How Governments Can Leverage Federal Funds to Partner With Local Nonprofits

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Connecting state and local government leaders

The American Rescue Plan allows states and localities to funnel federal relief dollars to nonprofit organizations, which the National Council of Nonprofits says could be key to local economic recovery.

State and local governments can use federal coronavirus relief funds to partner with nonprofit organizations in their communities, aiding local recovery efforts by expanding existing programs or creating new ones, the National Council of Nonprofits advises in a new report.

“Nonprofits and governments are natural partners, serving the same constituents in the same communities,” the document says. “Partnerships between the sectors allow for leveraging of resources, relationships, and strengths to serve those communities even better.”

The report seeks to serve as a resource for government officials who may not know that the guidelines for relief funds distributed through the American Rescue Plan Act specifically allow for assistance to nonprofit organizations. That funding is desperately needed, as most nonprofits have seen increased need from constituents while also facing layoffs and reduced donations during the pandemic, said Tiffany Carter, policy counsel at the National Council of Nonprofits and the report’s lead author.

“We’ve heard from government officials at all levels about the need to make this funding go as far as it possibly can. Nonprofits have the relationships with the people on the ground to implement that impact,” she said. “We wanted this report to empower nonprofits to say that under ARPA, governments are permitted to allocate that funding. It is clarified in the law, and it is clarified in the regulations, and we have a proven track record of getting things done, so this is where we want to go.”

The report is broken into sections, highlighting principles that government leaders can use to guide their funding decisions, recommendations for designing programs “with integrity,” and existing nonprofit relief models that have worked well in places across the country, which Carter said are “success stories that are transferable to different things.”

“If one organization needed to buy a building to expand food access and that worked in one community, for example, but what you need is a larger rec center for child care or more housing—the concepts are still transferable,” she said. “We wanted the report to be a blueprint for what works best for you. You know what you need more than we do—we just want to give you some ideas to help you implement those solutions a little bit easier.”

The report identifies unemployment insurance assistance as a top priority, noting that because many nonprofits choose to pay those expenses out of pocket rather than pay into state and federal insurance trust funds via employment taxes—typically a financially sound decision—they were slammed with enormous costs that weren’t recouped in previous rounds of federal funding.

“It was a huge hit for a lot of nonprofits—millions of dollars that were completely lost,” Carter said. “They were seeing these bills they’ve never seen before, through no fault of their own, and they weren’t covered the same as organizations that pay into the trust funds.”

Examples of Successful Models

A handful of states have implemented successful models to help both for- and nonprofit organizations recoup some of those costs. Last year, the report says, “Louisiana, Maine, Minnesota, and Pennsylvania provided immediate relief for contributing employers, including for-profit and some nonprofit employers, by using Coronavirus Relief Fund monies to cover the losses of those tax revenues resulting from cancellation or delay of unemployment insurance tax rate increases during the pandemic.”

In Hawaii, lawmakers used $700 million in CARES Act money to repay the federal government for the state’s unemployment insurance loan, while other states—including North Carolina, Delaware and Kentucky—implemented various strategies to provide 100% retroactive relief for employers who paid those costs out of pocket.

The report outlines strategies for relief in other areas as well, including a measure in Connecticut to use $15 million in federal funding to provide free access to museums for children and a program in Washington state to shore up child care resources for essential workers.

Government officials have so far been enthusiastic about the suggestions in the report, Carter said, and there’s a chance that some states and municipalities may put some of their own dollars toward relief measures, increasing the reach of both new and existing partnerships.

“Some officials have said, ‘Maybe we could put our state budgets toward this, or use it to leverage other funding,’'she said. “And I think the reason for that positive feedback is because they’re all of a sudden seeing nonprofits as part of future solutions, not just immediate needs.”

Kate Elizabeth Queram is a senior reporter for Route Fifty and is based in Washington, D.C.

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