Time to pay up!

If governments are going to fund charities to provide services in our communities, they need to pay for what it is being delivered, writes Community Council for Australia CEO David Crosbie.

The one step governments could take tomorrow to build productivity, capacity, innovation and effectiveness of their community programs is to fully fund charities for the work they are contracted to do, taking into account all the associated costs including infrastructure, IT, research and evaluation, staff training and development.

In January 2010, the Productivity Commission released a report overseen by Robert Fitzgerald into the Contribution of the Not-for-Profit Sector. Much of what was written in that report is still current. 

Progress has been made on several of the Productivity Commission’s recommendations – most notably to establish a “One Stop Shop” regulator – but in most areas, recommendations have not been adopted and the proposed reforms have not eventuated. The core issues remain the same. In fact, in many areas, the situation for charities has deteriorated, with increased competition and more pressure to restrict government expenditure. 

Like most reports on the charities sector, the 2010 Fitzgerald Productivity Commission report focused many recommendations on the relationship between governments and the not-for-profit sector. As we all know, relationships between governments and charities vary significantly and are often more complex than they appear. 

There are the surface interactions, as well as the implied communications, often grounded in a power imbalance where many government departments may be able to directly determine the financial viability of the charities they fund. 

As ANU academic John Butcher noted in New Accountabilities, New Challenges:

“Just as not-for-profit (NFP) service providers have become dependent upon government grants and contracts for a significant share of their income, so too state and territory governments have become dependent upon NFP service providers for the delivery of public policy and programs. Notwithstanding the interdependence of the public and NFP sectors, this is not a relationship of equals. A number of formal reviews have confirmed that NFP service providers often operate within significant constraints imposed by government policy, including high transaction costs, financial uncertainty, onerous reporting requirements, micromanagement, excessive focus on inputs, and failure to fund the full cost of service delivery.”

Having been a co-chair of the National Compact Expert Reference Group which worked to formalise an agreement of principles and practice between charities and government agencies, I have had many discussions about this relationship. Senior government officials are generally able to point to one or two examples where they and their department is working positively with the charities sector. The reality is that these highlighted examples of good practice are usually the exception.

There are many tension points between governments and charities, but the combination of underfunding and micromanagement is endemic. Charities only rarely publicly voice concern about this issue (for fear it may jeopardise their future government funding), but it is a recurring theme in discussions within and between government funded charities. What is of particular note about this issue is that it is not improving. 

This is a recommendation from a Productivity Commission report into charities in 1995:

“Where governments set the price at which they purchase a service, they should take into account:

• training, coordination and indemnification of volunteers involved in service delivery;

• training of staff involved in service delivery;

• training of board members and administrative staff required for organisational support; and

• any changes governments prescribe in award or other employment conditions.”

(Productivity Commission, Inquiry into Charitable Organisations in Australia, 1995)

In an ACOSS survey of social service providers conducted in 2008, only 8 per cent of respondents agreed with the statement: Government funding covers the true cost of delivering contracted services. Almost half the respondents strongly disagreed with this statement and a further 40 per cent disagreed. With ongoing cuts to community service providers including freezing of indexation, this situation has only got worse.

The 2010 Fitzgerald Productivity Report conducted a survey of government officials involved in working with charities and not for profits. The survey found that overwhelmingly government agencies view their engagement with NFPs in the delivery of human services as a “partnership” (88 per cent of agencies and 79 per cent of programs). The same report provided extensive evidence that few charities share this view. 

As Fitzgerald has commented on numerous occasions, the disparity between government officials views of their relationship with charities and the charities view of their relationship with government officials represents one of the widest perception gaps he has ever encountered.

Sometimes in our discussions within the sector and with governments, we tend to ignore the obvious. We know the level of government funding for charities to provide contracted services is generally inadequate, yet somehow this has become an acceptable situation, something we have to live with. Apparently charities and the communities they serve should be grateful there is any funding at all! 

Call it efficiency dividends, budget savings measures, cuts or whatever you like, if governments are not paying the full price of contracted services, including annual indexation, they are undermining service providers. Charities are not seeking to profit from services, just to receive enough funding to be able to provide quality community services.

Charities are not militant and are unlikely to go on strike or refuse to offer their services. In fact, charities are often so busy advocating for their communities, so committed to their work, that advocating for their own organisations seems indulgent and self-serving. But if charities do not stand up to governments and demand appropriate levels of funding for the invaluable work they are being contracted to do, how will this situation change?

Twenty-five years ago, the Productivity Commission recommended that governments needed to fully fund the services they were purchasing through charities. Twenty-five years later, an unacceptable situation has been perpetuated, tolerated, and is now even portrayed as good practice. It isn’t. Underfunding charities increases risks, reduces productivity, limits effectiveness, and ensures government programs do not realise their potential. 

It is time we publicly stated the obvious. If governments are going to fund charities to provide services in our communities, they need to pay for what it is being delivered, including all the costs of delivering quality services. Anything less should not be accepted. 

About the author: David Crosbie is CEO of the Community Council for Australia. He has spent more than 20 years as CEO of significant charities including five years in his current role, four years as CEO of the Mental Health Council of Australia, seven years as CEO of the Alcohol and other Drugs Council of Australia, and seven years as CEO of Odyssey House Victoria.

David Crosbie writes exclusively for Pro Bono News on a fortnightly basis, covering issues of importance to the broader not-for-profit sector.