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Communicating the Lia Fund’s Sunset Plans to Grantees

May 04, 2015

Sunset_13Randy Lia Weil believed in beauty, fairness, the human heart, and the wisdom of nature in all things. She was a dancer, teacher, Feldenkrais practitioner, and artistic spirit. Gracious, graceful, and exceedingly generous, she was the catalyst for many people to create new possibilities for their lives and their dreams.

Prior to her passing in 2006, she created a trust and named a number of friends and colleagues from diverse disciplines with experience in nonprofit organizations to act as advisors to help identify potential grantees. This group created a small private foundation, The Lia Fund, to carry on her values and help realize them in the world.

The Lia Fund made its first set of grants in 2008, and for six years made grants to social change organizations in the areas of climate solutions, community arts, and holistic health and healing that promoted a holistic view of the world informed by the wisdom of nature. In recognition of the great need for resources to support grassroots organizations, especially in the aftermath of the 2008 recession, the foundation decided to spend down its assets, making its last grants in 2014.

The foundation was thoughtful in its decision to spend down, and used that decision to drive transparency in awarding grants and communicating clearly with grantees. Because of the early nature of its decision, the $5 million in grants awarded to a hundred and seven organizations were progressive, purposeful, and appropriately communicated so as to make an impact during the foundation's lifespan.

The Decision to Spend Down: The 2008 Crash

Although The Lia Fund's corpus was modest, the board and community advisors did not initially start out with the idea of spending it down in a specified timeframe. Instead, they were absorbed in creating the nuts and bolts of the foundation: deciding on grantmaking priorities, choosing critical issues to fund, and deciphering how thirteen individuals could most efficiently participate in the foundation's grantmaking process.

In 2008, as the markets were tanking, the board and advisors saw grant money grow scarce, especially for grassroots groups. Investment portfolios plummeted, causing some foundations to sit out a couple of grantmaking cycles in order to meet their existing grant obligations. After watching many colleagues radically reduce their grantmaking budgets, the response of The Lia Fund's board was to do the opposite and boost our annual grantmaking threefold.  But we could only do that if we committed to sunset and spend down all the foundation's assets within seven years of our first grants. Which meant we would plan to award $840,000 in grants per year instead of $280,000, and go out of business in a few years!  This was something of a boon for social-justice organizations and small grassroots groups, especially nascent environmental groups and alternative arts programs, which, as the recession deepened, were almost always first on the chopping block.

The Lia Fund also had a distinct decision-making advantage over more established foundations in making the decision to sunset: We were newly formed and therefore nimble. We had no permanent, full-time staff; our board only had four members; and our community advisors were volunteers, many with their own nonprofits to run. That reduced the incentives to continue the foundation in perpetuity and also gave us a unique perspective into emerging needs and our ability to address those needs.

Increasing the Size of Our Grants

The board's decision to increase our grants budget also meant we could raise the average threshold of our grants to the $15,000 to $25,000 range. This also meant that, in most cases, our grants would underwrite close to 25 percent to 30 percent of the budget of a smaller organization.  Responsible philanthropic practice tells us that providing 35 percent or more of a small nonprofit's budget makes that nonprofit vulnerable to failure, especially if the funder and grantee have not discussed an exit strategy. We also knew that the widespread practice of making grants to an organization for three years and then moving on is risky business for small grassroots organizations and leaves many groups on the threshold of financial collapse when a major funder exits without notice or support. For us, funding a large portion of an organization's budget was a short-term reality, but it also meant we had to be extra vigilant about the challenges that flow from that strategy.

Communicating Our Spend-Down Schedule — Repeatedly

The pleasure of awarding larger grants brought with it the responsibility to communicate with our grantees that the foundation would be sunsetting in the not-too-distant future. We communicated clearly, early, and often with our grantees that we were not a long-term source of funding, and that we were a small private foundation and not an endowed independent one. In addition, our website made clear our intention to sunset; our grant award letters explicitly explained our spend-down plans; and we asked grantees detailed questions about their fiscal sustainability and fundraising strategies during site visits. Each encounter with our grantees was an opportunity to remind them that the foundation would be closing its doors in 2014.

Helping Grantees Plan for Our Departure

Communication isn't just about what we said; it was about what we did to support grantees. It was in the best interest of our grantees and also of the foundation to be a resource to them beyond our grantmaking to ensure their long-term sustainability. For very large grants (i.e., $100,000 and above), the trust added another $5,000 restricted grant upfront to help grantees develop a well-thought-out sustainability plan that detailed how our funding was going to be replaced.

For multiyear grants, we focused on grantees' development and fundraising strategies, conducting our programmatic due-diligence work at the front-end of the relationship while focusing on grantees' expansion of their funding sources during subsequent grant cycles, all the way up to their final grant. For each grantee, we asked, "What are your plans for replacing our grant at the end of the grant term? Where are you doing with respect to pursuing other revenue streams?"

By year four of our relationship, for example, Occidental Arts and Ecology Center, an education center and organic farm in Sonoma County, California, had turned around their foundation grants to individual donor ratio from 60/40 to 30/70. By year six, they had raised enough funds for a capital campaign to expand their retreat center, which, when completed, would generate more income for the organization, making it less dependent on foundation grants and individual donations.

What We Would Have Liked to Do: Final Capacity-Building Grants

What else could we have done? We would have liked to set aside capacity-building grants during our last year. The board and community advisors initially thought of restricting our last round of grants to capacity-building support. But in the interest of sticking with best practices, we concluded our final grantmaking round with general support grants, as was our practice in all previous grant rounds. In many ways, we saw general support grants as a form of capacity building that allowed our grantees to apply their grants to the area of the organization most in need of support. We also trusted we had done what we could in communicating our sunsetting strategies so that grantees knew best how to use our exit grant.

In summary, a foundation that commits to spending down has to weigh the trade-offs: The short-term ramping up of the foundation's grantmaking must be balanced against the eventual withdrawal of all support to its grantees. A sunsetting foundation not only loses its direct influence on its grantees, it also sacrifices its impact in its field after it is gone. That means that the foundation has a responsibility to be transparent about its plans, to announce them well ahead of time, and to communicate, communicate, communicate with its grantees.

Headshot_beth_rosalesRecently retired, Beth Rosales has worked in philanthropy for more than thirty-five years at a number of progressive foundations, including the Vanguard Public Foundation, the Funding Exchange, Tides, the Women's Foundation of California, and the Marguerite Casey Foundation. Rosales serves on the board of Asian Health Services, a community clinic that serves low-income families in Oakland, California, and enjoys spending time with her twenty nieces and nephews, all of whom are hapa (mixed) Filipino-American.

This post, the twentieth in the "Making Change by Spending Down" series, produced by GrantCraft in partnership with The Andrea and Charles Bronfman Philanthropies, first appeared on the GrantCraft blog.

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