procedures to insure that similarly situated people are treated alike. If resources are scarce, they develop and enforce decision rules such as income eligibility standards, so that the public will accept withholding services from some and distributing them to others. The guardians of the public purse also regard themselves as arbiters of what they deem the most effective interventions. They articulate policy preferences and seek to put them in place. Federal block grants to the states may be established with minimal demands, but the block grant only works if there is a legitimate government to receive the grant and establish appropriate criteria. Nonprofit organizations also concern themselves with fairness and accountability to a degree, but they place greater emphasis than does government on responsiveness to clients. Nonprofit organizations are more willing than government to let first-come be first served, to regard anyone who seeks assistance as deserving, to accept people's word that they are in need rather than demand verification, to keep clients until their circumstances improve rather than limit the terms of treatment, and to believe it is appropriate to be selective in enrolling clients. These differences in tendencies are not explained simply by saying that the nonprofit agencies are more lax than government. They result from entirely different orientations of the two. The ability to respond wholeheartedly to some clients' need, even if this stance requires selectivity in recruitment, is to be valued in a complex society where differences in backgrounds and presenting problems make it desirable to approach social problems in a variety of ways. There is much to be said for a society that has a capacity to deal with citizens sympathetically and without having to reduce them to a set of official characteristics. As T. H. Marshall noted over 40 years ago, citizenship in the modern world may be said to depend on the character of social rights. 7 Unless human service agencies are capable of responding to the diversity of human need and experience without regard to bureaucratic categories or considerations of market efficiency, they diminish the capacity of individuals truly to participate in contemporary society. In this light, millions of "near poor" citizens who lack health insurance represent a great reproach to American social organization.

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Another ideological strain that bears on the question of contracting celebrates local initiative and encourages communities to tailor programs to fit local conditions and exploit local resources. A drug treatment program in a Hispanic neighborhood will be more effective if it is sensitive to the needs of its local community. Likewise, programs for youth may be more effective if the program staff are knowledgeable about the community from which they arise and whose values they share. There is no question that an organization specifically focused on AIDS prevention and education in the Haitian community will be more effective if it is sensitive to the group's cultural context. Nonprofit service agencies come in all sorts. Most evoke images of community and local citizen participation. The new community agencies that have emerged from the collective activities of likeminded individuals are the closest to this ideal. These "communities" are diverse: feminists, poverty activists, a neighborhood, or an ethnic or minority group. New community agencies are focused on being responsive to their founding commitments, at least initially. Consequently, shifts in the norms of this type of nonprofits toward government norms are likely to be the most dramatic because these nonprofits originally resembled government the least. Direct governmental distribution programs emphasize fairness, equity, and accountability, with only modest responsiveness to clients as unique individuals. Conversely, social services administered through nonprofit organizations do emphasize responsiveness to individual need and show greater dependence on local capacity and initiative. Government, indeed, "purchases" the greater responsiveness of the voluntary sector when it makes outright grants to nonprofit organizations or lets contracts with few strings attached. A cynic might say that through contracting governments can achieve policy purposes without the crushing requirement to be fair to all. Yet while we may celebrate nonprofits for their responsiveness, it is also true that they can be, and certainly in the past have been, notoriously parochial. In New York and other eastern cities, it is well-known that child welfare agencies, based in religious communities, fully controlled adoption and foster care. Disequilibrium between the service preferences of the organizations and the populations in need of services resulted in neglect of children from the more needy and less represented populations. Neighborhood settle-

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ment houses were founded by and sought to aid immigrant groups of particular nationalities; residents of the neighborhood who fell outside the founding definitions of the clientele often were neglected. Other factors argue for selectivity in choice of clients. Social service agencies may prefer some clients over others because they are easier to deal with, more likely to respond to treatment, or are the kind of people with whom the staff is comfortable. Many homeless shelters will only accept guests who are free of alcohol. Some organizations for the blind will not serve the blind with medical problems or handicaps. These programs may be accused of "creaming" and other selection biases. Selectivity can look like invidious bias. In the case of New York City foster care, nonprofit agencies chose to be selective in their choice of clients and were powerful enough politically to maintain budgets even when some children were going unserved by the major provider agencies because they were from the "wrong" racial or religious backgrounds. One important solution to the problem of the particularism of nonprofit agencies is the public sector option already mentioned. Another important strategy is to develop some criteria by which government officials can balance equity and responsiveness. For instance, European countries with more inclusive networks of private organizations (the Netherlands is our favorite example) manage to deliver services through organizations linked to religious (or other sectarian) communities, unless a good reason can be presented for doing otherwise. Dramatic conflicts between equity and responsiveness arise only in a small minority of cases. In the following pages we shall look for a way to guide the tradeoffs between equity and responsiveness that are adapted to the American welfare state. 8 A primary requirement of the welfare state is that all citizens have access to essential services when they qualify for them. If it is determined that a service is essential to the well-being of all citizens (such determinations vary over time and place), selectivity among clients must yield to norms of entitlement and universalistic criteria should prevail. The rationale for community responsiveness is superseded in such cases by the necessity of creating and supporting inclusive public institutions. Eligible service providers deficient in the inclusiveness of their clientele should be given assistance to improve their

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diversity. Exceptions in the name of diversity of approaches and responsiveness to clients may be made in services that are not essential, if it can be shown that certain kinds of selectivity would increase effectiveness, and that similar services are available to those who would be otherwise eligible. These principles reflect the primacy of support for the welfare state, while acknowledging that the responsiveness of private institutions may be exploited appropriately in the public interest. They may also reflect much of the spirit of current policy; today there is no widespread support for, nor does good sense necessarily dictate, making all social services supported through public funds available on a universal basis. Should ajob training agency be supported by government contract if it is located in a Hispanic neighborhood, staffed by Spanish-speaking instructors, and caters to young people from the neighborhood? Yes, if there is public support for such programs in non-Hispanic neighborhoods of equal need. Programming in the name of diversity of approaches and responsiveness to elients is acceptable if it can be shown that certain kinds of selectivity would increase effectiveness, and that similar services were available to those who would be otherwise eligible. Should an adoption agency under contract to government be allowed to work only with adoption of children born to parents of a certain religion and with adoptive parents of the same religion? Only if it can be shown that there is an important advantage to successful placement in same-religion planning. On the whole the practice should be discouraged unless it can be shown that an ecumenical adoption agency would not be equally effective. Admittedly, the efficacy and appropriateness of adoption policy using same-religion agencies will be a matter of disagreement among reasonable people. And social standards may change over time. The legacy of past practice may also protect an approach even after its rationale has weakened. This is only to say it is easier to enunciate rough criteria for decisionmaking than to put them in place. These examples deal with particularistic client preferences of contracting agencies. Another set of concerns arises when nonprofit organizations justify their choice of clients on the basis of their likely effectiveness in dealing with them. In a case of this sort, should government contract with a nonprofit organization to work with

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troubled families who are not the most needy? It is not uncommon to find a family service agency which has a good reputation in family counseling but resists working with families, say, of drug addicts. Critics of such contracts may believe that the agency is neglecting a needy population, and has achieved its reputation for success only because it was allowed to deal with less distressed families. The critics may be concerned that the more troubled families are perforce consigned to public agencies, and their greater troublesomeness makes the public agency look bad in comparison with the private agency. This issue also arises regularly in considering policies aimed at prevention. Effective intervention with less troubled families may yield higher returns on public investment than reserving funds for the most desperately in need. From the perspective of public officials, this seems to be a straightforward matter of policy choices. Government can choose to contract with the agency because it is effective with its target population. It can refuse to contract with the agency because it does not focus on priority clients. (It can then try to find a contractor that will deal with priority clients, or develop a capacity within the public agency to do so.) It can try to persuade the agency to shift its client profile in the direction of greater need; it is likely to succeed in doing so if it has already "hooked" the agency on public funds through prior contracts. Whatever choice the agency makes, it does not seem that a fundamental challenge is presented to the contracting model. If recent practice provides any guide, the costs of these choices are born mostly by the private agencies and the communities they "represent," which must now pursue public officials' service preferences rather than their own. Overcoming the problem of geographic inequities. A major gap in the contracting regime is the possibility that a nonprofit agency is unavailable or nonexistent. Simply put, if a city or region lacks an agency to take up a program, government officials will be unable to offer services in those places if they depend upon nonprofit agencies. Under contracting, if there is no organization willing to shelter the homeless, the homeless will not be sheltered. Some communities may have more voluntary organizations than others, for reasons of length of time the group has been in the areas, indigenous culture, or other fact.ors. Rural areas are often particularly disadvantaged by

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contracting policy because the density of nonprofit service agencies is lower in the countryside, and if they exist at all are to be found in regional centers that may be fairly remote. The flaw inherent in depending upon community organizations willing to administer public programs was well illustrated by the federal initiative to distribute surplus cheese and other commodities to the hungry. In the fall of 1984 Florida had no distribution in 15 of 67 counties. Texas had no program in ten counties. After a reduction in the program allocations to Oklahoma in mid-1983, only 15 out of 92 counties received any food. In these and other states, the access of similarly situated people to surplus food depended upon the existence of a network of service organizations and a local social welfare culture that was supportive of voluntary efforts. 9 If social services are important, they should not be distributed differentially unless the need is obviously differential. Support programs for teenage mothers need only be established in areas in which teen motherhood is deemed to be a problem. But in most cases, the desirability of social services is recognized across the board, and governments should plan on providing services through contracts only if the service network also extends to all. To capture the advantages that contracting offers, it may be desirable to develop a service capacity when it is otherwise patchy. Governments can try to recruit voluntary organizations that do not come forward at first. They can reimburse the organizations for start-up costs to bring a promising provider into the service network. They can offer technical assistance to communities to help them start up organizations if none currently exists. Something of this sort happened in the past decade with services for refugee resettlement. Federal funds were established to help Southeast Asian refugees integrate into American communities and to ameliorate the potential welfare burden to the states. However, the existing Cambodian, Hmong, and Vietnamese organizations had to be sought out and nurtured for several years to help them build the capacity to work effectively with significant numbers of newcomers. If governments propose to work through contracting, they should ultimately be prepared to offer services through their own auspices if no organization can be found or established to carry out their programs. In rural areas the post office may contract with a local

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shopkeeper to operate the mail service; if none were to be found we would still expect the service to be offered. We would not accept that some people would receive mail and others would not because no private party was willing to take on the job for a fee. In some Indian reservations, for example, the federal government operates health services because the private sector, which provides for health services elsewhere, has not performed adequately to fill that need. The same logic should apply to services deemed essential to all: if private providers cannot be found, the government should step in with public provision. This is not to say that every program should be like every other, that government should work toward uniformity in programming through contracting in order to give the same services to everyone. For one thing, a deeper understanding of equity makes it clear that it does not necessarily consist of treating everyone the same way. In matters of income support, when seeking to treat similarly situated people alike, equity does consist of giving the same grant to people with the same incomes, assets, and family situations. But services are different. In providingjob training, alcohol rehabilitation, and mental health services fairness may mean tailoring interventions to individual needs. People should have reasonable access to broad service categories, such as respite care or drug treatment. But how these services are provided may vary (some would say must vary) and still be effective. If public provision is to be the same for everyone, governments should implement programs through public agencies or through heavily regulated nonprofit agencies funded by government that are required to provide similar services to everyone. But if governments value the variety, local inventiveness, legitimacy, and flexibility that come with contracting, then they may be supported if they seek to trade a degree of equity for the values of responsiveness.

Strengthening a Balanced Approach We write in a period of severely diminished revenues for many of the social services. Nonprofit organizations are being asked, and their own inclinations toward altruism dictate, that they cushion local, state, and federal fiscal crises by treating more clients and more difficult clients without compensating reimbursement. The saints of

224

IMPLICATIONS FOR THE WELFARE STATE

the nonprofit world must be admired for their selflessness in the face of severe budget reductions, but asking providers to do with less and seeing many service providers sink under budget reductions do not bode well for public policy in the long run. Throughout this book we have conceived the relationship between government and nonprofit service providers as one of unbalanced reciprocity. In the interactions between governments and nonprofits governments tend to have the upper hand. Accordingly, the suggestions we offer place responsibility for reform on both parties in the contracting relationship, but emphasize the responsibilities of governments, which are the dominant partners. Nonprofits in the contracting relationship. Trends in rationalization of nonprofit service delivery will and should continue where appropriate. Some agencies-their founding community orientations notwithstanding-will and should merge to provide more efficient practice and more effective leadership overall. Some will and should go out of "business," their functions absorbed by current but more effective competitors. Some leaders in the nonprofit world should be encouraged to think creatively about how to achieve rationalization that maximizes client service objectives while minimizing injury to sector capacity. Equal attention should be given to opportunities for rationalization of the operations of existing nonprofits. In some cities co-location of facilities offers chances for sharing clerical, accounting, and other core services, as well as opportunities for service coordination. Bulk purchasing of goods and services such as insurance remains a good idea. Foundations and coalitions of providers are beginning to explore group health insurance and other personnel benefits to make nonsalaried compensation more attractive. These initiatives are inspired by the success of the Teachers Insurance and Annuity Association, which has been instrumental in improving the financial security of college teachers and people in related fields. But rationalization and internal improvements can only go so far. Coalitions of nonprofit providers in future will have to play an even more vigorous political role in advocating and protecting the quality of nonprofit services. Coalitions of nonprofit organizations will have to represent their service sectors more vigorously than before and mobilize constituencies and sympathetic allies more effectively than they have done up to now. And in doing so they will have to overcome

Government, Nonprofits, and the Welfare State

225

their reservations about political action that are grounded in apprehensions of retaliation by public officials. With the strongest agencies taking the lead, nonprofit organizations will also have to stand up for service quality. Innovations, including innovations in cost effectiveness, must always be encouraged. But innovations must be assessed in terms of their implications for clients, and nonprofit contractors must be prepared to assert that they will not agree to budget concessions that compromise service quality. Full implementation of this perspective might prove most uncomfortable for agencies living on the budgetary edge. But every service provider surely must be responsible for knowing when budget reductions, difficult client referrals, and other compromises would excessively erode standards. To be sure, it is easier to articulate standards in some service areas than in others. Service outcomes may be so unpredictable (in outreach and tracking for juvenile offenders, for example) or treatment methodologies may be so varied (as in alcohol rehabilitation) that some fields may not be ready to articulate service standards. Nonetheless, agencies individually and collectively should be encouraged to debate and ultimately settle on standards articulated to a sufficient degree to hold government responsible for funding services at minimum standard levels. This need not compromise creativity and diversity of perspectives. Service standards could be elaborated for several service modalities. For example, many state policymakers are trying to develop a drug treatment system based on a continuum of care which includes intensive inpatient detoxification, outpatient drug treatment, and social programs. Service providers could tolerate and even embrace experimental approaches that did not conform to routine practice. The point would be to help public officials do their jobs responsibly by clarifying how cutbacks would be allocated, and, in better times, funds directed to foster growth. Nonprofit organizations and their professional associations ought to establish their own service standards for another reason: it is ultimately impractical and costly for governments to attempt to hold private agencies accountable for program performance. Like hospitals and mental health facilities, service providers should be encouraged to develop their own certification procedures that could be used by government to assess program quality. In effect, governments

226

IMPLICATIONS FOR THE WELFARE STATE

would be freed from ineffective efforts to apply service standards when widely accepted standards of practice came to be ensured by sector certification. This would substantially cure the problem of excessive government interference in the operations of individual providers and relieve the concern of taxpayer groups that contractors are not held accountable. Io Pursuit of rationalizing actions and standards is necessary for a sector which must unite and, while working with public officials to provide effective services, also strive to defend its interests and the interests of its clients. This aim is also consistent with efforts of government officials to set directions and ensure service quality. However, rationalization and the development of standards, whatever their sources, run counter to our desire to maintain the autonomy of the nonprofit sector. We must therefore also search for ways to preserve the distinctiveness of individual agencies and continue to encourage the inventiveness of the sector as a whole. This holds particularly true for the new community agencies, which emerged from the informal care network and try to operate in ways that promote the independence of their clients and consumers. A severe obstacle for nonprofit agencies that disagree with government requirements and would prefer to remain dependent on private funds is the prevailing practice of the United Way and some local philanthropies. The United Way, which is influential in directing private initiatives in cities, channels most of its funds to a relatively small network of longtime affiliate agencies such as the American Red Cross, the Salvation Army, and the Boy Scouts. Moreover, the United Way looks askance at the new agencies offering informal care or a mixture of informal and formal care because they tend to be undercapitalized and do not have the backing of community notables and longstanding fiscal soundness that United Way requires of member agencies. The United Way funding practices have ripple effects on the contracting regime. The new community agencies, blocked in their access to the United Way, must look to government contracts to sustain or expand their programs. The absence of private alternatives also gives government officials greater leverage in their negotiations with these nonprofit agencies. Many United Way chapters around the country have begun to reach out to these new agencies through initiatives such as venture grant programs that fund untested new

Government, Nonprojits, and the Welfare State

227

initiatives, donor choice programs that give individual donors control over the use of their money,ll and purchase-of-service contracting between the United Way and community agencies-a development that allows United Way chapters more flexibility in what they fund. These initiatives should be encouraged and expanded. The importance of United Way funding to the new community agencies does not lie in the amount of funding. United Way chapters provide only a small amount of total funding for social service agencies nationwide. However, the imprimatur of the United Way through even a small grant is a stamp of legitimacy that small agencies can use to obtain other private funds and enhance their dealings with governmen t. Government in the contracting relationship. One of the most destabilizing factors affecting nonprofit agencies and the overall stability of the contracting regime has been the myth that contracting operates according to market principles and is therefore cheaper than public sector service delivery. ~his notion allows government to shift the risk of service delivery to the nonprofit sector and underfund nonprofit agencies. The result is an underinvestment in nonprofit agencies, short funding cycles undermining fiscal stability, and a predominant concern with efficiency and cost-cutting that puts pressure on service quality. Rather than cling to the market myth, policymakers should recognize the contracting regime for what it is: an extensive and crucial means of delivering public services whose fiscal and organizational stability is important to the public sector. Governments should thus treat the contracting regime as a public investment and have public officials offer reasonable contracts that permit nonprofit agencies to operate in orderly ways. Many providers which now operate on short funding cycles would benefit from three- and five-year contracts. They would also benefit from building into their contracts contingency funds that would allow them to build modest surpluses and guard against future losses. In every sense but one governments expect nonprofit agencies to act like businesses: they are not allowed to make a "profit." They are expected to absorb setbacks, funding reductions, or miscalculations that can occur in any enterprise. But they are not supposed to build up surpluses against potential losses. Building into contracts a modest "profit" as a hedge against tempo-

228

IMPLICATIONS FOR THE WELFARE STATE

rary setbacks would cure a primary source of nonprofits' instability and contribute greatly to recognizing these organizations as equal partners in public service provision. 12 Governments can also contribute to the long-run health of the nonprofit sector by facilitating their acquisition of real estate assets. Stable nonprofits usually cannot purchase their facilities because they are forbidden to build surpluses, and they cannot use their contracts as assets in seeking mortgage loans because the contracts are subject to annual legislative appropriations. Yet governments are so dependent for service provision on some providers that the likelihood that contracts will be renewed is all but certain. In such cases state finance intermediaries could purchase buildings and turn them over to providers when rental fees have paid off the states' borrowing costs. This is but one creative approach the public sector could use to strengthen its most stable nonprofit service partners. If some proposals should be directed at strengthening governmental ties with existing nonprofits, others should be directed toward recognizing the innovative potential and responsive variety of the voluntary sector. One approach is consistent with advocacy of performance-based contracting wherever possible. Rather than holding contractors to process standards (such as what kinds of professional degrees staff members must hold), which tend to force conformity on providers, governments should strive to hold contractors accountable to outcomes. This approach not only promises to reduce regulatory interference and encourage efficiency;13 it also offers to protect the community-based responsiveness that represents nonprofit providers' special assets. Another approach is to recognize the nonprofit sector as a laboratory of invention for social policy. At one time, small grants to encourage community-based experiments in service delivery were a common feature of community action and block grant policies. Such programs have lost out in recent years as fiscal stresses have rendered them peripheral. However, the social service delivery enterprise needs the research and development activities of nonprofits. Just as the country needs start-up firms and small scale application of university-based research to incubate product development, so it needs the start-up nonprofits to discover more effective ways to serve people in need. If governments truly see themselves in partnership with

