Public-Nonprofit Partnerships: Selecting the Right Partners
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Linda-Marie Sundstrom & Mark Kling
June 10, 2022
With inflation increasing and government budgets tightening, many public agencies are having to do more with less funding. One way for some government departments to continue providing services to the community, despite budget reductions, is by partnering with local nonprofit organizations. Innovative partnerships can expand the reach of services without the entire financial responsibility being the sole burden of government agencies.
In Southern California, the City of Rialto’s Police Department was faced with increased calls for service due to issues involving individuals who were homeless. This came at a time when police budgets were facing defunding activists, but the number of homeless individuals was increasing regionally, especially in their city. Realizing the police department could not “enforce” their way out of the homeless problem, they turned to a local nonprofit organization that specialized in transitioning homeless individuals into permanent housing. Police leadership developed strategies to partially fund nonprofit homeless services through city approved grant funding. This partnership was highly effective in addressing the growing homeless problem and freed up scarce law enforcement resources for use in other critical response areas.
These types of successful partnerships are becoming more common in local government agencies. What are some of the basic areas to consider when selecting a nonprofit partner? One place to start is by reviewing the nonprofit’s operational documents to determine if they are a viable partner:
Articles of Incorporation
Government agencies should review the organization’s Articles of Incorporation (AOI) and identify the specific purpose of the organization. The document should be reviewed to ensure the proposed partnership project falls within their stated purpose. For example, assume a nonprofit’s stated purpose is to build habitats along California Coastal Marine areas to preserve a certain variety of fish. If the nonprofit is called upon to help save another species of fish in the High Sierras, they may need to ensure alignment with their stated purpose in the AOI. After examination of their AOI, if it clearly states their “specific purpose” is to serve “California Coastal Marine” areas, the project High Sierras may not be possible. In order to work on the project, the nonprofit may need to amend its AOI, and submit the changes to the IRS for approval.
IRS Tax-Exempt Letter
Agencies should review the organization’s IRS Tax-Exempt Letter and ensure they are exempt under Section 501(c)(3) of the tax code, and that it is listed as a public charity. Until they receive the official letter from the IRS, the organization is not an official nonprofit.
Form 990
Most nonprofit organizations need to file an annual tax return, similar to their for-profit counterparts. There are informative details contained in the report. For example, we can find information such as the nonprofit’s total revenue and donations for the year. In the report, the nonprofit must also indicate their highest paid employees, outside contractors and many other items that may assist in evaluating the organization.
Annual Report
Many people believe that a nonprofit cannot “make a profit.” That is not true. Nonprofits should make a profit each year and have ample savings and investment for the proverbial “rainy day.” The difference between for-profit and nonprofit organizations is that nonprofits cannot distribute their profits to shareholders, unlike for-profit corporations. Reviewing an organization’s Annual Report, provides insights into their priorities, variety/size of donors and investments to indicate their financial stability.
Unrelated Business Income Tax (UBIT)
Many people assume that all income acquired by a 501(c)(3) nonprofit is exempt from federal taxes. That is not accurate. If a nonprofit receives donations or fees related to their approved IRS exempt purpose, then the income may be free from federal income tax. However, if the organization received income from a non-exempt purpose, it may need to be taxed as Unrelated Business Income. These taxes are similar to those of a for-profit corporation. For example, if a nonprofit gang-prevention organization, whose exempt purpose is to offer intervention services to at-risk youth, decides to sell t-shirts with their logo on it to raise money, they will most likely have to pay income tax. The tax would be based on the revenue received from the sales of the t-shirts because the activity has no direct relation to the mission and goals of the organization.
Conclusion
Government agencies may benefit from exploring partnerships with nonprofit organizations. However, decision makers in the public sector must be aware of the unique nature of nonprofit organizations. One way for government sector employees to stay informed of the ins-and-outs of nonprofit organizations is to explore the free, online courses provided by the IRS. These resources are found at the Stay Exempt website https://www.stayexempt.irs.gov/home/starting-out/starting-out. This series of short courses will help government agencies become better informed about nonprofit organizations, and may enable them to explore viable Public-Nonprofit partnerships in the future.
Author: Dr. Linda-Marie Sundstrom is a former Fulbright Scholar who taught Public Administration in eastern Ukraine. She worked for 20 years as a grant writer and consultant for government, nonprofit, educational and tribal agencies. She has taught in Master of Public Administration Programs for nearly two decades and is currently the MPA Program Director for California Baptist University in Southern California. Email: [email protected]
Author: Dr. Mark Kling has been in law enforcement for 35 years, 14 as police chief. He has taught both Public Administration and Criminal Justice courses for the past 20 years. He is currently the Criminal Justice Program Director for California Baptist University and came out of retirement to transition the Rialto Police Department to new innovative executive leadership. Email: [email protected] / [email protected]
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Public-Nonprofit Partnerships: Selecting the Right Partners
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Linda-Marie Sundstrom & Mark Kling
June 10, 2022
With inflation increasing and government budgets tightening, many public agencies are having to do more with less funding. One way for some government departments to continue providing services to the community, despite budget reductions, is by partnering with local nonprofit organizations. Innovative partnerships can expand the reach of services without the entire financial responsibility being the sole burden of government agencies.
