This aspect of the legislation changes not only the mechanics of welfare, but also the entitlement ideology driving these programs. Leaving welfare entitlements for wage-paying jobs for those in states without transitional supports has destabilized many poor families. Specifically, several families are not receiving basic services (for example, child care, medical coverage and transportation) that could help sustain them even on very low wages. Invariably, this kind of financial insolvency leads to homelessness. In the first years after welfare reform, several counties reported a rise in homelessness among families. Undoubtedly, and not surprisingly, many of these struggling families turn to nonprofit organizations for support. According to De Vita, "advocates for the poor fear that as individuals become ineligible for government programs, the demand for assistance will overwhelm the services available through private philanthropy."3
Whether or not nonprofits will be able to meet the increased demand or should be held accountable for the government's responsibility, are key questions framing the debate (capacity versus responsibility). For several years leading up to 1992, the nonprofit sector was experiencing growth rates that were larger than those of both the government and business sectors. However, since then, the nonprofit sector has experienced a reduction in growth especially in funding from government sources, which can be attributed in part to the financial and physical limits of nonprofit organizations.4
It is expected that the nonprofit sector's growth rate could decline in the next decade. Since the largest part of the sector is in health care which has taken the largest cuts in growth, such predictions have some power. In fact, health care accounts for approximately 50 percent of its total revenues and nearly half of its total employment. The only other sub-sector that has grown as a proportion of the total in the past 20 years is the human services sub-sector, with Medicaid dollars and contracts with state and federal governments driving this growth. Even though the federal budget cuts reduced the growth in domestic spending during the 1980s, they did not decrease entitlement spending, particularly for Medicare and Medicaid. However, when Congress passed the budget deficit legislation, control on growth in both Medicare and Medicaid programs were included. Despite the growing relationship between the government and social service-related nonprofits, it is important to remember the differences in their respective capacities. Of primary concern is the difference in how each sector is funded. While government has the power of taxation, private contributions to nonprofit organizations are obviously voluntary. Although nonprofits receive some of their funding from the government, public money in 1996 represented less than one-third (31.7 percent) of total funds in the sector. While this figure reflects a noticeable increase from 26 percent in 1977, the nonprofit sector must generate two-thirds of its income from other sources such as dues, fees and private contributions.5 However, PRWORA has engaged the for profit sector which has competed for state grants in welfare as a result of federal legislation.
While individual giving grew at more than 3 percent a year between 1992 and 1997, government, government payments grew at nearly twice that rate (5.7 percent). While private giving has grown at a higher rate since 1997 due to a robust economy, there are some limits on its growth more rapidly because federal income tax rates and taxation of capital gains have been substantially reduced over the past decade, making it more expensive to donate to nonprofit organizations.6 Essentially, the nonprofit sector's size and capacity, no matter how measured, are likely to vary over time relative to growth in government and the economy as a whole.
