No-Fuss Philanthropy

Staff members at PeninsulaWorks-Daly City, a nonprofit organization in Northern California that provides services to the unemployed, understand that their clients often face multiple challenges. So the group provides any assistance it can to help clients become self-sufficient — whether it’s finding them drug- and alcohol-addiction treatment, paying their delinquent rent, or buying them new outfits to wear to job interviews, says Roberta Deis, the organization’s manager.

“Even small amounts of money can make a big difference in someone being successful in their lives,” she says.

That’s why Ms. Deis appreciates her charity’s relationship with the Philanthropic Ventures Foundation in Oakland, Calif., which has given her group three unsolicited grants totaling $20,000 to use at its discretion.

The foundation’s hallmark is what its president, Bill Somerville, calls “paperless grant making”: giving money quickly — usually in less than 48 hours, with little bureaucracy. Recipients are asked to sign a brief agreement letter when the grant is awarded and fill out a simple log detailing how the money was spent when the money is gone.

The foundation, which was created in 1991 by Mr. Somerville, a nonprofit veteran with more than 40 years in the field, and two lawyers, Albert J. Horn and Penny Greenberg, began with several $20,000 donations from supporters of Mr. Somerville’s previous employer, the Peninsula Community Foundation, in San Mateo, Calif. Last year, Philanthropic Ventures gave away $4-million exclusively via its bureaucracy-free method, generally in allotments of $5,000 to $15,000. In many cases, grantees were told to use the grants at their discretion, so that the front-line nonprofit workers who know their charity’s clients most intimately can decide where the money will do the most good.

“It’s real help, right now, and it’s great not having to go through paperwork,” says Ms. Deis. “Such quick funding can eliminate the possibility that a need will become much greater.”

The practice has drawn praise from observers of the grant-making field, but some foundation experts acknowledge that streamlining giving to such a degree can present legal and ethical concerns.

Rapid response from a grant maker can change the way that charities function, says Sister Christina Heltsley, executive director of the St. Francis Center, a social-services organization in Redwood City, Calif., that has also received grants from Philanthropic Ventures in this simplified fashion. “To compete for funding these days, nonprofits have to hire a development director to write grants for them, but the Philanthropic Ventures Foundation saves time, money, and personnel,” she says. “I can spend my time directly serving my clients rather than sitting in my office.”

Cutting Red Tape

Most foundations require charities to fill out page after page of paperwork, wait weeks or months to hear whether their grant proposal has been approved, then sign agreement letters that rigidly prescribe how the money must be spent. Then, when the gift runs out, grantees must fill out voluminous reports on their spending and its results.

By contrast, Philanthropic Ventures’ staff members routinely comb the streets of the foundation’s native San Francisco Bay region, sometimes finding groups such as PeninsulaWorks and the St. Francis Center and offering them money.

Some of Philanthropic Ventures’ grant making is even speedier. Through one of its grant-making programs, applicants can receive answers to their requests for aid within an hour after the foundation receives it, and a check within a day.

Mr. Somerville says he believes his foundation is the only one that has embraced no-fuss philanthropy to this extent. Most foundation giving, he says, is bogged down by far too much bureaucracy. “It paralyzes them,” he says.

Apparently some other grant makers agree: The David and Lucile Packard Foundation has provided nearly $1-million over the last 11 years for Mr. Somerville to spread the word about his approach to grant making. Under the conditions of the Packard grant, he speaks to community foundations across the country and consults with them on how to trim the bureaucracy that slows down their grant making.

Though other foundations will sometimes give quick, discretionary money to grantees — particularly in the wake of natural disasters or other emergencies — observers in the philanthropy world say more grant makers could be doing this sort of thing more routinely. But the practice also presents potential risks for donors.

“We all want to have a foundation process that is very streamlined and gives charities grants quickly without them going through hoops and paperwork,” says Joel J. Orosz, professor of philanthropic studies at Grand Valley State University’s Dorothy A. Johnson Center for Philanthropy and Nonprofit Leadership, in Grand Rapids, Mich. “At the same time, we want a foundation process that has lots of due diligence and makes sure that people who apply for money aren’t crooks, can use it wisely, and get results. But those are two good things that are absolutely contradictory with each other.”

‘High-Trust Grant Making’

Mr. Somerville calls his foundation’s no-fuss method of giving “high-trust grant making.” Grantees, he says, can run off with the money if they choose to, but, he says, so far “no one has, and I don’t anticipate they will.”