Government, Nonprofits, and the Welfare State

229

nonprofits in service delivery, they will not wholly neglect the future because of pressing current budgetary exigencies. A renewed federal role. Mter rising in the 1960s and 1970s, the federal role in funding social services has been dropping since the beginning of the Reagan administration. Within a few years, the federal portion may return to the pre-1960s level. Withdrawal of federal support and rising service demands forced state governments to step into the breach. Many state governments were able to compensate for lost federal funding by dedicating rising tax revenues to services during the prosperous years of the late 1980s. However, the states have not been able to sustain such support in the face of declining tax revenues and popular protests against public expenditures. The fiscal pressures on state government, in turn, encouraged state officials to restructure the contracting relationship to gain greater control over admission, treatment, and discharge decisions of nonprofit contract agencies. At the same time, state government officials try to shift costs and the risks of services to nonprofit agencies, with destabilizing results especially to the newer undercapitalized agencies. The states have also withdrawn support for aid to cities and towns, jeopardizing a new round of nonprofit service providers. The contracting regime indeed is affected by the political economy of state and local governments. Competing with each other for industry and the advantages supposedly accruing to low tax business environments, state governments are severely constrained in their ability to sustain redistributive social programs. 14 Restructuring the contracting relationsh~p to control client access, and hence potential costs, is one of several strategies by which state officials try to cope with the fiscal and political pressures on their redistributive programs. There can be no question that the withdrawal of federal assistance and heavy reliance on state funds forces upon social service funding structural adjustments that tend to minimize service support. For confirmation of this view, one need look only to the failure of the states to spend federal monies for services to implement the Family Support Act, because they have refused to allocate their matching requirements. A renewed federal role would not necessarily involve the federal government in direct service delivery. Instead, the federal funds could go to state and local governments, which could then use the

230

IMPLICATIONS FOR THE WELFARE STATE

funds to develop social services through a mix of public and nonprofit agencies. The federal government could also relieve the pressures on state and local governments by changing regulations governing the public health insurance programs, Medicaid and Medicare. For instance, Holland and Germany, which have longstanding stable relationships between government and nonprofit service agencies, integrate many of the services provided by nonprofit agencies, such as health care and drug and alcohol abuse, with their national health insurance systems. In the United States, greater utilization of Medicaid and Medicare by nonprofit agencies where appropriate could provide nonprofit agencies with greater predictability about costs and relieve some of the fiscal pressures on state and local governments. It could also begin to restore conceptions of entitlement in social services, toward which the United States was heading in earlier days. One might start, for example, with drug rehabilitation as a service entitlement that would benefitall. The return of public sector service delivery? It may be time to rethink the decisions of many state and local governments to contract out all of their services in given policy areas such as drug abuse, AIDS hospices, or juvenile delinquency. The policies have aggravated many of the problems and potential difficulties inherent in the contracting regime. First, even though governments have delegated service delivery to nonprofit contract agencies, they are still responsible for detention and treatment of delinquents who set fires, crack addicts with extensive criminal records, and homeless AIDS patients. Many nonprofit agencies resist or refuse these clients altogether. Governments respond by trying to force or cajole nonprofit agencies into taking them. The results are often controversial; even if tIle nonprofit agency accepts the clients, governments incur high costs and experience debilitating delays as they try to ensure that the agencies fulfill government expectations and requirements. A more efficient and effective service system would reintroduce public sector service delivery role for difficult clients whom most nonprofit agencies are unable or unwilling to serve adequately. A restored public sector would also reduce pressures on public officials to distort the nonprofits' service profiles. Many state and local officials are sometimes forced to place clients in inappropriate nonprofit agencies for want of other options. Their dissatisfaction

Government, Nonprofits, and the Welfare State

231

with their choices then leads them to try to exert ever greater control over key operational and management issues as the contracting relationship evolves. A restored public sector role would also introduce greater competition within the contracting system by giving public officials service options they could use if they are unable to find suitable nonprofit contractors. A restored public sector could also be a key part of a service system which contained a mix of formal and informal services. The current movement is toward case management services, whereby a case manager employed by a public or private agency purchases services for a client from a number of different agencies. This is just one model with the potential of increasing the integration between formal and informal care 15 while renewing public accountability. For example, a chronic mentally ill person might receive counseling from a psychologist at a community mental health center on a regular basis and participate in a self-help group. His family might receive a small stipend to help with his care, or the family might receive assistance from a community group comprised largely of volunteers. The importance of this type of arrangement is that it reduces the incentive for governmellt to intervene in anyone particular agency, since an individual client would be served by an array of formal agencies and informal care-givers and groups. Ultimately the success of these reform proposals for the contracting regime will depend upon federal and state social policy. Currently, government policymakers extol nonprofit agencies and promote contracting but at the same time support policies which have steadily weakened and destabilized the nonprofit sector. Unless these latter policies are reversed, nonprofit service agencies will be unable to serve as genuine alternatives to the state or the market. They will also be unable to fulfill their legal mandate to help people in need.

Conclusion Throughout the world people are rediscovering democracy. At the same time, through privatization and decentralization, they are retreating from the state. The challenge for the United States and other countries which have moved to increase the role of private actors in public service provision is to find the proper balance between the efficiencies of markets and the inventiveness of the volun-

232

IMPLICATIONS FOR THE WELFARE STATE

tary sector, and the legitimate role of the state in raising revenues, setting standards, and allocating resources. The collision of fundamental institutional arrangements and profoundly conflicting values inevitably must be monumental, even if they are put in place by the aggregation of multitudes of small decisions. Resolution of these conflicts must be pursued deliberately and with sensitivity to values of effectiveness, equity, and responsiveness. To the person seeking or deemed to be in need of shelter, succor, diagnosis, treatment, training, and restoration to society, it may not matter under what auspices services are provided. But service providers and those who guard, regulate, allocate funds, invent solutions, monitor, and train people for service provision should be alert to the implications of their individual choices for the configuration of the sectors in which they participate, and the social values they transmit.

Tables The following tables undergird some of the generalizations offered in Chapter 3.

234

Tables

Table 1. Profile of 13 traditional nonprofit agencies in New England, 1960 (dollar amounts in thousands)

Founding date

Total revenue

Associated Daycare of Metropolitan Boston (ADMB)

1952

$144

Boston Children's Service Association (BCSA)

1800

605

Cambridge Family and Children's Service (CFCS)a

1874

47

Child and Family Services (Hartford) (CAFS)

1809

903

Children's Friend and Service (Providence) (CFS)

1834

444b

Agency

Child and Family Services of New Hampshire (CFSNH)

1914

207

Family Services of Greater Boston (FSGB)

1835

843

Judge Baker Guidance Center, Boston (JBGS)

1917

463

Massachusetts Society for the Prevention of Cruelty to Children (MSPCC)

1878

635

New England Home for Little Wanderers (NEHLW)

1864

600

St. Mary's Home for Children (Providence) (SMHC)e

1877

Worcester Children's Friend Society (WCFS)

1849

Webster House (Manchester, NH) (WH)e

1884

155

a. In 1973 Family Counseling Service of Cambridge merged with the Avon Home to form the Cambridge Family and Children's Service (CFCS). b. Revenue figures are for 1966. c. Includes United Way contribution. d. Includes client fees. e. These agencies did not have audited financial statements until the late 1970s, thus data on revenues for 1960 were unavailable. Both agencies, though, received small government subsidies for the care of children who were wards of the state.

235

Tables

Tabk 1 (continued). Percentage of total revenue, 1960 Government

United Way

Contributions

Client fees

3

63

13

36

20

10

Investment

Total

19

98

$0

21

22

99

(100)

3,059f

66

11

2

98

(2)

121

34

14

12

38

94

42

4,138g

19

65

4

11

99

(32)

1,677f

40c

32

Misc

5

$0

19

7

99

(23)

1,285

21

46

14

14

5

100

(55)

6,190

33

6

4

52

100

(79)

4,297

100

(99)

7,286f

100

(170)

n.a.

n.a.

n.a.

4

n.a.

n.a.

n.a.

33

5

Endowment (market value)

(Deficit) Surplus

d

43

13

39

37

16

15

33

50

5

17

100

f. Endowment value is book value rather than market value, which understates the value of the agency's investments. Prior to the 1970s it was a routine practice for many agencies to quote only the book value of their investments on their financial statements. A change in accounting practices in the 1970s forced all agencies to list the market value on their financial statements, thus giving a more accurate portrait of an agency's net worth. g. This figure is from fiscal year 1967.

Tables

236

Tabl£ 2. Revenues, deficits, and government funding, by agency (dollar amounts in

thousands) 1960

Agency

Total revenue

ADMB

144

(Deficit) Surplus

Gov't. funding

Percent of revenue

BCSA

705

CFCS

49

(2)

CAFS

851

42

n.a.

n.a.

Total revenue 240

0 (100)

CFS

1965

1,671 444

b

Percent of revenue 17

0

0

3

5

71

34

2

(32)

6

2

63 0

Gov't. ~~nding

40

3 (127)

659

0

(Deficit) Surplus

CFSNH

207

(23)

0

222

(26)

0

0

FSGB

898

(55)

0

1,010

(129)

0

0

JBGC

463

(79)

22

MSPCC

734

(99)

0

843

(275)

0

0

(170)

795

(74)

300

38

NEHLW

770

SMHC*

n.a.

WCFS

155

WH*

n.a.

190

5

32

n.a.

n.a. 3

0 n.a.

196

2

0

0

n.a.

a. In 1973 Family Counseling Service of Cambridge merged with Avon Home to form Cambridge Children and Family Service (CFCS). b.1966. c. 1979.

237

Tables

Table 2 (continued). 1970 Total revenue

(Deficit) Surplus

1980

Gov't funding

Percent of revenue

Total revenue

(Deficit) Surplus

Gov't funding

Percent of revenue

51

293

47

1,740

82

1,339

77

1,368

(478)

812

59

2,640

(27)

1,800

68

120

(12)

27

23

7

520

61

2,478

189

132

5

343

1,521

38

622

851 a 3,938 c

581

(54)

88

15

1,311

n.a.

843

64

449

(29)

29

6

764

30

286

37

2,748

(268)

0

'0

3,460

(208)

1,297

37

719

(181)

10

4,000

358

3,254

81

(328)

0

0

4,371

355

2,220

51

55

2,762

(156)

1,627

59

744

(98)

516

69

647

(15)

442

68

230

(8)

175

78

949 d

1,372

(403)

761

d

n.a. 165

(33)

0 n.a.

0

d. FY1973. *SMHC and WH started audited financial statements in the late 1970s. Earlier financial data are unavailable, although both agencies had received small reimbursements from government for the board and care of children.

n.a.

WH

-

25

-

-

n.a.

17

n.a.

n.a.

-

203

a

19 26

n.a.

68 n.a.

n.a.

65

n.a.

-

n.a.

126b

c

-

213

70b

456

231

84

63

295

-

219

60

7

128

83

3

158

4

90 h

Fees

e

21

509

102

274

326

58

128

210

Private contributions

1970

-

73

-

293 b

460

234

350

138

132

818

8

15

5

20

48

-

0

32

c

-

15

18

35

429

602

274

841

10

489

43

84

71

278

1980 Private contributions

169

266

362

106

180

306

Investment United income Way

---

0

13

41

-

-

371

184

72

73

i

28

72

28

Fees

17

139

169

653

707

240

801

193

148

1,582

140f

17

18

Investment income

a. FY1966. b. FY 1969. c. St. Mary's Home does not receive funds from the United Way; instead it receives a small subsidy from the Episcopal Church of Rhode Island ($20,000 in 1980). d. Figure includes private contributions and United Way allocation. e. FY 1975. f. In the early 1970s the Family Counseling Service of Cambridge merged with Avon Home, substantially increasing endowment. g. Includes service fees which are reimbursed in part by government and client fees. h. Client fees. i. With the rise in public funding client fees were often reimbursed by government, so CAFS dropped client fees as a separate category in their financial reporting.

77

c

WCFS

SMHC

273

-

n.a.

85

94

MSPCC

NEHLW

91

152

17

30

JBGC

175

121

239

119

69

84

314

384

40

49

a

345 g

9

-

FSGB

82d

19

2

36

5

Investment United income Way

133

28

Fees

CFSNH

290

a

CAFS

CFS

108

134

a

31

CFCS

18

93

90

125

BCSA

Private con tributions

ADMB

United Way

Agency

1960

Table 3. Private sources of revenue, by agency (in thousands)

CFS 19

-

12

n.a.

WH

41

11

-

16

-

-

n.a.

n.a.

c

-

n.a.

n.a.

48

0

-

n.a.

5

44

39

c

-

7

3

5

0

2

6

-

7

21

23

15

16 16

14

6

6

-

23

5 9

-

n.a.

11 25

1

n.a.

21 b

6 9

40

16f

1

Investment income

8

9

1

12

i

3

3

Fees

24

22

20

9

n.a.

-

33

13

31

23

33

5

3

Private contributions

1980

a. FY 1966. b. FY 1969. c. St. Mary's Home does not receive funds from the United Way; instead it receives a small subsidy from the Episcopal Church of Rhode Island ($20,000 in 1980). d. Figure includes private contributions and United Way allocation. e. FY 1975. f. In the early 1970s the Family Counseling Service of Cambridge merged with Avon Home, substantially increasing its endowment. g. Includes service fees which are reimbursed in part by government and client fees. h. Client fees. i. With the rise in public funding client fees were often reimbursed by government, so CAFS dropped client fees as a separate category in their financial reporting.

50

WCFS

c

9b

SMHC

22

6 5b

37 26

-

n.a.

12

MSPCC

NEHLW

e

JBGC

8 63

3

1

19

19 33

52

4

12

11 19

5

1 18

47

12

7

12

7

1 h

18

1

4

Investment United income Way

16

Fees

23

13

17

6

6

13

ll

19

4

40d

13

3

7

3

43

d

65

a

a

a

37

41 g

13

1970 Private contributions

FSGB

CFSNH

a

16

CAFS

48

18

4

-

63

9

CFCS

34

19

3

18

BCSA

Investment United income Way

5

13

13

63

ADMB

Fees

19

Private contributions

United Way

Agency

1960

Table 4. Nongovernmental revenue as a percentage of total revenue, by agency

2,825 1,276

152 2,469

-

2,071 1,051

403

-

Prospect House (PH)

Shortstop (SHSP)

a. ccce declared bankruptcy in 1987. b. 1987.

Youth Opportunities Upheld, Inc. (YOU)

Worcester Area Association of Retarded Citizens (WAARC) 995

1,865

176

502

1,936

3,642

3,291 1,655

230

1,125 176

683

1,185

-

693

-

-

Minute Man Association of Retarded Citizens (MMARC)

5,138

.4,507 4,069

3,372

3,344

671

546 624

4,003

Key Program (KEY)

537

489

Jobs for Youth-Boston, Inc. (JFY)

609

3,167

2,168

2,827

688

2,591

583 2,713

3,255

1,780

3,252

2,799

1,125

-

-

-

1,121

4,246

4,545

-

5,717

-

4,410

5,096

3,700

1,486

The Harbor Schools (THS)

Franklin Community Action Corporation (FCAC)

Ecumenical Social Action Committee (ESAC)

DARE

4,820

3,972 4,579

3,299

2,863

Coastal Community Counseling Center (CCCC)

417

324

1985

2,968

2,155

Center for Human Development (CHD)

-

-

1984

2,896

-

-

Concilio Hispano de Cambridge (CHC)

1983

1982

2,245

1981

1980

Agency

Table 5. Government-sponsored and new community agencies: total revenues, 1980-1988 (in thousands of dollars)

2,672

6,163

350

3,684

1,408b

8,908

88gb

4,635

5,116

855

5,588

9,471

730

1988

Tables

241

Table 6. Revenue from private sources, traditional agencies (in thousands of

dollars) 1980 Agency

United Way

ADMB

306

BCSA

180

CFCS

106

CAFS

362

CFS

266

Endowmentsb

Total revenue

28

n.a.

1,740

72

7,600

2,640

28

1,727

877

9,195

3,938

Investments

Client fees

20

18

84

460

71

140

489

1,582

Contributions

10

148

73

d

2,120

e

1,311

CFSNH

169

71

193

72

3,717

764

FSGB

841

274

801

184

10,391

3,420

FHf

180

134

24

0

693

371

4,025

4,000

48

JBCC MSPCC

278

NEHLW SMHC WCFS

WH

32

240

561

707

11,540

4,371

417

503

9,719

3,279

66

169

41

2,108

744

18

139

13

1,761

646

15

19

n.a.

244

a. A large percentage of client fees is from Medicaid, the public health insurance for the indigent. b. Market value.

242

Tables

(continued).

Table 6

1988

Agency

United Way

Contributions

Investmen ts

Client fees 3

ADMBc

Endowments b

Total revenue

710

40

21

144

31

4,175

BCSA

375

200

648

111

10,890

5,685

CFCS

309

165

200

79

3,173

1,459

CAFS

643

903

2,479

16,468

7,767

CFS

268

87

288

CFSNH FSGB FHc

MSPCC

237

390

469

5,608

1,862

557

778

1,720

11,725

6,807

255

80

73

0

1,199

742

3,958

5,368

1,019

SMHC WCFS WH

804

281

NEHLW

c

n.a.

1,499

JBCC c

151

82

69

337

565

1,031

18,895

6,140

1,865

812

11,908

10,639

153

190

69

n.a.

1,309

202

178

159

2,713

691

n.a.

n.a.

n.a.

570

c. 1987. d. 1979. e. 1977. f. Friendly House, Worcester, Mass., established in 1922.

Tables

243

Table 7. Government funding trends, government-sponsored and new community agencies, 1980-1988 1985

1980

Agency

Gov't. funding (ODD's)

Percent of total revenues

CHC CHD CCCC

2,147

99

2,245 a

DARE

5,553

ESAC

787

FCAC THS

JFY

Gov't. funding (ODD's)

1988 Percent of total revenues

Gov't. funding (ODD's)

Percent of total revenues

382

92

687

94

4,628

99

9,243

99

100

5,096

100

d

97

4,113

97

5,538

99

70

441

64

590

69

2,799

a

100

3,144

99

5,082

99

1,125

b

100

2,827

100

4,545

98

345

64

188

28

313

36

4,003

100

5,138

100

8,908

100

MMARC

562

81

929

78

1,086

77

PH

231

89

843

75

3,208

87

214

93

347

99

KEY

SHSP WAARC

YOU

1,353

73

2,709

74

4,906

80

892

90

1,748

90

2,381

89

a. 1981. b. 1979. c. Agency was not in existence. d. CCCC declared bankruptcy in 1987.

286

1,297

C..FSNH

FSGB

175

WH

72

67

69

50

13

(15)

(98)

363

355

300

152

714

2,631

2,377

60

23

53

45

43

65

61

35

° 19

36

53

72

70

93

42

192

1,114

(426)

56

2

(435)

n.a.

19

441

20

(139)

(45)

(Deficit) Surplus

12

-

d

80

52

53

77

65

32

26

1

34

48

82

1,045

5,538

3,247

4,079

781

2,145

483

7

2,627

703

77

·78

3,254c 4,374

Percent of total revenues

Gov't. funding

1988

a. Government funding figures exclude Medicaid reimbursement, which is reported as fee income on agency financial statements. Consequently government funding figures understate the dependence of these agencies on government funds. b.1979. c. 1987. d. Specific information is unavailable but general level remains the same.

