Grant Making During Difficult Economic Times

Tuesday, April 15, at 12 noon, U.S. Eastern time

Jennifer Leonard is president and executive director of the Rochester Area Community Foundation in Rochester, N.Y., which manages $160-million and more than 850 funds. She is formerly the vice president of the California Community Foundation in Los Angeles and has been a national consultant on marketing and development for community foundations.

Joel J. Orosz is distinguished professor of philanthropic studies at Grand Valley State University in Grand Rapids, Mich. He has has written several books on foundation, including For the Benefit of All: A History of Philanthropy in Michigan; Agile Philanthropy: Understanding Foundation Effectiveness; The Insider's Guide to Grantmaking: How Foundations Find, Fund, and Manage Effective Programs; and Effective Foundation Management: 14 Challenges to Philanthropic Leadership-And How to Outfox Them.

Robert Lewis Jr. is vice president for program at the Boston Foundation, which manages more than $900-million in assets. He came to the foundation from the city of Boston, where he directed the city's largest youth and human service agency. Earlier, Lewis was senior vice president of City Year's national operation and executive director of City Year Boston.

A transcript of the chat follows.

Peter Panepento (Moderator):
    Welcome to today's live discussion about grant making during difficult economic times. This is an important and timely topic -- and I expect it will generate some great questions and comments.

Peter Panepento (Moderator):
    We have three great experts lined up to take your questions today. As always, you can submit a question at any time by clicking the "ask a question" link on this page. You are also welcome to post comments on anything the guests or your fellow readers say during the conversation.

Jennifer Leonard:
    Economic downturns squeeze nonprofit organizations in multiple ways. Contributions and endowments fall off just when clients have more needs. Earned revenue can also plummet. Many nonprofits then turn to grantmakers for help with survival. Yet often, grantmakers have focused guidelines, long application cycles and an understandable disinclination to fund organizations in financial straits. We'll be talking today about how grantmakers can respond to economic downturns in ways that are positive for both sides of the "grantmaking table." Thank you for joining us.

Question from Ivan Medina, Loyola University:
    Do you foresee an increase in grants to small nonprofits in the area of capacity building focused on individual donor base development as a way to maximize grant impact?

Jennifer Leonard:
    Ivan, capacity-building grants would be smart in this economic climate, and certainly individual donors are the source of most contributions to nonprofits. My recommendation is that grantmakers increase such grants to their nonprofit partners -- those grantees essential to their own impact. However, small nonprofits and capacity-building grants both suffer in the grantseeking marketplace, and I'm not sure that they will do better just because there's an economic downturn (even if they should).

Question from Ken D. Grunke, Pillars:
    Hi Jennifer and Joel. Would it be prudent for nonprofits to start focusing their fundraising efforts more on cultivating individual donors as opposed to relying on previously stable foundation gifts? Do you forsee many foundations becoming less of a source of support for nonprofits in the upcoming years? Thanks!

Joel J. Orosz:
    Ken, you've put your finger on the paradox of nonpofit fundraising. Although about 85% of all gifts come from individuals, it is much harder to find and solicit them than it is to go after the 15% of the gifts that come from foundations and corporations. fortunately, the Internet is making it easier to find and solict gifts from individuals just at the time when foundations and corporations, in the name of being more strategic, or of "metrics mania" are restricting access to applicants, and also narrowing the scope and ambition of their programs. So yes, I do think that it would make sense to turn more toward to individuals and earned income as foundations focus on ever more defined projects of their own choosing, and move away from more general support of nonprofits.

Question from Ahmed, concerned citizen:
    Many millions of good people around the world give to charity every year, but many including myself are not sure whether the money is going to the intended targets. What I mean by this,is how much oversight( on the ground) is there to see that these charities are properly spent? thanks

Robert Lewis Jr.:
    Building relationships with donors as well as managing their expectations through ongoing discussions and dialogues about your contribution is key to what we do. We have professional staff that tracks impact.

Question from Ian Wilhelm, Chronicle of Philanthropy:
    Hi, what is your opinion of Greenlining Institute's request that half the annual income of California foundations be devoted to helping low-income during the current economic downturn? They have asked Gov. Schwarzenegger to institute such a rule for the next two years. Thanks!

