Inside Philanthropy

A blog on philanthropy and nonprofit news and issues. A publication of Philanthropy Journal.

January 26, 2009

Obama’s call for service a spur to giving sector

By Todd Cohen

The giving sector got a big push from President Obama in his inauguration speech. It also got what should be a big wake-up call.

So while nonprofits and foundations may be riding high, anticipating a surge in giving championed by our new president, they also have a lot of work to do to be better stewards of the time, know-how and money Americans give.

In his speech, Obama called for a “new era of responsibility” and the “recognition on the part of every American” of the shared duties of “giving our all to a difficult task.”

But he also cast part of the blame for the meltdown in our economy to “our collective failure to make hard choices and prepare the nation for a new age.”

While it plays an irreplaceable role in addressing urgent social problems and their root causes, the giving sector faces serious operating challenges it must address to be effective at fixing those social problems.

Nonprofits are expected to do too much with too little, and too few are willing or able to invest in building their internal operations or to raise their voice to speak out and work for social change.

And too many nonprofits still act as if their cause entitles them to support without having to adapt their fundraising to better engage and serve the givers they depend on.

Big nonprofits and foundations also are moaning, respectively, about the difficult of raising money and the loss in the value of their assets because of the decline in the economy.

But instead of getting their own houses in order, they and the trade groups that represent them are tripping over one another in a rush to grab a piece of the government’s massive financial bailout package.

Foundations are flush with donated wealth dedicated to charitable purposes, flush even with the decline in the value of their assets because of the sinking capital markets.

Their job is to serve as vehicles for investing assets givers have dedicated to charitable causes in return for generous tax breaks the givers enjoy.

Yet foundations treat those assets as a source of private wealth and influence they make it their job to hoard and grow.

Far too few foundations are willing to give more than the five percent of assets they are required to pay out each year in grants and overhead.

And far too few are willing to use their voice or their shareholder role to try to shape public policies and the business strategies of companies in which they invest.

In a regulatory system with few rules and weak teeth, foundations operate pretty much as they wish and are accountable to no one but their own boards, boards that typically sleep at the wheel.

That lack of accountability can result in serious damage: Foundations were among the charitable investors that lost millions of dollars in the Madoff investment scandal, losses that might have been avoided had foundations been subject to greater oversight and required to disclose more about their operations and investment practices.

The economic crisis, Obama said in his speech, “has reminded us that without a watchful eye, the market can spin out of control” and that “a nation cannot prosper long when it favors only the prosperous.”

The giving sector does not operate under a “watchful eye,” and regulation of the sector favors big foundations and their wealthy donors, groups that have had the clout, and have exercised it, to successfully fight efforts to tighten regulation of them.

The giving sector can make a huge difference in the effort to fix America’s social problems.

But to truly become an effective vehicle for social change, the sector first must take a hard look at how it operates and fix what is wrong.

Nonprofits need to strengthen their operations, build their capacity so they can secure and absorb more giving, and raise their voice on important policy issues.

Foundations need to pay out more, give more to support nonprofit operations, be more open about what they do, and speak up on social change.

And government needs to do a better job policing the giving sector and making sure it operates fairly and in the light of day.

Rooted in values he called the “quiet force of progress,” the giving sector can continue to serve effectively if it is willing to be brutally honest about itself and work harder and smarter to engage and justify the “faith and determination of the American people” on which Obama said the nation relies.

January 19, 2009

Will recovery effort dilute Obama’s giving-sector strategy?

By Todd Cohen

While mildly optimistic the Obama administration can build a true partnership with the giving sector to take on America’s toughest social problems, a leading scholar of the sector fears the massive job of reviving the failing U.S. economy could limit or even doom the hope for that collaboration.

“My great fear is that the economic recovery will become Barack Obama’s Vietnam War, and will drive out the resources and attention and political capital that could be used for a whole variety of promising possibilities that relate to the nonprofit sector,” says Lester Salamon, director of the Center for Civil Society Studies at Johns Hopkins University.

Salamon helped organized a two-day meeting Jan. 13 and 14 at which roughly a dozen nonprofit and foundation leaders reviewed recently-circulating proposals on a policy agenda for the giving sector in working with the new administration.

Participants at the gathering, held at the Rockefeller Brothers Fund’s Pocantico Conference Center in Tarrytown, N.Y., included a nonprofit consultant who has been involved in the transition but was not there representing it, Salamon says.

All participants were assured they would be speaking as individuals and not necessarily as representatives of their organizations, he says.

