Foundations Should Offer Thoughtful Support to Struggling Charities

It’s hard not to be impressed by how well nonprofits have survived in the worst economy since the Great Depression. Despite a slowly recovering economy characterized by incremental growth and cuts in government and private funds, nonprofits that provide vital services to low-income families and underserved communities, broadly speaking, have demonstrated resiliency and remained steadfast.

Nevertheless, one wonders just how many more cuts in aid or slow-paying state contracts nonprofits can continue to absorb or manage.

According to the Center on Budget Policy and Priorities, 44 of the 50 states face budget gaps. Four states—California, Illinois, New Jersey, and New York—that together represent 25 percent of the country’s population have the most severe fiscal situations. This national public fiscal crisis will further test the stamina of nonprofit workers, executives, and boards at organizations on the front lines of poverty and other social problems.

How, then, should foundations respond to best help our grantees deal with what experts call the new normal?

The grant dollars we allocate certainly cannot fill the gaps created by reduced government support—nor should they. But we certainly can be more thoughtful about how we focus our giving. For maximum impact in real time, one could suggest increased attention on four items:

General operating support. To sustain nonprofits that are crucial to maintaining the social safety net, or delivering other necessary services or programs, we must provide them general operating funds. Grant dollars that come with the greatest flexibility are the dollars now needed the most to cover unsexy but vital budget line items like salaries, benefits, rent, insurance, and utilities.

Management training. Working smarter is no longer optional but a necessity. If grant makers offer nonprofits full access to sound advice and meaningful consulting, nonprofits will have a better chance of succeeding in a changed economy. It is important to emphasize that size or influence will not save an organization in this environment. Survival will depend on how a nonprofit deploys resources and carries out appropriate strategies and tactics.

Access to working capital. Decent cash flow is essential for nonprofits dealing with all the money problems caused by the downturn, but so is access to working capital—lines of credit or bridge loans. Banks are understandably nervous about extending lines of credit in an environment of severely constrained government and private financing for nonprofits. However, by investing in well-regarded community finance-development institutions like the Nonprofit Finance Fund that specialize in helping tax-exempt groups, private foundations of all sizes can establish pools of working capital for their grantees. In many cases, the most effective method will be to allocate money from their endowments through program-related investments, which can, in turn, create vehicles from which grantees can borrow at low rates.

Making advocacy a priority. The voices of the nonprofits and of the people they serve cannot be ignored in this time of limited resources. Nonprofit leaders need to respond with evenhanded advocacy fueled by facts and driven by data. Adopting the usual modest nonprofit approach is likely to result in further reductions in government aid. Enhanced advocacy will go a long way to defend current levels of support and fend off further cuts.

While these four approaches are straightforward, easy to embrace, and practical, few foundations use them regularly.

But we must move quickly to put them in place. As nonprofits adjust to a new way of operating in today’s economy, money, advice, and advocacy are not the only precious resources. So, too, is time. If grant makers adopt these ideas now, nonprofits will have more time and be better able to adapt to change and sustain their efforts to provide much-needed help to America’s most vulnerable people.