Funders respond to state fiscal crises

Doug Bauer
Doug Bauer

Foundation leaders say state budget cuts are hurting nonprofits they support, particularly in the areas of human services and education, and that they are stepping up funding to address their needs, a new report says.

Among 75 members of the 220-member Grantmaker Leadership Panel who completed a March 2011 survey from the Foundation Center, 58 percent said all or most of their grantees had been affected by reductions in state government funding, 89 percent said the cuts had severely affected at least some of their grantees, and one-fourth said the cuts had forced some of their grantees to suspend operations, either temporarily or permanently.

Eighty-one percent of foundation leaders responding to the survey said they expect the budget challenges facing many states will continue through 2013 and beyond, says the report, Foundation Leaders Address the State Budget Crises.

While the scale of reductions in state government funding “dwarfs the resources of the U.S. foundation community,” the report says, 47 percent of foundation leaders say they awarded grants or provided other kinds of assistance in direct response to funding cuts resulting from the current state fiscal crises.

And 33 percent said the state fiscal crises had influenced how they set their 2011 grants budget, or how they allocated their funding, or both.

Foundations also expect to support nonprofits affected by state funding cuts by increasing the number of direct charitable activities provided for groups that affected, such as facilitating convenings, providing technical assistance; by looking for opportunities to partners with state governments to address the crisis; and by increasing support to public-policy work to inform budget debates.

Among grantmakers, community foundations were more likely to report engaging in those types of activities.

And sixty-nine percent of foundation leaders expect to increase funding for organizations serving vulnerable populations, such as the economically disadvantaged.

While “foundations should not be expected to replace state government dollars,” the report says, survey respondents suggested grantmakers can respond to the state budget crises through public-policy and advocacy work; by helping nonprofits restructure their operations; and through grantmaking strategies.

In an essay accompanying the report, Doug Bauer, executive director of The Clark Foundation, says nonprofits need more general operating support because it will provide more flexibility to manager their programs and finances.

They also need more capacity-building support to help them “rethink, reassess and restructure their business models,” he says, and more working capital because “cash flow will be squeezed and operating margins thin.”

Foundations, for example, need to increase the ability of community-development finance institutions to provide short-term financing to nonprofits, he says.

Foundations also can use program-related investments to provide needed capital, without affecting their grants budgets, he says.

Finally, Bauer says, the nonprofit sector “must develop a stronger advocacy effort to ensure that critical initiatives and the most vulnerable do not suffer disproportionately.”

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