744

441

SMHC

WCFS

2,760

NEHLW

51

2,220

MSPCC

3,440

626

358

-

48

81

330

3,254

FH

JBCC

1,783

° 321

2,080

542

2,957

1,825

(208)

(30)

n.a.

343

7

(27)

82

38

37

39

CAFS

59

64

CFCS

68

843b

520

BCSA

77

1,521

1,800

ADMB

CFS

1,339

Agency

Percent of total revenues

Gov't. funding

Percent of total revenues (Deficit) Surplus

1985

1980

Government funding trends, traditional agencies, 1980-1988a

Gov't. funding

Table 8.

11

(146)

(148)

2,462

(946)

(290)

(11)

(500)

n.a.

39

1,087

29

(196)

70

(Deficit) Surplus

Notes

1. Contracting for Services

1. Alexis de Tocqueville, Democracy in America, 2 vols. (New York: Bantam Books, 1965); Robert N. Bellah et aI., Habits of the Heart: Individualism and Commitment in American Life (New York: Harper and Row, 1985); Samuel P. Huntington, American Politics: The Promise ofDisharmony (Cambridge, Mass.: Harvard University Press, 1985). Not all voluntary associations are incorporated as nonprofit agencies, but virtually all that provide services to government under contract are so incorporated. Because so many voluntary associations are nonprofits we use the terms interchangeably in the following discussion, while making some relevant distinctions in later chapters. 2. Karin E. MaIm and Penelope L. Maza, Sources ofAgency Income (Washington, D.C.: Child Welfare League of America, 1988), p. 3. 3. Social Policy Research Group (henceforth SPRG) , No Substitute for Reform (Boston: SPRG, 1991), p. 15. 4. Greater Triangle Community Foundation (henceforth GTCF), Philanthropy in the Triangle (Research Triangle Park, N.C.: GTCF, 1991), p. 14. 5. This 1989 survey included all categories of nonprofits, from museums to social welfare agencies. SeeJulian Wolpert, Philanthropy in the New York Region: Its Accomplishments, Shortcomings, and Challenges, 1979-89 (New York: New York Regional Association of Grantmakers, 1989), p. 26. 6. Massachusetts Council of Human Service Providers (henceforth MCHSP), Confronting Effectiveness: Social Investment in Massachusetts (Boston: MCHSP, 1988), pp. iii, 1; Massachusetts Senate Ways and Means, Purchase of Service: Protecting the Promise of Community Based Care (Boston: Senate Ways and Means, 1986), pp. 3,5. 7. Interface, Public Contracts for Human Services (Interface: New York, 1986), pp. 12-13. 8. For an excellent collection of articles on the development of purchaseof-service contracting, see Harold W. Demone, Jr. and Margaret Gibelman, eds., Services for Sale: Purchasing Health and Human Services (New Brunswick, NJ.: Rutgers University Press, 1989). 9. Gabriel Rudney, "The Scope and Dimensions of Nonprofit Activity," in

246

10. 11. 12.

13. 14. 15.

16.

17. 18.

19. 20. 21. 22.

23. 24. 25. 26. 27. 28.

29.

30.

Notes to Pages 6-9 The Nonprofit Sector: A Research Handbook, ed. Walter W. Powell (New Haven: Yale University Press, 1987), pp. 56, 61. MCHSP, Confronting Fjfectiveness, p. 6. SPRG, Inc., No Substitute for Reform, p. 13. A 1988 study estimated that the state directly employed 32,064 people in human services compared to approximately 48,000 in private, nonprofit agencies receiving government funds. MCHSP, p. 10. David Gallagher, Short Staffed! The Personnel Crisis at New York City's Voluntary Human Service Agencies (New York: Interface, 1987), p. ii. Metropolitan Association for Philanthropy and United Way of Greater St. Louis, Philanthropy in Greater St. Louis (St. Louis: 1986), p. 6. Sample size was 366 agencies. See National Association of Community Action Agencies (henceforth NACAA) , A Description of Community Action Agency operations in Fiscal Year 1984 (Washington, D.C.: NACAA, 1985), p.26. Avner Ben-Ner and Theresa Van Hoomissen, 'The Growth of the Nonprofit Sector in the 1980s: Facts and Interpretations," Nonprofit Management and Leadership, 1,2 (Winter 1990): 106. Philanthropy in Greater St. Louis, p. 6. Virginia Ann Hodgkinson and Murray S. Weitzman, Dimensions of the Independent Sector: A Statistical Profile, 3rd ed. (Washington, D.C.: Independent Sector, 1989), p. 60. Family Service America (henceforth FSA) , Fact Sheet (Milwaukee: FSA, 1989), unpaginated. Department of Health and Human Services (henceforth DHHS) , Project Head Start Statistical Fact Sheet (Washington, D.C.: DHHS, 1989), p. 2. Cyril O. Howe, Governing Boards: Their Nature and Nurture (San Francisco: Jossey-Bass, 1989), p. 195. Hodgkinson and Weitzman, Dimensions of the Independent Sector, p. 177. Philanthropy in Greater St. Louis, p. 6. NACAA, A Description, p. 26. Christopher Jencks, "Who Gives to What," in Powell, ed., The Nonprofit Sector, p. 322. New England Home for Little Wanderers, Newsletter, Spring 1989. Ibid. United Way of America, 1988 Local United Way Fund Distribution Results by Agent)', by Program: Metro I-VIII (Alexandria, Va.: United Way of America, 1990), pp. 42, 45. Catholic Charities U.S.A., A Mosaic of Services: Summary ofAgent)' Services and Activities for 1987 (Washington, D.C.: Catholic Charities, 1988), unpaginated. DHHS, Project Head Start, p. 2.

Notes to Pages 9-15

247

31. FSA, Fact Sheet. 32. Interface, Public Contracts, p. 16. 33. National Association of State Mental Health Program Directors (henceforth NASMHPD), The 1985 Dimensions of the Service System Administered by State Government Mental Health Agencies (Washington, D.C.: NASMHPD, 1985). 34. More Than Shelter: A Community Response to Homelessness (Boston: United Community Planning Corporation and Massachusetts Association for Mental Health, 1983). 35. Physician's Task Force on Hunger in America, Harvard University School of Public Health, Hunger in America: The Growing Epidemic (Boston: 1985); Michael Lipsky and Marc A. Thibodeau, "Feeding the Hungry with Surplus Commodities," Political Science Quarterly, 103, 2 (Summer 1988): 223-244. 36. For example, see the cases developed by the Harvard University Kennedy School of Government: "Bailey House" (Case Program #Cl6-89923.0); 'The Shanti Residence Program" (Cl6-89-922.0); "No Place Like Home: Providing Home Care for New York's Medicaid Patients with AIDS" (Cl6-89-925.0). See also Susan Chambre, "Volunteers as Witnesses: The Mobilization of AIDS Volunteers in New York City, 19811988," Social Service Review, 65, 4 (December 1991): 540. 37. Robert H. Bremner, American Philanthropy (Chicago: University of Chicago Press, 1960), p. 155. 38. Barbara Wishnov Tanzer, Purchase of Service: Can State Government Gain Control? (Boston: Massachusetts Taxpayers Foundation, 1980). 39. See Michael Lipsky, Street-Level Bureaucracy (New York: Russell Sage Foundation, 1980). 40. Lord Beveridge, quoted by T. H. Marshall, ''Voluntary Action," in Class, Citizenship and Social Development: Essays by T. H. Marshall (Chicago: University of Chicago Press, 1963), p. 347. 41. Marshall, Class, p. 348. 42. Gifford Pinchot, quoted in Ellen Waring, "Private Charities and the Development of New Deal Social Welfare Programs" (paper presented to the 83rd meeting of the American Political Science Association, Chicago, September 1987), p. 8. 43. Michael Walzer, "Socializing the Welfare State," in Democracy and the Welfare State, ed. Amy Gutmann (Princeton: Princeton University Press, 1988), p. 13. See also Alva Myrdal, Nation and Family: The Swedish Experiment in Democratic Family and Population Policy (New York: Harper and Brothers, 1941). She noted: "What is needed in social policy is less interest in philosophizing about power over production, which is a complicated problem, and more interest in increasing control from the

248

44. 45. 46.

47.

48.

49.

50.

51.

52. 53.

54. 55.

Notes to Pages 16-19 consumption side, which is a comparatively easy task for social engineering" (p. 151). Myrdal, Nation and Family, p. 152. Harold L. Wilensky and Charles N. Lebeaux, Industrial Society and Social Welfare (New York: Free Press, 1965), p. xii. Ibid., pp. xii-xxv. This convergence argument is also put forth in Harold L. Wilensky, The Welfare State and Equality: Structural and Ideological Roots of Public Expenditures (Berkeley: University of California Press, 1975). Bernard Cazes, "A Double Bind," in Organization for Economic Cooperation and Development (henceforth OECD) , The Welfare State in Crisis (Paris: OECD, 1981), p. 151 as quoted by Massimo Paci, "Long Waves in the Development of Welfare Systems," in Changing Boundaries of the Political, ed. Charles Maier (Cambridge: Cambridge University Press, 1987), p. 179. Walzer, "Socializing the Welfare State," pp. 13--17. See also Lipsky, StreetLevel Bureaucracy; Morris Janowitz, Social Control of the Welfare State (Chicago: University of Chicago Press, 1976), esp. pp. 12&-133; David Donnison, "The Progressive Potential of Privatisation," in Privatisation of the Welfare State, ed. Julian Le Grand and Ray Robinson (London: Allen and Unwin, 1984), pp. 45-57. See Laurence E. Lynn and Steven Rathgeb Smith, Dependency and Democracy: Public Policy toward the Chronic Mentally III (forthcoming), chaps. 10-11. Steven Rathgeb Smith and Deborah A. Stone, 'The Unexpected Consequences of Privatization," in Remaking the Welfare State, ed. Michael K Brown (Philadelphia: Temple University Press, 1988), p. 236. Neil Gilbert, "The Transformation of Social Services," Social Service Review, 51, 4 (December 1977): 629-641. See also Margaret Gibelman, 'Title XX Purchase of Service: Some Speculations about Service Provisions to the Poor," The Urban and Social Change Review, 13, 2 (Summer 1980): 9. Nathan Glazer, "The Self-Service Society," The Public Interest, 70 (Winter 1983): 66-90. Peter L. Berger and Richard John Neuhaus, To Empower People: The Rnle of Mediating Structures in Public Policy (Washington, D.C.: American Enterprise Institute, 1977), pp. 40-45. Robert B. Reich, The Next American Frontier (Middlesex: Penguin Books, 1984), pp. 218-219. Exceptions include Jennifer Wolch, The Shadow State (New York: The Foundation Center, 1990); Christopher Hood, The Hidden Public Sector: The World of Para-Government Organisations (Glasgow, University of

Notes to Pages 19-24

249

Strathclyde, Studies in Public Policy #133); Peter Dobkin Hall, "A Historical Overview of the Private Nonprofit Sector," in Powell, ed., The Nonprofit Sector, pp. 3-26; Lester M. Salamon, "Partners in Public Service: The Scope and Theory of Government-Nonprofit Relations," in The Nonprofit Sector, pp. 99-117; David Harrington Watt, "United States: Cultural Challenges to the Voluntary Sector," in Between States and Markets: The Voluntary Sector in Comparative Perspective, ed. Robert Wuthnow (Princeton: Princeton University Press, 1991), pp. 243-287; Ralph M. Kramer, Voluntary Agencies in the Welfare State (Berkeley: University of <:;;alifornia Press, 1981). More generally, see Hugh Heclo, "Frontiers of Social Policy in Europe and America," Policy Sciences, 6 (1975): 403-421; Paci, ''Long Waves," in Maier, ed., Changing Boundaries. 2. Nonprofit Organizations and Community

1. E. S. Savas, Privatizing the Public Sector (Chatham, NJ.: Chatham House, 1981), p. 168; Anthony King, "Ideas, Institutions and the Policies of Governments: A Comparative Analysis: Parts I, II, and III," BritishJournal of Political Science, 3 (1973): 291-313, 409-423. 2. Martin Rein and Lee Rainwater, eds., Public/Private Interplay in Social Protection: A Comparative Study (Armonk, N.Y: M.E. Sharpe, 1986). 3. NormanJohnson, "Problems for the Mixed Economy of Welfare," Needs and Welfare, ed. Alan Ware and Robert E. Goodin (London: Sage, 1990), pp. 145-164. 4. Richard Titmuss, "The Social Division of Welfare," in Essays on the Welfare State (London: Allen and Unwin, 1958), chap. 2. 5. Martin Rein, 'The Social Policy of the Firm," Policy Sciences, 14 (1982): 120. 6. Bellah et aI., Habits of the Heart, p. 333. 7. Matthew Crenson, Neighborhood Politics (Cambridge, Mass.: Harvard University Press, 1983), chap. 3. 8. The willingness to donate time and money is an important characteristic of community organizations distinguishing them from organizations based on self-interest. For more on the latter organizations see Mancur Olson, The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1965). 9. This distinction is important because communal provision, as Michael Walzer notes, can be either general or particular. General provision would be homeless shelters that served everyone in a city, whereas a shelter for a neighborhood or a specific religious group would be par-

250

10.

11.

12. 13.

14.

15. 16. 17. 18.

19.

20. 21.

Notes to Pages 24-28 ticular. As we describe in Chapter 6, nonprofit service organizations, with some notable exceptions, tend to be characterized by particularistic, communal provision. Walzer, Spheres ofJustice (New York: Basic Books, 1983), pp. 65-66. Burton Weisbrod, The Nonprofit Economy (Cambridge, Mass.: Harvard University Press, 1989), p. 10. Nonprofit service organizations are tax-exempt under 501 (c) (3) section of the U.S. Internal Revenue Code. This distinction is discussed by Walzer, Spheres ofJustice, especially chapters 1-3. Walzer's arguments are reviewed by William A. Galston, Liberal Purposes: Goods, Virtues and Diversity in the Liberal State (Cambridge: Cambridge University Press, 1991), p. 44. Interview with Jack Preiss, president, Durham Housing Authority, April 1991. Some of the greatest controversies relating to communities occur when nonprofit organizations are found to be unrepresentative of the communities to which they lay claim. In this vein, G. William Domhoff argues that many community organizations are really elite entities that facilitate and promote upper class social dominance. See G. William Domhoff, l'Vho Really Rules? New Haven and Community Power Reexamined (New Brunswick, N.J.: Transaction Books, 1978). See Jurgen Habermas, The Legitimation Crisis (Boston: Beacon Press, 1975); Claus Offe, The Contradictions of the Welfare State (Cambridge, Mass.: The MIT Press, 1984), pp. 179-206. Berger and Neuhaus, To Empower People; Robert A. Nisbet, Community and Power (New York: Oxford University Press, 1962). See Jack E. Meyer, ed., Meeting Human Needs: Toward a New Social Philosophy (Washington, D.C.: American Enterprise Institute, 1982). Glazer, 'The Self-Service Society." Alexis de Tocqueville, "Of the Use Which Americans Make of Public Associations in Civil Life," in Democracy in America, ed. Richard D. Heffner (New York: New American Library, 1956), pp. 198-202. See also David L. Sills, ''Voluntary Associations: Sociological Aspects," in International Encyclopedia of the Social Sciences, ed. David L. Sills (New York: Macmillan, 1968), XVI, p. 376. See Burton Weisbrod, The Nonprofit Economy, chap. 2; Anthony Downs, ''Why the Government Budget Is Too Small in a Democracy," World Politics, 12, 4 (July 1960): 540-563. James, 'The Nonprofit Sector in Comparative Perspective," in The Nonprofit Sector, pp. 397-415. Henry B. Hansmann, "The Role of the Nonprofit Enterprise," Yale Law Journal, 89 (1980): 835-901.

Notes to Pages 28-34

251

22. Susan Rose-Ackerman, "Introduction," in The Economics of Nonprofit Institutions, ed. Susan Rose-Ackerman (New York: Oxford University Press, 1986), pp. 5-7. 23. Hansmann, 'The Role of the Nonprofit Enterprise." 24. Nonprofit service organizations are typically dedicated to a specific mission such as residential care for children or employment service for the blind. However, they may depart from their mission in practice. For instance, they may only serve a specific segment of their total potential client population. See Robert Scott, "Selection of Clients in Social Welfare Agencies," Social Problems, 14, 13 (Winter 1967): 248-257. 25. For a good review of the economic theories of nonprofit organizations, see Robert Sugden, ''Voluntary Organisations and the Welfare State," in Le Grand and Robinson, eds., Privatisation and the Welfare State, pp. 7089. See also Alan Ware, Between Market and State (Princeton: Princeton University Press, 1990). 26. Salamon, "Partners in Public Service," pp. 99-117. 27. Theodore Marmor et al. argue that in health care the growth of demand and supply in the post-World War II period stimulated the re-emergence of proprietary health care companies because of the enhanced opportunity to make a profit. See Theodore Marmor, Mark Schlesinger, and Richard W. Smithey, "Nonprofit Organizations and Health Care," in The Nonprofit Sector, pp. 221-239. 28. Mentor, Inc., a large multistate child welfare agency, changed from a nonprofit organization to a for-profit organization during the mid1980s. Some home health agencies and hospices have also changed from nonprofit to for-profit. 29. See also ReidJ. Lifset, "Cash Cows or Sacred Cows: The Politics of the Commercialization Movement, " in Future ofthe Nonprofit Sector: Challenges, Changes and Policy Considerations, Virginia A. Hodgkinson and Richard W. Lyman and Associates, eds. (San Francisco: Jossey-Bass, 1989), pp. 140-167. 30. James Q. Wilson, Political Organizations (New York: Basic Books, 1973), esp. chap. 3. 31. Walter Dean Burnham, "The Changing Shape of the American Political Universe," American Political Science Review, 59, 1 (March 1965): 7-28. 32. See also Judith Manfredo Legorreta and Dennis R. Young, ''Why Organizations Turn Nonprofit: Lessons from Case Studies," in Rose-Ackerman, ed., 1M Economics of Nonprofit Institutions, pp. 196-204. 33. Christoph Badelt suggests that the nonprofit organizations represent an "institutional choice" based upon presenting costs and benefits. His article is also a fine review of the economic theories of nonprofits. See

252

34. 35. 36.

37. 38.

Notes to Pages 34-40 Christoph Badelt, "Institutional Choice and the Nonprofit Sector," in The Third Sector: Comparative Studies ofNonprofit Organizations, edt Helmut K. Anheier and Wolfgang Seibel (Berlin: Walter de Gruyter, 1990), pp.53-63. James, "The Nonprofit Sector in Comparative Perspective," p. 408. Hall, "A Historical Overview," pp. 7-8. In her comparative research on the role of nonprofit organizations, Estelle James argues that religious entrepreneurship and cultural and ethnic heterogeneity are key factors in examining the origins of nonprofit sector. We might add, however, that in the United States in the last 30 years secular entrepreneurs with no particular religious affiliation have been equally crucial to the development of nonprofit service agencies. These entrepreneurs have been public sector employees, social reformers, and nonprofit staff. Many of these entrepreneurs were part of the social movements of the sixties and seventies, including the civil rights and feminist movements. See James, "The Nonprofit Sector in Comparative Perspective," pp. 397-415. Hall, "A Historical Overview," p. 9. See Gerald E. Frug, "The City as a Legal Concept," Harvard Law Review, 93,6 (April 1980): 1058-1153; John P. Davis, Corporations.' A Study of the Origin and Development of Great Business Combinations and Their Relation to the Authority oftke State (New York: G. P. Putnam's Sons, 1905), esp. vol.

