An important layer missing from this analysis: nonprofits have built their internal structures around the requirements of their funding sources, not the needs of their organizations. Both the reliance on and the instability in this significant revenue stream create organizations that can't plan past next fall.
The hybrid system was built on institutional distrust of nonprofits—rooted in a deeper, older distrust of the poor and the assumption that poverty is a punishment for moral failing. Every governmental dollar, state, federal, or municipal, arrives with surveillance: compliance requirements, reporting cycles, performance metrics, and renewal anxiety. Organizations hire entire departments—often one part-time person—dedicated solely to grant reporting.
Most funding sources compound this by chasing innovation—which makes it nearly impossible to fund overhead or sustain successful programming without repackaging what's already working as something new. This is one main root of the dreaded mission drift—the need to appeal to the funder's image of what support looks like, not the community's need.
The result is a workforce as unstable as the funding. According to the Social Impact Staff Retention Project (Flores Vryn & Wildstein, Candid.org, 2025), nearly 7 in 10 nonprofit employees reported planning to look for a new job that year. Nonprofit turnover now runs at 20–22% annually compared to 12–13% across other sectors—a gap that has held since the pandemic (Nonprofit HR/Social Impact Architects, 2024).
The top reasons are consistent: too much work and too little support (59%), limited growth opportunities (54%), unsupportive management (52%), and inadequate pay (50%). With funding so tight, middle management professionals are forced to job-hop between organizations in the same field just to get a raise and grow professionally.
These are the direct outcomes of working in a chronically underfunded, overmonitored sector that forces 22% of nonprofit employees to live in households that cannot afford basic necessities like housing and healthcare (CEP/Mission Edge, 2022).
Every development director in a small nonprofit knows what they're actually looking for: unrestricted private donor dollars with no earmarks. MacKenzie Scott proved the concept at scale. Organizations that received her grants described something close to relief — the capacity to finally do the work rather than perform it for funders requiring proof of just enough suffering combined with just enough competence as a condition of renewal.
Whatever replaces the hybrid system will reproduce the same dysfunction if it's still built on monitored, restricted dollars—regardless of whether they originate with federal, state, or philanthropic sources.
The real question isn't how to restructure the mechanism. It's whether funders can move past the baseline assumption that nonprofit professionals can't be trusted with money—or whether the distrust will continue to undermine the whole system.
Interesting piece. But as someone relatively new to this issue, I would benefit from both some numbers about the scope of federal funding of nonprofits providing services (is it billions, tens of billions, or hundreds of billions annually?) and some examples of nonprofits that have become bureaucratized in the ways you are describing.
The short version is that the further removed the funding is from the communities they serve, the more corruption will find ways to steal the people's money. So anytime the state is trying to do what the cities and counties could do for themselves, you'll get more corruption. Move it to the federal level and you'll get even more corruption.
One of the worst form of corruption is how state or the federal government will make an impoverished region comfortable in its poverty. With federal welfare, many of the able-bodied poor folk living in New Orleans pre Katrina would have already left for greener pastures. Creating bridges for the less adventurous and less able-bodied to join them. That in turn would have raised wages and lowered rents back in New Orleans.
Just another ones of the problems created when you forget that democracy means letting the smallest reasonable group take care of, and have responsibility for their own governance.
I'm a fan of localism, but not necessarily because I think it's less prone to corruption. Local politics was the anchor of the patronage-and-payoff driven parties of the 19th and early 20th centuries. Even today, I would wager that state and local politics had way more outright corruption than the federal government (until Trump). New Jersey is the most obvious example. Paradoxically, however, corrupt systems are sometimes closer to the people - they empower local brokers who need to cultivate their coalition on the ground. In any case, I don't think the problem with our nonprofit system is outright corruption. It's arguably inefficiency and a form of professionalization that creates distance from communities and is only loosely tied to the source of cash.
You have a few different things going on here. A lot of the 19th and 20th century corruption was fixed by the original progressive era reforms, Things like competitive bidding, hiring professional managers, and merit based hiring policies.
You would be right that there is as much if not more corruption going on at the local level, but not so much from local taxes. A lot of this corruption comes from using the magic of state or federal money. I say magic because as long as the local politicians are spending that money, they'll happily claim that it's not your money they're spending. It's when you try to stop them wasting that money that suddenly you're being told that if they don't spend it locally, your tax dollars will go to those stinky people in other parts of the state or even other states.
This is corruption built into the way the funding works. Since your local politicians can't stop the state or federal government from taking your money in the first place, might as well get some of that money back. Even when that money comes with lots of strings that guarantee more waste and fraud.
It's an ever and ongoing problem. Hence why the founders put so many checks and balances in place. That had included. limiting what the federal government was supposed to get involved with. But corruption never sleeps. So once we made outright corruption much harder to get away with, the race to create new legal means of corruption kicked off. Since the federal government can't force a state to pay off it's senators through kickback scheme, they found they could take your money and bribe you into paying off your senators and congressmen through various kickback scheme.