In Southern California, the City of Rialto’s Police Department was faced with increased calls for service due to issues involving individuals who were homeless. This came at a time when police budgets were facing defunding activists, but the number of homeless individuals was increasing regionally, especially in their city. Realizing the police department could not “enforce” their way out of the homeless problem, they turned to a local nonprofit organization that specialized in transitioning homeless individuals into permanent housing. Police leadership developed strategies to partially fund nonprofit homeless services through city approved grant funding. This partnership was highly effective in addressing the growing homeless problem and freed up scarce law enforcement resources for use in other critical response areas.
These types of successful partnerships are becoming more common in local government agencies. What are some of the basic areas to consider when selecting a nonprofit partner? One place to start is by reviewing the nonprofit’s operational documents to determine if they are a viable partner:
Articles of Incorporation
Government agencies should review the organization’s Articles of Incorporation (AOI) and identify the specific purpose of the organization. The document should be reviewed to ensure the proposed partnership project falls within their stated purpose. For example, assume a nonprofit’s stated purpose is to build habitats along California Coastal Marine areas to preserve a certain variety of fish. If the nonprofit is called upon to help save another species of fish in the High Sierras, they may need to ensure alignment with their stated purpose in the AOI. After examination of their AOI, if it clearly states their “specific purpose” is to serve “California Coastal Marine” areas, the project High Sierras may not be possible. In order to work on the project, the nonprofit may need to amend its AOI, and submit the changes to the IRS for approval.
IRS Tax-Exempt Letter
Agencies should review the organization’s IRS Tax-Exempt Letter and ensure they are exempt under Section 501(c)(3) of the tax code, and that it is listed as a public charity. Until they receive the official letter from the IRS, the organization is not an official nonprofit.
Form 990
Most nonprofit organizations need to file an annual tax return, similar to their for-profit counterparts. There are informative details contained in the report. For example, we can find information such as the nonprofit’s total revenue and donations for the year. In the report, the nonprofit must also indicate their highest paid employees, outside contractors and many other items that may assist in evaluating the organization.
Annual Report
Many people believe that a nonprofit cannot “make a profit.” That is not true. Nonprofits should make a profit each year and have ample savings and investment for the proverbial “rainy day.” The difference between for-profit and nonprofit organizations is that nonprofits cannot distribute their profits to shareholders, unlike for-profit corporations. Reviewing an organization’s Annual Report, provides insights into their priorities, variety/size of donors and investments to indicate their financial stability.
Unrelated Business Income Tax (UBIT)
Many people assume that all income acquired by a 501(c)(3) nonprofit is exempt from federal taxes. That is not accurate. If a nonprofit receives donations or fees related to their approved IRS exempt purpose, then the income may be free from federal income tax. However, if the organization received income from a non-exempt purpose, it may need to be taxed as Unrelated Business Income. These taxes are similar to those of a for-profit corporation. For example, if a nonprofit gang-prevention organization, whose exempt purpose is to offer intervention services to at-risk youth, decides to sell t-shirts with their logo on it to raise money, they will most likely have to pay income tax. The tax would be based on the revenue received from the sales of the t-shirts because the activity has no direct relation to the mission and goals of the organization.
Conclusion
Government agencies may benefit from exploring partnerships with nonprofit organizations. However, decision makers in the public sector must be aware of the unique nature of nonprofit organizations. One way for government sector employees to stay informed of the ins-and-outs of nonprofit organizations is to explore the free, online courses provided by the IRS. These resources are found at the Stay Exempt website https://www.stayexempt.irs.gov/home/starting-out/starting-out. This series of short courses will help government agencies become better informed about nonprofit organizations, and may enable them to explore viable Public-Nonprofit partnerships in the future.
Author: Dr. Linda-Marie Sundstrom is a former Fulbright Scholar who taught Public Administration in eastern Ukraine. She worked for 20 years as a grant writer and consultant for government, nonprofit, educational and tribal agencies. She has taught in Master of Public Administration Programs for nearly two decades and is currently the MPA Program Director for California Baptist University in Southern California. Email: [email protected]
Author: Dr. Mark Kling has been in law enforcement for 35 years, 14 as police chief. He has taught both Public Administration and Criminal Justice courses for the past 20 years. He is currently the Criminal Justice Program Director for California Baptist University and came out of retirement to transition the Rialto Police Department to new innovative executive leadership. Email: [email protected] / [email protected]
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