2. 39. Harvard University Kennedy School of Government, Contracting for Human Services (B) (Cambridge, Mass.: Kennedy School of Government Case Program, 1979), p. 42. 40. Anheier and Seibel also suggest that the character of a country's nonprofit sector is shaped by a country's overall welfare state policies. ''The Third Sector in_ Comparative Perspective: Four Propositions," in The Third Sector, pp. 380-387. 41. Gosta Esping-Anderson, The Three Worlds ofWelfare Capitalism (Princeton: Princeton University Press, 1990), pp. 26-27. 42. See Henry B. Hansmann, "Unfair Competition and the Unrelated Business Income Tax," Virginia Law Review, 75,3 (April 1989): 605-635. 43. Jerome G. Miller, Last One Over the Wall.' The Massachusetts Experiment in Closing Reform Schools (Columbus, Ohio: Ohio State University Press, 1991), p. 187. 44. For a very useful typology which elaborates upon our category of community-based organizations, see Gabriel Chanan, Taken for Granted.' Community Activity and the Crisis of the Voluntary Sector (London: The Community Development Foundation, 1991), pp. 8-9.

Notes to Pages 43-48

253

Introduction to Part II 1. Stephen Krasner, "Structural Causes and Regime Consequences: Regimes as Intervening Variables," International Organization, 36, 2 (1982): 185. See, generally, pp. 185-205, and all of vol. 36, no. 2. See also Richard R. Nelson, The Moon and the Ghetto (New York: Norton, 1977), pp. 81-104; Clarence N. Stone, "Urban Regimes and the Capacity to Govern: A Political Economy Approach," paper presented at the 1991 annual meeting of the American Political Science Association, Washington, D.C. 3. The Political Economy ofNonprofit Revenues 1. Salamon, "Partners in Public Service," pp. 100-101; Kramer, Voluntary Agencies in the Welfare State, pp. 57-76. 2. Many of these agencies also received contracts from other state agencies, noncontract funds from the Department of Social Services and federal and local government funds. 3. For more information on these agencies see Steven Rathgeb Smith, "Government, Nonprofit Agencies and the Welfare State" (Ph.D. diss., Cambridge, Mass.: Massachusetts Institute of Technology, 1988), chap. 4. While this chapter draws upon New England and particularly the Massachusetts experience, our reading of the secondary literature and interviews in many other states gives us confidence that our findings apply more broadly. 4. William H. Williams, America's First Hospital: The Pennsylvania Hospital, 1751-1841 (Wayne, Penn.: Haverford House, 1976); William Logie Russell, The New York Hospital: A History of the Psychiatric Service, 1771-1936 (New York: Arno Press, 1973); Paul Starr, The Social Transformation of American Medicine (New York: Basic Books, 1982), pp. 147-152; Rosemary Stevens, '''A Poor Sort of Memory': Voluntary Hospitals and Government Before the Depression," Milbank MemorialFund Quarterly, 60, 4 (Fall 1982): 553. 5. Gerald N. Grob, Mental Institutions-in America (New York: Free Press, 1973), pp. 51-64. 6. For a discussion of the antebellum period and the establishment of ,nonprofit organizations, see Hall, "A Historical Overview," pp. 3-8. 7. David W. Young, "Referral and Placement in Child Care: The New York City Purchase-of-Service System," Public Policy, 22, 3 (Summer 1974): 299-300. 8. Rates governing state payment to private agencies varied greatly across

254

9.

10.

11.

12.

13. 14.

15. 16. 17. 18. 19.

20.

21.

22.

Notes to Pages 48-49 the country in their adequacy. Generally, though, the rates rarely covered the full cost of care or service provided by a nonprofit agency. Indirect subsidies occurred through the payments of pension benefits to veterans and their widows who resided in private homes and facilities. For a fuller discussion see Ann Shola Orloff, "The Political Origins of America's Belated Welfare State," in The Politics of Social Policy in the United States, ed. Margaret Weir, Ann Shola Orloff, and Theda Skocpol (Princeton: Princeton University Press, 1988), pp. 45-52. This distinction is explored byJoel F. Handler and EllenJ. Hollingworth, The Deserving Poor: A Study in Welfare Administration (New York: Academic Press, 1971). For more discussion of indoor and outdoor relief during the 1800s see Michael B. Katz, In the Shadow of the Poorhouse (New York: Basic Books, 1986), chaps. 1-4; Jill S. Quadagno, "From Poor Laws to Pensions: The Economic Support for the Aged in England and America," Milbank Memorial Fund Quarterly, 62, 3 (1984): 429-434. Dr. James W. Welk, as quoted by Edith Abbott, Public Assistance: American Principles and Policies (Chicago: University of Chicago Press, 1940), II, p.520. Many nonprofit leaders even opposed public aid efforts in response to the Great Depression. See Abbott, Public Assistance, pp. 509-532. Frank A. Fetter, "The Subsidizing of Private Charities," AmericanJournal of Sociology, 7,3 (1901): 368. See also Amos G. Warner et aI., American Charities and Social Worn, 4th ed. (New York: Thomas Y Crowell, 1930), pp. 181-195. Fetter, "The Subsidizing of Private Charities," p. 385. Abraham Fleischer, "State Money and Privately Managed Charities," The Survey, 33 (31 October 1914): 110. Ibid. Ibid. Warner, American Charities, p. 187. Data from 1929 are consistent with earlier surveys. See Arlien Johnson, Public Policy and Private Charities (Chicago: University of Chicago Press, 1931), pp. 43-44. Stevens, "A Poor Sort of Memory," p. 561. See also David Rosner, "Gaining Control: Reform, Reimbursement and Politics in New York's Community Hospitals, 1890-1915," American Journal of Public Health, 70, 5 (May 1980): 533-542. Johnson, Public Policy and Private Charities, esp. chaps. 5-9. Also see James Brown, The History ofPublic Assistance in Chicago, 1833 to 1893 (Chicago: University of Chicago Press, 1931), esp. chap. 10. In 1893, for example, 15,000 of the 18,900 children in need of care were

Notes to Pages 49-51

23.

24. 25.

26.

27.

28.

255

cared for in private voluntary agencies receiving public funds. These agencies received 79 percent of their income from New York City. See Warner, American Charities, pp. 192-193. Robert A. Woods and AlbertJ. Kennedy, The Settlement Horizon: A National Estimate (New York: Russell Sage Foundation, 1922), p. 363. None of the other major accounts of the period even mention public funding of settlement houses. See Jane Addams, Twenty Years at Hull-House (New York: New American Library, 1910); Lillian D. Wald, The House on Henry Street (New York: Henry Holt, 1915); Robert A. Woods et al., The Poor in Great Cities: Their Problems and What Is Doing to Solve Them (New York: Charles Scribner's Sons, 1895); Edmund Wilson, "Hull-House in 1932," in his The American Earthquake (Garden City, N.Y.: Doubleday, 1958), pp. 447-464. See also, Clarke A. Chambers, Seedtime of Reform: American Social Service and Social Action, 1918-1933 (Minneapolis: University of Minnesota Press, 1963), esp. chap. 6. Johnson, "Public Policy and Private Charities," p. 39. See also Fleisher, "State Money," pp. 111-112. Paul Stuart, "Financing Settlements: Fund Raising and Program Innovation in Five Twentieth Century Settlement Houses," unpublished, April 1990, p. 13. Ida C. Merriam, "Social Welfare in the United States, 1934-54," Social Security Bulletin (October 1955), reprinted in Anne Kallman Bixby, "Commentary: Measuring Expenditures for Social Welfare Programs," Social Security Bulletin 51, 6 Gune 1988): 25. In the 1950s government funding of nonprofit agencies played a relatively minor role in overall public and private spending on social services, as indicated in the landmark work on social policy, Harold L. Wilensky and Charles N. Lebeaux, Industrial Society and Social Welfare, originally published in 1958 (New York: The Free Press). In Chapter 7 (''Welfare Auspices and Expenditures") the authors discuss public and private expenditures for social services but do not even mention government funding of nonprofit organizations. Indeed, they discuss the principal differences between the public and private sectors. The insignificance of governmental funding for private service organizations is also evident in the well-known study of the Community Chest-the forerunner to the United Way-in Indianapolis:John Seeley, Community Chest: A Case Study ofPhilanthropy (Toronto: University of Toronto Press, 1957), esp. pp. 99-100, 426. United Community Funds and Councils of America Summary Report, Expenditures for Community Health and Welfare, 1960, Bulletin No. 221 (New York: 1963) quoted by Bertram M. Beck, "Government Contracts with

256

29.

30. 31.

32.

33.

34.

35.

36.

Notes to Pages 51-54 Nonprofit Social Welfare Corporations," in The Dilemmas ofAccountability in Modern Government: Independence vs. Control, ed. Bruce L. R. Smith and D. C. Hague (New York: St. Martin's Press, 1971), p. 214. Gladys M. Kammerer, British and American Child Welfare Services: A Comparative Study in Administration (Detroit: Wayne State University Press, 1962), pp. 209-210. Ruth M. Werner, Public Financing of Voluntary Agenl)' Foster Care (New York: Child Welfare League of America, 1961), p. 14. 100 Years of St. Mary's Home for Children (1977), p. 51. Analysis of agency annual reports and financial statements from the 1950s and early 1960s indicates agency losses did not result in executive changes or major shifts in service. See, for example, Seeley, Community Chest, pp. 102-104. Likewise, a 1984 study of 305 social service agencies in Massachusetts found that the median age was only 13 years; a majority of agencies had been founded in the 1960s and 1970s. The study'S findings on agency age distribution suggest that in the 1950s the universe of social service agencies was dominated by traditional agencies of long standing. See William M. Weber, Resource Development for Human Services: The Provider System and the Role of the Executive Office ofHuman Services (Brookline, Mass.: Document Development Inc., 1984), p. 6. We are indebted to Harold W. Demone for his comments on social services in the 1950s. Demand for more service in a variety of areas was building in the 1950s, partly through federal encouragement. For mental health, see Lucy D. Ozarin, "Recent Community Mental Health Legislation-A Brief Review," A mericanJournal ofPublic Health, 52, 3 (March 1962): 436-442. For child abuse services, see BarbaraJ. Nelson, Making an Issue of Child Abuse: Political Agenda-Settingfor Social Problems (Chicago: University of Chicago Press, 1984), pp. 39-47. Richard A. Cloward and Irwin Epstein, "Private Social Welfare's Disengagement from the Poor: The Case of Family Adjustment Agencies," in Social Welfare Institutions: A Sociological Reader, ed. Mayer N. Zald (New York: John Wiley and Sons, 1965), pp. 623-644; Alfred J. Kahn, 'The Social Scene and the Planning of Services for Children," Social Work, 7, 3 (July 1962): 4. See also Andrew Billingsley and Jeanne M. Giovanni, Children of the Storm: Black Children and American Child Welfare (New York: Harcourt Brace Jovanovich, 1972); Dennis R. Young and Stephen J. Finch, Foster Care and Nonprofit Agencies (Lexington, Mass.: Lexington Books, 1977), p. 42. Bruce Jacobs, The Political Economy of Organizational Change: Urban Institutional Response to the War on Poverty (New York: Academic Press, 1981), p.76.

Notes to Pages 54-56

257

37. Peter Marris and Martin Rein, Dilemmas of Social &form: Poverty and Community Action in the United States, 2nd ed. (Chicago: University of Chicago Press, 1982). 38. Public Welfare Amendments of 1962, Report of the Committee of Finance, U.S. Senate, #1589, 87th Congress, 2nd Session, 14June 1962. Wilbur J. Cohen and Robert M. Ball, "Public Welfare Amendments of 1962 and Proposals for Health Insurance for the Aged," Social Security Bulletin, 25, 10 (October 1962): 10; Elizabeth Wickenden, "A Perspective on Social Services: An Essay Review," Social Service &view, 50, 4 (December 1976): 570-585; Martha Derthick, Uncontrollable Spending for Social Services (Washington, D.C.: The Brookings Institution, 1975), pp. 7-10; Mildred Rein, "Social Services as a Work Strategy," Social Service &view, 49, 4 (December 1975): 516-517. 39. Anne Kallman Bixby, "Public Social Welfare Expenditures, Fiscal Year 1988," Social Security Bulletin, 54, 5 (May 1991): 9. 40. Ibid., pp. 12-13. 41. Smith and Stone, "The Unexpected Consequences," p. 236. 42. Derthick, Uncontrollable Spending, p. 8. 43. Touche Ross study, cited in Pacific Consultants, Title XX Purchase of Service: A Description of States' Service Delivery and Management Practices (Berkeley: Pacific Consultants, 1979), preface. 44. Ibid. 45. Bill Benton, Tracey Feild, Rhona Millar, Social Services: Federal Legislation vs. State Implementation (Washington, D.C.: The Urban Institute, 1978), pp. 110-112. See also The Research Group, State Experiences in Social Services Planning (Atlanta: The Research Group, 1976). A study of the trend in government payments to Jewish-sponsored agencies revealed a twenty-fold increase in these payments, from $27 million to $561 million, between 1962 and 1973. During this period, government payments as a proportion of the total income received by Jewish-sponsored agencies rose from 11 percent to 51 percent. Separately, a survey indicated that in 1969-70 in California $1.7 million was used to purchase services from private agencies under Title IV-A and the aid-for-adults categories of the Social Security Act. By 1974-75 more than twice this amount was being spent to purchase service from just the 183 agencies in the San Francisco Bay area affiliated with the United Way. See Gilbert, "The Transformation of Social Services," p. 633. 46. Pacific Consultants, Title XX, p. 23. 47. The Research Group, State Experiences in Social Services Planning, pp. 334, 337. 48. Candace Mueller, as quoted by Peter M. Kettner and Lawrence L. Martin, "Purchase of Service Contracting and the Declining Influence

258

Notes to Pages 56-57

of Social Work," Urban and Social Change Review, 18,2 (Summer 1985): 8. See also Benton et aI., Social Services, p. 110; Pacific Consultants, Title XX, pp. 5, 13; Ruth Hoogland DeHoog, Contracting Out for Human Services: Economic, Political, and Organizational Perspectives (Albany: State University of New York Press, 1984), pp. 43--46; Edward Thomas Weaver, "Implications of Alternative Choices to Purchase or Direct Deliver Selected Title XX Social Services" (Ph.D. diss., School of Public Administration, University of Southern California, 1985), pp. 12-13. 49. Arnold Gurin, Barry Friedman, Natalie Ammareil, and Carole Sureau, Contracting for Service as a Mechanism for the Delivery o.f Human Services: A Study of Contracting Practices in Three Human Service Agencies in Massachusetts (Waltham, Mass.: Heller School, Brandeis University, 1980), p. 137. 50. [!lid., pp. iii, 17. 51. The rapid rise in federal spending on Head Start and other daycare and preschool programs from the early 1960s to the 1970s is noted in Emma Jackson, "The Present System of Publicly Supported Daycare," in Public Policy for Daycare of Young Children, ed. Dennis R. Young and Richard R. Nelson (Lexington, Mass.: Lexington Books, 1973), pp. 21-46. 52. For a good discussion of the sharp increase in the level of contracted alcohol treatment services in California from the mid-1970s to the early 1980s, see Constance Weisner and Robin Room, "Financing and Ideology in Alcohol Treatment," Social Problems, 32, 2 (December 1984): 169-174. 53. The Runaway Youth Act (P.L. 93-45) funded 165 facilities nationwide in 1979-80. They were primarily nonprofit youth agencies, in part because of the regulations governing the distribution of funds. The Act stipulated that "among applicants priority shall be given to private organizations or institutions which have had past experience in dealing with such youth." Quoted in Hugh Lanning, Government and the Voluntary Sector in the USA (London: National Council for Voluntary Organisations, 1981), p. 24. 54. Bixby, "Public Social Welfare Expenditures," p. 9. 55. Project Head Start Statistical Fact Sheet, January 1989, p. 3. 56. Carl A. Taube and Sally A. Barrett, Mental Health, United States 1983 (Washington, D.C.: Department of Health and Human Services, 1983), p.36. 57. For a good discussion of the implications of deinstitutionalization for purchased social services in Massachusetts, see Richard B. Hill, Systematically Thinking About Purchasing Social Services (Boston: Massachusetts Rate Setting Commission, 1982), pp. 10-16. 58. Bixby, "Public Social Welfare Expenditures," p. 10. 59. Bertram M. Beck, 'The Voluntary Social Welfare Agency: A Reassess-

Notes to Pages 57-62

60.

61. 62. 63.

64.

65.

66.

67. 68. 69.

259

ment," Social Service Review, 44, 2 Gune 1970): 147. Also see Alan Pifer, 'The Quasi-Non-Governmental Organisation," in Public Policy and Private Interests, ed. D. C. Hague, W. J. MacKenzie and A. Barker (London: Macmillan, 1975), pp. 381-394. The national association of settlement houses was officially against government funding during the 1950s and early 1960s. Interview with George Eberle, executive director of eNSI, St. Louis, Missouri, 29 May 1990. For an analysis of this issue of autonomy for Jewish social welfare agencies, see Felice Davidson Perlmutter, "Public Funds and Private Agencies," Child Welfare, 50, 5 (May 1971): 264--270. The resistance of sectarian agecies to government funding during the 1960s is noted in F. Ellen Nettig, "Secular and Religious Funding of Church-Related Agencies," Social Service Review, 56,4 (December 1982): 588-589. Robert M. Mulford, MSPCC, Annual Report, 1974, p. 5. This point is also advanced by Derthick, Uncontrollable Spending, p. 44. The exception to this general rule about deficits were the very wealthiest agencies with large endowments. For example, Child and Family Services of Hartford, Connecticut, did not incur deficits in the 1960s or 1970s, but its investment income in 1970 was $818,000, generated from a $7.5 million endowment. This investment income was far greater than that of most traditional agencies of the period. This growth in revenues actually understates the rise in revenues because in 1978 part of the original organization-a rehabilitation program-was split off as a separate organization. The financial records for 1975 are quite sketchy, so the $74,000 is an informed guess based upon selected program documents. A much larger community action program, FCAC in rural Greenfield, Massachusetts, had revenues of $2.477 million in 1981 with all but $15,000 derived from federal, state, and county funds. YO.V., Inc. was a direct beneficiary of the closing of the Massachusetts training schools for delinquent youth. Many other nonprofit agencies received substantial grants to serve these youth as well. For example, the Key Program of Framingham, Massachusetts, was founded in 1973. Its revenues rose from $1.765 million in 1977 to $4.003 million in 1980. Phoenix House, Five Year Report (New York: Phoenix House Foundation, 1972), p. 3. Ibid., p. 16. Michael F. Gutowski and Jeffrey J. Koshel, "Social Services," in The Reagan Experiment, ed.John L. Palmer and Isabel V. Sawhill (Washington, D.C.: The lJrban Institute, 1982), pp. 307-328. See also Lester M. Salamon and Alan J. Abramson, ''The Nonprofit Sector," pp. 219-243;

260

70. 71.

72. 73. 74. 75. 76.

77.

78. 79.

80. 81. 82. 83.

84. 85. 86. 87.

88.

