posted on: Tuesday, October 28, 2008

by Pete Manzo

How foundations should adapt their grantmaking to help nonprofits in this environment has been a hot topic in the philanthropic world in recent weeks, and going as far back as last spring.

Foundation funding won't drop as sharply as the Dow, thankfully. Overall, foundation giving is likely to stay flat or decline slightly, as the Foundation Center’s review of giving through several past downturns indicates. Of course, for some subset of foundations, grantmaking may decline considerably.

Far more importantly for human services nonprofits, however, government funding is almost certain to fall sharply over the next year or two. At the same time, service providers are likely to see demand for their services rise at the same time their resources fall.

There have been many suggestions among the philanthropy commentariat of different things foundations can do to help nonprofits get through the hard times. I’ve tried to read as many of them as I could, and no doubt I’ve missed many. Here are a few samples:

• Chronicle of Philanthropy listing of articles on nonprofits and economic pressures
• COF open letter on how foundations can respond to the financial crisis
• COF survey report on foundation responses to downturn (May 2008)

One suggestion I haven’t seen, though, is a call to release restrictions on grants, and proactively contact grantees and invite them to reprogram the use of restricted grant funds. This might be the quickest, most powerful way for foundations to help their grantees.

The for-profit financial world, ironically, began doing this nearly a year ago, as the dimensions of the subprime mortgage crisis became more clear. Countrywide, for example, began contacting mortgagee’s last fall and offering to modify their loans, to reduce the risk of default from adjustable rate mortgages. They are now on their second or third round of doing so, a massive undertaking described in this Los Angeles Times article.

Taking this strategy would pay more than just financial dividends. The added flexibility may be critically important to enabling grantees to weather the storm. Speed is also an important virtue here – existing grant funds can be reprogrammed much faster than new funds can be sought, or disbursed.

Perhaps just as important, the work involved in contacting grantees and offering to modify grant terms would promote a number of important goals, including:

• Increasing a foundation's understanding of the impact on their grantees, and providing grantees information about how the foundation is being affected and reacting at its end, which will help both parties plan for the future;
• Sharing information about options and opportunities that may be helpful to the foundation, the grantee and their respective partners and allies; and
• Strengthening relationships between a foundation and its grantees.
  

It also could lay the groundwork for increased trust and openness between foundations and nonprofits in the future. During the 2002 downturn, I participated in several panels on how nonprofits could deal with the economic slump, and I gave similar advice – that they should take stock of the alignment between what they thought they did best, what they thought their clients needed, what would best help the organization address those two factors, and what their funding allowed, and then they should go to their funders and make a pitch for reprogramming the funding they already had in hand. It was unrealistic, though, to expect many nonprofits to actually try this tack, both because of the power differential between nonprofits and their funders, and because of the uncomfortable “Sophie’s Choice” position it might put nonprofits in – they might not want to go on record with outsiders saying they think one of their programs is more important, or more effective, than others. Reaching out to grantees and offering to release restrictions can reduce those barriers and create a different dynamic for future conversations.

Is this a crazy idea? Just impractical? Other suggestions?

Pete Manzo is director of strategic initiatives at the Advancement Project.