He declined to identify participants but says they represent nonprofit intermediary organizations that have nonprofit and foundation members.

Within two weeks or so, he says, the group should release its recommendations.

While he would not discuss details until the recommendations are released, Salamon says everyone who attended received a policy-agenda document he had prepared that drew on the work of the Listening Post Project at the Center for Civil Society Studies.

That effort has been tracking the views of grassroots nonprofits and collecting empirical data on nonprofits and the operating and policy issues they face.

During the election campaign last fall, the project issued a communiqué that summarized nonprofit executives’ ideas about policies the new president should pursue to address America’s big social problems.

While he would not provide a copy of the eight-to-10-page policy document he prepared, saying some of its ideas likely will be included in the new recommendations, Salamon says that document reflects many of the findings of the Listening Post Project.

Citing a recent article he wrote for The Chronicle of Philanthropy addressing one of the big issues the document addresses -- the role the nonprofit sector can play in efforts to fix the economy -- he says nonprofits can be involved in those efforts in three broad ways.

“It’s an incredible delivery system that should be part of the recovery program,” he says.

In the face of proposals for a big increase in federal funds for emergency services, for example, Salamon says those funds should flow though groups like local United Ways and community foundations to nonprofits that provide direct services.

He also calls for matching grants nonprofits could match with volunteer hours, a strategy he says could help mobilize citizens in the recovery effort, including those who are unemployed.

Separately, he says, he has suggested to members of the Obama transition team a specific vehicle for handling funds for emergency food and housing programs.

Mortgage relief also is the focus of his recommendations for addressing nonprofits’ role in the economic recovery, Salamon says.

The national network of low-income housing groups and housing-finance institutions, for example, could serve as a vehicle to help work out problem mortgage loans, he says.

“These organizations have enormous track records and experience dealing with low-income mortgage borrowers,” he says. “They’ve got experience in how to structure loans for low-income persons that would be an excellent use” of funds distributed through the government’s massive Troubled Assets Relief Program, known as TARP.

Salamon's third set of recommendations on nonprofits’ role in the economic recovery address emergency incentives for charitable giving and volunteering “that would help bring extra hands into this recovery effort,” he says.

In one controversial proposal, he says, he calls for temporary suspension of the excise tax on foundation earnings if foundations in return increase their grants to direct-service organizations above the five percent of their assets they are required to pay out.

He says he is “mildly optimistic” the Obama administration will develop strategic policies to foster greater collaboration with the giving sector and spur more charitable giving and volunteering.

Having worked as a community organizer, Obama “understands community institutions and nonprofits,” Salamon says, and the incoming administration seems to recognize “the potential of nonprofits to improve policy and improve ways in which we solve public problems in this country that is refreshing and unusual.”

The new administration also has an “apparent openness to a set of ideas that connect to the nonprofit sector very directly” and with a perspective “that really takes account of the actual operations of nonprofits and doesn’t go off on ideological diversions.”

The outgoing Bush administration has had the “ideological perception that the sector is a substitute for government, that government can back off and nonprofits and volunteers and philanthropy can fill the gap,” Salamon says. “It was not truly a partnership.”

The incoming administration, in comparison, has a “better sense of government as a true partner of the sector,” he says.

But he cautions that his appraisal is “still speculation and vulnerable to the pressures that are going to arise and already are arising from the demands of the economic recovery.”

January 12, 2009

Power politics in the giving sector

By Todd Cohen

The scrum is intensifying within the giving sector for clout with the Obama administration.

Groups and coalitions like Independent Sector, the National Council of Nonprofits, the Johns Hopkins Center for Civil Society Studies, America Forward and Service Nation have weighed in with ideas the administration should consider in addressing the needs of nonprofits and giving.

Two separate groups of nonprofit leaders reportedly are set to meet this week, one on Monday, apparently with the Obama transition team, and another on Tuesday and Wednesday, possibly with at least one member of the team or someone close to it.

The focus of both meetings is to develop and promote a nonprofit agenda.

According to sources, those meetings may include consideration of:

* A plan Independent Sector has circulated privately for a $15 billion “bridge loan” program the federal government would administer “with loans disbursed to eligible nonprofits through a network of qualified financial assistance providers.”

* A proposal by Service Nation for $3 billion in stimulus spending for nonprofits.

* A proposal by Johns Hopkins for public funding to build the capacity of nonprofits.

* A possible new office in the Obama administration that will focus on social innovation.