Notes to Pages 62-65

Marc Bendick, Jr., "Employment, Training and Economic Development," pp. 247-369; Judith Feder, John Holahan, Randall R. Bovbjerg, and Jack Hadley, "Health," pp. 271-305, in the same volume. Gutowski and Koshel, "Social Services," pp. 307-328. Committee on Ways and Means, U.S. House of Representatives, 1991 Green Book (Washington, D.C.: Government Printing Office, 1991), p.774. Bixby, "Public Social Welfare Expenditures," pp. 6, 9. Ibid., p. 13. 1991 Green Book, p. 792. MaIm and Maza, Sources of Agent)' Income, pp. 2-3. Family Service America (henceforth FSA) , Selected Programs and Funding Data (Milwaukee: FSA, 1988) as quoted by Margaret Gibelman and Harold W. Demone, Jr., "How Voluntary Agency Networks Fared in the 1980s," Journal of Sociology and Social Welfare, 17, 4 (December 1990): 7. General Accounting Office (henceforth GAO), Homelessness: HUDs and FEMA's Progress in Implementing the McKinney Act (Washington, D.C.: GAO, 1989), p. 12. Ibid., p. 19. Donna Wilson Kirchheimer, "Sheltering the Homeless in New York City: Expansion in an Era of Government Contraction," Political Science Q!tarterly, 104, 4 (1989-90): 608. Some of New York City expenditures were federal funds. The city expenditures were distributed to public and private shelters. Philip Shenon, "The Score on Drugs: It Depends on How You See the Figures," The New York Times, 22 April 1990, p. E6. Dean R. Gerstein and HenrickJ. Harwood, eds., Treating Drug Problems (Washington, D.C.: National Academy Press, 1990), I, pp. 212. Ibid., pp. 212-213. Harold T. Yahr, "A National Comparison of Public and Private-Sector Alcoholism Treatment Delivery System Characteristics," Journal ofStudies on Alcohol, 49, 3 (1988): 235. NIDA/NIAAA, Highlightsfrom the 1987 National Drug and Alcoholism Treatment Unit Survey (NDATUS), 9 February 1989. Gerstein and Harwood, Treating Drug Problems, pp. 216-217. Ibid., pp. 204, 217. See also, "Treating Drug Problems," New England Journal of Medicine, 323, 12 (20 September 1990): 845. B.K. Hill et al., Changes and Closures among Foster Homes and Smaller Group Homes for People with Mental Retardation, Brief No. 30 (Minneapolis: University of Minnesota, 1988), p. 1. A. Y. Webb, Closing Institutions: One State's Experience (Albany: New York

Notes to Pages 65-69

261

State Office of Mental Retardation and Developmental Disabilities, 1988) as quoted by PaulJ. Castellani, "Closing Institutions in New York State: Implementation Lessons," paper delivered at the 1990 annual meeting of the American Political Science Association, San Francisco, California, p. 4. 89. David Braddock et al., The State of the States in Developmental Disabilities (Baltimore: Paul Brookes, 1990), p. 9. 90. Human Services Research Institute (henceforth HSRI) , The Dynamics of Change in Resilkntial Services for People with Developmental Disabilities: An Exploratory Analysis (Boston: HSRI, 1988), p. 60.

91. Ibid., Appendix IV, p. 9. 92. Braddock et al., The State of the States, p. 17. 93. For further discussion of the use of ICF/MR funds by community programs see Valerie J. Bradley, "Mental Disabilities Service: Maintenance of Public Accountability in a Privately Operated System," Changing Government Policies for the Mentally Disabled, ed. Joseph J. Bevilacqua (Cambridge, Mass.: Ballinger, 1981), pp. 193-208. 94. Interview with George Eberle, executive director, Consolidated Neighborhood Services, Inc., 30 May 1990. 95. ESAC not only suffered a decline in federal funds but parts of the organization were split off to form two other separate agencies. 96. The increase in fee income by nonprofit agencies was noted by Lester M. Salamon, "Nonprofit Organizations: The Lost Opportunity," in The Reagan Record, ed. John L. Palmer and Isabel V. Sawhill (Washington, D.C.: The Urban Institute, 1984), p. 281. 97. Bixby, "Public Social Welfare Expenditures," p. 7. 98. Neil Gilbert, The Enabling State: Modem Welfare Capitalism in America (New York: Oxford University Press, 1989), pp. 60-61; GAO, States Use Several Strategies to Cope with Funding Reductions Under Social Services Block Grant, GAO-HRD-84--68 (Washington, D.C.: GAO, 1984), p. 17; Social Policy Research Group, No Substitute, 14--15; Braddock et al., The State of the States, p. 17.

99. The medicalization process has also occurred in services to the elderly. The states' practice of cost-shifting to Medicaid, a prominent trend in the 1980s, is likely to become more difficult as federal officials scurry in the 1990s to reduce escalating Medicaid costs. 100. Interview with Mark Keeley, St. Louis Association of Retarded Citizens, 1990. 101. In constant 1990 dollars, SSI payments went up from $12.5 billion in 1980 to $16.1 billion in 1990. 1991 Green Book, p. 771. 102. SPRG, No Substitute, p. 15.

262

Notes to Pages 69-71

103. Steven L. McMurty, F. Ellen Nettig, Peter M. Kettner, "How Nonprofits Adapt to a Stringent Environment," Nonprofit Management and Leadership, 1,3 (Spring 1991): 248. 104. One recent study concludes that charitable giving adjusted for rising incomes and other factors had actually declined since 1955. Peter Passell, "Charity Begins in Washington," New York Times, 23 January 1991, p. C23. 105. "Recession Starts to Pinch," Chronicle of Philanthropy, May 7, 1991, p. 1; Robert Suro, "Rising Human Need Outstrips Giving," New York Times, 15 December 1991, p. 20. 106. Stephen G. Greene, "1990 Giving: Smallest Increase in 3 Years," Chronicle of Philanthropy, 4 June 1991, p. 21. 107. MaIm and Maza, Sources of Agent)' Income, pp. 3,5. 108. Michael McQueen, "Kind and Gentler? Bush Policies Do Help at One Family Shelter," Wall StreetJoumal, 22July 1991, pp. AI, AlO. Also, Suro, "Rising Human Need," pp. 1,20. 109. SPRG, No Substitute for Reform, p. 15. 110. This agency (YO.U., Inc.) received $142,437 from the United Way, or 5 percent of its total revenues, in fiscal year 1988. 111. Profiles of nonprofit agencies in Chronicle ofPhilanthropy indicated that even agencies with successful fundraising remained substantially dependent on government funds. The City, Inc., a social service agency serving disadvantaged youth in Minneapolis, received 43 percent of its funding from government in 1989. Pikes Peak Mental Health Center in Colorado Springs received 44 percent of its income from state and local contracts. See Holly Hall, "The City, Inc.: Gang Members on the Staff," Chronicle of Philanthropy, 15 January 1991, pp. 6--7; Jennifer Moore, "Pikes Peak: 'Corporate Management'," ibid., pp. 14-15. An earlier profile of a battered women shelter, 1736 Family Crisis Center in Redondo Beach, California, indicated that the agency was dependent upon government funds for 57 percent of its $900,000 operating budget. See Elizabeth Greene, "Shelter for Battered Women and Their Children Allows Them to Put Their Memories into Hiding," Chronicle ofPhilanthropy, 30 October 1990, p. 13. 112. SeeJames, "The Nonprofit Sector in Comparative Perspective," p. 413. 113. See Peter Applebome, "Growing Fiscal Problems Put Squeeze on Social Programs in Many States," New York Times, 4 September 1990, p. A13; Kristin A. Goss, "Bracing for States' Money Woes," Chronicle of Philanthropy, 29 May 1990, pp. 1, 12-14; Kristin A. Goss et al., "State Budgets Squeeze Nonprofits," Chronicle of Philanthropy, 30 July 1991, pp. 1,2427; Elizabeth Neuffer, "Budget Change Leaves DSS Providers Reeling," Boston Globe, 7 July 1991, pp. 17, 19.

Notes to Pages 71-78

263

114. See Paul E. Peterson and Mark Rom, Welfare Magnets: A New Case for National Standards (Washington, D.C.: The Brookings Institution, 1990); David B. Robertson and Dennis R. Judd, The Development of American Public Policy: The Structure of Policy Restraint (Glenview, Ill.: Scott, Foresman, 1989).

4. Guardians of Community 1. Tocqueville, Democracy in America; Robert A. Dahl, A Preface to Democratic Theory (Chicago: University of Chicago Press, 1956). 2. In the sample of 30 agencies we developed in the course of research for this book, 14 agencies were traditional agencies, eight agencies were new organizations founded primarily in response to government funding, and eight agencies were organized by community members, broadly defined. 3. Until the 1960s, the universe of nonprofit agencies was dominated by the traditional agencies. Since the 1960s, the agencies founded in response to government funding and the agencies founded by community leaders have far outstripped the traditional agencies in numerical terms. 4. Nettig, "Secular and Religious Funding," pp. 586-604. Also, Young and Finch, Foster Care, pp. 25-39. 5. Clifford J. Falby, former executive director, New England Home for Little Wanderers, personal interview, 1986. 6. See Werner, Public Financing of Voluntary Agenty Foster Care. 7. Nettig, "Secular and Religious Funding," p. 588. 8. Myles L. Mace, "Designing a Plan for the Ideal Board," Harvard Business Review, 54, 6 (November/December 1976): 22. 9. For an excellent article on the differences between classic philanthropic boards and corporate boards among American hospitals, see Jeffrey A. Alexander, Laura L. Morlock, and Blair D. Gifford, ''The Effects of Corporate Restructuring on Hospital Policymaking," Health Services Research, 23, 2 (June 1988): 317-322. 10. Anonymous interview. 11. The representativeness of these new agency boards was noted by Paul E. Peterson and J. David Greenstone, "Racial Change and Citizen Participation: The Mobilization of Low-Income Communities Through Community Action," in A Decade ofFederal Antipoverty Programs: Achievements, Failures, and Lessons, ed. Robert E. Haveman (New York: Academic Press, 1979), pp. 241-278. 12. Steven Rathgeb Smith and Susan Freinkel, Adjusting the Balance: Federal Policy and Victim Services (Westport, Conn.: Greenwood Press, 1988), chaps. 4 and 6.

264

Notes to Pages 78-87

13. Wolf Wolfensberger calls this Stage One in the development of Associations of Retarded Citizens. See Wolfensberger, The Third Stage in the Evolution of Voluntary Associations for the Mentally Retarded (Toronto: National Institute of Mental Retardation, 1973), p. 5. 14. The rooting of AIDS service organizations in the informal sector is described in Chambre, ''Volunteers as Witness," especially pp. 540-545. For further discussion of informal care, see Martin Bulmer, The Social Basis of Community Care (London: Allen and Unwin, 1987), chap. 6. Also see G. Clare Wenger, The Supportive Network: Coping with Old Age (London: Allen and Unwin, 1984). 15. Mary Ruggie, ''The Paradox of Liberal Intervention: Health Policy and the American Welfare State," AmericanJournal of Sociology, 97, 4 (January 1992): 919-944. 16. Evelyn Z. Brodkin, The False Promise ofAdministrative Reform: Implementing Qllality Control in Welfare (Philadelphia: Temple University Press, 1986). 17. National Commission for Employment Policy (henceforth NCEP) , Evaluation of the Effects ofjTPA Performance Standards on Clients, Services, and Costs (Washington, D.C.: NCEP, 1988).

18. See Robert F. Cole, "Social Reform Frustrated by Bureaucratic Routine: Title XX in Massachusetts," Public Policy, 27, 3 (Summer 1979): 273-299. 19. The increase in regulation can be seen as a response to government's growth in the postwar period. For further discussion see, Lawrence D. Brown, New Policies, New Politics (Washington, "D.C.: The Brookings Institution, 1983). 20. For example, federal job training programs were reorganized in the early 1980s under the JTPA. This act mandates certain performance criteria for service providers responsible for the job training. 21. In the traditional agencies, most executives in the past were hired because they were respected clinicians and possessed some administrative experience, for example, as directors of clinical services. In the community-based agencies, executives were often hired after extensive volunteering in the agency, where, over a period of time, they acquired administrative experience on the job. 22. Regarding this development for staffing in general, see Chapter 5. 23. See Eliot Freidson, Profession of Medicine: A Study of the Sociology ofApplied Knowledge (New York: Dodd, Mead, 1970). 24. Quoted in Smith and Freinkel, Adjusting the Balance, p. 76. 25. Massachusetts Department of Public Health, Division of Family, Health Services, Maternal and Child Health, Requestfor Proposals, Rape Prevention and Victim Services: FY 1985-FY 1986, p. 4, quoted in Smith and Freinkel, Adjusting the Balance, p. 93. 26. Roy Lubove, The Professional Altruist (New York: Atheneum, 1965).

Notes to Pages 89-96

265

27. Harvard University Kennedy School of Government, No Place Like Home, Appendix A, p. 29. 28. Ibid., p. 28. 29. Ibid., p. 17. 30. Wolfensberger, The Third Stage, p. 15. 31. Chanan, Taken for Granted, p. 16. 32. NCEP, Evaluation of the Effects ofJTPA Performance, p. 12. 33. Martin Gaynor, "Incentive Contracting in Mental Health: State and Local Relations," Administration and Policy in Mental Health, 18, 1 (September 1990):33-42; Carl A. Taube and Howard Goldman, "State Strategies to Restructure Psychiatric Hospitals: A Selective Review," Inquiry, 26 (Summer 1989):146-156. 34. Seymour Martin Lipset, "Political Sociology," in Sociology Today (New York: Basic Books, 1959), p. 105. 35. Jorge Luna, personal interview, 1986. 36. Of course, nonprofit executives could not be indifferent to the need to earn a surplus of revenues over expenditures. Many nonprofits relied heavily on fees as a way of generating income. However, before the advent of widespread government funding, agencies were often quite accepting of sizable deficits and were not overly concerned with the need to make a profit. The important goal of the organization was to remain faithful to its mission, even if it meant losing money. In this sense, nonprofit organizations existed outside the market because they were not guided by norms of efficiency and the need to maximize profits. 37. During the 1980s many books were published, seminars held, and graduate management programs created to train nonprofit executives and their staff in the principles of efficient, "business-like" management. 38. Peter C. Lloyd reaches a similar conclusion regarding the influence of state agencies on voluntary agencies in the United Kingdom. See his article, 'The Relationship Between Voluntary Associations and State Agencies in the Provision of Social Services at the Local Level," in Anheier and Seibel, eds., The Third Sector, pp. 241-253. 39. Raymond E. Miles and Charles C. Snow, Organizational Strategy, Structure and Process (New York: McGraw-Hill, 1978); Miriam M. Wood, "The Governing Board's Existential Quandary: An Empirical Analysis of Board Behavior in the Charitable Sector" Yale University, Program on Non-Profit Organizations, working paper #143); James Q. Wilson, Political Organizations, chap. 'io; John H. Barnett, "Non-Profits and the Life Cycle," Evaluation and Program Planning, 11 (1988): 13-20; Ralph M. Kramer, "Change and Continuity in British Voluntary Organisations, 1976-1988," Voluntas, 1, 2 (November 1990): 33-60.

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Notes to Page 96

Organizational development and the conservative tendencies of organizational maturation are addressed in the well-known work by Robert Michels, Political Parties (New York: Free Press, 1962), esp. pp. 333-341. See also Mayer N. Zald and Roberta Ash, "Social Movement Organizations: Growth, Decay and Change," Social Forces, 44, 3 (March 1966): 327-334; John E. Tsouderos, "Organizational Growth," in The Government of Associations: Selections from the Behavioral Sciences, ed. William A. Glaser and David L. Sills (Totowa, N J.: The Bedminster Press, 1966), pp. 242-245. Two articles on organizational growth are worth mentioning in more detail. F. Stuart Chapin and John E. Tsouderos examined the formalization process in voluntary associations. They argue that "the age factor of an association is only a necessary, not a sufficient condition of its structural differentiation and formalization" (p. 344). They also note the "strategic role of the growth of the membership group in the process of formalization." This membership growth was related to the success of the organization in its internal organizational problems associated with growth and to the overall adaptation of the organization to its environment (p. 344). These findings are consistent with our conclusion that government funding precipitated changes and growth in the services of the organization requiring internal formalization that was previously unnecessary. See F. Stuart Chapin and John E. Tsouderos, 'The Formalization Process in Voluntary Associations," Social Forces, 34, 4 (May 1956): 342-344. See also Larry E. Greiner, "Evolution and Revolution as Organizations Grow," Harvard Business Review, 50, 4 (1972): 37--46. Alfred H. Katz studied the development of organizations initially established by parents for children with developmental disabilities, cerebal palsy, emotional illness, and muscular dystrophy in the 1950s. He found, as do we, that as an organization's complexity increases, paid professional staff tend to replace parent volunteers. However, he is more sanguine than we are about volunteers' abilities to retain control over the organization, and more optimistic over the results of potential conflict between professional and lay perspectives. See Alfred H. Katz, Parents of the Handicapped (Springfield, Ill.: Charles C. Thomas, 1961), esp. chap. 8. 40. Wolfensberger concludes that "voluntary associations that operate services [with public funds] almost invariably drift toward professionalization, and professionalization means what the scientists call formalization, and formalization almost inevitably means at least bureaucratization." Wolfensberger, The Third Stage, p. 15. Nelson

Notes to Pages 96-100

267

Rosenbaum, "Government Funding and the Voluntary Sector; Impact and Options," Journal of Voluntary Action Research, 10, 1 Uanuary-March 1981): 83-85. 41. See Chapter 6 for further discussion. 42. Paul DiMaggio and Walter W. Powell, 'The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields," American Sociological Review, 48 (1983): 147-160. 43. James Douglas, "Political Theories of Nonprofit Organization," in The Nonprofit Sector, pp. 43-50; Weisbrod, The Nonprofit Economy, pp. 25-31; Burton A. Weisbrod, "Toward a Theory of the Voluntary Nonprofit Sector in a Three-Sector Economy," in The Voluntary Nonprofit Sector (Lexington, Mass.: Lexington Books, 1977), pp. 51-76.

5. Service Providers 1. Lipsky, Street Level Bureaucracy. 2. See Anthony Downs, Inside Bureaucracy (Boston: Little Brown, 1967), esp. chap. 3. 3. GAO, Foster Care: Incompkte Impkmentation of the Reforms and Unknown Effectiveness (Washington, D.C.: GAO, 1989). 4. NCEP, JTPA Performance Standards: Executive Summary. 5. See James Morone and Andrew B. Dunham, "Slouching Towards National Health Insurance: The New Health Care Politics," Yak Journal of Regulation, 2 (1985): 263-291. 6. During the 1980s states across the country increased their regulation of child protective services. See for example Joann S. Lubin, "States Seek Child Abuse Curbs with an Array of Tough Laws," Wall Street Journal, 9 July 1985, p. 31. 7. Glazer, "A Self-Service Society"; Meyer, Meeting Human Needs. See also Richard R. Nelson and Michael Krashinsky, "Public Control and Economic Organization of Day Care for Young Children," Public Policy, 22, 3 (Summer 1979): 62-65; Susan Rose-Ackerman, "Unintended Consequences: Regulating the Quality of Subsidized Day Care," Journal ofPolicy Analysis and Management, 3, 1 (1983): 14--30. 8. Susan Schechter, Women and Mak Vioknce: The Visions and Struggles of the Battered Women's Movement (Boston: South End Press, 1982), pp. 185202; Lois Ahrens, "Battered Women's Refuges: Feminist Cooperatives vs. Social Service Institutions, Radical America, 14, 3 (May:June 1980): 4147. 9. Giandomenico Majone, "Professionalism and Nonprofit Organizations," Journal of Health Politics, Policy and Law, 8,4 (Winter 1984): 639-659. In

268

10.

11. 12. 13. 14. 15.

16. 17. 18. 19. 20.

21.

22.

23.

24.

