Changing Course

Midwestern fund forsakes making project-by-project grants in favor of direct, long-term ties to entire communities

Miner County, S.D., has been languishing for decades, as a declining

farm economy has prompted hundreds of families to seek brighter prospects elsewhere.

Several towns have vanished altogether, while the remaining population, now shrunk to 2,700 from its peak of 7,000 in the 1930’s, had a median household income $10,000 lower than the national average in 1995. Some people have trouble finding housing they can afford, and drug and alcohol abuse among young people is on the rise.

But today, residents of the 576-square-mile county sense new possibilities. They are part of a $200-million experiment that could eventually transform the way philanthropy is practiced — or at least could show foundations the promise and pitfalls of a new style of grant making.

A new nonprofit group, Miner County Community Revitalization, last week signed a 10-year “partnership agreement” with the Northwest Area Foundation, in St. Paul, which has committed $5.8-million over 10 years to help residents create better jobs, expand financial assets, and reduce poverty.

Plans call for generating jobs in such enterprises as organic produce and livestock production, a fish farm, a cheese factory, and branch offices of high-technology businesses.

Kathy Callies, a board member of the nonprofit group, says the grant maker’s help is changing the way many of her neighbors view their lives. “Until this happened, we talked about the weather and the kids and the ballgames,” says Ms. Callies. “Now we talk about the future.”

Miner County is the first of about a dozen communities with which the Northwest Area Foundation plans to form similar 10-year partnerships in a controversial effort to test whether grant makers can be more effective at reducing poverty if they change how they operate. The fund announced in 1997 that it was abandoning its traditional practice of supporting hundreds of nonprofit groups with relatively small short-term grants, saying such a project-by-project approach was decreasingly effective in tackling complex social problems like poverty. Instead, it opted for a pioneering course of working not just through nonprofit groups but directly with entire communities, offering long-term support for their efforts to revitalize themselves (The Chronicle, November 13, 1997).

“It’s high-risk philanthropy,” says Jon Pratt, who directs the Minnesota Council of Nonprofits. “It’s a very different approach that in some ways turns traditional grant making on its head.”

It may be years before the outcome can be fully evaluated. But the strategy already has drawn a mixture of praise and criticism, particularly where the foundation operates: in an eight-state region stretching from Minnesota and Iowa to Washington and Oregon.

Mr. Pratt says the new approach — while enabling a handful of communities to take more control of their fates — keeps the foundation isolated from most nonprofit organizations and their activities, since it no longer accepts grant applications. And many of its previous grantees regret the loss of a potential source of support.

Yet foundations and nonprofit groups are watching the experiment with interest. Some predict — while others may fear — that if the strategy proves successful, more grant makers may choose to commit more of their resources to a limited area over a longer period of time.

“We’re all painfully aware of the times we’re not as effective as we’d like to be,” says Emmett D. Carson, president of the Minneapolis Foundation. “That’s why there’s an interest in alternative models.”

Economic Development

The Northwest Area Foundation has released few specific details about its new philanthropic venture, preferring to leave it to the communities themselves to publicize their efforts. But over the next decade it says it plans to enter into “partnerships” with four kinds of communities: inner-city neighborhoods, regional centers, Indian reservations, and “communities of interest” — like migrant workers, for example, or immigrants.

The bulk of the foundation’s commitment — about $150-million — will be used to undertake long-term economic development and other antipoverty measures in 10 to 16 communities. The rest of the money will be used to develop rural leaders and to help communities that were not chosen for intensive assistance. Each community “partner” will receive $5-million to $20-million from the foundation, and will be required to raise more than half the total cost of its project from other sources.

The process of picking communities to work with has been slow and deliberative, as foundation staff members for the past couple of years have met with hundreds of people across its region, trying to determine which communities represent the most appropriate balance of need and opportunity. The foundation has been working intensively with seven communities and expects to announce other deals in the next few months.

In Miner County, for example, residents have held hundreds of meetings during the past two years, with the foundation’s support, to discuss what kind of community they would like to become and how they might make that happen. “Everybody is looked at as a resource,” says Randy Parry, who directs Miner County Community Revitalization, the group that was formed to lead the effort.

Adds Ms. Callies: “No one of us can fix this alone, but in collaboration we are more effective than we ever thought we could be.”

An Annenberg Rural Challenge grant awarded in 1995 to help improve public schools in Howard, the county seat, galvanized students to take actions that eventually attracted the notice of the Northwest Area Foundation.

Through countless meetings, including some with experts brought in to discuss various challenges facing the region, Mr. Parry says, county residents gradually put together a strategic plan for improving their community.

Some residents felt that the revitalization effort needed to score some quick successes to generate and sustain enthusiasm during the lengthy process of forging a long-term strategy for tackling poverty, Mr. Parry says. For example, the county used some of the grant money to convert an old schoolhouse to a health center, where residents of Fedora (population 250) can do aerobics, weight training, or simply play cards with friends.