Jennifer Leonard:
    The answer is both philosophical and legal. Legally, many foundations and trusts have restricted purposes that may not encompass helping low-income families. The law also considers many other purposes as charitable, from the arts and environment to community development and health. Philosophically, we have allowed individuals and foundations to select from this array of charitable "goods" that which they wish to support. Since foundations are nongovernmental, this kind of liberty is considered fundamental to their existence -- and certainly contributes to their appeal to donors, who are giving this money in addition to taxes. Providing incentives for giving to low-income families and communities, and showcasing effective methods, is a time-honored way to move the grantmaking agenda.

Question from Leslie Z. Paige, Fort Hays State University:
    I would like to suggest that there be some discussion of the needs of rural or isolated areas that do not have the luxury of numerous local private foundations or corporate support. Being able to access scarce resources for students and faculty, and for service to community becomes critical during economic downturns. For example, most private foundations in Kansas are located in Johnson County (Kansas City) and their giving mainly stays in Kansas City. We are 5 hours from Kansas City and there is a lot of Kansas besides the Kansas City area. The bigger universities in Kansas - KSU, KU and WSU have considerable opportunities for corporate and foundation giving, but those of us in smaller universities also do important work. In addition to conducting research, our students who are educated here tend to stay in Western Kansas, which has a critical need for qualified bachelors and masters level graduates in education, psychology, business, accounting, allied health, agriculture, geosciences, etc. etc. When students go elsewhere because of scholarships, research opportunities, and other resources, they rarely return. By investing in the rural heartland, foundations are investing in the future of rural communities. We do not have the same development resources as the large universities do - but I believe that foundation giving provides a significant impact (and is highly valued) in smaller universities that are not located in resource rich regions.

I hope someone can advocate for us - when times get tough, rural areas and small universities have a very difficult time - same problems but even fewer resources.

Joel J. Orosz:
    Leslie, there's not much I can add to your elequent statement. Foundations other than Ford, Kellogg and a few smaller ones have traditionally slighted rural America, perhaps because most foundations are headquartered in urban areas. The Speak Up for Rural America coalition of a few years ago was a steep in the right direction, but you are right that the cause requires advocates--and there is a special sensitivity needed to make sure that grants flowing to rural America don't do actual harm by encouraging bright rural youth to move to urban areas.

Question from Malcolm Furgol, American Association of State Colleges & Universities:
    Due to the current economic situation do you see one remedy as an increasing emphasis on collaboration between non-profit organizations? That way the same amount of money can impact more communities by encouraging organizations to work together and share resources. In other words, give smarter rather than give more.

Robert Lewis Jr.:
    Our response to this is to address the issue case by case. Sometimes you get extra power by bringing two groups together and collaboring on an initiative or issue, and other times, it's about funding an individual organization with a proven track record.

Question from Alex, NM:
    Do difficult times mean that those working in grants development are more secure in their jobs or less?

Joel J. Orosz:
    Alex, initially the the recession will be like a full employment act for development professionals, as nonprofits scramble to maintain programs at their pre-subprime meltdown levels. Of course, if the recession is severe and/or persists a long time, it will shake out the lower-performing development professionals--only those bringing home the bacon will be kept.

Question from Peter Panepento, The Chronicle of Philanthropy:
    Jennifer: You work in a community that has been struggling economically for quite some time. Based on that experience, what types of charities feel the greatest pinch when times are tough? And how can foundations adjust to these changing needs?

Jennifer Leonard:
    Human service organizations struggle the most, although I have seen recessions in which donors swarm toward human services and cut their gifts to what they see as less "critical" charities in the arts. Foundations that have flexibility to do so should consider basic needs, including shoring up the local food bank, as well as programs move people out of poverty with jobs, supported housing and education. Quality child care will help parents work or job hunt. Foundations that don't have this flexibility due to donor restrictions -- or the desire to continue support to valued partner organizations -- should consider reducing paperwork, shortening their application cycle and awarding more unrestricted grants.

Question from Ken D. Grunke, Pillars:
    Hi Jennifer and Joel. As parents and baby boomers transfer their wealth to their children, especially through family foundations, do you forsee this as an opportunity for nonprofits to strengthen this relationship with the family or do you feel that Generations X and Y may find it difficult or perhaps have a lack of interest in continuing this level of social support? Thanks!

Joel J. Orosz:
    Great question, Ken. I hear from nonprofit leaders that maintaining support across generations is a real challenge. In many families, the younger generation wants to support its own causes, and to make their own way philanthropically, so it makes their parents' causes less attractive. This is not true of every family, of course, but anecdotally, it seems to be true of the majority.