Notes to Pages 100-108 part Majone argues that professionals dislike working in bureaucratic organizations. Compare Charles Perrow, Complex Organizations, 3rd ed. (New York: Random House, 1986), pp. 44-46. Regina E. Herzlinger and William S. Krasker, 'Who Profits from Nonprofits?" Harvard Business Reviw, 87, 1 (January-February 1987): 93-106. On the early professionalization efforts of the social work profession see Roy Lubove, The Professional Altruist (New York: Atheneum, 1975). Edward D. Berkowitz, Disabled Policy: Americas Prog;rams for the Handicapped. (Cambridge: Cambridge University Press, 1987), p. 170. Adam Yarmolinsky, "What Future for the Professional in American Society?" Daedalus, 107, 1 (Winter 1978): 162. MSPCC, Annual Report, 1974. The federal government played a major role in promoting the professionalization of vocational rehabilitation agencies through fellowships and regulations. See Berkowitz, Disabled Policy, pp. 171-172. Wilensky and Lebeaux, Industrial Society and Social Welfare, pp. 283-334. Ruby Dennis, St. Mary's Home for Children, Annual Report, 1960. Father John Cronin, executive director of St. Vincent's Home for Children, Fall River, Massachusetts, interview, 25 June 1986. Interview, Spencer Moore, former director of clinical services, Perkins School for the Blind, 19 September 1986. Carroll L. Estes and Linda A. Bergthold, 'The Unravelling of the Nonprofit Service Sector in the U.S.," International Journal of Sociology and Social Policy, 9, 213 (1989): 18-33. A major reason for the sensitivity of the DARE board of directors to state wishes is that the loss of a major contract from the state could have doomed the agency and exposed the Board of Directors to thousands of dollars of potential liability for unpaid payroll taxes. This dispute is syrntomatic of the emergence of the self-help movement in the last 20 years. Rather than relying on professionals, many individuals with health and social problems have established therapeutic groups based upon mutual self-help and a rejection of professional advice. Good examples include the Alliance for the Mentally Ill, battered women shelters, rape crisis centers, victim services, Parents Anonymous (for child abusers), and many drug programs. On the use of government regulations by private groups, see Theodore J. Lowi, The End of Liberalism, 2nd ed. (New York: W. W. Norton, 1979). See also James Q. Wilson, The Politics of Regulation (New York: Basic Books, 1980), pp. 557-594. WCFS also lost a contract from the state Department of Mental Health

Notes to Pages 108-117

25.

26.

27.

28. 29.

30.

31. 32.

33. 34. 35.

269

because of similar objections from government officials on staffing levels and treatment duration. For a discussion of the ways nonprofit managers cope with government regulations, see Sharon R. Bernstein, "Contracted Services as a Game: Strategies of the Nonprofit Agency Manager," paper presented at the University of West Virginia, December 1990. Also see Kirsten A. Gronbjerg, "Managing Nonprofit Funding Relations: Case Studies of Six Human Service Organizations," Yale University, Program on Non-Profit Organizations, working paper No. 156. See Frank Riessman, "The Self-Help Backlash," Social Policy, 21, 1 (Summer 1990): 42-48. Also see Jane J. Mansbridge, Beyond Adversary Democracy (Chicago: University of Chicago Press, 1980), esp. part 3. Dr. Spencer Moore, former clinical director, Perkins School for the Blind, interview, 19 September 1986. Overall, high levels of voluntarism continue in the United States, especially through religious organizations, civic clubs, and community groups. Bulmer, The Social Basis for Community Care, p. 173. Mayer Zald and Roberta Ash suggest one explanation for the ability of self-help groups to persist without significant formalization. They argue in their seminal article that organizations may be able to resist the conservative tendencies of organizational development if they do not rely heavily on the external environment but instead are sustained by an "exclusive group" of persons dedicated to a particular vision. Many self-help groups fit this model of agencies with exclusive membership. See Zald and Ash, '''Social Movement Organizations," pp. 330-332. Glazer, "A Self-Service Society." Glazer's ideas are philosophically similar to Robert Nisbet, who saw the growth of the modern state as the major threat to community. See Nisbet, Community and Power. This argument is also advanced by Daniel Bell, The Cultural Contradictions of Capitalism (New York: Basic Books, 1976), chap~ 6. Bulmer, The Social Basis for Community Care, pp. 177-178; Roger Hadley and Stephen Hatch, Social Welfare and the Failure of the State: Centralised Social Services and Participatory Alternatives (London: Allen and Unwin, 1981), pp. 97-98; Nelson, The Moon and the Ghetto, p. 93. Marilyn Chase, ''Volunteers' Distress Cripples Huge Effort to Provide AIDS Care," Wall Street Journal, 12 March 1990, pp. AI, A4. The phrase "interwoven" is borrowed from Bulmer, The Social Basis for Community Care, chap. 6. Even professional autonomy in private practice is being circumscribed as insurance companies restrict their benefits.

270

Notes to Pages 120-133 6. Services and Clients

1. This chapter draws in part on Michael Lipsky and Steven Rathgeb Smith, ''Nonprofit Organizations, Government, and the Welfare State, Political Science Quarterly, 104,4 (Winter 1989-90): 625-648. 2. This formulation is adapted from James Q. Wilson, ''The Bureaucracy Problem," Public Interest, 6 (Winter, 1967):3-9. These are expectations in the sense that they are norms governing their ideal operations. Of course, less noble motives, such as maintaining political support or securing the electoral interests of public officials through patronage, also govern the operations of public as well as private services in practice. 3. See Walzer, Spheres ofJustice, pp. 65-66. 4. In response to criticism that vocational rehabilitation programs receiving federal funds were neglecting the severely disabled, Congress passed major overhaul legislation in 1973 that specifically targeted the severely disabled. Berkowitz, Disabled Policy, pp. 176-178. A good discussion of the preference of sectarian child welfare agencies for children of their religious community is provided in Young and Finch, Foster Care, pp. 4243,223. 5. Implicit demands can take many forms. Workers may expect to be fully involved in the decisionmaking process because they are giving up income to work in this organization. Or they may expect very flexible hours and vacation time. Volunteers, especially influential volunteers, may expect that if they give money and time, the organization will be sensitive to their needs or concerns. This may mean a willingness to serve certain clients or develop particular programs consistent with the donors' interests. 6. Kay C. Tilton, quoted by Robert Pear, "New Proposal By U.S. in Child Care Leads to Dispute Over States' Role," New York Times, 22July 1991, p. A-I0. 7. Ibid. 8. Kristin A. Goss, "Stung By Criticism, Red Cross Makes Operations Changes," Chronicle ofPhilanthropy, 4 September 1990, pp. 25, 37; Albert R. Karr, "Elizabeth Dole, Leaving the Cabinet, Will Tackle Troubled Red Cross and Perhaps Run for Office," Wall Street Journal, 23 November 1990, p. AI0. 9. In 1990 the American Red Cross received $263 million from the United Way, about $88 million more than the \MCA and \WCA. Bruce Millar, "United Way's Rivals Gain Ground," Chronicle ofPhilanthropy, 3 December 1991, p. 1. 10. A serious fear in the contracting era has been that providing services

Notes to Pages 133-141

11.

12.

13.

14. 15.

16. 17. 18. 19.

271

previously regarded as family responsibilities would hasten the day when the services would be provided by government (through community agencies) or purchased in the market. Some social theorists worry that this will injure family bonds. Government specialists tend to be more concerned over the enormous potential costs of paying wages to caregivers, because people who now provide care freely would also want to be paid. Many advocates of the mentally ill argue that deinstitutionalization would not have been possible without nonprofit organizations to provide an alternative to the public sector, which in the mental health field continues to be primarily institution-based. For the Massachusetts case, see Children's Services Task Force, The Children s Puzzle: A Study of Services to Children in Massachusetts (Boston: Institute for Governmental Services, University of Massachusetts, 1977); Tanzer, Purchase of Service; Hill, Systematically Thinking about Purchasing Social Services; Massachusetts Executive Office of Human Services (henceforth EOHS) , EOHS General Conditions, Fiscal Years 1978-87 (Boston: EORS). For discussion of the increase nationally see HSRI, Assessing and Enhancing the Quality ofServices: A Guide for the Human Services Field (Boston: HSRI, 1984); David A. Richardson,]r., Rate Setting in the Human Services: A Guide for Administrators, Human Service Monograph Series, Project SHARE, Number 24 (Washington, D.C.: Project Share, 1981). The use of funding withdrawal as a government strategy to control social movement organizations is noted by Gary T. Marx, "External Efforts to Damage or Facilitate Social Movements: Some Patterns, Explanations, Outcomes, and Complications," in The Dynamics of Social Movements, ed. Mayer N. Zald and John D. McCarthy (Cambridge, Mass.: Winthrop Publishers, 1977), p. 99. See Marris and Rein, Dilemmas of Social Reform. See Gilbert, ''The Transformation of Social Services," 629-632; Alfred]. Kahn, "Public Social Services: The Next Phase-Policy and Delivery Strategies," Public Welfare, 30, 1 (Winter 1972): 15-24; Mildred Rein, "Social Services as a Work Strategy," Social Service Review, 49, 4 (December 1975): 515-538. Children's Services Task Force, The Children's Puzzle. The enabling legislation was passed in 1978. See Chapter 18B, Massachusetts General Laws. SPRG, Stressing the System: The Impact of the Massachusetts Fiscal Crisis on Human Services in Boston (Boston: SPRG, 1990), p. 31. The state of Illinois created in the early 1980s Case Coordination Units

272

20.

21.

22.

23.

24.

25.

Notes to Pages 141-146 (CCUs) to eliminate the contract home care agencies' control over client eligibility and case disposition. See Bette S. Hill, Jean Blaser, and Pamela W. Balmer, "Oversight and Competition in Profit vs. Nonprofit Contracts for Home Care," Policy Studies Review, 5, 3 (February 1986) :588-597. See Greater Boston Adolescent Emergency Network (henceforth GBAEN) , "Ride a Painted Pony on a Spinning Wheel . . .": A Survey oj Massachusetts Youth in Need oj Permanent Homes (Boston: Massachusetts Commission on Children and Youth, 1985). See also Steven Rathgeb Smith, "The Changing Politics of Child Welfare Services: New Roles for the Government and the Nonprofit Sectors," Child Welfare, 68, 3 (MayJune 1989): 294. The inability of an agency to turn down clients due to financial reasons is also described by Mark Peyrot, "Coerced Voluntarism: The Micropolitics of Drug Treatment," Urban Life, 13,4 (January 1985): 348-349. Lipsky and Thibodeau, "Feeding the Hungry." According to Robert N. Bellah, the Open Door shelter of Atlanta refused to accept government funding for their surplus food program because it was unwilling to accept government regulations regulating client eligibility. See Robert N. Bellah et aI., The Good Society (New York: Alfred A. Knopf, 1991), p.31. A contrasting perspective is put forth by Stein Kuhnle and Per Selle, based upon their study of the development of the relationships between government and the voluntary sector in Norway. However, their perspective may not be seriously at variance with our position, since they do not directly address the conflict between professional and lay approaches and the micro-level politics of government funding of nonprofit organizations. See Kuhnle and Selle, "Meeting Needs in a Welfare State: Relations Between Government and Voluntary Organizations in Norway," in Needs and Welfare, ed. Alan Ware and Robert E. Goodin (London: Sage, 1990), pp. 165-184. Our views are also at variance with Salamon, "Partners in Public Service," and Kramer, Voluntary Agencies in the Welfare State. The control of the inputs into nonprofit organizations by government is also noted by James, "Nonprofit Organizations in Comparative Perspective," pp. 397-415. Such conflicts will emerge wherever payment levels to service agencies are standardized and paid per client, yet the costs of serving clien ts vary substantially. Similar conflicts arise in nursing home reimbursements, for example. See Bruce C. Vladeck, Unloving Care: The Nursing Home Tragedy (New York: Basic Books, 1980), chap. 4.

Notes to Pages 149-153

273

7. Dilemmas of Management 1. Nonprofit service agencies also would tend to accept offered contracts to cross-subsidize favored programs that are financially precarious,stabilize funding of core capacity (such as rent and administrators' salaries) , and seek stability by diversifying their resource base. Some of these considerations are discussed in Estelle James, "How Nonprofits Grow: A Model," Journal of Policy Analysis and Management, 2, 3 (1983): 350-366. 2. For further discussion of purposive incentives see Wilson, Political Organizations, chap. 3. See also Thomas Wolf, The Nonprofit Organization: An Operating Manual (Englewood Cliffs, NJ.: Prentice-Hall, 1984);J. David Seay and Bruce C. Vladeck, eds., In Sickness and in Health (New York: McGraw-Hill, 1988). 3. Nonprofit agencies funded by government, especially the upstart agencies, are thus susceptible to the "issue-attention cycle" of government. For example, rape crisis centers, programs for elderly crime victims, and battered women shelters benefited by the interest of policymakers in their issues during the 1970s but suffered cutbacks when government priorities shifted to other issues. See Smith and Freinkel, Adjusting the Balance, chap. 7. Also see Anthony Downs, "Up and Down with Ecology-The 'Issue-Attention Cycle' ," The Public Interest, 28 (Summer 1972): 38-50. 4. On this general problem of accountability see D. C. Hague, W. J. M. Mackenzie, and A. Barker, eds., Public Policy and Private Interests (London: Macmillan Press, 1975); Smith and Hague, eds., The Dilemma ofAccountability in Modern Government. Also see John D. Donahue, The Privatization Decision: Public Ends, Private Means (New York: Basic Books, 1989). 5. Donahue, The Privatization Decision, pp. 116--117; Tanzer, Purchase of Service, esp. pp. 20-23; Miller and Wilson, "The Case for Performance Contracting," pp. 185-193. 6. State Auditor's Office, Blueprint for Reform: A System for the Purchase of Services (Boston: The Commonwealth of Massachusetts, 1985); Massachusetts Senate Committee on Ways and Means, Purchase of Service, pp.21-31. 7. The fiscal instability within nonprofit contract agencies created by payment delays is described in an excellent case study: see Melissa Middleton Stone, "pas Reform in Massachusetts," Boston University School of Management, 1991. 8. For example, government can pay only part of its costs on a census basis. Where client intake is acknowledged as being particularly erratic, a census would be an unsound base for contracting and some other scheme would probably be used.

274

Notes to Pages 154-165

9. Stone, "POS Reform," pp. 15-16, 20. 10. Peter Nessen, former director of the Massachusetts Office of Purchased Services and later Massachusetts Secretary of Administration and Finance, argues that nonprofit organizations are expected to be run like businesses, except they are not allowed to do more than just barely survive. Thus, unlike businesses, they cannot build up treasuries in good times to protect them against bad times. He suggests that this is one of the key reasons that so many nonprofits fail. 11. Kathleen Teltsch, "New York's Urban League, Riddled by Debt, Searches for Aid," New York Times, March 27, 1988, p. 37. 12. Until the early 1980s, nonprofit agencies were exempt from paying social security taxes. New federal legislation required nonprofit agencies and their employees to pay these taxes. However, contracts rarely were renegotiated to reflect the imposition of these new costs; consequently agencies and their employees were forced to absorb them. 13. See also Bernstein, "Contracted Services as a Game"; Gronbjerg, ''Nonprofit Management." 14. Lipsky, Street-Level Bureaucracy, pp. 33-40. 15. Another reason for the inability of government contracts to keep up with inflation may be its lack of information about funding levels. The contracting regime, because of its fragmentation, masks the true costs of service and the actual costs borne by individual agencies. Thus government officials have broad discretion to set rates. See Anthony Downs, 'Why the Government Budget Is Too Small in a Democracy," World Politics, 12, 4 (July 1960): 541-563. 16. A minor discomfort may result if the organization wrongly anticipates that contracts will not be renewed and has to take on more work than it expected. As this discussion suggests, this is a problem with which most nonprofit agencies are glad to be confronted. 17. A major part of the platform of the MCHSP is reform of the contracting process. 18. It is also a concern that has preoccupied many analysts of nonprofit organizations. See Wolf, The Nonprofit Organization, chap. 1. 19. These cases are discussed in David Sills's well-known work on the March of Dimes, The Volunteers (New York: Free Press, 1957), pp. 253-268; for the YMCA, see Mayer N. Zald, Organizational Change: ThePoliticalEconomy of the YMCA (Chicago: University of Chicago Press, 1970). Also see Wilson, Political Organizations, chap. 10. 20. See James D. Thompson and WilliamJ. McEwen, "Organizational Goals and the Environment," American Sociological Review, 23 (1958): 23-31, reprinted in Amitai Etzioni, ed., Complex Organizations (New York: Holt, Rinehart and Winston, 1962), pp. 177-190. See also William E. Berg and

Notes to Pages 165-176

275

Roosevelt Wright, "Program Funding as an Organizational Dilemma: Goal Displacement in Social Work Programs," Administration in Social Worn, 4,4 (Winter 1980): 29-39. 21. It is this public role of nonprofit agencies which has received substantial attention in the debate about the current role of nonprofit hospitals in serving the poor. See GAO, Nonprofit Hospitals: Better Standards Needed for Tax Exemption (Washington, D.C.: GAO, 1990); Seay and Vladeck, eds., In Sickness and in Health. 8. The New Politics

1. See Chapter 9 for further discussion of the strengths and limits of contracting. 2. Donahue, The Privatization Decision, chap. 5. 3. See Bertram M. Beck, "The Voluntary Social Welfare Agency: A Reassessment," Social Service Review, 44, 2 Gune 1970): 147-154; Waldemar A. Nielsen, The Endangered Sector (New York: Columbia University Press, 1979); Alan Pifer, "The Quasi-Non-Governmental Organisation," in Public Policy and Private Interests, ed. Hague et al., pp. 380-394. 4. See Harvey M. Sapolsky, "AIDS, Blood Banking, and the Bonds of Community," Daedalus, 118,3 (Summer 1989): 151. 5. Bruce Millar and Grant Williams, "Some Non-Profits Win Millions in U.S. Budget," Chronicle ofPhilanthropy, 27 November 1990, pp. 1, 22-23. 6. The landmark 1967 amendments to the Social Security Act specifically encouraged state governments to contract with nonprofit community agencies. See Smith and Stone, "The Unexpected Consequences of Privatization," pp. 235-237. 7. Many federal and state laws in social welfare prohibit contracting with for-profit organizations or restrict contracting to nonprofit agencies and public entities. For example, in the distribution of funds for the homeless under the Stewart McKinney Act only public or nonprofit agencies were eligible for grants. See GAO, Homelessness: HUD's andFEMA 's Progress in Implementing the McKinney Act (Washington, D.C.: GAO, 1989). The same situation exists for Head Start. GAO, Head Start Information on Sponsoring Organizations and Center Facilities (Washington, D.C.: GAO, 1989). The Anti-Drug Abuse Act of 1986 restricted grants by the states to local organizations to nonprofit agencies. GAO, Anti-Drug Abuse Act of 1986 (Washington, D.C.: GAO, 1989). Also see Sapolsky, "AIDS, Blood Banking," p. 151, for information on nonprofit blood banks. 8. Because nonprofit social service agencies tend to be undercapitalized, the capital needs of nonprofit agencies have received increasing attention. In Massachusetts, the state is allowing access to state bonds to meet

Notes to Pages 176-179

276

9.

10.

11.

