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Philanthropy Journal of North Carolina – Budget deficits test funders

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By Todd Cohen

Philanthropy needs to kick some bad habits and revamp its business model.

Hooked on taxpayer dollars, nonprofits no longer can expect a quick fix from private funders when government deficits choke off the flow of those dollars.

Instead, nonprofits need to be entrepreneurs, finding new efficiencies, partners and revenue sources.

For their part, foundations must wean themselves from their dependence on a federal law that lets them limit their grantmaking to 5 percent of their assets.

Instead, foundations should dig deeper.

They, along with corporate funders and individual donors, also should move beyond simply supporting nonprofits’ retail delivery of social services.

Instead, they also should supply the wholesale needs of charities for smooth back-office operations and applied research-and-development initiatives addressing the root causes of our biggest social problems.

The crisis that government deficits are creating for charities offers philanthropy a powerful incentive to retool itself.

Organized philanthropy cannot and should not take on the role that only government can play in providing a lifeline to people living on the margins of society.

However massive philanthropic assets might seem, they pale beside the resources that government can command.

And while philanthropy enjoys special tax benefits in return for the voluntary delivery of services that otherwise might not be available, government has the constitutional duty to provide for the general welfare.

Still, foundations and corporate funders, as well as individual donors, can rewrite and expand the important role they play.

First, they can and should devote more of their assets to making grants.

By limiting grants to 5 percent of assets, foundations have pumped up their endowments and created an important source of future grants.

But as former U.S. Sen. Bill Bradley argues in an opinion column he co-authored in The New York Times, inflation will dilute the impact of those endowment dollars over time.

By earmarking more of their assets now for grants, foundations can have a greater impact more quickly – and address needs that are both crushing and immediate.

Sadly, however, simply putting more dollars into charitable programs won’t begin to solve America’s social problems – or the structural cracks in nonprofits’ internal operations.

Charity has evolved as a retail business: Foundations and individual donors, akin to bankers, invest in nonprofit programs that directly serve people with such immediate needs as food, shelter and health care.

But the shock of government deficits gives charity a rare chance to convert itself into a wholesale business: Foundations and individual donors, akin to venture capitalists, can invest in philanthropy itself.

That means helping nonprofits operate more effectively, and pooling grants to attack deep-seated and interconnected social problems at their roots.

Meeting the internal challenges facing nonprofits cannot and should not replace or displace their critical need to work on social problems.

Indeed, philanthropy needs to find ways to continue supporting charity’s retail function while also developing a wholesale strategy that both girds nonprofits’ back-office work and helps funders join forces to take on our toughest social ills.

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