The Need for Efficacy of the Government/NGO Relationship

A new Pennsylvania law illuminates the troubling dynamics of this duo.

By: Morgen Cheshire

Generocity.org, Published May 17, 2023

Morgen Cheshire, the Founder and Managing Attorney of Cheshire Law Group, a law firm exclusively serving the needs of nonprofits, is the Founder and Managing Editor of PAnonprofitlaw.com, an equity- and capacity-building legal resource for Pennsylvania’s nonprofits. The site provides expert-made, Pennsylvania-specific legal documents and tools designed to elevate and accelerate the legal work of nonprofits. Sign up at PAnonprofitlaw.com and stay tuned for the site’s launch of how-to guides on advocacy and lobbying.

Charitable organizations – those 501(c)(3) public charity NGOs, which typically function with the support of the government by way of funding, tax exemptions, and fee-for-service contracts – serve a vital role in our communities as they provide (and supplement) government services. But the NGO/government relationship has its challenges – as well as its bystanders.

A new Pennsylvania law illuminates the troubling dynamics of this duo. Before Act 127, government agencies were able to contractually shift their liability to service-providing NGOs that served children, youth, and families. But now, thanks to borrowed provisions from laws governing construction contracts, any indemnification provisions in contracts that force nonprofits to indemnify a government agency for the government agency’s own negligence are no longer legal. This is a big win for many NGOs, but who knew that legislation would be required to provide these protections for nonprofits?  And how is it that nonprofits had to expend scarce and precious resources to hold government agencies and their employees accountable for their own negligence? If it took legislation to provide for something so standard and intuitive as mutual indemnification, this says a lot about the Goliath negotiating power of government agencies – a reminder that for some NGOs, government funding can be 75% or more of their annual budgets and that they often have to wait extended periods of time to receive payment for services rendered and turn to interest-bearing loans to meet fundamental expenses like payroll.

Is this how the Commonwealth wants to care for its caregivers, the NGOs that carry out government services and provide supplemental services when public funding falls short?

Apparently, though, Pennsylvania is ahead of other jurisdictions on the issue of government accountability. The Pennsylvania Council of Children, Youth & Family Services (PCCYFS), a key driver of Act 127, is a national leader in this effort, as other states have yet to pass laws like these. But Pennsylvania still has more to do.

The recent passage of Act 127 is a pinnacle example of what nonprofits can achieve with lobbying, but as well-intentioned leaders, we need to be asking: is this how we want nonprofits to be expending their lobbying resources? how did this situation come to be? what are the other pain points that NGOs experience when working with the government? what frustrations do government agencies experience in working with nonprofits? and what more can we do to proactively and systemically improve this essential working relationship?

Although their interests are generally aligned, the government/NGO relationship does not always reflect collaboration and support – and government action sometimes yields unintended consequences, with a byproduct being wasted taxpayer money. Years ago, as a lawyer for nonprofits, I was flummoxed when an animal welfare organization client of mine (the kind that relieves government burden by spaying and neutering and keeping strays off the streets) had its sales and use tax exemption application rejected by the Commonwealth, and the nonprofit had to expend hours of volunteer time and thousands of dollars in public contributions to appeal the denial, which it did successfully. Again, we need to be doing a deeper inquiry, starting with the question: is this how we want nonprofits to be expending their resources?

A fundamental function of government operations should be to support the 501(c)(3) public charities that alleviate government burden and fill the gaps where government resources fall short. It’s a waste of resources if nonprofits are raising money from the public so that they can lobby for fairer terms with the government agencies they serve and support. If this is how it is, the system is broken, and so while we celebrate PCCYFS’s success, the fact that social service organizations had to turn to the legislature to reform aspects of their relationship with government agencies signals that it is time for some deeper systemic reflection on the efficacy of the NGO/government relationship.

Pennsylvania needs a fresh systemic look at how the government interacts with the nonprofit sector.

To get there, we need conveners – such as private foundation leaders and journalists – not just to speak on these concerns but to create forums for education and to help these key public partners develop empathy for each other, workshop their mutual frustrations, and resolve issues.

We also need doers. Politicians (legislators and executives at both the state and local levels) should be part of the process of reform, doing their part to proactively collect feedback from NGOs and to evaluate government operations for the purpose of pushing for laws, policies, and processes that help to lift obstacles in the way of NGO work. By not seeking out opportunities for reform, government agencies and politicians and legislators put too much of a burden on NGOs to drive this process and to fix a system that they didn’t create and don’t have the authority to manage.

As a lawyer for nonprofits and a member of the Public Policy Committee at the Pennsylvania Association of Nonprofit Organizations (PANO), I routinely hear from nonprofit leaders about the barnacles of bureaucracy and that the key players in the sector are too siloed. It’s time to convene – and listen with empathy.

If public service is the goal, we need laws and operational procedures that increase the efficacy of the government/NGO relationship and make it easier for them to carry out their work.