The Influence of Administrative Cost Ratios on State Government Grant Allocations to Nonprofits

Authors


  • Shena R. Ashley is assistant professor in the Department of Public Administration and International Affairs at the Maxwell School of Citizenship at Syracuse University. She teaches courses on nonprofi t management, fund development, and statistics. Her research centers on private and public grant making, with a focus on the organizational and sector-level dynamics that shape and are shaped by the funding choices of private and public institutions. E-mail: shashley@maxwell.syr.edu

  • David M. Van Slyke is associate professor in the Department of Public Administration and International Affairs at the Maxwell School of Citizenship at Syracuse University. He teaches courses on public and nonprofi t management, policy implementation, organizational theory, and project management. His research centers on government use of policy tools and specifi cally contracts, public–private partnerships, and grants for the production and delivery of services in its relationships with other governments, nonprofi ts, and forprofi t fi rms. He is a fellow of the National Academy of Public Administration. E-mail: vanslyke@maxwell.syr.edu

Abstract

Government has come to rely on nonprofit organizations to deliver publicly funded human and cultural services, and it has become a significant donor to the nonprofit sector. When government agencies make grants to nonprofit organizations, administrative cost ratios are often requested, but it is not clear whether or how these ratios influence allocation decisions. Theoretical perspectives alternatively frame the administrative cost ratio as an indicator of price, with negative effects on allocations, or as an indicator of quality, with positive effects on allocations. The authors test these hypotheses using original state-level grants data from the state of Georgia. The results offer inconclusive evidence about whether the price or quality hypothesis explains government's use of administrative cost ratios in decisions regarding the amount of grant allocations. What drives government grant-making decisions remains an open and more complex question that involves a range of other variables that are independent of price and quality. The authors address this question in terms of policy and management implications and a future research agenda.

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