Tough Economy Takes a Toll on Nonprofits Designed to Serve Rural Americans

The bad economy and changes in priorities at America’s big foundations have caused big financial woes for nonprofits that serve rural America.

Exhibit A is the near-collapse of the Big Sky Institute for the Advancement of Nonprofits, in Helena, Mont., a group known for documenting the “philanthropic divide” in states such as Mississippi, Montana, and Vermont that hold few foundation assets.

Following a challenge from Sen. Max Baucus, Democrat of Montana, for foundations to do more for rural America, substantial grants rolled into Big Sky from the Carnegie Corporation of New York and the Ford and W.K. Kellogg foundations.

The organization entered 2009 with a staff of six and a planned budget of $600,000.

But then the economy sank into recession, and the foundations began to take new approaches to grant making. Michael Schechtman, the institute’s executive director, says he was negotiating large grants from Kellogg ($400,000 over two years) and Ford ($150,000 for one year) when the two foundations abruptly ended the discussions.

The fallout was brutal. Mr. Schechtman went off payroll for six months, and even now says he earns a part-time salary for full-time work. He kept the institute alive, but only by cutting four positions, abandoning national projects, and focusing on a Montana-specific agenda. The institute has recently worked on a project to promote strong early-childhood learning and helped build greater nonprofit capacity in Ravalli County, south of Missoula.

“The thing that became obvious to us was that there are no foundations with a more powerful stake in Montana than Montana foundations,” Mr. Schechtman says.

‘Nowhere to Turn’

The Southern Rural Development Initiative, a Raleigh, N.C., organization that helped rural charities in the South raise money and tap into federal and state support, faced a similar crisis in early 2009. When grant discussions with Ford and Kellogg, longtime supporters of the group, fell apart, the organization decided to close rather than continue operating with a skeletal staff.

“There was nowhere else to turn,” says Alan McGregor, co-founder and director of the charity, which had a 15-year run before closing.

Kellogg still spends roughly 30 percent of its grant-making budget in rural areas, says Aileen Webb, a deputy director. But now that Kellogg is focusing half of its giving on just three states—Michigan, Mississippi, and New Mexico—it’s inevitable that some longtime grantees will lose support, she says.

She acknowledges that the foundation may share some of the blame for allowing its grants to make up too big a chunk of budgets at certain charities, but she notes that all charities should have a strategy for sustainability “from the day they open their doors.”

“Sometimes organizations don’t take care of that knitting,” Ms. Webb says.