September 23, 1999 | Read Time: 5 minutes
Working together, foundations and their non-profit partners have made extraordinary contributions to the quality of life of individuals and communities, and to the national well-being. But the nature of that partnership and the bedrock values that have long undergirded America’s non-profit world are changing. Unless foundations and charities come together to openly and honestly discuss those changes, their historic partnership is imperiled.
Like spouses who sometimes drift apart during a long marriage, charities and foundations have seen their relationship come under considerable strain in recent years. Indeed, this once vital and close-knit partnership seems more distant now than at any other time during my 28 years of involvement in and around the non-profit world.
One reason is that more and more non-profit groups, especially in the area of human services, are becoming less and less dependent on foundation support and other types of private donations. In 1970, for example, a typical family-service organization drew 60 per cent of its funds from United Way or some other federated fund drive. That percentage dropped to 20 per cent by 1990 and has sunk even lower since then as government support and fee-for-service income have boomed. According to data from Lester M. Salamon, director of the Johns Hopkins Center for Civil Society Studies, traditional sources of giving now account for only four cents out of every new dollar raised by non-profit human-services organizations.
For charities, the benefits of diversifying their sources of revenue are significant. Access to new sources of funds generally extends charities’ capacities to serve their clients, insures more organizational stability, and provides protection from too much dependency on any single source of funds. By successfully pursuing other funds, many non-profit groups have heeded the advice of their foundation partners, who have long cautioned about the limitations of philanthropic support and have urged their grantees to become more self-sufficient.
But there are tradeoffs. Although the changes may be more subtle than blatant, it would be naive to assert that the operations, missions, and perhaps even the values of non-profit organizations are invulnerable to such changes in how they receive their support, and from whom. It becomes more difficult to define and articulate mutual self-interest between foundations and charities as the sources of funds change so substantially.
To be sure, the tradeoffs may be deemed worthwhile, or even unavoidable. But foundations and charities owe it to themselves to explore what the effect of those changes might be on their traditional close ties.
For example, the privatization of government services and the increased reliance by government on charities to deliver human services could unhappily lead to new challenges to the traditional rights of such charities to engage in advocacy. If a charity draws 90 to 95 per cent (or more) of its budget from government, then that organization is more likely to be viewed as a government contractor by politicians who may be tempted to try to limit the advocacy rights of charities that receive a large share of their money from government. And if that happens, we risk a situation in which government will be tempted to challenge, by increments, the advocacy rights and privileges of more and more non-profit organizations.
In the past, foundation support has been instrumental in helping charitable organizations protect their rights and privileges, just as charitable organizations have played important roles in protecting foundations from unwarranted and unwise policy intrusions. But as their relationship becomes more and more distant, such mutual support should no longer be automatically assumed. If each partner takes the other for granted, the cherished rights and values of both become more vulnerable.
Another factor that has led to the straining of the ties between charities and foundations has been the perception among non-profit leaders that foundations are relying too heavily on project-specific grant making — a philanthropic euphemism for a contract — and not enough on general operating support. According to 1997 data from the Foundation Center, project grants represent 43 per cent of all foundation grants, while general-support grants account for 12 per cent of the total.
The emphasis given to project-specific grants is, at best, a two-edged sword. It makes it easier to document whether a grant had the desired outcome and offers showier results. But by mimicking the financing patterns of contractors who can provide a lot more money, such as the government, foundations also seem to be effectively devaluing their relative importance to non-profit groups.
To many charity leaders, the shift toward project-specific grant making also suggests that foundations are either insensitive to or uninterested in the value of supporting the overall mission of an organization. Since most non-profit leaders report that a grant to underwrite overhead and other basic expenses is probably seven to eight times as valuable as a grant in the same amount for a specific project, it seems odd to them that foundations wouldn’t want to make their funds more strategically useful. What’s more, foundations’ preference for project-specific grants has sparked discontent among many non-profit leaders who resent being treated as untrustworthy partners by foundation staff members.
We live in a rapidly changing world, and foundations and charitable organizations must change with the times in order to maintain their vitality and relevancy. But we also share a responsibility to preserve the essence of a voluntary and independent sector, which is so central to American notions of citizenship and democracy. Changing with the times does not guarantee that every change we adopt will turn out to be a good one.
It is time for the leadership of our field to come together and examine the changing relationship. Good, honest, open, and regular communications are very important steps to restoring the vitality of our historic partnership. Given the influx of so many new leaders of large American foundations and charitable organizations, now is an especially good time to begin. Indeed, Independent Sector and the Council on Foundations have just begun to hold a series of dialogues, but those need to be sustained and expanded. The elements that are creating distance between charities and foundations can only be ignored at our collective peril.
Peter Goldberg is president of the Alliance for Children and Families, in Milwaukee, and from 1982 to 1994 ran two different corporate foundations. He currently serves as chair of the board of Independent Sector, in Washington.
