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Nearly 2 Dozen Groups Urge Foundations to Spend More to Strengthen Nonprofits

Tuesday, May 17, 2016

Chronicle of Philanthropy
May 17, 2016
Suzanne Perry

Groups like GuideStar and the Council on Foundations say organizations like theirs need more resources to help charities and foundations advance. 

More than 20 nonprofit organizations and associations have signed a letter asking grant makers to step up their spending on groups that help charities and foundations do better at solving social problems by offering services in areas like training, research, technology, and advocacy.

"An economy needs roads, bridges, and train stations to thrive," says the letter, sent to 1,400 foundations that award at least $2.5 million in grants annually. "A community needs schools, parks, and houses of worship to ensure the flowering of human potential. And civil society needs infrastructure to ensure that nonprofits and foundations can act with integrity and impact."

The move — spearheaded by Jacob Harold, chief executive of the information-services group GuideStar, and Phil Buchanan, president of the Center for Effective Philanthropy — reflects mounting concern that grant making to support "nonprofit infrastructure" has not kept pace with the growth and increasing complexity of the philanthropic world.

A study conducted by the Foundation Center last year found that the percentage of foundation spending devoted to such work fell sharply during the Great Recession and remained lower through 2012 (the most recent year for which figures were available).

Some once-major players have curtailed their spending in this area — for example Atlantic Philanthropies — although others have moved in, like the Bill & Melinda Gates Foundation.

"We’ve lost some, we’ve gained some," says Mr. Harold. "Regardless, the aggregate amount is not enough to address the needs of a sector that is almost a trillion dollars of the economy, with more than 11 million employees."

1 Percent Target

The letter asks foundations to consider directing at least 1 percent of their grant-making budgets to support "the infrastructure upon which the nonprofit sector is built." It was signed by 22 groups, including the Council on Foundations, the National Council of Nonprofits, Stanford Social Innovation Review, TechSoup, and VolunteerMatch.

The list does not include Independent Sector, a prominent association of nonprofits and foundations and one of the biggest recipients of infrastructure money, now in the middle of a leadership transition. A spokeswoman said the group agreed to the message in principle but needed more time to study it.

The "infrastructure" category covers a wide range of organizations, including national membership associations like the Philanthropy Roundtable, regional grant-maker networks like Philanthropy New York and Council of Michigan Foundations, information-services groups like the Foundation Center, and academic and research programs like the Lilly Family School of Philanthropy at Indiana University and the Urban Institute.

It’s unclear exactly how much additional money the 1 percent target would send to such nonprofits. But the Foundation Center study, which was commissioned by the William and Flora Hewlett Foundation, suggests it could be substantial. It found that spending on groups focused on strengthening foundations and nonprofits by 1,000 of the country’s largest grant makers grew from $123.8 million in 2004 to $134 million in 2012, or 8 percent in inflation-adjusted dollars.

But it fell over that period as a share of overall giving, which rose as the number of foundations multiplied, and never reached 1 percent. It represented 0.84 percent of giving in 2004, fell to a low of 0.5 percent in 2010 and 2011, then grew to 0.6 percent in 2012.

Hewlett commissioned the report because it was hearing from its grantees and others that infrastructure funding was getting harder to come by, says Lindsay Louie, a program officer in the effective-philanthropy group. "They were asking us the question, Are you hearing about other funders talking about this?" she says. "Might you increase your budget?"

Hewlett was the fifth-biggest spender on infrastructure projects during the period covered by the study, awarding $42.1 million. The top spender was the Ford Foundation ($145.5 million), followed by the W.K. Kellogg Foundation ($109.5 million), the Bill & Melinda Gates Foundation ($59.6 million), and the Charles Stewart Mott Foundation ($54.4 million).

Ms. Louie says the spending concerns prompted Hewlett to work with other foundations in 2014 to start the Fund for Shared Insight, a pool of money that gives grants to nonprofits to seek feedback from the people they serve and to share what they have learned. Thirty grant makers now participate in the fund, with eight organizations contributing at least $250,000 in general support a year for three years and the rest involved in other ways.

