State Budget Earmarks for Nonprofits: A Mix of Good and Bad News

4 minute read

David Heinen, Vice President for Public Policy and Advocacy, North Carolina Center for Nonprofits

June 27, 2019

Over the past three years, state legislators have included a wide range of earmarked appropriations to nonprofits in their final version of the state budget. These special appropriations typically are made to support organizations in districts represented by legislative leaders, budget writers, and House and Senate members who are undecided about whether to support the state budget and may need some extra motivation to press the green button for a "yes" vote. Almost all of the earmarks have appeared for the first time in the final version of the budget, so they haven't been vetted by committees or by the full Senate and House of Representatives.

In this year's budget (H.B. 966), legislators doled out more than $117 million to 207 nonprofits. This is a big increase in special nonprofit appropriations over the last two years when legislators approved about $22 million in earmarks to 148 nonprofits (2018 state budget) and $19 million in earmarks to 91 nonprofits (2017 state budget). Prior to 2017, there hadn't been many earmarked appropriations to nonprofits in the budget for more than a decade. The earmarks in this year's budget go to a wide range of nonprofits, including private schools, faith-based and secular direct service providers, community health corpoprations, free clinics, community development centers, crisis pregnancy centers, early childhood organizations, YMCAs, Boys and Girls Clubs, conservation organizations, museums, prison ministries, arts and cultural organizations, and volunteer fire departments.

While some analysts decry these earmarks as "pork," legislators are quick to point out the investment in nonprofits providing critical services for their communities. So, are these earmarks a positive or negative development for the nonprofit sector? The answer is: A little of both! From the nonprofit sector's perspective, here are three positives and three negatives of the trend in earmarked appropriations for nonprofits.

First, the good news:

  1. It is wonderful that elected officials recognize and support the important work being done by nonprofits in their communities. At a time when fewer North Carolinians are making charitable contributions and private donations to nonprofits are trending downward, many organizations will gladly welcome a new revenue source.
  2. This uptick in appropriations for nonprofits reverses a long-term trend of reductions in state investment in the work of nonprofits. Before the recession near the end of the last decade, state grants and appropriations to nonprofits typically comprised about 2% of the overall state budget. After 2008, legislators significantly reduced the percentage of state funding that was invested in grants and appropriations to support the work of nopnrofits in communities. Under the leadership of both major political parties over the past 12 years, nonprofits have had to rely less and less on state funding as a revenue source, as state grants and appropriations to nonprofits have been between 1.1% and 1.5% of the overall state budget each year. The earmarks for nonprofit appropriations represent about a quarter of one percent of state spending for the next two fiscal years. While this percentage may seem low, it could help (finally) bring state investment in nonprofits' work back to pre-recession levels.
  3. This shows that nonprofit advocacy actually works. It's not hard to imagine the process for deciding how to allocate the earmarks in this year's budget (some of which also went to local government projects). Legislative leaders likely asked individual House or Senate members what state appropriation would most benefit their district. Their answers would largely indicate the first institutions that came to their mind as truly benefitting their communities. In many cases, these were local nonprofits. This is not an accident, but rather it is largely the result of these nonprofits' effective advocacy. That advocacy likely included nonprofit leaders talking with their elected officials about the impact of their organizations' work in their communities (without necessarily ever asking for government funding), inviting elected officials to see their work first-hand, and sharing the stories about the lives that have been touched by their nonprofits in traditional media and social media.

On the other hand, nonprofits also should have some concerns about the trend of last-minute appropriations to nonprofit organizations:

  1. This is neither a predictable nor a sustainable source of funding for most nonprofits. These appropriations will come as a surprise to many of the nonprofits receiving them, and most of these organizations probably have not included the extra revenue in their budgets for the year. While it is hard to imagine a nonprofit complaining about an unexpected infusion of cash, some of the organizations receiving these appropriations may not be prepared to spend it immediately. Also, because most of these appropriations are one-time grants, nonprofits may need to explain to their other funders why this unexpected bump in their budget isn't likely to be repeated and therefore shouldnt' supplant other funding sources.
  2. Providing unvetted earmarks isn't the best process for making decisions about the investment of taxpayer money. Typically, legislators and/or state agencies carefully vet nonprofits that receive state grants and appropriations to ensure that the organizations' work is aligned with state priorities, that the grantees are likely to achieve appropriate outcomes and have a meaningful impact, and that nonprofits receiving state money have good financial and operational practices in place. Because these earmarks bypass the usual deliberations of appropriations committees and subcommittees and aren't competitive grants through state agencies, none of these safegaurds are in place. Furthermore, these earmarks are not evenly distributed throughout the state, so taxpayers from all 100 counties of North Carolina are ultimately paying to support the work of nonprofits in a few select geographic areas.
  3. These earmarks have the potential to damage the public's trust in the work of nonprofits. Critics of the state budget will be quick to point out particular "pork" projects - including some appropriations to nonprofits - as one of the maladies of this year's spending plan. Inevitably, the nonprofits receiving these funds - the vast majority of which are doing extremely valuable work - will have their reputations tainted. Furthermore, inadequate vetting of nonprofits receiving these funds and the "surprise" nature of these appropriations to the recipient nonprofits increases the likelihood that an organization will misue these state funds, whether through malfeasance or simply by being unprepared to receive and spend an appropriation. Inevitably, the negative media attention about one particular nonprofit that will ensue is likely to damage the public's trust in all nonprofits.