The streamlined approach to giving began during Mr. Somer-ville’s 17-year tenure as leader of the Peninsula Community Foundation. “The Peninsula Community Foundation grew quite large,” he says, “and I wanted to see if we could do something new in philanthropy.” While at Peninsula, he began handing out money to the foundation’s grantees without making them submit to rigorous bureaucracy — and, in some cases, allowed recipients to decide themselves how best to use the funds. “The idea evolved by finding out charities don’t have discretionary money,” he says. “But they are the experts on where it’s needed.”

Starting the Philanthropic Ventures Foundation, he says, offered the chance to get more discretionary funds into the hands of needy charity leaders. The group’s approach relies a lot on shoe leather as he and his staff members seek out deserving potential grant recipients. “One of my disappointments in philanthropy,” he says, “is that too many people in foundations spend their time behind a computer. Quality nonprofits aren’t a dime a dozen, and might not be found by waiting for an application to come through the mail.”

He trusts his gut when he visits potential grantees: “You look at the work they’re doing, and the seriousness with which they take it — do they have respect for people they work with, or are they patronizing?”

Sister Heltsley underscores that relationships are at the center of Mr. Somerville’s grant making through the Philanthropy Ventures Foundation.

“He knows us, he trusts us, and brainstorms with us,” she says. “You can never really tell a charity’s story on paper.”

The foundation also receives scouting reports from what Mr. Somerville calls “field agents” — such as doctors, drug-court judges, or other people in positions of authority — who can tell the grant maker about local needs. Sometimes, these field agents receive grants from the foundation to use for aiding the needy as they go about their jobs.

“We’re giving whole new resources to a group of professionals,” he says, “and strengthening the services they have to offer.”

Legal Considerations

The Internal Revenue Service allows charities to make grants to individuals and organizations that don’t have formal charity status as long as the money is earmarked for charitable activities. However, even a grant maker like Philanthropic Ventures must, as it does already, set some parameters for the money’s use and do some back-end reporting once the funds are spent, says Marcus S. Owens, a Washington lawyer who specializes in nonprofit law and once served as director of the Exempt Organizations Division of the Internal Revenue Service.

Giving money to an individual whom the Internal Revenue Service does not recognize as a charity carries some risk, acknowledges Andrew Schulz, deputy general counsel for the Council on Foundations, in Washington. “Yes, there are opportunities for misappropriation,” he says. “But I would hate to say that, since it’s an individual [being given a grant], he or she must be a crook. There are lots of well-meaning individuals out there.”

It can be legally complicated for many grant makers to follow the example of Philanthropic Ventures Foundation, says Mr. Schulz.

Congress set up rules for private foundations in the 1969 Tax Act, but didn’t do the same for charities, such as community foundations like Philanthropic Ventures, because lawmakers didn’t believe that those organizations would be as prone to abuse of funds as would private grant makers, according to Mr. Schulz.

Community foundations, he notes, raise money from the public, are beholden to their donors, and thus must demonstrate accountability to them, whereas private endowments are controlled by few people.

The federal tax code says that private foundations that make grants to something other than an organization recognized as tax-exempt by the Internal Revenue Service must exercise oversight regarding its gifts to those grantees — a more rigorous process than for grants made to charities. “You have to report this all to the IRS,” he says, “or pay a penalty.”

Many foundations, he says, create more bureaucracy for grantees than the law requires because they are gathering data to make their grant-making decisions, and to obtain documentation to use later if questions are raised about their choices.

Philanthropists grapple with the question of whether to go out and seek grantees, or wait for them to ask for grants, says Mr. Orosz. Mr. Somerville’s group, he says, has chosen what he calls “customer service” over the less risky, bureaucratic approach: “I think the tradeoff is that what he’s not going to be able to do is show people a whole lot of outcomes.”

However, he notes, Mr. Somerville “does a tremendous service to philanthropy by bringing in new, exciting grantees — which every foundation says it wants.”

Staying Close to Clients

The Catholic Worker House, a shelter for troubled teenagers in Redwood City, Calif., has never attained legal status as a charity, and its leader, Larry Purcell, says he never intends to apply for the designation — his organization is part of Dorothy Day’s Catholic Worker movement, whose tenets include the belief that groups that aid the poor should stay small and close to the people they serve.

As a result of its refusal to apply for legal recognition from the Internal Revenue Service, his group has had difficulty winning donations.

“It’s been impossible to work with other foundations, because other funders work with a preset idea of what they want to use their money on,” he says. “You can also spend half your life justifying your need for a grant, but then get one-tenth of the funding needed.”

His organization receives between $30,000 and $40,000 each year from the Philanthropic Ventures Foundation, and he praises the grant maker’s method of giving.

“It’s uncanny,” he says. “When I find a new program, no matter what its work is, the Philanthropic Ventures Foundation has already heard about it.”