Date of Award
2025-05-18
Degree Name
PhD Leadership Studies
Dissertation Committee
Marcus Lam, PhD, Chair Robert Donmoyer, PhD, Member Tessa Tinkler, PhD, Member Nathan J. Grasse, PhD, Member
Keywords
Keywords: nonprofit financial health, revenue diversification and concentration, revenue streams, government funding, nonprofit subsectors
Abstract
ABSTRACT
The nonprofit sector plays a vital role in society, partnering with the government to provide essential services across various fields, including education, healthcare, social services, arts and culture, and environmental protection. Salamon (1987) highlighted the cooperative relationship between nonprofits and the government, where nonprofits contribute expertise and community-based knowledge, while the government offers financial stability. Through this partnership, the government helps address “voluntary failures,” such as philanthropic insufficiency, particularism, and paternalism, which can limit a nonprofit’s ability to serve the public effectively. Given this close working relationship, understanding the financial health of nonprofits is crucial for ensuring their long-term sustainability.
This study examined the relationship between government support and nonprofit financial health, using Salamon’s (1987) nonprofits’ voluntary failure theory and Bowman’s (2011) measures of financial capacity as an analytical framework. Bowman’s (2011) financial health measures distinguishes between financial capacity and financial sustainability. This analysis focuses on three measures of financial health, months of liquidity, months of spending, and equity ratio, and assess the current, short-term, and long-term capacity of the nonprofit sector in San Diego and how it relates to government funding.
Although government funding is a critical revenue source for many nonprofits, empirical research on its relationship with financial health remains limited. Nonprofits receive funding from all levels of government, yet few studies examine how government grants as a whole are associated with financial health. Additionally, government funding often comes with spending restrictions, compliance requirements, and administrative costs, which may limit a nonprofit’s ability to build reserves, generate operating surpluses, or invest in long-term capacity building. Understanding these dynamics is essential for evaluating the trade-offs associated with government funding. These implications are especially relevant given the current cuts to federal grant programs under the Trump administration and the Department of Government Efficiency, which have introduced new restrictions and reduced access to funding for many nonprofit organizations.
This study addressed this knowledge gap with an examination of the nonprofit sector at the regional level. Specifically, data used for this research was from a cross section of tax data drawn from the Internal Revenue Service Form 990. The geographical focus of the study will be San Diego, California. The city’s diverse landscape and urban-suburban mix renders it an important case study site due in many ways to its proximity to the U.S.–Mexico border, impacting the socioeconomic and cultural composition of the city. This setting is pivotal, considering demographic trends, matters related to immigration, and funding dynamics unique to the border region.
This study analyzed a sample of 264 nonprofit organizations in San Diego to examine the relationship between government grants and financial health indicators. Key findings suggest that government grants had a statistically significant negative association with months of liquidity, indicating that increased government funding is associated with reduced liquidity, controlling for total assets, age, and revenue diversification. Sector-specific variations indicate a positive relationship between government grants and long-term capacity in arts organizations. Overall, government grants were found to have a consistent but modest relationship with nonprofit financial health across subsectors.
Document Type
Dissertation: Open Access
Department
Leadership Studies
Digital USD Citation
Jamshidi, Mehrnoush, "Striking the Balance: The Relationship Between Government Funding and Nonprofit Financial Health" (2025). Dissertations. 1058.
https://digital.sandiego.edu/dissertations/1058
Copyright
Copyright held by the author
