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What's Keeping You Up at Night?

July 23, 2009

Insomnia That's the question Kathleen Enright, president and CEO of Grantmakers for Effective Organizations, raises in a recent e-mail circulated to GEO members.

If you know me, you know I need two hands to count all the things that keep me awake at night, including the very real possibility that the "green shoots" of spring are a mirage and that the economy will "double dip" back into recession by the fourth quarter.

Kathleen's worry is more immediate and, in some ways, more troubling, in that it concerns a source of funding for nonprofits, the American Reinvestment and Recovery Act, that most people see as an unalloyed good. The economic stimlus package "is about to open a valve that will unleash serious dollars into communities," writes Enright, but those dollars will come with strings attached and may make recipient organization weaker as a result. Here's how:

  • Government agencies almost universally under-reimburse for the services provided by nonprofit organizations. It’s the nonprofit equivalent of losing money on every person served and attempting to make it up on volume.
  • Nonprofits are ill-equipped to float the costs of services until reimbursement arrives up to nine months later, exacerbating already serious cash flow challenges. At the same time, nonprofits aren’t attractive borrowers for traditional lenders because they are so undercapitalized.
  • Unlike their corporate counterparts, nonprofits typically are required to return unused funds at the end of the contract period, hamstringing their ability to build a healthy reserve.
  • Antiquated application and reporting processes eat into organizational capacity before the work begins.

"As a grantmaking community committed to the health and vitality of the nonprofits we support, it's in our best interest to advocate for governmental procurement practices and grantmaking systems that are fair and equitable," Enright adds. To that end, she offers half a dozen concrete steps that funders can take to "demonstrate leadership [and] broaden the capacity of the organizations we all rely on":

  • Convene grantees that are likely recipients of new government dollars to hear their thoughts on the current system and what reforms would benefit them most. Share what you hear with your colleagues in the donor community.
  • Make sure that your organization consistently pays the full cost of services when giving project grants. Possibly consider providing general operating support to help key grantees absorb the unreimbursed portion of government contracts until the situation can be corrected.
  • Help grantees understand the full costs of delivering programs by providing them with access to financial capacity building and also help them understand the financial and programmatic consequences of accepting funds that do not cover the full costs of providing services.
  • Support the work of local conveners such as state associations of nonprofits that are advocating for changes beneficial to nonprofits.
  • Talk with local and state agencies about what, if any, reforms might be possible.
  • Help educate other public officials and policy makers about the unintended consequences of current practices.

Sensible advice for tough times. Other suggestions? And how about you: What's keeping you up at night?

-- Mitch Nauffts

Comments

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One thought re: Kathleen Enright's excellent post.

Conventional wisdom for many foundations is that success is finding public funding streams for grantee projects/initiative that are primed to go to scale. But Kathleen's post contains some good cautions that not all government largesse is gold(en). Seems like her list "do's" and "don'ts" should be top of mind for any foundation or group of grantees looking to Washington for financial help.

Put another way, be careful what you wish for.

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