Did you know Attorney General Merit Garland's son was the CFO of a non-profit that sold anti-racist training courses to a lot of Virginia's school districts. Then they're was how Michelle Obama was a charitable donations coordinator for the largest hospital group in Illinois. She got a nice raise when Barack moved up from the Illinois senate to the US senate. Not to pick on democrats. Plenty of shady games on the right as well.
This doesn't mean the average person who gets involved with a non-profit is in on the corruption. More then half the board for Acorn resigned when it became more than apparent that accepting money from the Justice department, around 2001, meant letting a nepotistic political operator be the CEO. This was well before the whole organization wound collapsing. But that's what government money was buying more often then not.
Two things. First, NGOs with government funding at the state level have the same sovereignty, capture, and corruption problems as those with Federal grants. Second, these are tax exempt entities, and this creates enormous incentives to shift business and especially political activities to them. Think of “civic” organizations dedicated to “getting out the vote”. This is what political parties are for; it is in no way “charitable” or “civic” activity and should not be subsidized by taxpayers. This business where party activists and high officials get themselves employed by these partisan organizations at enormous salaries is the inevitable next step. There are rules but they are complex, nuanced, and easily stymied by legal and political processes. The only reform is a radical one; eliminate the general tax exemption for nonprofits, limiting it to churches (constructional issues) and subjecting the rest to an application process with a few, enforceable rules focusing on size (based on revenue) and requirements to spend nearly all the revenue every year, rather than anyone’s opinion about “purpose.” If the government wants something done, they should create departments and build capacity to do the job themselves.
Another angle worth exploring is to create a separate ecosystem of party-aligned organizations so they don't have to pretend to be anything different (I take no position on what the tax treatment should be), and integrate their funding much more closely with regulated political spending. This may wind up strengthening the parties institutionally, which would be a very good thing.
I could see that. I don’t object to political organizations, I just don’t like it when they lie about what they are and do politics with public money. I don’t know whether it would help the parties - the Democrats’ biggest problem today is that their corrupted “nonprofits” have a stranglehold on party funding and use it to impose locally unpopular positions on sensible candidates trying to win over their actual voters. But that’s their problem to fix.
An important layer missing from this analysis: nonprofits have built their internal structures around the requirements of their funding sources, not the needs of their organizations. Both the reliance on and the instability in this significant revenue stream create organizations that can't plan past next fall.
The hybrid system was built on institutional distrust of nonprofits—rooted in a deeper, older distrust of the poor and the assumption that poverty is a punishment for moral failing. Every governmental dollar, state, federal, or municipal, arrives with surveillance: compliance requirements, reporting cycles, performance metrics, and renewal anxiety. Organizations hire entire departments—often one part-time person—dedicated solely to grant reporting.
Most funding sources compound this by chasing innovation—which makes it nearly impossible to fund overhead or sustain successful programming without repackaging what's already working as something new. This is one main root of the dreaded mission drift—the need to appeal to the funder's image of what support looks like, not the community's need.
The result is a workforce as unstable as the funding. According to the Social Impact Staff Retention Project (Flores Vryn & Wildstein, Candid.org, 2025), nearly 7 in 10 nonprofit employees reported planning to look for a new job that year. Nonprofit turnover now runs at 20–22% annually compared to 12–13% across other sectors—a gap that has held since the pandemic (Nonprofit HR/Social Impact Architects, 2024).
The top reasons are consistent: too much work and too little support (59%), limited growth opportunities (54%), unsupportive management (52%), and inadequate pay (50%). With funding so tight, middle management professionals are forced to job-hop between organizations in the same field just to get a raise and grow professionally.
These are the direct outcomes of working in a chronically underfunded, overmonitored sector that forces 22% of nonprofit employees to live in households that cannot afford basic necessities like housing and healthcare (CEP/Mission Edge, 2022).
Every development director in a small nonprofit knows what they're actually looking for: unrestricted private donor dollars with no earmarks. MacKenzie Scott proved the concept at scale. Organizations that received her grants described something close to relief — the capacity to finally do the work rather than perform it for funders requiring proof of just enough suffering combined with just enough competence as a condition of renewal.
Whatever replaces the hybrid system will reproduce the same dysfunction if it's still built on monitored, restricted dollars—regardless of whether they originate with federal, state, or philanthropic sources.
The real question isn't how to restructure the mechanism. It's whether funders can move past the baseline assumption that nonprofit professionals can't be trusted with money—or whether the distrust will continue to undermine the whole system.
Interesting piece. But as someone relatively new to this issue, I would benefit from both some numbers about the scope of federal funding of nonprofits providing services (is it billions, tens of billions, or hundreds of billions annually?) and some examples of nonprofits that have become bureaucratized in the ways you are describing.
Urban has incredible research on this stuff - something like 1/3 of nonprofits get some type of government funding, and for many it's a hefty portion of their budget. https://www.urban.org/research/publication/how-government-funding-disruptions-affected-nonprofits-early-2025 On some of the pathologies, I think this overview is fantastic: https://www.publicbooks.org/how-community-participation-failed/
This was a great read, thank you. I was noodling on this very topic on my walk last night- what is the right role for non profits in America today?