Peter Panepento (Moderator):
    Thank you to everyone who has submitted a question thus far. If your query hasn't been answered yet, it should be in short order. Because we have three guests today, we have time for more questions than usual. So don't be shy about getting your question or comment on the record.

Question from Linda Watson Kaufman, GCSU:
    Much of the research I do personally involves students in after school programming. I find that a lot of private funding that supports K-12 education often requires the schools to be the lead agency. In our community, the college is better able to support the programmatic and fiscal responsibilities of being a grantee. The question is as follows: How can colleges and universities help private foundations understand that they are often the better entities to submit grant applications on behalf of K-12 education?

Robert Lewis Jr.:
    Education is key. If it's a college or university taking the initiative on great ideas then we partner with them, but we also partner with individual schools and school districts. In some cases in Boston, the relationships between colleges, universities and schools already exist.

Question from Beth Olsen, Richard Stockton College of NJ:
    With decreased support by states for their public institutions, foundations could play an increasing role in funding projects in public schools. In what ways are foundations responding to the shift in public support for public institutions?

Jennifer Leonard:
    Tax-supported institutions have vastly more money than foundations, but they often lack the flexibility and expertise to effect change. Foundations can and do provide incentives for change; the Gates Foundation program for small schools is a very large example. Both community foundations and city governments in upstate New York are also convening local leaders to foment educational reform.

Peter Panepento (Moderator):
    We've reached the halfway point in today's discussion and have received some fantastic questions. And we have plenty of time for more. Please click on the "ask a question" link to join the conversation.

Question from Peter Panepento, The Chronicle of Philanthropy:
    What can charities do when they are applying for grants to emphasize that they are facing unique economic circumstances? Do such arguments matter when you are reviewing a grant application?

Jennifer Leonard:
    Whenever possible, deliver this kind of news in person, preferably through someone known to the foundation. Putting it on paper tends to be self-indicting, no matter the economic situation. Foundations want to bet on a success story, so if you're in trouble, what they need to see are your plans to get out of trouble -- to strengthen core programs; to merge with another organization; even to dissolve, handing over your programs to a similar organization.

Question from Tom: Protestant demonination foundation:
    Do you envision more foundations turning to support more U.S.-centeric causes rather international causes, such as Africa?

Joel J. Orosz:
    Tom, that's a good question. Historically, recessions have caused some contraction in international giving by American donors, but my hunch is that this recession, unless it is severe, protracted, or both, will not. I think we are much more attuned to the needs of Africa and other nations than we have been in the past partly because of the good work of Ted Turner and the Gates Foundation, and partly because we have a much better understanding now of our interdependence with nations overseas.

Question from Laura, mid-sized museum:
    It is difficult to obtain grants for basic operating costs that are escalating rapidly. We continue to struggle to fund basics to keep our doors open and lights on. Any thoughts about grantmakers being more open and willing to funding needs outside of specific programs?

Jennifer Leonard:
    I encourage you to start with your best supporters, to make the case that unrestricted dollars go further and take less administrative time to prepare. Grantmakers for Effective Organizations is currently surveying the field on just this topic. It's crucial for grantmakers to understand just how burdensome project funding can be, especially in an econonomic climate like this. The other answer is recognizing that foundations aren't a great source of general operating support. Historically, these dollars have come from earned income and individual contributions. Work to build your individual donor base even during a recession, so that when things get better you have people who know you kept a steady course when things were tough. And ask your foundation partners to fund this fundraising work.

Jennifer Leonard:
    In response to the question about managing investments for difficult times, many foundations use a "spending policy" that levels out their spending across economic cycles. Established endowment funds in our community foundation continue to give 5% year after year, thanks to our practice in strong economic times of putting aside capital appreciation that can be available later when times are tough.

Question from Stephanie, large nonprofit:
    We have relationships with a number of foundations that provide us with steady funding and we are just beginning to cultivate individual donors. Do you think it makes sense to go after grants from foundations with which we have no relationship (i.e., send out unsolicited proposals)? Or should we just focus on maintaining the grants that we do have and go after the individual donor base?

Robert Lewis Jr.:
    I think you need to diversify your funding strategies and it's also a way of developing new relationships over time.

Question from JC, Cloud Forest School in Costa Rica:
    Do you feel that the economic slump in the United States will have an effect on the foundations or gifts that normally might go to non-profits outside of the United States? Do you think that people will be less likely to send money outside of the US with this crisis or is location irrelevant?

