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Strategies for Hard Times: The Case for Sustainable Funding

June 11, 2009

(Michael Seltzer is a regular contributor to PhilanTopic. In his last post, he answered some frequently asked questions about how nonprofits stand to gain from the economic stimulus package.)

Green_shoots2 The news from the nonprofit sector is not good. Despite a year-to-date return of more than 5 percent in the S&P 500 that may have brightened the mood for some on Wall Street, there has been little to cheer on Nonprofit Street, where funding and donations are down, demand for services is up, and the future is uncertain. Indeed, a recent article in Crain's New York Business ("Nonprofits Gird for Long Battle," Miriam Souccar, June 7) underscores just how deep and long-lasting the impact of this economic downturn on nonprofits is likely to be.

The release earlier this week of the Giving USA Foundation’s annual survey of charitable giving further confirmed what nonprofit leaders already knew. Overall charitable giving in 2008 dropped 5.7 percent (in inflation-adjusted terms) -- the first decline in overall giving since 1987 and only the second since Giving USA began publishing annual reports in 1956. Given current giving trends and the real prospect they could persist into 2010 and beyond, what steps can and should grantmakers take to help their grantees -- past, present, and prospective -- survive and thrive in these very tough times?

One idea that has begun to gain traction among donors is to think beyond the historic constructs -- project/program, general support, unrestricted, capital, etc. -- that we, as a field, have used to conceptualize our grants.

Instead, a growing number of foundations are beginning to think of themselves as "builders" rather than "buyers." At the risk of oversimplifying the distinction, buyers award grants with an eye to achieving specific programmatic outcomes, while builders, always mindful of outcomes, seek to help grantees strengthen their organizational capacity so as to achieve greater impact in the future. To the extent that "buying" is limited to a relatively short-term transaction rather than a longer-term interest in the organizational well-being of the grantee, it is not an especially productive activity. Which leads me to ask: What foundation would want to be a buyer rather than a builder in today's environment?

The good news is that, regardless of the type of support it provides, any foundation can be a builder as long as it seeks to bolster the sustainability of the organizations it supports. With that in mind, a growing number of leaders in the sector have made the case for general operating support as integral to a nonprofit's ability to survive and thrive -- in any kind of economic environment. Unfortunately, unrestricted grants comprise less than 20 percent of all grantmaking dollars, compared to the more than 50 percent of grantmaking dollars awarded for specific programs or projects or campaigns (Foundation Giving Trends, 2009 edition, Foundation Center).

While calls for more general operating support should not be ignored, there are steps that foundations interested in funding specific projects can take to beef up the "builder" side of their activities:

  1. Revisit your program descriptions to make sure your priorities and strategies are described as clearly as possible; doing so will make it easier for prospective grantees to submit stronger proposals.
  2. Make sure your grantees have the latitude to adequately account for their indirect costs.
  3. Expedite your grant approval process to reduce the lag time between submission of a proposal and action on that proposal.
  4. Expand the period of your grants to more than a year.
  5. If you are providing partial support for a project, be sure to share the responsibility with your grantee of securing the remaining dollars from other funders.

Extraordinary times call for extraordinary measures. Today, as much as at any time in recent memory, it is vitally important for foundations and corporate grantmakers to do everything they can to build the capacity of their grantees and the nonprofit sector for the long haul. The suggestions listed above are a starting point. Have other ideas? We'd love to hear them....

-- Michael Seltzer

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Posted by The Stargazer Foundation  |   June 18, 2009 at 01:14 PM

There is a simple way to produce billions of dollars of long-term funding for social causes. There is a way to harness the power of Capitalism for the Common Good that avoids government spending, taxes, stimuli, or bailouts. Companies can grant Social Bonuses by donating warrants to charity – something that doesn’t cost them anything to give – and get a deferred tax deduction for the value of the gift. To learn more go to:www.Stargazer.org/causes.

Posted by Jane Whitfield  |   June 29, 2009 at 11:20 AM

A great article, Michael. Foundations can also increase nonprofit success by providing support services in the area of post grant administration - particularly grant accounting, data collection, and evaluation. In my many years managing multiple grants and contracts, I became a firm believer that these skills provide the nonprofit with a realistic view of whether their programs were 1)serving their communities as intended; and 2)funded adequately for sustainability. Many nonprofits maintain nonessential programs that are creating a significant financial burden on the institution, largely because they don't have the skills they need to adequately assess cost and performance.

Jane Whitfield

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