Nonprofit Law Prof Blog

Foundation Leaders Admit to Seeking to Influence Public Policy Through Grant Making

According to a study of more than 200 grant makers released by the Center for Effective Philanthropy on Wednesday, nine in 10 foundation leaders say their foundations seek to influence public policy through their grant making and other activities. Not only that, but almost 75% of those foundations have increased their policy efforts during the past three years, most frequently at the state and local levels.

Foundation leaders apparently find nothing wrong with the practice. The study relates that "These efforts are not new, but have increased in recent years." Moreover, "most foundation leaders view efforts to influence public policy as an important way to achieve their goals."

The study published a sample of views held by some foundation leaders:

•     "Good public policy helps our grants go further, and bad public policy undermines our grant making."
•     "Public policy can have significantly more impact on the issues we care about than our grant dollars alone can."
•     "One cannot be serious about, for example, the health of the environment and ignore the importance of policy action on       climate change."

The report maintains that "The primary way foundations pursue their policy agenda is through grant making. Almost three-fourths of foundations that engage in policy work support grantees’ policy efforts."

Yet, the survey found that many foundation leaders run into internal resistance to their policy work. According to the report, "Foundation leaders face some common challenges, particularly when it comes to building board support."

Only 45 percent of leaders said their boards were "completely supportive" of policy efforts, 50 percent said their boards were "somewhat supportive," and 5 percent said their boards were "not supportive."

Of course, we know that private foundations face some limits on their advocacy. For example, they are prohibited from lobbying directly on legislation unless the bill addresses the way foundations operate. Also, they cannot support candidates for public office.

Vaughn E. James

Nonprofits Won't Survive Unless the Federal Government Helps More Medium-Sized Groups

Writing in today's Chronicle of Philanthropy, Susan N. Dreyfus and John MacIntosh opine that during the current COVID-19 crisis and its aftermath, many medium-sized nonprofit organizations will not survive unless the federal government provides them more much-needed support. Dreyfus is CEO of the Alliance for Strong Families and Communities; MacIntosh is managing partner of SeaChange Capital Partners, an organization that helps nonprofits facing complex financial challenges. In their thought-provoking article in today's Chronicle, they argue that while

[n]onprofits of all kinds provide critical help to communities across the United States, . . . it is the medium-sized ones that make a critical difference — those with at least 500 employees. Their workers operate food pantries, and homeless and domestic-violence shelters. They manage and staff residential facilities for young people with mental illnesses. They offer in-home and residential services for older Americans and people with disabilities. During the Covid-19 pandemic, their work is more urgent than ever.

Yet, the authors state, even as these organizations face various challenges -- challenges as daunting as those faced by their smaller counterparts -- they "are not receiving the government support they need to survive." For example, the "federal Paycheck Protection Program excludes nonprofits with more that 500 employees from obtaining the forgivable loans that would allow them to retain and compensate their employees and continue to deliver essential services during this public-health crisis."

What, then, can we do? As the article points out, at "a time when many nonprofits are at a breaking point, we [cannot] afford to leave those with more than 500 employees out of support programs that are keeping smaller organizations afloat."

According to the article,

A new analysis of New York City’s larger nonprofits found that under normal circumstances, most have just two weeks of cash on hand. Without immediate assistance, the report projects that some won’t survive through May and that few, if any, will be in a position to continue services during the Covid-19 crisis and its aftermath. Most of these organizations lack meaningful endowments and have limited access to credit. Their operating margins are razor thin (an average of 1 percent), even before taking into account the reduction in revenue and increase in expenses associated with the pandemic. Most importantly, their philanthropy, which covers less than 5 percent of expenses, cannot make up for a reduction in funding and contracts during the health crisis.

The article continues:

This situation is not unique to New York. A 2018 report on the financial stability of community-based human-services organizations found that 40 percent of the larger nonprofits had less than one month of cash reserves. Those providing housing and shelter-related services faced significantly greater financial stress.

Critics may be quick to argue that the challenges confronting these nonprofits are the result of their own inefficiency and poor management. Not so, argue Dreyfus and MacIntosh. They specifically state that:

The challenges confronting these nonprofits are not the result of inefficiency or poor management. Most government funding and philanthropy traditionally does not cover the full cost of providing services. Government contracts for essential services also create cash-flow problems since, unlike with grants, payments are not made until after the work is completed and can be subject to long and unpredictable delays. Cash, as a consequence, is an ongoing issue. But unlike large for-profits, these organizations do not have access to capital markets, cannot easily unlock illiquid assets, and are unable to use bankruptcy to restructure while continuing to deliver services. Any increase in costs, reduction in revenue, or delay in cash receipts could put some of them permanently over the edge.

So just what is the solution? The authors call for Congressional action: 

The Cares Act, which established the Paycheck Protection Program, does include larger nonprofits in the economic stabilization funding (now known as the Main Street Program), but fails to provide guidance or loan forgiveness for these organizations. 

Nonprofits with more than 500 employees must be able to access capital and receive the same loan forgiveness as smaller nonprofits. This will require changes from Congress in the next stimulus bill. It is unclear whether nonprofits will be competing for the same funds out of the Federal Reserve as corporations under the Main Street Program. For this reason, nonprofits will need a dedicated pool of funds so they are not placed in line behind for-profits to access vital dollars.

A new bill, scheduled to be introduced this week by Rep. Joyce Beatty, an Ohio Democrat, titled the Help Charities Protect Communities Act, would provide some relief by introducing a lending program that includes loan forgiveness for nonprofit organizations with 500 or more employees.

A coalition of more than 200 national nonprofits have outlined these and other priorities in an appeal to lawmakers to recognize the impact and vital importance of larger nonprofit organizations that are continuing to provide for their communities over the course of this pandemic. The Cares Act was an important first step, but we must do more during this unprecedented crisis to sustain the organizations that do so much for the health, well-being, and safety of America’s families.

For the sake of the nonprofits and the many people that they help, I hope that Congress finds a way to fund these medium-sized nonprofit organizations both now and in the aftermath of the current COVID-19 crisis.

Vaughn E. James

 

 

 

Battle Over Foundations Spending Endowment in Crisis in Washington Post

The Washington Post took a look at the age old battle of whether Foundations should dip into their endowments during a deep recession. They feature an ongoing battle at George Soros' Open Society Foundation where employees are angered that the Foundation is apparently not dipping into its endowment but using messaging to sound like it is.

From the Post: "The dispute between staff and leadership at Soros’s foundation touches on a broader discussion in America’s philanthropic community, where some industry leaders are calling for foundations with large endowments to ramp up spending in response to the covid-19 crisis. IRS rules require foundations to spend at least 5 percent of their assets annually, and many foundations hover around that spending figure, opting to preserve savings and endowment money.

On April 2, nine philanthropic membership and advocacy organizations published a joint statement urging foundations to boost spending this year and use endowment money if necessary.

“What nonprofits need most right now is more money. . . . Unprecedented challenges require unprecedented responses,” wrote the leaders of organizations including the Council on Foundations, the Center for Effective Philanthropy, and the National Committee for Responsive Philanthropy."

Philip Hackney