Joel J. Orosz:
    JC, my gut on this is that, unless the recession is severe and/or prolonged, it won't have much effect on international giving. Historically, recessions have depressed international giving a bit, but I think we are much more attuned to the interdependence of the world than we used to be, so I'd be surprised if the recession does anything more than slow the rate of growth of international giving.

Question from Stephanie, large nonprofit:
    We have relationships with a number of foundations that provide us with steady funding and we are just beginning to cultivate individual donors. Do you think it makes sense to go after grants from foundations with which we have no relationship (i.e., send out unsolicited proposals)? Or should we just focus on maintaining the grants that we do have and go after the individual donor base?

Jennifer Leonard:
    I'd focus on maintaining your current foundation partners and strengthening your ability to cultivate individuals. Moreover, you'll find that many major donors actually have their own foundations or donor-advised funds. Unlike most large and independent foundations, these tend to give just like individuals -- year after year to favorite causes. This kind of renewable support is what you'll want to build your base for the future.

Question from Jane Twedt, The Living Desert:
    To what extent do you feel that the current economic downturn will impact foundation's income and subsequent grant-making capabilities?

Joel J. Orosz:
    Jane, foundations tend to be a lagging indicator, so we haven't felt much contraction if foundation giving yet. Even if we see a quick improvement in the economy, however, we will probably see some modest contraction in foundation giving next year. If the rececession gets severe, or if it lasts a long time, we could see some future significant declines in foundation giving--and because foundation payout is a lagging indicator, it will continue to be depressed for a year or so after good times return.

Question from Kathy duTreil, small non-profit:
    How does a new non-profit get funded for a large project, such as building a playground for special needs children when we have no track history yet?

Jennifer Leonard:
    Establish credibibility with funders by building a board with expertise in your program area, as well as law and finance; borrow credibility from a partner like an established special-needs agency (and consider working through them instead of creating a new nonprofit); work to establish details about need, justify your funding methods and provide an evaluation plan. New nonprofits need strong accounting and eloquent spokespeople, but it's not easy to get seed funding when you're brand-new.

Question from Janet Kaser, Ohio Grantmakers Forum:
    The Nonprofit Finance Fund recently outlined recommendations for nonprofits to prepare for an economic downturn. What recommendations do you have for foundations?

Jennifer Leonard:
    Whatever a grantmaker's area of interest, it can shore up its investments in current grantees with less restrictive and more multi-year grants. Grantees don't have a lot of time or money these days to apply for funding. So if a grantmaker can offer a faster turnaround, less formal process (even proactively awarding grants to established partners) and those "golden dollars" for operating support, that would be ideal.

Question from Peter Panepento, The Chronicle of Philanthropy:
    Do foundations manage their investments with the idea that they should step up their grant making during difficult economic times? If they don't, should they?

Joel J. Orosz:
    Peter, the majoirty of foundations that seek to exist in perpetuity, which as John D. Rockefeller, Sr. once ironically remarked, "is a pretty long time," tend to invest for the long haul, in order to get stable returns over time. Few have been as aggressive as the managers of Harvard's and Yale's endowments, who have sought to time the markets to maximize return in every market, good or bad. Of course, not every prortfolio manageer has the skills required to take such big risks. that said, I'd like to see perpetual foundations take on bigger risks during good times, so they would have the potential of making bigger grants during hard times. In other words, if they got big returns during a strong market, they could afford to step up their giving ove rthe 5% minimum payout during a weak market. Of course, that means taking on extra risk. But as Harvard and Yale prove, it can be done successfully.

Question from Theresa, food bank:
    In a slowing economy, would it be unrealistic to try to fund physical-plant expansion as well as day-to-day operations and programs? Would potential funders be open to this type of capacity-building during tough economic times?

Robert Lewis Jr.:
    I would say that it depends on the foundation. If they fund capital improvements then I couldn't see why they wouldn't continue during tough economic times. However, at our foundation we don't fund capital improvements, but we would continue to fund organizational capacity building grants.

Question from Theresa, food bank:
    In a slowing economy, would it be unrealistic to try to fund physical-plant expansion as well as day-to-day operations and programs? Would potential funders be open to this type of capacity-building during tough economic times?

Jennifer Leonard:
    Typically, capital campaigns for physical-plant expansion slow down during recessions. Major donors hold tight to their wallets when investments are depressed. Instead, you can use this time to build relationships, and come out of the recession in a strong position to be successful in such an ask. AS for foundations, only a subset give for capital purposes, and typically want you to find the rest of your funds from individual donors -- putting you back in the same position.

