More Grant Makers Are Supporting Charity Efforts to Diversify Revenue Sources While Holding Them to Higher Standards

Next month Kids Corporation, a Newark, N.J., charity that runs a summer camp, after-school programs, and a free health clinic for schoolchildren, will break ground on a new greenhouse and garden that will produce fresh vegetables year round.

The charity will use some of the vegetables to promote its mission—helping needy kids stay healthy—but it also hopes sales of the vegetables will provide $96,000—or about 10 percent of the organization’s budget.

The vegetable-growing venture got its start with a $25,000 grant from the Prudential Foundation, one of a growing number of grant makers seeking new ways to help charities cope with the economic downturn.

Kids Corporation won $25,000 in Prudential’s recent “Breaking the Gala Addiction” workshop and competition, which challenged the foundation’s grant recipients to replace time-consuming fund-raising events—especially those that suffered in the recession—with new efforts to obtain revenue.

Focusing on Social Needs

Like Prudential, more and more foundations are making grants to help charities diversify their sources of revenue and otherwise bolster their finances.

Grant makers are also seeking new ways to strengthen nonprofit groups—and, in some cases, even government agencies—so those organizations can better respond to expanding social needs with fewer resources.

At the same time, as foundations have watched their own endowments shrink, they have become more selective about the organizations they support and are holding charities to higher standards than in years past.

Grant makers are taking a range of approaches as they move away from simply making emergency grants for basic needs such as food and shelter, a staple of early responses to the recession.

In California, the Silicon Valley Community Foundation has donated $122,000 to Project Read, a local literacy group. The grant will enable the organization to add financial coaching to its efforts to improve the literacy of needy adults and their children.

“We find that being in the hole financially is almost more shame-ridden than dealing with illiteracy,” says Holly Fulghum-Nutters, a Project Read manager. “These two topics have so much in common that the grant was an excellent fit.”

Other foundations are seeking proposals for projects that would help grantees obtain some of the federal economic stimulus money, much of which states are now deciding how best to distribute.

The Ms. Foundation, in New York, hopes to attract proposals from nonprofit groups that can use government funds to expand or improve child care and to provide training or jobs to help low-income and minority women enter emerging environmental or “green” careers.

Looking at the Bottom Line

Many foundations are reshaping their efforts to help charities based on the gap they see in how charities finance their operations. This year the Eugene and Agnes E. Meyer Foundation plans to make fewer grants for strategic planning or efforts to strengthen nonprofit boards; instead, it plans more grants to help charities raise more money from individuals.

Rick Moyers, the Washington fund’s program director, says few charities now want help with governance or planning.

“Groups are more focused on day-to-day survival than fine tuning their management structures.”

The economic crisis charities have faced in the past two years, he says, “underscored the importance of diversified income, adequate reserves, and robust individual-giving programs. Coming out of the crisis, these things are key.”

The Irvine Foundation, in San Francisco, is also focused on helping charities improve their bottom lines.

“We knew there would be a set of organizations that would conclude that business as usual is not sustainable,” recalls James Canales, president of the foundation.

Last year the foundation created a fund to help charities that are merging, collaborating, or finding other cost-effective ways to operate.

In December, the Balboa Park Cultural Partnership, which represents two dozen arts groups in the San Diego park, received a $150,000 grant from Irvine to create a business plan for its member organizations to offer a joint, park-wide membership.

The goal is for the arts organizations to spend less than they have individually to recruit new members; that will allow each group to focus more on building relations with people who make outright gifts.

A New Arts Fund

Other grant makers are focusing less on the bottom lines of specific charities and more on dealing with the growing needs of the nation’s most vulnerable people.

The Kresge Foundation, which decided because of the economy to go beyond its tradition of solely supporting building projects, last year started a fund to help charities in cities hit hard by the recession—such as Baltimore, Detroit, and St. Louis—use the arts to work on pressing social issues.

At Community Law in Action, a Baltimore youth-advocacy group, a $10,000 Kresge grant has helped the organization provide art lessons to teenagers incarcerated in adult detention centers.

The teenagers have created illustrated stories about their lives that Community Law in Action will publish in two volumes this month, part of an effort to persuade city officials and other leaders that young people ages 14 to 17 deserve alternatives to adult prison.

“The community does not understand these youths; the idea is to get their real stories out there,” says Laura Furr, a senior director at the advocacy group who says she was frustrated when many foundations appeared to concentrate on just providing emergency food and shelter grants after the recession hit.

“The youth of America need more than that,” she says. “We hope to change policy, which will provide more long-term help and more options for these kids. Maybe then we won’t have to distribute so many basic-needs grants.”

Solving Problems

More and more foundations are also seeking to take a leading role in devising fresh responses to stubborn and rapidly escalating problems like poverty, joblessness, and crime.

“When our communities are hemorrhaging, how do we transform things?” asks Emmett Carson, president of the Silicon Valley Community Foundation, which worked closely with county officials last year to distribute $1-million in grants and contracts to 30 groups, mostly those that faced a big increase in demand for food and shelter.

Terry Mazany, president of the Chicago Community Trust, shares Mr. Carson’s concerns and says foundations need to focus on the long-term nature of the economic crisis, and how it has transformed the goals of many grant makers.

“We’re looking at what our priorities need to be in a period of prolonged high unemployment, high levels of foreclosure, the devastation of neighborhoods, and a dramatic increase in need for human services with reduced public funding. These factors will be with us for years going forward.”

The Chicago foundation is working with the city on economic-development plans to train people for jobs in new industries that are expected to grow in coming years. And it recently made a grant for consultants to help the city improve the unwieldy process by which it contracts with social-service organizations.

“This is in our interest for the city to be more efficient,” says Mr. Mazany. “Otherwise nonprofits will close their doors or not bid on contracts.”

Who Should Survive?

The issue of whether foundations should be focused on helping charities survive is prompting new discussion among grant makers.

While the economic crisis presents some new opportunities to work differently, Mr. Carson says, grant makers also have a more difficult role now.

“Foundations are used to being in the background, and grant makers are not often in the position to explain how and why they make choices,” he says, but the economic crisis “requires us to be more accountable for the things we pick. Who we support and what we support will have significant consequences for what organizations survive and which approaches prevail.”

Some foundation officials are beginning to express concern about the “save us mentality” among charities in danger of shutting down, says Tamara Copeland, president of the Washington Regional Association of Grantmakers.

The association recently gathered more than 30 corporate and private foundation officials to discuss the next stage of needs that could result from the financial downturn.

Among the questions grant makers asked one another were “when we give grants, are we just keeping nonprofits alive, or are we really moving people out of poverty?” says one participant, Viki Betancourt, manager of community outreach at the World Bank Group.

She says, for her part, she wants “to be in the business of resolving poverty, not saving a nonprofit.”

Those sentiments, along with reduced grant-making budgets, are leading foundation leaders to hold grant seekers to tougher standards.

Before the recession, says Mr. Mazany of the Chicago Community Trust, “we could count on new dollars available for grant making every year. Our tolerance for mediocre performance by grantees was higher.”

But now the Chicago fund, along with most other foundations, is looking at a grant-making budget that will not increase until at least 2013—if then, says Mr. Mazany. “We have no room for poor performers.”