How Grantmakers Can Respond to the State Budget Crises

By Doug Bauer, Executive Director, The Clark Foundation
Chair of the Board of Directors, Philanthropy New York

(This essay originally appeared in Foundation Leaders Address the State Budget Crisis, Copyright © 2011 The Foundation Center. Used by permission.)

Reassuring is not a word we hear often in this deeply difficult time for much of the nonprofit sector.

Yet it is reassuring to see the level of foundation response and engagement with the current crisis in public funding, which affects 44 of the 50 states. The Foundation Center’s new survey suggests that the foundation community understands the depth of the problems confronting our grantees—the day-to-day managers of the social safety net in the United States.

As we and our grantees cope with this new reality, I would like to amplify four key needs identified in the survey findings:

1. More general operating support. In a time of seriously constrained resources, our grantees need as much flexibility as possible to manage their programs and finances. The dollars that help the most and go the farthest in this environment are general operating support funds.
2. More capacity building support. In the aftermath of reduced public support, nonprofits need to rethink, reassess, and restructure their business models. Underwriting capacity building, which tends to be relatively low-cost, can yield high returns. Having access to resources for capacity building can provide nonprofits with the ability to succeed in the “new normal.”
3. More working capital. Reduced public support means nonprofit cash flow will be squeezed and operating margins thin. Banks are leery of extending bridge loans or lines of credit when government contracts become unreliable. Foundations need to increase the ability of community development finance institutions (CDFIs) to provide short-term financing to nonprofits. CDFIs, such as the Nonprofit Finance Fund, understand the operating models of nonprofits and have more patience around delayed government contracts or grants. But CDFIs need capital to do this. For their part, foundations can use program-related investments (PRIs) to provide the needed capital, without affecting their grants budgets.
4. More advocacy. Sadly, the budget battles of 2011 are not the last ones we will see at the federal, state, and local levels. In some states, the coming years will bring even larger budget gaps. The sector must develop a stronger advocacy effort to ensure that critical initiatives and the most vulnerable do not suffer disproportionately. The rules and regulations on advocacy are clear; we know exactly what we can and cannot do. But our support for advocacy must become broader and deeper, both internally and financially. The staff time, research, dissemination, and related work needed to mount successful advocacy campaigns cost money.

We are in the nascent stages of a profoundly new era for most of the nonprofit sector. Old and/or current operational models will not likely work. Having foundations seriously address these four needs will help our grantees begin to cope with, and better understand, the new era. The big question, however, is will foundations step up?