Prospective Grantees Take Foundation to Court and Ask for $1.25-Million

In a rare public display of grantee frustration with grant-maker behavior, farm workers in an

agricultural Washington county are suing the Northwest Area Foundation for $1.25-million, charging that the grant maker reneged on a promised antipoverty grant.

Disenchanted residents of Yakima County, in eastern Washington, say they spent significant time and money, at the foundation’s request, identifying and planning ways to attack the area’s pressing problems. They charge that the foundation had promised to spend at least $1.25-million on such things as hiring consultants, holding meetings, and underwriting the cost of transportation and child care to encourage maximum participation in the planning process. But they allege that the grant maker pulled out of the Yakima Valley before completing the planning, thereby breaching its contract with local participants in that process.

The residents are asking that the foundation put $1.25-million in a special trust fund to benefit Yakima Valley residents.

The foundation says it decided that valley residents were too divided to collaborate successfully in a regional antipoverty approach. It says it intends to contest in court the class-action lawsuit, which appears to be unprecedented.

“We don’t see any basis for any legal action,” said Ellery July, the foundation’s director of community activities and learning. Foundation staff members and consultants spent more than two years in the Yakima Valley, he noted, paying more than $750,000 for such items as translation services, to ensure that people of a broad range of ethnic backgrounds were informed about the process; conference-room rental; child care, so people could attend meetings; and transportation to and from meetings. Had it decided to stay in the valley, the grant maker would have committed millions of additional dollars there to underwrite strategies identified by local residents.

But Mr. July said there was never a contractual commitment, expressed or implied, to spend a minimum amount of time or money exploring the Yakima Valley’s suitability for its program.

“At no time did we commit to any specific level of funding,” he declared.

Unusual Process

Confusion on that point may be attributed in part to the new grant-making strategy adopted by the Northwest Area Foundation, in St. Paul, which abandoned traditional grant making five years ago to focus most of its resources on its Community Ventures program. Over time it will identify up to 16 communities in which to invest a total of more than $150-million in collaborative efforts to reduce poverty.

The foundation so far has committed to support three such communities, for as long as a decade each, and is actively exploring the possibility of working in five more. Chosen so far are Miner County, S.D.; three counties that form Central Oregon; and the Indian Land Tenure Foundation (The Chronicle, February 22, 2001).

Foundation officials began holding a series of meetings in Yakima County in January 2001 to determine its suitability for their long-term support.

But Karl N. Stauber, Northwest Area’s president, informed Yakima Valley residents in August that the foundation had decided to pull out. “Foundation staff resources, combined with the realization that moving forward would require resources beyond those originally planned and available for this initiative, has led to our decision,” he wrote.

Mr. July elaborated on the point. “Our regional approach wasn’t working in Yakima County,” he said. “We expect the whole region to be involved. We felt that people [in Yakima] didn’t want to work together enough” to ensure success.

Yakima Valley residents acknowledge that the county’s disparate elements sometimes have difficulty working together. Its 250,000 population includes farmers and migrant workers of white, black, American Indian, Filipino, and Hispanic backgrounds, while its poverty rate is among the highest in the state.

But the lawsuit says residents invested more than 10,000 uncompensated hours attending more than 50 meetings held by various committees formed as part of the planning process. Attendance “often required substantial personal sacrifice,” the suit says, including time taken off from work, child-care costs, and the need to travel 40 miles or more to meeting sites.

The suit also argues that the planning process benefited Northwest Area Foundation by helping it to refine its Community Ventures program, based on the experience in Yakima County. Such service should be compensated appropriately, it argues.

Julio Romero, of Yakima City, said the prospect of substantial help from a major philanthropy raised expectations in the county. “The people have a lot of hopes to change their lives,” said Mr. Romero, who in more than two decades in the valley has done farm work and now cleans equipment in a tortilla-making business. Mr. Romero, a former official with the United Farm Workers, is the only named plaintiff in the suit, which estimates there are more than 300 others in his position who can be identified later in the proceeding.

Mr. Romero said disillusionment with grant makers was now so widespread that it would be difficult to galvanize residents around another such project. “They say the same thing — we’re going to lose a lot of time for nothing.”

Experts in nonprofit law say they can’t recall a similar example of prospective grantees suing a foundation for not delivering an allegedly promised grant. Foundations often meet extensively with potential grantees to determine whether to support them, noted Celia Roady, a Washington lawyer who represents charities and foundations. “My impression is that potential grantees understand that’s how the process works.”

The Northwest Area Foundation itself seems puzzled by the suit. Said Mr. July: “I don’t know how this lawsuit helps them in any way, shape, or form.”

Widespread Frustration

But apart from the suit’s legal merits, some critics say it exemplifies more widespread frustration with the Community Ventures program’s departure from traditional forms of philanthropy.

“They’ve created a situation that’s rife with misunderstanding and frustration,” said Jon Pratt, who heads the Minnesota Council of Nonprofits, some members of which were among the groups the Northwest Area Foundation stopped supporting in favor of Community Ventures.

“In traditional grant making, I expend a reasonable amount of time preparing a proposal I fully expect you may reject. The rules of engagement are fairly clear,” said Mr. Pratt. “But Northwest Area says, We want large numbers of people to spend substantial amounts of time interacting with us, with the reasonable expectation that the resources will follow.”

Mr. Pratt added: “There’s a reason why other foundations have ended up with a fairly standard and meticulous grant-making process. It’s not nice to mess with people’s time and not be clear about it.”

Foundation officials defend their approach. “We feel that engaging the community in the way we’re choosing to do allows the community to have much more voice in how a project will proceed,” said Lisa Hinickle, who heads the Community Ventures program.

While the foundation has considered other communities it ultimately decided not to work with, in no other case had the process gone as far as it did in Yakima, said Ms. Hinickle, who noted that it has made no changes in its approach as a result of that experience. But she called the lawsuit “a critical reminder of the obligation we have as a foundation when we work with communities to be clear and to manage the expectations.”

That obligation is particularly compelling, in Mr. Romero’s view, because the Northwest Area Foundation was established with railroad money generated in part by the labor of immigrant workers. Louis W. Hill, who created the foundation in 1934, was the son of James J. Hill, founder of the Great Northern Railway, which served the eight states in the country’s northwestern quadrant where the foundation still operates.

Said Mr. Romero: “Our grandfathers, the braceros, came and made wealthy the founder of this foundation. Some people worked on the railroads, and came back to Mexico with empty hands. They were exploited in certain manners in that time, and in this time, they’re going through the same thing.”