Funders eye state budget woes

By Todd Cohen

GREENSBORO, N.C. – In the face of state government’s budget crisis, North Carolina foundations need to change the way they do business, foundation and nonprofit leaders said Wednesday.

Foundations also need to spearhead a statewide civic debate on North Carolina’s future and the role of government, they said.

“Our dollars cannot make up what’s missing,” Tony Pipa, executive director of the Warner Foundation in Durham, told 80 grantmakers at the inaugural meeting of the North Carolina Network of Grantmakers. “We can change the nature of how we’re working together.”

Their assets down because of the stock market slump, and funding requests from nonprofits soaring because of budget cuts and rising demand for social services, foundation leaders said they were shifting gears.

Changes that foundations are making or considering range from greater flexibility in the way they support nonprofits to teaming up with one another to pool dollars, share what they learn and help involve citizens and government, corporate and civic leaders in mapping the state’s future.

“We cannot have quality education, clean air and water, strong, healthy communities and a future for our children without, as individual citizens, being willing to make an investment in North Carolina,” said Tom Ross, executive director of the Z. Smith Reynolds Foundation in Winston-Salem.

“Philanthropy’s role,” he said, “is to help people understand why that investment is important.”

Facing projected deficits of $1.5 billion in the fiscal year that ends June 30 and $2 billion for the fiscal year that starts July 1, state government is cutting funds that affect nonprofits, either through grants or contracts, or for programs whose reduction or elimination likely will increase the demand on nonprofits for services, said Dan Gerlach, senior policy advisor to Gov. Mike Easley for fiscal affairs.

“A lot of programs that are valued by North Carolinians that are not part of government’s mission are not going to be included in the governor’s budget or the legislative budget,” said Gerlach.

While mild, the recession struck a double blow against North Carolina, hitting it hard, he said.

Manufacturing industries such as textiles and technology that account for one in five jobs in the state – a heavier concentration on average than in other states — have suffered big job cuts, he said.

And tax revenue from wealthy individuals for capital gains and non-wage income such as bonuses – revenue on which North Carolina has grown increasingly dependent – has fallen sharply, he said.

At the meeting, held at the University of North Carolina at Greensboro, Gerlach and other experts briefed grantmakers on the impact that budget cuts would have on education, social services and the rural economy.

Ran Coble, executive director of the North Carolina Center for Public Policy Research, urged grantmakers to help citizens understand and be part of shaping – through changes in state tax policy – the new economy that is emerging.

The challenge, he said, is to identify weaknesses in the state tax system, define the kind of state that North Carolina should be and involve citizens in developing a tax system designed to produce those changes.

“We must get citizens involved and start developing a vision for the future,” said Coble, who outlined more than $200 million in cuts in state funding targeted for social-service programs alone.

John Dornan, executive director of the Public School Forum of North Carolina, said the budget cuts would hit public education hard, particularly enrichment and remedial programs in kindergarten through high school.

Sixty percent of state tax revenue supports the University of North Carolina system, the N.C. Community College System and state public schools, he said, while 40 percent of the $273 million being withheld from local government was earmarked for public education.

“This is really a time for communities and the state to do a lot of values-clarifying: What do we value,” he said. “We need to be a lot smarter about how we spend money.”

Billy Ray Hall, president of the North Carolina Rural Economic Development Center, said the economy of the state’s 85 rural counties was changing dramatically, requiring long-term thinking and planning.

“We have to figure out a way with the state budget to push forward rather than pull back,” he said. “We have to take it out of the context of the immediate budget and talk about the long-term survival of rural North Carolina.”

Hall also urged grantmakers to get corporate leaders involved in talking about the state’s future, saying they were “taking a walk” on the issue.

Gerlach, the governor’s adviser, said grantmakers should become “part of the chorus of voices calling for long-term structure change in how governments raise revenue and a long-term discussion of what government in North Carolina should be doing.”

Grantmakers and government might be able to pool some funds to address critical needs, he said, citing as an example the North Carolina GlaxoSmithKline Foundation, which has made a $1 million challenge grant to the N.C. Community College System to raise another $1 million to prepare more teachers.

But he said grantmakers also need to “be clear with state leaders about the limits of philanthropy.”

Some foundations are adjusting their grantmaking to help nonprofits cope with the financial crunch.

The $43 million-asset Cemala Foundation in Greensboro, for example, is considering a temporary suspension of its policy not to support nonprofit operations.

“We’ve got a community in crisis,” said Priscilla Taylor, the foundation’s executive director.

The Raleigh-based Progress Energy Foundation, which is budgeted to make grants totaling $10.5 million this year to support education, environmental and economic-development programs, is making a lot more grants to help nonprofits retool their plans and goals.

“Our best nonprofit partners are the ones coming to us and asking us to help them refocus their mission,” said Merrilee Jacobson, a contributions specialist at the foundation.

But Vivian Turner, president of the R.J. Reynolds Foundation in Winston-Salem, said long-term funding commitments were keeping the foundation from meeting a big increase in requests, mainly for operating funds.

“We can’t reneg on commitments,” she said. “I empathize, but that doesn’t help pay the bills.”

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