The New Nonprofit Almanac and Desk Reference, a joint publication of Independent Sector and NCCS (Jossey-Bass, 2002) estimates that federal, state, and local government spending directed to nonprofits amounted to $207.8 billion in 1997, including Medicare, Medicaid, and government grants. Excluding health services, the total falls to $70.1 billion.
On the Form 990, government revenue appears on line 1(c) (government grants) and in Part VII (government contracts, Medicare/Medicaid). However, reported revenue from Medicaid and Medicare appears to be significantly understated so sources other than the IRS Form 990 should be used for these two items.
In 1999, government grants only made up about 8 percent of revenue for all reporting charities (about $59 billion), but represented a higher proportion for human service, international, and public benefit organizations. This, of course, does not include the government money from Medicare and Medicaid, and the revenue from contracts for providing services directly to the government, which are reported under program service revenues.
Another source of government support for charities is more indirect, as individuals may receive grants or subsidies and then use them to pay fees for services and goods provided by nonprofits. This would include, for example, primary and secondary school vouchers or college scholarships. Further research is necessary to measure this source of government support for charities.
Most of what we commonly think of as "government contracting" revenue is reported on the IRS Form 990 under line 1c, government grants. The IRS instructions must be read carefully to understand why. For purposes of calculating whether an organization meets its "public support test," government revenue used to advance the exempt purposes of the nonprofit organization are considered grants, regardless of whether the government agency and the nonprofit think of the funds as "contract payments."
(The public support test, a legal requirement for federal 501(c)(3) public charity status, requires that organizations must receive a substantial portion of their revenues from the general public, which includes the government, if they wish their donors' contributions to be 100% tax deductible. In contrast, organizations that receive all of their funding from a small number of individuals year after year are classified as private foundations and donations to them are only partially deductible.)
Thus, many more organizations report government grants (Line 1c) than fees from government contracts (Part VII) on the Form 990.
The IRS Form 990-EZ does NOT separate government funding from other sources of public support or program service revenue.
More on Government Spending in the Health Care Sector
In the nonprofit sector, hospitals receive the largest share of government revenue.
Sixty-one percent of the 4,915 community hospitals in the U.S. are nonprofits. (There are nearly 900 long-term care hospitals and federal government hospitals in addition to the community hospitals.) (American Hospital Association, Hospital Statistics, 2002 edition)
Hospitals had health care expenditures of $412.1 billion in 2000. Overall, Medicare pays for nearly 30.5% of hospital care; Medicaid pays for almost 17 percent. http://www.cms.hhs.gov/DataCompendium/ (HCFA 2000) Including other government revenue, the hospital industry receives 59 percent of its health care funding from government.
A separate line for Medicare/Medicaid revenue was added to Part VII of the IRS Form 990 in 1997. However, reporting in 1998 appeared poor. Only a small percentage of hospitals with assets greater than $10 million reported anything on this line. (I.R.S. Statistics of Income Division, SOI 501(c)(3) Sample & NCCS-GuideStar National Nonprofit Database, FY 1999).
There is no single reliable source of data on Medicare and Medicaid revenue for the nonprofit sector. NCCS uses a combination of sources in estimating the total revenue received by the sector from these programs. Sources include:
- The U.S. Health Care Financing Administration (http://www.hcfa.gov/stats)
http://www.cms.hhs.gov/statistics/nhe/default.asp - General
http://www.cms.hhs.gov/researchers/pubs/datacompendium/ - Current year
http://www.cms.hhs.gov/statistics/nhe/historical/ - Historical tables
- The American Hospital Association (http://www.aha.org/index.asp)
- Nonprofit Almanac
- The U.S. House of Representatives, The Green Book
Federal vs. State and Local Government Spending
How much do state and local governments spend? There are no precise estimates and the proportion of spending from state and local governments will vary by state.
Rough estimates suggest that the federal government provides approximately 60-70% of government funding.
Gais, Burke, & Corso (The Nelson A. Rockefeller Institute of Government, The State University of New York), A DIVIDED COMMUNITY: THE EFFECTS OF STATE FISCAL CRISES ON NONPROFITS PROVIDING HEALTH AND SOCIAL ASSISTANCE (2003) http://www.rockinst.org/pdf/workforce_welfare_and_social_services/2003-11-03-a_divided_community_the_effects_of_state_fiscal_crises_on_nonprofits_providing_health_and_social_assistance.pdf
Michael Lipsky and Steven Rathgeb Smith (especially human service organizations)
Lester Salamon (various works)
Margaret Wyczomirski (arts organizations)