Disclosure- I am a civil society fanatic. And I believe non governmental assocations *should* be those 1,000 points of light.
When I think of that, I think of food banks, domestic violence shelters, meals for the elderly, ESL classes, etc.
"Non profit" has become an entire industry and a lot of it feels like a grift that gets away with C3 status.
I could stomach this better if the grant money went to the aforementioned direct services than pet projects.
The short version is that the further removed the funding is from the communities they serve, the more corruption will find ways to steal the people's money. So anytime the state is trying to do what the cities and counties could do for themselves, you'll get more corruption. Move it to the federal level and you'll get even more corruption.
One of the worst form of corruption is how state or the federal government will make an impoverished region comfortable in its poverty. With federal welfare, many of the able-bodied poor folk living in New Orleans pre Katrina would have already left for greener pastures. Creating bridges for the less adventurous and less able-bodied to join them. That in turn would have raised wages and lowered rents back in New Orleans.
Just another ones of the problems created when you forget that democracy means letting the smallest reasonable group take care of, and have responsibility for their own governance.
I'm a fan of localism, but not necessarily because I think it's less prone to corruption. Local politics was the anchor of the patronage-and-payoff driven parties of the 19th and early 20th centuries. Even today, I would wager that state and local politics had way more outright corruption than the federal government (until Trump). New Jersey is the most obvious example. Paradoxically, however, corrupt systems are sometimes closer to the people - they empower local brokers who need to cultivate their coalition on the ground. In any case, I don't think the problem with our nonprofit system is outright corruption. It's arguably inefficiency and a form of professionalization that creates distance from communities and is only loosely tied to the source of cash.
You have a few different things going on here. A lot of the 19th and 20th century corruption was fixed by the original progressive era reforms, Things like competitive bidding, hiring professional managers, and merit based hiring policies.
You would be right that there is as much if not more corruption going on at the local level, but not so much from local taxes. A lot of this corruption comes from using the magic of state or federal money. I say magic because as long as the local politicians are spending that money, they'll happily claim that it's not your money they're spending. It's when you try to stop them wasting that money that suddenly you're being told that if they don't spend it locally, your tax dollars will go to those stinky people in other parts of the state or even other states.
This is corruption built into the way the funding works. Since your local politicians can't stop the state or federal government from taking your money in the first place, might as well get some of that money back. Even when that money comes with lots of strings that guarantee more waste and fraud.
It's an ever and ongoing problem. Hence why the founders put so many checks and balances in place. That had included. limiting what the federal government was supposed to get involved with. But corruption never sleeps. So once we made outright corruption much harder to get away with, the race to create new legal means of corruption kicked off. Since the federal government can't force a state to pay off it's senators through kickback scheme, they found they could take your money and bribe you into paying off your senators and congressmen through various kickback scheme.
Did you know Attorney General Merit Garland's son was the CFO of a non-profit that sold anti-racist training courses to a lot of Virginia's school districts. Then they're was how Michelle Obama was a charitable donations coordinator for the largest hospital group in Illinois. She got a nice raise when Barack moved up from the Illinois senate to the US senate. Not to pick on democrats. Plenty of shady games on the right as well.
This doesn't mean the average person who gets involved with a non-profit is in on the corruption. More then half the board for Acorn resigned when it became more than apparent that accepting money from the Justice department, around 2001, meant letting a nepotistic political operator be the CEO. This was well before the whole organization wound collapsing. But that's what government money was buying more often then not.
Two things. First, NGOs with government funding at the state level have the same sovereignty, capture, and corruption problems as those with Federal grants. Second, these are tax exempt entities, and this creates enormous incentives to shift business and especially political activities to them. Think of “civic” organizations dedicated to “getting out the vote”. This is what political parties are for; it is in no way “charitable” or “civic” activity and should not be subsidized by taxpayers. This business where party activists and high officials get themselves employed by these partisan organizations at enormous salaries is the inevitable next step. There are rules but they are complex, nuanced, and easily stymied by legal and political processes. The only reform is a radical one; eliminate the general tax exemption for nonprofits, limiting it to churches (constructional issues) and subjecting the rest to an application process with a few, enforceable rules focusing on size (based on revenue) and requirements to spend nearly all the revenue every year, rather than anyone’s opinion about “purpose.” If the government wants something done, they should create departments and build capacity to do the job themselves.
Another angle worth exploring is to create a separate ecosystem of party-aligned organizations so they don't have to pretend to be anything different (I take no position on what the tax treatment should be), and integrate their funding much more closely with regulated political spending. This may wind up strengthening the parties institutionally, which would be a very good thing.
I could see that. I don’t object to political organizations, I just don’t like it when they lie about what they are and do politics with public money. I don’t know whether it would help the parties - the Democrats’ biggest problem today is that their corrupted “nonprofits” have a stranglehold on party funding and use it to impose locally unpopular positions on sensible candidates trying to win over their actual voters. But that’s their problem to fix.