Question from Annam, APLA:
    Especially in this difficult time, how do organizations start dialogue with local foundations about funding? It seems like because foundation money is so competitive, many don't want you to call or stop by their offices to talk to them. Yet many don't take unsolicited proposals. It's not always possible to have existing relationships between board members and foundations staff. How do we bridge this gap?

Robert Lewis Jr.:
    I think you just need to continue to maintain and establish relationships. Start and continue a dialogue of the issues that you're working on and addressing. In my opinion, it's about creating and maintaining a partnership not just about funding. What are the additional resources besides funding that foundations can provide to your organization? I would encourage institutions to invite foundation staff and board members to your events and convenings. This way foundations get to know more about your organization and the issues you support along with getting to know your staff.

Question from K, Austin, TX:
    I see inflation being a large problem for non-profits in the future. Will foundation dollars (which is rapidly decreasing in value) even be able to cover costs of rising prices for virtually everything? How do we weather this?

Joel J. Orosz:
    K, being a person who came of age during the 1970s, I, too, am worried that inflation will come roaring back. We're seeing it already in energy, commodity and food prices, and it could well spread across the board. It will be tough if it does, but I think the best nonprofit strategy will be to push hard toward earned income, which is a much more reliable source (and potentially a far richer source), than foundations or corporations. I would do this even if it is unrelated, and you have to pay taxes on it. In an inflationary world, you are quite right that foundation dollars will erode in value, and the competition for them will be fierce. Earned income isn't perfect, but it's a better alternative than fighting over a space at a shrinking water hole.

Question from DDA grant writers Florida:
    It seems to me that during tough economic times, nonprofits should focus on solid sustainability planning with particular focus on shifting funds from under utilized or redundant programs to areas of need, whenever possible. Do you have any resources you could refer us to?

Jennifer Leonard:
    That's a great point, and I heartily agree. As for resources, I'm a firm believer in the power of strategic planning. Resources we've used include Foundation Strategy Group, assorted Harvard Business Review, Stanford Social Innovation Review (and of course Chronicle of Philanthropy!) articles, and local facilitators. A good board is your best bet for sharpening the organization's focus and planning for sustainability.

Question from Peter Panepento:
    What foundations serve as examples of how to handle grant making in difficult economic times?

Joel J. Orosz:
    Peter, I'm not sure if there are any foundations that are exemplary in terms of handling grantmaking specifically in tough economic times. There are several that are generally thoughtful about their grantmaking process--and a pretty good indicator of that is whether they have worked with the Center for Effective Philanthropy, and paid for an Applicant Perception Report or a Grantee Perception Report, and also those who have sent their program officers to The Grantmaking School. Those that do tend to take their effectiveness seriously.

Question from Peter Panepento:
    Robert: Your foundation has done some interesting work collaborating with the public sector to set priorities. What can you share about those efforts that might be instructive to foundations in other parts of the country?

Robert Lewis Jr.:
    One is seeing the public sector as a partner and ensuring that there is more equal responsibility and accountability in the relationship but being clear around what the expected outcomes and impact that you collectively want to achieve.

Peter Panepento (Moderator):
    We are always looking for new topics for our upcoming discussions. Please e-mail me at peter.panepento@philanthropy.com to suggest a topic or a possible guest.

Joel J. Orosz:
    I'm sorry to say that I must go to a meeting (probably the words that will b e engraved on my tombstone). Thanks--it's been a lot of fun!

Robert Lewis Jr.:
    Thank you for your interesting and insightful questions! Everyone have a great day!

Jennifer Leonard:
    Whether we are grantor or grantee, recessions force us to focus on our core mission -- to make a better world. We can do that best as partners. At times like these, that means grantmakes have the opportunity to strengthen their partners through flexible funding, support for fundraising from individuals, shorter application cycles and proactive awards. For their part, grantseekers shouldn't be afraid to ask their partners for new kinds of grants to facilitate mergers, dissolutions, business improvement sand fundraising strategies. The goal is to come out of this recession a little leaner, but stronger.

Peter Panepento (Moderator):
    It looks like our time is up. It's been a great discussion. Thank you to everyone who joined us today and a special thanks to our guests -- Jennifer Leonard, Joel J. Orosz, and Robert Lewis Jr. Each of you brought a great perspective to the conversation.

Peter Panepento (Moderator):
    Join us next week at the same time -- Tuesday at noon Eastern time -- to discuss population demographics and the impact of those demographics on fund raising. See you then.