12. 13.

capital needs. This development follows the longstanding practice of allowing nonprofit colleges and hospitals to use tax-exempt bonds issued by state finance agencies to meet their capital needs, in essence giving these institutions a federal subsidy. The authority for this new initiative lies in Section 103 of the federal Internal Revenue Service code, which allows state and local governments to issue tax-exempt bonds. Typically, states such as Massachusetts set up a state financing agency which issues the bonds on behalf of nonprofit institutions. We are indebted to Donald Etheridge for his comments on Section 103. Also see Carl J. Schramm, 'The Legal Identity of the Modern Hospital: A Story of Evolving Values," in In Sickness and in Health, ed. Seay and Vladeck, pp.73-75. Hugh Heclo, "Issue Networks and the Executive Establishment," in The New American Political System, ed. Anthony King (Washington, D.C.: American Enterprise Institute, 1978). Grant Williams, "California Association: Speaking up for Nonprofits," Chronicle ofPhilanthropy, 15 January 1991, p. 12; Elizabeth Greene, "Public-Policy Center Helps Create Statewide Non-Profit Coalitions," Chronicle of Philanthropy, 1 May 1990, p. 26. To underscore the complexity of the new representative role of nonprofit agencies, several members of the MCHSP board represent associations of new agencies in specific service areas. These associations include: Mental Health Corporation of Massachusetts, Inc. (representing community mental health centers), Massachusetts Alcoholism Services Association, Massachusetts Association of Retarded Citizens, Visiting Nurses Association of Massachusetts, Massachusetts Association of Rehabilitation Facilities, and the Massachusetts Council of Homemaker/Home Health Aide Services. John McManus, executive director of MCHSP, personal interview, 17 June 1986. Useful for our purposes is the definition of corporatism as an "ideal-typical institutional arrangement for linking the associationally organized interests of civil society with the decisional structures of the state" proposed by Philippe C. Schmitter, "Still the Century of Corporatism?" in Schmitter and Gerhard Lehmbruch, eds., Trends in Corporatist Intermediation (Beverly Hills: Sage Publications, 1979), pp. 8-9. On corporatism generally see this volume, and also Suzanne Berger, ed., Organizing Interests in Western Europe: Pluralism, Corporatism, and the Transformation of Politics (Cambridge: Cambridge University Press, 1981); Peter Katzenstein, Small States in World Markets (Ithaca, N.Y: Cornell University Press,

1985) .

Notes to Pages 180-183

277

14. Claus Offe, "The Attribution of Public Status to Interest Groups: Observations on the West German Case," in Berger, ed., Organizing Interests, pp. 136-137. 15. Government organizing of private interests is discussed in Schmitter, "Still the Century of Corporatism?" in Trends Toward Corporatist Intermediation, p. 27. 16. State of Connecticut, A Negotiated Investment Strategy: A Joint Agreement on Principles, Priorities, Allocations and Plans for the Social Services Block Grant,

17.

18.

19.

20.

21.

22.

23. 24.

October 1, 1983-September 30, 1984 (Hartford: State of Connecticut, 1983). The formal bargaining model employed in Massachusetts and Connecticut was the Negotiated Investment Strategy, whose development and dissemination was funded by the Dayton-based Kettering Foundation. The emergence of corporatist relationships and the focus on technical issues has been noted in the health care arena. See Lawrence D. Brown, "Technocratic Corporatism and Administrative Reform in Medicare," Journal of Health Politics, Policy and Law, 10,3 (Fall 1985): 579-599. Susan Rose-Ackerman concluded that federal daycare regulations curtailed the supply of daycare services and expanded the role of large subsidized for-profit firms. See Susan Rose-Ackerman, "Unintended Consequences: Regulating the Quality of Subsidized Day Care," Journal of Policy Analysis and Management, 3, 1 (Fall 1983): 14-30. When Michael Dukakis was returned to the Governor's Office in 1983, he appointed Philip Johnston, a former nonprofit director, to head his new Office for Human Resources (henceforth OHR) , charged with coordinating contact with nonprofit providers. Johnston was soon elevated to the position of Secretary of the Executive Office of Human Resources, and his place at OHR was taken by Catherine Dunham, the former director of MCHSP, the providers' association. See Harold L. Wilensky, "Democratic Corporatism, Consensus, and Social Policy: Reflections on Changing Values and the 'Crisis' of the Welfare State," in OECD in Crisis (Paris: OECD, 1981), pp. 185-195. Robert H. Salisbury has argued that America lacks a corporatist tradition owing to social diversity and institutional fragmentation. However, the growth of contracting gives private providers an unprecedented sense of shared mission. See Robert H. Salisbury, ''Why No Corporatism in America?" in Trends Toward Corporatist Intermediation, pp. 213-230. See also Joan Paddock Maxwell and Richard W. Snowden, "Siege of the Nonprofits," Washington Post, 16 February 1989, p. A-23. William Montague, "IRS's New Proposed Regulations on Lobbying Show

Notes to Pages 183-188

278

25.

26.

27.

28.

29. 30.

31.

32.

33.

Improvement, Charity Officials Say," Chronicle ofPhilanthropy, 10 January 1989, pp. 1, 22-23; Grant Williams, "IRS Issues Final Lobbying Rules," Chronicle of Philanthropy, 18 September 1990, p. 31. Another reaction to the IRS proposed rules has been for nonprofit agencies to split their organizations into two separate, distinct legal categories: a 501 (c) (3) organization to accept charitable contributions, and a 501 (c) (4) whose sole purpose is political activity. Tanzer, Purchase of Service. Also see Joseph H. Spina, "Reform in Delaware: The Case of Nonprofit Grants-in-Aid," State Government, 58, 1 (Spring 1985): 20-26. As noted in Chapter 3, opposition to contracting has a long history, especially in the Progressive Era when contracting was attacked as a reflection of the corrupting influence of urban machine on society. Partly in response to criticism from small businesses, the postal subsidy to nonprofit organizations has been declining. Holly Hall, "Direct Mail: Trouble Ahead," Chronicle of Philanthropy, 2 October 1990, p. 1, 13-15; Holly Hall, "Non-Profits May Face Second Postage Increase in 1991, Says Postmaster General," Chronicle of Philanthropy, 13 November 1990, p. 8. "California Court Upholds a \:MCA's Tax Status in a Lawsuit by Owners of Health Clubs," Chronicle of Philanthropy, 12 June 1990, p. 31-32. The 99th Congress also passed legislation taxing the reserves of Blue Cross in excess of certain amounts. See P.L. 99-514. See also Schramm, 'The Legal Identity," p. 76. U.S. Small Business Administration, Office of Advocacy, Unfair Competition by Nonprofit Organizations with Small Business: An Issue for the 1980s (Washington, D.C.: Small Business Administration, 1983); also, James T. Bennett and Thomas J. DiLorenzo, Unfair Competition: The Profit of Nonprofits (Lanham, Md.: Hamilton Press, 1989). Alison Leigh Cowan, "New Accounting Proposals Create Nonprofit An xiety," New York Times, 29 July 1990, p. FlO. See also Bruce Millar, "NonProfits Charge That Overhaul of Accounting Rules Would Distort Financial Situation in Many Charities," Chronicle ofPhilanthropy, 29 May 1990, pp. 1,23. See Thomas R. Barker, "Re-Examining the 501 (c) (3) Exemption of Hospitals as Charitable Organizations," The Exempt Organization Tax Review (July 1990): 539-553.

9. Privatization in Human Services 1. See Offe, Contradictions of the Welfare State; Habermas, The Legitimation Crisis;James O'Connor, TheFiscal Crisis ofthe State (New York: St. Martin's

Notes to Pages 188-189

2.

3.

4. 5.

279

Press, 1973); Bell, The Cultural Contradictions of Capitalism. Other useful work includes Albert O. Hirschman, The Rhetoric of Reaction: Perversity, Futility, Jeopardy (Cambridge, Mass.: Harvard University Press, 1991); Peter G. Peterson, "The Morning Mter," The Atlantic Monthly (October 1987): 43-69; Ramesh Mishra, The Welfare State in Capitalist Society: Policies of Retrenchment and Maintenance in Europe, North America and Australia (Toronto: University of Toronto Press, 1990). One of the first scholars to advance the idea of privatization was Peter F. Drucker, the management expert, who argued in 1967 that government should undertake "re-privatization," by which he meant the return to the private sector of activities such as public services delivery that had been appropriated by government during previous decades. He envisioned a government that focused on managing and monitoring rather than actually delivering service. See Peter F. Drucker, The Age ofDiscontinuity: Guidelines to Our Changing Society (New York: Harper and Row, 1969), chap. 10. For an excellent general treatment of the concept of privatization see Paul Starr, "The Meaning of Privatization," in Privatization and the Welfare State ed. by Sheila Kamerman and Alfred Kahn (Princeton: Princeton University Press, 1989), pp. 15--48. See also Kate Ascher, The Politics of Privatization: Contracting out Public Services (New York: St. Martin's Press, 1987); Marc Bendick,Jr., "Privatization of Public Services: Recent Experience," in Public-Private Partnership: New opportunities for Meeting Social Needs, ed. Harvey Brooks, Lance Liebman, and Corinne Schelling, (Cambridge, Mass.: Ballinger Publishing Company, 1984), pp. 153-171; Donald Fisk, Herbert Kiesling, and Thomas Muller, Private Provision of Public Services: An Overview (Washington, D.C.: The Urban Institute, 1978); Dennis J. Palumbo, "Privatization and Corrections Policy," Policy Studies Review, 5, 3 (February 1986): 598-605; Lyle C. Fitch, "Increasing the Role of the Private Sector in Providing Public Services," in Improving the Qp,ality of Urban Management, ed. Willis D. Hawley and David Rogers (Beverly Hills: Sage Publications, 1974), pp. 501-559. The rationale for privatization is obviously consistent with the views of conservative, free-market economists. See Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1982); Friedrich Hayek, Law, Legislation and Liberty, vol. II (Chicago: University of Chicago, 1976). Donahue, The Privatization Decision, p. 5. E. S. Savas, "How Much Do Government Services Really Cost?" Urban Affairs Quarterly, 15, 1 (September 1979): 23--42; James T. Bennett and Manuel H.Johnson, "Public versus Private Provision of Collective Goods

280

6. 7.

8. 9.

10.

11.

12.

13.

Notes to Pages 189-194

and Services: Garbage Collection Revisited," Public Choice, 34, 2 (1979): 55-63. This literature is reviewed by Donahue, The Privatization Decision, chap. 7. Glazer, "A Self-Service Society"; Meyer, ed., Meeting Human Needs; Nisbet, Community and Power. In the health care field see Regina E. Herzlinger, "Healthy Competition: A Third Approach to the Medical-Insurance Crisis," The Atlantic Monthly (August 1991): 69-81. See Donnison, "The Progressive Potential of Privatisation." Kramer, Voluntary Agencies in the Welfare State; Margaret Gibelman, "Are Clients Served Better When Services Are Purchased?" Public Welfare, 39, 4 (Fall 1981): 27-33; Demone and Gibelman, eds., Services for Sale; Salamon, "Partners in Public Service"; Michael Sosin, "The Domain of Private Social Welfare: Comparisons Between the Public Sector and the Voluntary Sector," in Social Planning and Human Service Delivery in the Voluntary Sector, ed. Gary A. Tobin (Westport, Conn.: Greenwood Press, 1985), pp. 105-129; Michael Sosin, "Decentralizing the Social Service System: A Reassessment," Social Service Review, 64, 4 (December 1990): 617-636. For two fine articles on the British experience with contracting, see Ken Judge, "The Public Purchase of Social Care: British Confirmation of the American Experience," Policy and Politics, 10,4 (October 1982): 397-416; Martin Knapp, Eileen Robertson, and Corinne Thomason, "Public Money, Voluntary Action: Whose Welfare?" Discussion Paper 514/2, University of Kent at Canterbury, Personal Social Services Unit, March 1988. Mark Schlesinger, Robert A. Dorwart, and Richard T. Pulice, "Competitive Bidding and States' Purchase of Services: The Case of Mental Health Care in Massachusetts," Journal ofPolicy Analysis and Management, 5,2 (1986): 245-263; Gurin et aI., Contractingfor Service. Hansmann, "The Role of the Nonprofit Enterprise"; Rudney, ''The Scope and Dimensions of Nonprofit Activity"; Weisbrod, The Nonprofit Economy. Contracting with nonprofit agencies was particularly attractive to government officials charged with carrying out deinstitutionalization because many states were facing court orders to empty their state institutions and move the residents into community facilities quickly. Savas, "How Much Do Government Services Really Cost?"; Bennett and Johnson, "Public Versus Private Provision"; Savas, Privatizing the Public Sector, pp. 89-117. This literature is reviewed by Donahue, The Privatization Decision, chap. 7.

Notes to Pages 195-200

281

14. This point is supported by Donahue, The Privatization Decision, pp. 143146. 15. In a personal comment to one of the authors, Burton Weisbrod makes the same point regarding volunteers. Theoretically, there is nothing to prevent the public sector from tapping volunteers on a broad scale. For a fine book on developing volunteer programs in the public sector, see Jeffrey L. Brudnoy, Fostering Volunteer Programs in the Public Sector: Planning, Initiating, and Managing Voluntary Activities (San Francisco: JosseyBass, 1990). 16. For some of the dilemmas involved in measuring performance in human services see Lipsky, Street Level Bureaucracy; Yeheskel Hasenfeld and Richard A. English, eds., Human Service Organizations (Ann Arbor: University of Michigan Press, 1974), pp. 614-679; Demone and Gibelman, eds., Services for Sale. 17. One reason professionals such as doctors and social workers are attracted to nonprofit service agencies is that they have greater control over their practice-and hence greater discretion-than is typically the case in public organizations. See Majone, "Professionalism and Nonprofit Organizations," pp. 639-659; Nina Toren, "Semi-Professionalism and Social Work: A Theoretical Perspective," in The Semi-Professions and Their Organizations, ed. Amitai Etzioni (New York: Free Press, 1969), pp. 141-195. 18. However, the fiscal limitations on state governments are forcing contract administrators to become more conscious of who is using the service of their provider agencies, even if it is not possible for them to evaluate complicated goals such as the improvement of a client's socialization. 19. See LawrenceJ. Haas, "More Bang for the $," NationalJournal, 20 April 1990, pp. 929-932. 20. The federal JTPA enacted in the early 1980s to replace the widely criticized CETA program allows states to set performance standards for their contracts with private programs which reward good performance. Typically, a measure of good performance is the placement of a trainee in a full-time job. See NCEP, Evaluation of the Effects ofJTPA Performance Standards. 21. See Sutherland Miller and Nancy Wilson, "The Case for Performance Contracting," Administration in Mental Health, 8, 3 (Spring 1981): 185193; Trevor R. Hadley, John T. Wilcox, Gary R. Rossman and Kathy Nazar, "Performance Standards and Allocation of Funds in Community Mental Health Programs," Administration in Mental Health, 10, 3 (Spring 1983): 155-161; Gary E. Miller and William V. Rag 0 , "Fiscal Incentives to DevelopInent of Services in the Community," Hospital and Community

282

22.

23.

24. 25. 26.

Notes to Pages 200-216 Psychiatry, 39, 6 (June 1988): 595-597; Martin Gaynor, "Incentive Contracting in Mental Health: State and Local Relations," Administration and Policy in Mental Health, 18, 1 (September 1990): 33-42. Many performance assessment schemes introduce "perverse incentives" into the delivery of services. For example, the JTPA program rewards programs for placements in full-time jobs; consequently, programs tend to avoid the difficult-to-place clients. See NCEP, Evaluation of the Effects, Executive Summary, pp. 4-20. For further discussion of holding workers accountable in what organizational theorists call principal-agent problems, see John W. Pratt and RichardJ. Zeckhauser, "Introduction" in Principals and Agents: The Structure of Business, ed. John W. Pratt and Richard J. Zeckhauser (Boston: Harvard Business School Press, 1985), pp. 1-24; see also Donahue, The Privatization Decision, especially chap. 1. Donald A. Schon, The Reflexive Practitioner (New York: Basic Books, 1983). Tanzer, Purchase of Service. For further discussion of government penetration of private agencies see Smith and Stone, 'The Unexpected Consequences of Privatization."

10. Government, Nonprofit Agencies, and the Welfare State 1. See Berger and Neuhaus, To Empower People; Glazer, "A Self-Service Society. " 2. Burt Solomon, "Power to the People?" NationalJournal, 26January 1991, pp.204-209. 3. Other recent court decisions and IRS rulings are consistent with this shift to philanthropy. For example, in February 1991 the U.S. Tax Court upheld an IRS decision that denied tax-exempt status to a Michigan group because it could not prove that its activities would lessen the burdens of government. "Tax Court Upholds IRS Decision to Deny Group Exempt Status," Chronicle ofPhilanthropy, 26 February 1991, p. 45. And in December 1990 the Texas Attorney General sued the Methodist Hospital of Houston, charging that it did not provide enough charity care. 'Texas Sues Hospital over Charity Care," Chronicle of Philanthropy, 11 December 1990, p. 34. See also Barker, "Re-examining the 501(c)(3) Exemption. " 4. The following section on informal care draws in part on Bulmer, The Social Basis for Community Care, pp. 215-219. See also Hadley and Hatch, Social Welfare, pp. 97-98. 5. Bulmer, The Social Basis, p. 217.

Notes to Pages 216-231

283

6. Ibid. 7. T. H. Marshall, "Citizenship and Social Class," in Class, Citizenship, and Social Developrrum,t (New York: Doubleday, 1965), chap. 4. 8. F. J. Gladstone discusses the problem of trying to preserve "welfare pluralism" through voluntary service organizations while recognizing the indispensable role of government funding. See his Voluntary Action in a Changing World (London: Bedford Square Press, 1979), chap. 9. 9. Lipsky and Thibodeau, "Feeding the Hungry," p. 239. 10. Peter Nessen, former Director of the Office of Purchased Services in Massachusetts, was a strong proponent of this idea. The South Carolina Department of Mental Health has used the private Commission on Accreditation of Rehabilitation Facilities (CARF) to certify service providers in the state. Many other states have used CARF standards to meet licensure requirements. 11. See Bruce Millar, "United Way Emphasizes 'Donor Choice'," Chronicle of Philanthropy, 13 August 1991, pp. 23-25. 12. Some scholars have raised concerns about the surpluses sometimes earned by nonprofit agencies and under what circumstances they might be grounds for revoking a nonprofit's tax exempt status. While excessive surpluses may be troubling at times, the much more extensive problem among nonprofits is undercapitalization. To focus on excessive earnings, particularly given the relatively small scale of the problem, risks further destabilization of nonprofits. Nonetheless, politicians may enact measures to make it more difficult for nonprofit agencies to build up surpluses from retained earnings. This would make it even more difficult for nonprofits to overcome a poor capital situation, or create what every business strives to have: a cushion against short-run reverses in fortune. See, for example, Howard P. Tuckman and Cyril F. Chang, "Nonprofit Equity: A Behavioral Model and Its Policy Implications," Journal ofPolicy Analysis and .Management, 11, 1 (Winter 1992): 76-87. 13. David Osborne and Theodore Gabler, Reinventing Government (Redding, Mass.: Addison-Wesley, 1992). 14. See Peterson and Rom, Welfare Magnets. 15. See also Bulmer, The Social Basis of Community Care, pp. 220-222; Hadley and Hatch, Social Welfare, chaps. 9-10.

