Privatization of Welfare Services: A Review of the Literature. Community-Based Nonprofit Organizations

05/01/2002

Throughout the nation, nonprofit, community-based organizations (CBOs) that have provided social services for many years are now entering into contracts with state and local governments to provide case management, employment services, and other welfare-related services. Some of these organizations (like the New Community Corporation in Newark, New Jersey, and the Urban Leagues and Opportunities Industrialization Centers in many communities) provide an array of social and economic development services. Others provide specialized services or services to a specialized population (such as the Chinese Community Center in Houston). In Broward County, Florida, the Parents Information and Resource Center--a CBO that had experience with substance abuse prevention and HIV services--won the award to provide TANF case-management services in that county.

Although local CBOs do win contracts on their own, they frequently bid as partners or subcontractors with for-profit organizations. The larger for-profits or not-for-profits bring capital and management and financial expertise, while the CBOs provide specialized knowledge of the needs of the clients and the resources in the communities and may provide political legitimacy in communities where contracting with for-profits is controversial. For example, in Broward County, Lockheed Martin IMS won contracts to provide occupational skills training, grant diversion, on-the-job training, and community work experience, in partnership with local nonprofit organizations and another for-profit organization. In Milwaukee, the YWCA won a contract to administer TANF in District 1 by joining with two for-profit organizations (Kaiser Group and CNR Health) to form YW-Works, a limited liability, nonprofit organization.

Nonprofits have also formed collaboratives to bid for government contracts. For example, Seedco, a medium-sized nonprofit agency, has built a collaborative with eight CBOs that provide employment training and placement services in New York City. Seedco provides technical assistance, stable financial support, and a well-developed management structure.

Some CBOs have also formed for-profit subsidiaries. For example, the Nonprofit Assistance Corporation (N-PAC), a subsidiary to Seedco, has structured a limited liability corporation, EarnFair. Earnfair operates as a temporary employment service, hiring disadvantaged workers and then placing them with business and nonprofit organizations for a fee. Because Earnfair is a for-profit corporation, employers can take advantage of tax credits for employing welfare recipients.

Endnotes

1.  Excluding Guadalupe and the reservation areas.

2.  An impact and implementation analysis is being conducted of this demonstration (Kornfeld 2001; Porcari and Peck 2001).

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