OPINION: The federal government’s austerity budget is expected to hit disadvantaged people the hardest, including the unemployed, single parents and people with a disability. In times of increasing social need, it would seem logical to ensure the community sector is well-resourced and sustainable. After all, these organisations work at the front line of social problems and provide support where governments fail to deliver.

Unfortunately for community organisations, hard times look set to get harder. While public funding is likely to remain the main source of income, governments want community service providers to become more self-reliant. State and federal governments have suggested that organisations should depend more on private and corporate donations, community fundraising and grants from philanthropic funds.

Private funding is hard to find

Recent survey data collected by the Social Policy Research Centre casts light on some of the challenges of funding these services. Leaders in both large and small agencies perceive their organisations to be poorly equipped to access philanthropic funding:

  • 59% of respondents felt their organisation did not have the resources to seek philanthropic support;

  • 28% felt philanthropic funds were unlikely to support the type of service provided by their organisation;

  • Only 10% of respondents said their organisation was considering sourcing social investment.

Yet the pressure is on to find new funding sources.

After spending the last 20 years engaging community organisations to provide public services, it seems that governments now want to break free from their funding role. They are urging non-profit service providers to do more to help themselves. A key element of the New South Wales state government’s reform agenda in family and community services, for example, is to expand partnerships between community organisations and philanthropists, investors and business.

Federally, the Productivity Commission’s landmark 2010 report on the not-for-profit sector identified a lack of access to private capital as a concern. The Senate Economics References Committee subsequently recommended ways to develop capital markets and stimulate private investment in organisations with public interest goals. The budget decision to reinstate the Prime Minister’s Community Business Partnership also reflects the renewed commitment to develop philanthropy.

Many community organisations agree that there is good reason to diversify their funding base and reduce reliance on governments. As last year’s Australian Council of Social Service (ACOSS) sector survey showed, the most important issue nationally was underfunding by government. Some 58% of services reported that the costs of delivering services exceeded revenues. Underfunding was acute in emergency relief, disability and family and relationship services.

The administrative burden of short-term contracts may be another reason to reduce reliance on income from delivering public programs. Furthermore, relationships with government can constrain organisations' activities, independence and public advocacy. Political decisions can result in sudden withdrawal of funding.

Matching funding models to services

The prospect of increasing private funding for community services raises questions about relationships between governments, markets and communities. What is the right balance between public and private support? Which funding models work best?

How can we ensure private investment decisions are evidence-based, transparent and accountable to communities, and not the preferences of wealthy individuals or corporations? How well will private investment address social needs and rights of vulnerable people. How can we monitor this?

Pressures to increase private funding in community services raise questions about the varying capacity of community organisations to obtain it.

In particular, the Social Policy Research Centre’s recent survey findings from 576 community sector leaders confirmed that larger organisations have best access to private funding. Income from community fundraising was fairly widespread. However, smaller organisations (with annual revenues of under A$250,000) were least likely to receive income from individuals or estates, businesses or corporations, philanthropic foundations or funds, or through payroll giving initiatives.

When asked what supports they needed to access private funding, many wanted basic advice about how to obtain support from business or philanthropists. Some wanted help to obtain Deductible Gift Recipient status. This would give access to tax-deductible donations.

Of course, many larger community service providers (including religious organisations) have long-standing streams of private income, including investment portfolios. But for most, accessing private funding is uncharted territory.

In times of rising inequality and pressure for self-reliance, we need to know much more about community organisations’ experiences of developing streams of private income. Importantly, we need to know what private funding means for service users, and for the sector’s effectiveness in overcoming social disadvantage.

Dr Natasha Cortis is a Research Fellow, and Dr Megan Blaxland is a Research Associate at the Social Policy Research Centre at UNSW.

This opinion piece was originally published in The Conversation.