Index

Accountability, 12, 79-81,82, 121, 129, 198; public 118-119, 209-210 ACTION, 56, 212 Advocacy, 58, 136, 176-177, 182-184, 186-187; by peak associations, 178179; future role of, 224. See also Lobbying; Political activism Aid for Families with Dependent Children, 79 AIDS service organizations, 105, 110, 264n14 Alcohol and drug abuse, 64-65, 137 Alcoholics Anonymous, 20, 113 Alliance for the Mentally Ill, 212 Alternative services, 135. See also Battered women services; Child protective services; DARE; Daycare; Drug and alcohol abuse; Peer counseling; Rape crisis centers; Self-help organizations Altruism, 29, 213-214. See also Voluntarism; Volunteers American Enterprise Institute, 212 American Red Cross, 38, 111-112, 131, 164,166,175 Ann Arbor Women's Crisis Center, 8485 Assessment, 199--203. See also Evaluation Associated Daycare of Metropolitan Boston: revenues of, 234-235, 236-237, 238, 239, 241, 242, 244 Bargaining process, 181 Battered women services, 105, 107, 110, 112, 115, 125, 137, 181 Beck, Bertram M., 57-58 Bellah, Robert N., 22

Berger, Peter, 18 Beveridge, Lord, 14 Blue Cross and Blue Shield, 184 Boards of directors, 8, 25, 73-79 Boston Children's Service Association, 58, 104, 105, 132, 176; revenues of, 234-235, 236-237, 238, 239, 241, 242, 244 Boundaries: of state, 5; between sectors, 19, 110, 179-180; between public and private, 118; between community and market, 204-205 Bulmer, Martin, 215-216 Burnham, Walter Dean, 32 Bush administration, 62, 208, 213 Bush, George, 3-4, 5, 17, 111, 183. See also Thousand points of light California, 64 California Association of Nonprofits, 178 Cambridge Family and Children's Service: revenues of, 234-235, 236-237, 238, 239, 241, 242, 244 Cambridge Family Services, 76 CARE, 38 Carter, jimmy, 212 Case management, 231 Cash flow, 147-148, 151-157 Catholic Charitable Bureau, 123 Catholic Charities U.S.A., 8-9, 39, 75 Center for Human Development, 67, 77, 240, 243 Certification, 68, 225-226 Chanan, Gabriel, 90 Charitable gifts, 185. See also Private contributions Charity care, 18, 48, 86, 213

286 Child and family services, 8, 105, 107, 140-142, 174-175. See also under individual nonprofits Child and Family Services of Hartford, 104, 109, 114; revenues of, 234-235, 236-237, 238, 239, 241, 242, 244; 259n63 Child and Family Services of New Hampshire, 176; revenues of, 234235, 236-237, 238, 239, 241, 242, 244 Child Welfare League of America, 4, 63, 69, 183 Children's Bureau, 102 Children's Friend and Service, 70, 104; revenues of, 234-235, 236-237, 238, 239, 241, 242, 244 Children's Hospital National Medical Center, 175 Citizens, 118; participation, 4, 12, 210, 211; interest, 12; empowerment, 72, 73; choice, 189 Citizenship: issues of; 16, 207-211, 217 Clients, 9; trust, 28, 29; profiles, ] 02]03, 120, 133; selection, 121-122, ]24, ]27, 128, 144-145, 219, 220, 221, 251n24; pool, 128-129, 159; base, 139-140; referrals, 140, 146, 153; discharge process, 145-146; census, 152, 153; flow, 152-153 Coastal Community Counseling Center, 60, 77; revenues of, 240, 243 Communal provision, 215 Communities: of interest, 74, 94; of limited liability, 216 Community, 20-21, 26, 72-73, 74,208, 268; defined, 22-25; relationship to, of nonprofits, 40; support, 93-94; reputation measure, 201; organizations, 212 Community action agencies, 60, 112, 135-136, 139 Community Chest, 51, 52, 70, 76 Community mental health centers, 17, 60, 112, 139 Community Services Administration, 135 Competition, 106, 188-189, 190, 194, 195,202

Index Concilio Hispano de Cambridge, 105, 113; revenues of, 240, 243 Conformity, 135-136 Conservatism, 114-115,211-212, 279n3 Consolidated Neighborhood Services, Inc., 67 Contract failure, 28-29 Contractin~98, 118, 148,158,171173, 203-205, 211, 227; practices of, 4, 144, 181, 184,206; nature of, 6, 9, 10, 18,56, 73, 151; process, 10, 147, 150,157-163,198; effectso£ 40,8992,96,116,119,134,149-150,205; rationales for, 191-199,221; reform of, 163, 216, 222-223, 227; in Britain, 280n9 Contracting regime, 43-45, 120, 160, 186, 221-222, 229; impacts on nonprofits, 40, 85-86; and on personnel, 81,84,110-111; and on services, 144; and on clients, 120; corporatist politics of, 179-182; citizenship under, 207, 211; future of, 215-216, 227 Corporatist: politics, 173, 179-182; relationship, 187 Cost: effectiveness, 85-86, 135, 220; savings, 98, 171, 191-192, 193-197; shifting,229 Court diversion programs, 134 Credit, 154-155 Cronin, Father John, 103 Cutbacks, 13, 16, 193, 203, 208, 209. See also Federal cutbacks Dahl, Robert A., 73 DARE. See DYnamic Action Research Enterprise Daycare, 129, 130, 133, 137, 165, 277n19 Daytop Village, 212 Decentralization, 71, 231 Decision making, 32-34 Deficits: of selected agencies, 236, 237 Deinstitutionalization, 57, 65, 134, 140, 192 Democracy, 13, 92

Index Department: of Health and Human Services, 7; of Housing and Urban Development, 63, 88-89 Deprofessionalization, 99, 101, 108-111 Deregulation, 189 Derthick, Martha, 257nn38,42 Developmental disabilities programs, 65-66, 68, 132-133 Disabled: services for, 105-106, 151 Diversification, 131-134, 160-161 Donahue, John D., 172 Donations, 8. See also Charitable gifts; Private Contributions Drug and alcohol abuse, 8,64,112, 165, 166 Durham Housing Authority, 24 Dynamic Action Research Enterprise, 77, 107, 136-137, 240, 243 Economic perspective, 27 Ecumenical Social Action Committee, 61,67,78,92,93, 136;revenuesoL 240, 243 Electoral: campaigns, 175; system, 210 Empowerment, 18,72,212,213 Emergency Food and Shelter Program, 64 Emergency shelters, 142-143, 166 Employment statistics, 6-7 Endowments, 52-53; of selected nonprofit~ 23~ 241, 242 Entitlement, 15, 110, 207, 208, 209, 219, 230 Entrepreneurs, 252n36 Equity, 121, 122-123,141,152,209, 216, 221, 223 Esping-Anderson, Costa, 37 Evaluation, 82-83, 106-107, 174, 202; of process, 83, 201, 228; of performance, 199-201 Executive: directors, 71, 79, 81-87, 96; recruitment, 81; power, 91-92; branch, 173-175 Executives, 86, 165, 173-174. See also Professionalization Facilities, 137-138 Family Service America, 9, 63

287 Family Services of Greater Boston, 87, 104, 176; revenues of, 234-235, 236237, 238, 239, 241, 242, 244 Federal: cutbacks, 10, 67, 71; government, 16; role, 16, 229-230; funding, 17-18,51,53-57,62-64,175; spending, 54-55, 64, 208, 209; block grants, 56; categorical programs, 56 Federal Emergency Management Agency,64 Fee-for-service, 67 Fees, 52,64, 69, 208-209; at selected agencies, 234, 235, 238, 239, 241, 242 Fetter, Frank A., 48 Financial Accounting Standards Board, 185 Fiscal: requirements, 88; integrity, 121; stability, 150 Flexibility, 138, 160, 171, 192, 197-199, 208 Florida, 130 Food and Nutrition Service, 143-144 Ford Foundation, 54, 139 Formal care, 78, 85, 115, 216. See also Informal care Formalization, 96, 266n39 For-profit: sector, 95, 172; social service organizations, 30-31 Foster Grandparents, 212 Foundation for Infant Paralysis, 164 Foundations, 11 Franklin Community Action Corporation, 10; revenues of, 240, 243 Friendly House, 53, 59; revenues of, 241-242, 244 Funding: nongovernmental, 11, 133, 163, 228 Fundraising, 52, 149 Garbage collection, 189 General Accounting Office, 64 Gilbert, Neil, 17 Glazer, Nathan, 18, 19, 100 Goal succession, 163-167 Goldmark, Peter, 181 Governance, 25, 75-76,81, 96 Government: 25, 72, 159,209-210; dependence on, 4, 5-6; dominance, 6,

288 Government (continued) 44-45, 144-145,224; intrusion, 13, 18,26,102,173,203,204,226;regulation, 79,99-100, 108, 120, 144, 181, 215; incentives, 103-105; requirements, 105-106, 109, 137-138, 181, 185-186; reimbursement practices, 151-152; expansion, 193, 203; oversight, 203; priorities, 160, 163, 190-191, 217; services, 222-223 Government funding, 8-9, 17-18; extent of, 4, 5, 6, 54, 161; impacts of, 13, 46-47, 88, 96-97, 103-108, 133, 153, 167; history of, 46-53, 54-57, 62-66; in Europe, 110; of selected nonprofits, 235-237, 243, 244 Government-sponsored agencies, 39, 40, 60-61, 132, 139-140, 240, 243; governance, 76-77; personnel, 87 Gray Areas Project, 54, 139 Great Cheese Giveaway, 129, 143-144, 222 Great Depression, 13, 50 Greisheimer, Jean B., 87 Harbor Schools, 67,77, 109; revenues of, 240, 243 Hartford Retreat, 47 Head Start, 7,9,56,209, 275n7 Heclo, H~gh, 177 Herzlinger, Regina E., 100 Historical precedents, 35-36 Holy Family Shelter, 69 Homeless programs, 64, 152-153 Homogenization, 145 Houle, Cyril 0., 8 Illinois, 271-272n19 Immigration services, 49 Incentives, 282n22 Incrementalism, 59 Inflation, 159 Influence, 6,146,171,173,174 Informal care, 78, 113, 115, 215, 231. See also Formal care Information gap, 90 Innovation, 133, 134, 136, 139, 160, 212 Input standards, 201

Index Institutionalization, 96-97 Insurance, 64, 68 Intermediate care facilities, 66, 82 Internal Revenue Service: section 501(c)(3), 183, 278n25; section 103, 276n8; section 501 (c) (4), 278n25; rulings, 282n3 Interpenetration, 19, 95, 179-180 Investment income, 52; of selected nonprofits: 235,23~ 23~ 241; state bonds as, 275-276n8 Issue-attention cycle, 273n3 James, Estelle, 27 Jewish Family and Children's Bureau, 123 Jewish-sponsored agencies, 257n45 Jobs for Youth-Boston, Inc., 67; revenues of, 240, 243 Judge Baker Guidance Center: revenues of, 234-235, 236-237, 238, 239, 241, 242, 244 Juvenile offender programs, 82 Kansas, 49 Kansas City, 175 Kentucky, 49 Key Program, 67,76,77, 107, 109, 259n66; revenues of, 240, 243 Krasker, William S., 100 Law Enforcement Assistance Administration, 142 Lebeaux, Charles N., 16 Legislation, 54, 62; Community Mental Health Centers Act, 54; Economic Opportunity Act, 54; Social Security Act, 55, 275n6. See also Title: N-A, IVB, IV-E, XX; Omnibus Budget Reconciliation Act, 62; Homeless Assistance Act (Stewart B. McKinney Act), 63, 214, 275n7; Job Training Partnership Act, 79,91, 264n20, 281n20, 282n22; Comprehensive Employment and Training Act, 82; Family Leave Bill, 183; Family Support Act, 213, 229; for disabled, 270n4; Runaway Youth Act, 258n53

Index Legislatures, 159-160, 175 Lipset, Seymour Martin, 92 Load shedding, 188, 189 Lobb~ng, 37,93, 150-151, 172, 173, 174, 176-177. See also Advocacy; Political activism Luna, Jorge, 94-95 Lutheran Family and Children's Services, 75 Mace, Myles L., 76 McLean Hospital, 47 Majone, Giandomenico, 100 March of Dimes, 166 Market: failure, 27-28, 30, 31, 35; models, 157, 174, 180, 190-191, 199, 265n36; efficiencies, 231 Marshall, T. H., 14-15,217 Maryland, 49 Massachusetts, 4, 6, 36,69, 157, 189, 277n20; Department of Mental Health, 104; Department of Social Services, 129, 141; Department of Public Welfare, 140-141, 202 Massachusetts Association of Home Care Providers, 178 Massachusetts Council of Human Service Providers, 178, 181, 196, 276nl1 Massachusetts Fair Share, 156 Massachusetts Society for the Prevention of Cruelty to Children, 38, 58, 75,87,102,114,176; revenues of, 234-235, 236-237, 238, 239, 241, 242, 244 Mediating: function, 26, 73, 209, 212; institutions, 26 Medicaid, 63, 67-68, 230 Medicalization, 68 Medicare, 63, 230 Mental health agencies, 8,9,68, 106 Methodist Hospital of Houston, 282n3 Minimal government, 89-90 Minnesota, 64 Minute Man Association of Retarded Citizens, 78, 83, 92, 114; revenues of, 240, 243 Mismanagement, 145, 156 Monopolies, 175

289 MotherJones, 31 Mount Sinai Medical Center of Greater Miami, 175 Ms., 31 Mutual dependence, 44, 195 Myrdal, Alva, 15, 16 National Council of Nonprofit Associations, 178 National Geographic Society, 31 Negotiated Investment Strategy, 277n17 Neuhaus, RichardJohn, 18 New community agencies, 7,39-40, 6162,150,177,218, 249n8; gove~ nance, 77-79; maturation of, 94; revenues of selected, 240, 243 New Deal, 101 New England Home for Little Wanderers, 8, 75, 109, 133; revenues of, 234-235, 236-237, 238, 239, 241, 242, 244 New Jersey, 51 New York City, 4, 6-7, 9, 64 New York Hospital, 47 New York State, 7, 49, 51, 64 Nonmonetary compensation, 196 Nonprofit organizations, 3, 22, 27, 3536, 38, 47, 106-107, 245n1; relation to government of, 39-46; politicization of, 93, 185; management of, 147-148; purposes of, 148-149, 162, 166-167, 186-187, 192,217;power of, 164-165; associations of, 177-179, 181,224-225; revenues of selected, 234-244. See also Government-sponsored agencies; New community agencies; Traditional agencies; Voluntarism; Voluntary Nonprofit personnel, 13-14,88, 98, 117, 197. See also Executives; Streetlevel Bureaucrats; Volunteers Nonprofit status, 24, 34-35, 38, 185186. See also Internal Revenue Service Nonprofits: political theory of, 26-27, 31-32; economic theory of, 27-31 North Carolina, 4 North Carolina Association for Home Care, 178

290 North Dakota, 51 Norway, 272n23 Offe, Claus, 180 Office of Economic Opportunity, 54, 56, 135 Oklahoma, 55 Open Door Shelter, 272n22 Organizations, 92, 96, 117, 149, 148151 Parents Anonymous, 268n22 Parochialism, 218-219 Particularism, 115, 123,216,219 Payment priorities, 155 Peace Corps, 12, 212 Peer counseling, 85 Pennsylvania, 49, 51 Pennsylvania Hospital, 47 Performance-based con tracting, 81, 91, 200, 228 Perkins School for the Blind, 105-106, 109,112,133 Philadelphia Society for Organizing Charity,48 Phoenix House, 61 Pikes Peak Mental Health Center, 262nl11 Pinchot, Gifford, 15 Policy issues, 116, 145, 163, 171-172, 177,180,214 Political: activity, 3, 146, 172, 175-176, 210; process, 173-177; community, 206 Politicization, 93, 185 Politics: symbolic, 211-215 Polity, 14-19,207 Power, 88, 91 Private contributions, 8, 26, 52, 59, 69; in selected agencies, 235, 238, 239, 241 Private: sector, 206-207, 210-211; practice, 117 Privatization, 18, 188-191, 203-205, 210, 231 Problem solving, 43-44 Professionalism, 84, 94, 95 Professionalization, 83-87, 100-108, 110

Index Profitability, 95 Profit-making activities, 31, 37, 184-185 Profit margins, 227-228 Progressive Era, 49, 50 Programs: 135-137, 148, 153-154; requirements for, 11-12, 80-81, 200 Prospect House, 60, 105; revenues of, 240, 243 Protective services, 160 Public: policy, 13-14, 118, 188; institutions, 190; sector, 206, 230-231; health insurance, 230 Public Interest Research Group, 213 Purchase-of-service, 4-5, 55-56, 193. See also Contracting Quality control, 11-12 Rape crisis centers, 85, 105, 110, 112, 137 Rationalization, 224-227 Rationing, 142 Reagan administration, 62-66, 136, 229 Reagan, Ronald, 62, 208 Refugee resettlement, 222 Reich, Robert B., 18-19 Reimbursement, 151-152, 154, 223-224 Research and development, 56, 228 Responsiveness, 93, 121, 123-127, 192, 205,217 Revenues, 57, 70-71,100,128,154 Risk, 18,227,229 St. Louis, 7, 8 Saint Mary's Home for Children, 52, 102-103, 105; revenues of, 234-235, 236-237, 238, 239, 241, 242, 244 St. Vincent's Home for Children, 103 Salamon, Lester M., 30 Salaries, 116, 155, 195-197 Salvation Army, 76 Sectarian organizations, 8, 39,49, 75. See also under individual agencies Secular organizations, 75, 95. See also under individual agencies 1736 Family Crisis Center, 262n111 Self-help organizations, 112, 212. See also New community agencies

Index Service: sector, 6, 182, 210-211; efficiency, 85,121; mission, 86, 121, 123, 134; standards, 99, 101-102, 201, 225; philosophy, 99, 121, 145; providers, 120, 130; personnel, 181182 Services, 57-62,99, 134-144, 158, 159, 222; provision of, 171, 188, 194, 206 Settlement houses, 50, 53, 58-59 Shortstop, Inc., 81, 94; revenues of, 240, 243 Social: provision, 14-16,17,120; responsibilities, 20-21; policy, 165, 231; activism, 212-213; class, 214; values, 232 Social Security Disability Income, 66 Social Security Insurance, 67 Social Security tax, 156 Social Service Block Grant, 62, 63 South Carolina, 283n10 Specialization, 103-108 State and local funding, 51, 63, 65, 208 States: contracts, 4, 9, 49, 55-56, 131, 136; powers, 11-12; role, 232 Street-level bureaucrats, 13, 98, 115-119 Supplemental Security Income, 66 Surpluses, 283n12 Tax benefits, 185 Teachers' Insurance and Annuity Association, 224 Temporary Emergency Food Assistance Program (TEFAP). See Great Cheese Giveaway Thousand points of light, 4, 5, 17, Ill, 213, 214 Title: IV-A, 55, 58,59; IV-B, 63; IV-E, 63; XX, 55, 58, 59, 62 Tocqueville, Alexis de, 3, 14, 26, 73 Traditional service agencies, 38-39, 5254,57-60,73-74, 108; governance of, 75-76; personnel of, 87; diversification in, 132; revenues of selected, 234-235,236-237,238,239, 241, 242, 244 Transfer of cash, 59 Undercapitalization, 68, 70, 154-155, 282n12

291 United Way of America, 8, 11,52,6970,81,117,131,150,226, 227; contr~ butions to selected agencies by, 238, 239, 241, 242 Uniformity, 135-138 Universalism, 216, 219 Urban Institute, 55 U.S. Small Business Administration, 184-185 Values, 12, 23, 98 Venture grant programs, 226-227 VISTA, 12, 212 Voices of the Homeless, 38 Voluntarism, 12, 14, 111-112, 114, 211212, 215; impact of, 18-19; as policy, 115 Voluntary: sector, 12-14, 132-133; action, 23; organizations, 24, 112-114; failure, 30, 31-32 Volun teer associations, 39-40 Volunteerism. See Voluntarism Volunteers, 7-8, 40, 98-100; roles of, 25-26,74,90-91, 111-114; and clients, 125-126 Walzer, Michael, 15 War on Poverty, 54, 135 Webster House, 89,108-109; revenues of, 234-235, 236-237, 238, 239, 241, 242, 244 Welfare provision, 21, 101-102, 190. See also Service provision Welfare state, 11, 14, 19,20,37,98, 184,188, 219-220; American, 16, 17, 37,207,211 Welk, James W., 48 West Virginia, 130 Wilensky, Harold L., 16 Wolfe, Bill, 39 Wolfe, Scott, 39 Wolfensberger, Wolf, 90 Women, Infants, and Children Supplemental Nutrition Program, 128 Worcester Area Association of Retarded Citizens, 53, 78,88,92, 104, 114, 115; revenues of, 240, 243

292 Worcester Children's Friend Society, 47,51,70, 108, 268n24; revenues of, 234-235, 236-237, 238, 239, 241, 242, 244 Work conditions, 117, 195-196 Wright, Gerry, 77

Index Young Men's Christian Association, 164, 166 Youth Opportunities Upheld, Inc., 60, 259-260; revenues of, 240, 243 Youth programs, 112, 151