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Recession gives foundations big job

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[Editor’s note: A longer version of this article – including data from regional surveys of foundations from throughout the U.S. — was published in The Cohen Report, a publication of The Nonprofit Quarterly.]

Rick Cohen

The role foundations choose to play during these tough economic times will speak volumes about their commitment to people in need and to the services and advocacy organizations that serve them.

While some foundations — such as MacArthur, Gates and Irvine — have announced their intentions to exceed their 2008 grantmaking in 2009, most news reports cite grantmaking cutbacks.

And even in cases of proposed increases, some announcements contain equivocal wording suggesting that foundation overseers might reconsider or curtail their proposed increases

For many foundations, when they see their assets depleted by 20, 30 or 40 percent in one fell swoop, the first reaction is to cut back their grantmaking accordingly.

It is a business-rational calculus.

But unlike profit-oriented corporations responsive to shareholders, philanthropic foundations have a different mission — the welfare of our society-and a different set of stakeholders.

Those stakeholders are the American public that has entrusted them with the stewardship of tax-exempt resources.

From community foundations and health-care conversion foundations to family foundations and “independent” foundations, these institutions have the decision-making and financial latitude to respond to this economic crisis that is beyond the capacity of cash-strapped operating charities.

The social mission of foundations is on the docket.

Are foundations going to focus on husbanding their assets or deploying them at the most dire time nonprofits have faced since the Great Depression?

Unlike many tens of thousands of nonprofits, foundations are unlikely to go out of business because of the recession.

Their assets may be down, but they will survive until the market rebounds, as it inevitably will.

But without capital infusions for their capacity and sustainability, many nonprofits will not be there to greet them, and the communities they serve will be devastated by the effects of this downturn.

During economic recessions, nonprofits and communities are at their most vulnerable, with few alternative ports in the storm.

Foundations are under no mandate to cut back or hoard their resources. To the contrary, by virtue of their functions on behalf of the U.S. taxpayer, they could and should follow a more recession-specific agenda.

That kind of agenda involves the following components:

* Think countercyclical grantmaking.

When the economy goes south, that is the time for foundations to increase their grantmaking. Why should foundations give more only when their assets skyrocket during a bull market?

* Convert program grants to general operations.

If there were ever a time to heed the messages of these philanthropic experts, it is now. Whether or not a foundation believes in the long-term efficacy of general-operating grantmaking, now is the moment to release grant recipients from life-threatening project-related restrictions.

* Rethink mission and priorities in this economy.

At least for the moment, there is nothing to prevent foundations from asking whether they might do more for people in need, for families and communities that are likely to bear the brunt of our national economic vortex.

* Fund community-based nonprofits.

Whether foundations believe in service or advocacy, they have to remember their obligation to build and support a vital nonprofit infrastructure at the community level if these communities are to access the government stimulus or recovery resources.

* Don’t turn off the spigot.

Unless their investment advisers or Bernard Madoff decamped with their assets, foundations should put their money into the budgets of frontline nonprofits and open themselves up to nonprofits with the best ideas for responding to the crisis. Hibernation is not an option.

* Increase program-related and market-related investments.

Through market-related investments, foundations could invest in nonprofit-sponsored social enterprises that would address national priorities of job generation, green technology, K-12 education, and community technology — and meet or surpass returns from investments in the stock market.

Foundations have choices to make during these turbulent times. With the help of regional and state grantmaker associations and state nonprofit associations, they may find their way to the choices that support nonprofits and boost economic prosperity.


Rick Cohen is national correspondent for The Nonprofit Quarterly.

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