Foundations Must Meet the Era’s Challenges

Washington’s consuming focus on fighting terrorism will radically reshape federal and state priorities and the budgets that translate them into reality. For foundations and charities, these changes will be jarring, unpleasant, and far-reaching. Beginning next year — and perhaps sooner — the red ink of government will color everything we do.

The finances of the entire foundation world have now been shaken twice, by the terrorist attacks and by the country’s slide toward recession. The Surdna Foundation’s endowment has dipped, and we expect modest or shrinking returns over the next few years. And Surdna is no different from many other grant makers.

Still, amid the turmoil is opportunity. Foundations can seize this moment to rethink their relationships with government, business, and their colleagues in philanthropy. Beyond one-shot charitable contributions to augment government dollars for post-attack relief, we have knowledge and considered positions to offer. We should aggressively seek to help government officials shape the new priorities that will surely come, improve our current programs, and resist unsupportable giveaways. We should start to act like players on a team, not like freelancers hoping our own projects will turn up winners.

The terrorist attacks and faltering economy underscore how quickly the flush optimism and program expansiveness we enjoyed in the 1990s can evaporate. Now, more than ever, we have a responsibility to coolly track the alarmingly quick changes in our national and international landscape for their effects on philanthropy.

And those effects will be legion. For example, new policies are emerging in the arena of civil liberties, and others are likely to follow in such areas as the welfare system, international trade, and the environment.

Who among us will map those changes?

What needs will now be left unsatisfied? Can they — and how should they — be met?

How, especially, can philanthropy inform the policy dialogues and affect government decision making in our fields of interest? How shall we represent ourselves, our knowledge, and our beliefs to the public?

And how, at root, can we discuss these issues with business and government when we have yet to talk seriously among ourselves? Already, it is easy to envision how governments’ new priorities — fighting terrorism and protecting homeland security — will alter the ability of local, state, and federal officials to deal with social problems.

A key example is urban revitalization, ranging from neighborhood improvement to public schools. Given the new priorities, we can forget about an expansion in income supplements for the working poor, enhanced government support for local school districts, and an increase in job counseling and training — precisely when the softening economy is causing layoffs among people who have taken their first steps up the economic ladder.

We also can forget an expansion of most of philanthropy’s model projects, such as comprehensive community revitalization and broad-spectrum solutions to family problems — the projects we had hoped the federal government or states would pick up and spread widely.

And we can forget government-supported expansion of after-school programs, changes in immigration policy, and state and federal support of public art.

Urban revitalization is just one area that will suffer as government officials shift their focus to counterterrorism. Others include work-force investment, low-cost housing tax credits, and flexibility in transportation funds, all of which would improve the quality of life for every American.

Given the reordering of national priorities, philanthropy must respond with vigor, earnestness, and creativity.

For starters, foundations and charities should acknowledge that, over the last decade, the government already has been shifting more and more responsibility for social programs to the nonprofit world. The trend has meant that philanthropy has been under pressure to shoulder a greater and greater burden for delivering social services to the poor — and for demonstrating efficiency and effectiveness in doing it. That pressure will only grow stronger in the coming months as tax revenue, now diminishing, is shifted to homeland defense.

Whether we agree with the government’s expectations or not, the new priorities will pressure philanthropy to do more, and with fewer resources than in the past.

The work begins internally, and it won’t be easy.

To avoid curtailing or eliminating programs, foundations may well have to spend more each year than the minimum 5-percent payout of assets that the federal government requires. And they may have to do it just when their endowments are shrinking.

With resources tight, foundations will have real incentives to improve their skills at measuring success — and failure — in their grant making. They also may need to figure out how to cut programs in ways that are defensible to their attentive public.

In the best of times, all these tasks were deferrable. Today they are urgent.

Foundations should avoid handling these challenges simply as internal matters needing a quiet rebalancing of grant-making priorities. Doing so would restrict their thinking to incremental — and disconnected — changes. As civic institutions charged with representing the public good, we must take a coordinated, comprehensive approach to revising our policies and procedures. We need to step out publicly when necessary to press our positions.

We also should engage the corporate world, to encourage it to be as civically responsible and as fair to all employees as possible. Layoffs will ultimately affect our social and civic programs and further stretch philanthropy’s ability to help solve social problems.

In addition, we should begin our own public conversations as well, at the Council on Foundations, Independent Sector, the Regional Associations of Grantmakers, affinity groups, and other philanthropy venues on what the changed landscape means for us.

And in every city with a philanthropic presence, foundations can jointly gather experts and look for ways to collaborate more effectively, if for no other reason than to make their money go further. Here is a chance for foundations that focus on local needs and their grantees to work together to sharpen their understanding of community priorities and begin to fashion approaches to tackling them.

Clearly, the peppy years of the 1990s are history. It was easy to spread the wealth around. Rising payouts hid many sins. We will find it far more difficult to manage in an era of declining resources. Very few leaders in philanthropy have had this experience. Fewer know confidently what to do. Few board members are knowledgeable, either.

But difficult times are when the best minds find opportunity. Foundations and grantees need to reach out together for knowledge, start to reframe their thinking, engage their allies and potential allies in the process, and shape a new era of philanthropic effectiveness.

Now is the moment to remake our common future.

Edward Skloot is executive director of the Surdna Foundation, in New York. This article is adapted from the foundation’s 2001 annual report, which will be published next month.