“There was so much despair here,” he recalls. “We had to bring about some sense of hope.”

County residents themselves will decide how to spend the foundation’s money, within the parameters of the strategic plan approved by the foundation last week. The total cost of the project is estimated at $17.85-million, which means that the county will have to raise about $12-million from other sources.

‘A Better Prospect of Success’

Karl N. Stauber, the Northwest Area Foundation’s president, believes that by concentrating its support on Miner County and a dozen or so other communities, it will make more of a difference than it did when it diffused its aid among hundreds of organizations.

“We think nonprofits are very important players,” he says, “but we also think we may have a better prospect of success in focusing on communities” rather than on individual organizations, which deal only with particular aspects of a social problem. As part of that process, the foundation is working with churches, schools, businesses, and local governments, as well as charities and community foundations, and is offering lots of advice and consulting help in addition to cash.

“We no longer have a project orientation,” Mr. Stauber says. “We’re trying to help a community think strategically about how it can reduce poverty.”

Grant-making colleagues have shown interest in his foundation’s experience, he says, although the results are far from certain. But he adds: “It would be presumptuous of us at this point to say we’ve got a model that other foundations should follow.”

‘Not Talking a Lot of Money’

Another place where the foundation is considering a long-term investment is a racially diverse section of north Minneapolis where problems include crime, joblessness, and a shortage of low-cost housing. Some community activists welcome the foundation’s interest in their neighborhood, though with a few reservations.

“To the degree that a foundation says, ‘We want to help you discover what may work for you,’ that’s good,” says Al McFarlane, editor of Insight News, a black-owned weekly newspaper with a circulation of 42,000. “But we’re not talking a lot of money,” he adds. “The danger is that they wind lots of people up with expectations” that cannot be fulfilled.

Mr. McFarlane also wonders whether the neighborhood would be better served by strengthening organizations that already exist, like the Urban League or N.A.A.C.P., rather than by focusing on new collaborations. Yet he concludes that “people are talking who weren’t talking before,” since the foundation has tried to draw all elements of the community together to discuss their future. “We all will have benefited from knowing each other,” he says.

The foundation “is really trying to involve communities in the decisions” about where to focus their resources, says Clarence Hightower, president of the Minneapolis Urban League. “In some ways that’s good,” he says, “but in other ways it imposes an additional burden, and I’m not sure the end results will be that different.”

The wide-ranging collaboration and the endless succession of community meetings one must attend to remain eligible for funds does tend to build teamwork and foster collegiality, Mr. Hightower acknowledges. But the basic services that communities need — sheltering the homeless or training the jobless, for example — do not change, he says.

A different criticism comes from Mr. Pratt, of the Minnesota Council of Nonprofits. Many grass-roots activists are oriented toward making quick decisions and taking action immediately, he observes. They often have little tolerance for lengthy series of meetings aimed at cobbling together a community’s long-term plan for reducing poverty.

“On the one hand, there’s a surprising level of engagement” as scores of people attend block-club meetings and other informational sessions to discuss their neighborhood’s future, he says. “But part of the response from the community is that this is a waste of time, or so long-winded a process that the project will be defined by those with the most staying power,” in what he calls “a foundation version of Survivor.”

At the foundation itself, life is quite different from the days when program officers sorted through grant applications and visited nonprofit groups to discuss their ideas. Many of those people have left, replaced by people with experience as community organizers or activists rather than as grant makers. And the new staff members have been formed into teams that work closely with a community being considered for a long-term partnership.

High Costs at Start

Such an approach is expensive. The staff has grown to 32 people — 10 more than before — and they travel extensively. Mr. Stauber estimates that this early development phase costs about $1.5-million per community.

Once a plan has been approved, the foundation’s involvement decreases significantly. Communities are responsible for meeting certain benchmarks to continue to be eligible for successive installments of their grant, but have wide latitude to determine how to spend the money. And the foundation’s development team, meanwhile, will move on to another prospective community partner.

The unpredictable pace of the development phase also makes it difficult to regulate the flow of grants with any degree of precision. Mr. Stauber guesses that some years the foundation might pay out far less than 5 percent of its $460-million in assets, while in other years it might distribute far more. Over time, though, he projects a 5.5-percent average expenditure. During the fiscal year that will end March 31, the foundation expects to pay out $2.9-million, compared with $27.2-million the year before, because the new grant-making program was just getting geared up.

But the remaking of the Northwest Area Foundation may be far from over: More structural changes may be on the way, as it wrestles with the question of how it can best fulfill its mission. Mr. Stauber says the board has discussed the option of converting the institution from a private foundation to an operating foundation, if it felt it could accomplish more that way, or even a charity — in which case it would turn its endowment into a support organization.

The 1934 trust document that set up the foundation did not specify that it be a grant maker, he notes, but only that it should improve the human condition. “The directors decided that they wanted to see the foundation make an optimal difference with the funds available to it,” Mr. Stauber says. “I ask myself virtually every day, Is there another way we could do this that would be more effective?’’