‘Boring’ Grants

Persuading grant makers to increase giving to groups that strengthen nonprofits can be a hard sell. For one thing, it diverts money from programs that more directly help people in need. While vital, it’s also a "boring" subject that might not seem as innovative as new philanthropic trends like impact investing or Silicon Valley giving, says Elizabeth Boris, a fellow at the Urban Institute and founding director of its Center on Nonprofits and Philanthropy.

"It’s hard to measure what’s the impact of management training or capacity building or advocacy," she says. "A lot of the work the organizations do, especially in the policy areas or political realm, are preventive."

Some experts decry the proliferation of nonprofit associations and say the field needs to consolidate to create a stronger voice for the philanthropic world. Dan Pallotta, founder of the Charity Defense Council, a group that aims to combat what it considers unfair attacks on nonprofits, just published an article in the Harvard Business Reviewsuggesting that the plethora of membership, evaluation, data, and other groups supporting charities should merge, saying the nonprofit world lacks an organizing "brain."

"Imagine eliminating all the redundancies in fixed costs," he wrote. "Consolidating databases and information and talent. Imagine the strength of the acumen and the voice."

The signatories to the letter to foundations say they "pledge to work better together — to share, to collaborate, and to even consolidate where appropriate." Mr. Harold of GuideStar, which offers a wide range of data about nonprofit finances and activities, says there "probably are a few too many" organizations, though groups often have important reasons for remaining distinct. The letter is saying, "We’re in this for the mission. If collaboration is better, let’s collaborate," he says. "If consolidation is better, let’s consolidate. If being independent is better, let’s be independent."

Mr. Buchanan of the Center for Effective Philanthropy says he sees more appetite for collaboration than a decade ago, when there was "much more a sense of competition or territoriality." He points to his own organization’s efforts to avoid duplication with other groups that help foundations assess their performance.

Haves and Have-Nots

Chris Cardona, program officer for the Ford Foundation's philanthropy program, says Ford welcomes the letter, especially its effort to "define what infrastructure means."

Under a new grant-making strategy announced last summer,  the foundation, which plans to spend $5 million to $7 million a year in this area,  is giving priority to efforts that improve the health of the nonprofit world by promoting things like openness, diversity, and equity, he says.

"We're tending to focus on things that speak to increasing demand among foundations for the type of practices that the infrastructure groups are advocating for."

As in other program areas, that means some previous grantees will no longer qualify for Ford money. That touches on the question: If more money is freed up, who should get it? The Foundation Center report highlighted haves and have-nots as spending shifted over the period it studied. Money for "philanthropy-specific" organizations — for example, grant-maker networks — grew 79 percent (before inflation), compared with just 9 percent for other groups like nonprofit associations or research organizations.

That trend concerns Tim Delaney, chief executive of the National Council of Nonprofits, a network of state nonprofit associations. The philanthropy-specific groups received 41 percent of the infrastructure funding reported by the Foundation Center even though grant makers represent just 9 percent of all registered 501(c)(3) nonprofits, he notes.

Meanwhile, Mr. Delaney says, many state associations are fighting battles to spare nonprofits and foundations from damaging state policies.

"Government can start taxing tax-exempt property, governments can try to tax foundation assets, can try to unload public responsibilities onto the back of nonprofits," he says. "Then the burden on nonprofits and foundations becomes so much greater. Yet most people don’t connect those dots."

Investing for Strength

Mr. Harold of GuideStar says he hopes the letter sparks a conversation like the one that took off after his group and two other organizations issued an open letter in 2013 in a campaign to end the "overhead myth" — the notion that donors should judge nonprofits based solely on their overhead costs.

"We’re not trying to scold anyone," says Mr. Buchanan of the Center for Effective Philanthropy, which is among the top 20 recipients of infrastructure funding. "Foundations are absolutely free to make their own decisions. We’re saying, Hey, look, if you care about a strong, effective sector, you need to invest in what it takes for the sector to be strong."

 

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