The press office for the Obama transition team has failed to return repeated phone calls about its plans for addressing the needs of the giving sector.

Nonprofits should indeed be pushing the incoming administration for a greater voice in helping to shape the policies that affect nonprofits and the communities they serve.

But as has too often been the case in the giving sector, the voices dominating the conversation are big nonprofits, big foundations and the big trade groups that represent them.

And the increasingly powerful class of social entrepreneurs that has emerged in the last decade seems to have been particularly effective at catching the ear of the Obama team.

Lost in the scramble for power by the giving sector’s power brokers seems to be the voice of smaller nonprofits, which make up the bulk of a sector that represents five percent of gross domestic product in the U.S., 10 percent of its workforce and the best hope for addressing our biggest social problems and their root causes.

What seems to be cracking wide open is a longstanding fault-line in the giving sector, with big nonprofits, big foundations and social entrepreneurs positioning themselves to push the new administration to adopt a giving-sector agenda that mainly rewards big nonprofits, big foundations and social enterprise.

Falling into the abyss will be what America really needs – an Obama agenda that addresses the urgent social problems most nonprofits are struggling to address, and the critical operating challenges they face.

And while President-elect Barack Obama’s pledged emphasis on volunteerism and public service will be essential to help address those problems and challenges, it runs the risk of perpetuating a giving-sector mindset that for far too long has treated nonprofits as an underclass that should swallow low wages and hand-me-down resources.

Solving America’s big social problems will depend on a thriving giving sector.

That will require regulations that promote a charitable marketplace that is fair, that requires nonprofits and foundations to be more open, and that increases, from 5 percent, the share of assets foundations must pay out each year for grants and overhead.

It also will require that any government spending or incentives for the giving sector be inclusive and give all nonprofits, not just big ones, access to the resources and tools they need to compete and operate effectively in developing and delivering programs, strategies and policies that will make our communities be better places to live and work.

All nonprofits should get an equal shot at whatever government funds or incentives are available to build their capacity and help them operate.

So the critical role of distributing those funds should not be handed to the big trade groups that represent big foundations and big nonprofits, often to the exclusion of smaller nonprofits, an exclusion that limits their ability to address the challenges they face and the needs of their constituents.

January 5, 2009

Nonprofits can reap big returns from volunteers

By Todd Cohen

While they need to work even harder during the recession to ask for contributed dollars, nonprofits also should focus on recruiting more volunteers.

The troubled economy clearly is chilling the fundraising climate.

According to the latest Philanthropic Giving Index from the Center on Philanthropy at Indiana University, nonprofit professionals are reporting the lowest overall level of confidence in the fundraising climate in the U.S. in over a decade.

That confidence index now is 64.8, down 21.7 percent from just six moths ago and down 27 percent from December 2007.

The center’s research for Giving USA Foundation also shows an annual falloff of roughly 2.7 percent in total giving during longer recessions.

A separate survey by the Association of Fundraising Professionals finds that over half the charities in North America were raising less money during the last three months of 2008 than in the same period in 2007.

Among charities surveyed, 53.3 percent were raising less money than they did a year earlier, and only 22.7 percent were raising more money, while 23.9 percent were raising about the same amount.

In stark contrast, the survey a year ago found 48.3 percent of charities were raising more money in the final three months of 2007 than in the same period in 2006, and only 26.3 percent were raising less.

Experts on fundraising and giving say nonprofits should not panic but instead should focus on sharpening the case they make to givers and continuing to ask for support.

And new research from the Stanford Graduate School of Business suggests that encouraging volunteerism can generate healthy financial contributions for nonprofits.

Because volunteers make an emotional connection to an organization and its mission, asking supporters for their time rather than their money is a better way to increase donations of money, says the study, which was published in the Journal of Consumer Research.

In fact, it says, initially asking givers for money can alienate them and make them less likely to get involved and less likely to actually give, the study says.

Increasing volunteerism, by young people in particular, also is the focus of a new initiative by Youth Service America.

With support from the Bank of America Charitable Foundation, the new “Semester of Service” campaign aims to engage millions of young people by providing “service-learning” opportunities that give students the chance to connect community service with curriculum either in or out of school.

Youth Service America says a report from RMC Research Corp. concludes service-learning has a great impact on students and the community when projects last the length of a semester.

Times are indeed tough for the giving sector, but that simply means nonprofits need to be smarter and more focused than ever on connecting with givers and asking for their time, their expertise and their money.