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A Strategy for Tough Times: Increasing Core Support To Help Nonprofits Survive

By Gary L. Yates

Imagine being the executive director of a community-based nonprofit with a $6.5 million annual budget that operates a health clinic, a food bank, and a jobs program. Before the economy soured, your organization served 400,000 clients annually. At the end of 2008, the number spiked to 475,000, yet your organization experienced reduced donations, grants and government funding, barely reaching $5 million.

Similar stories like this are echoing across the country. This perfect economic storm is threatening the nonprofit sector in ways not seen since the Great Depression. The recession has overstayed its visit, driven largely by the implosion of key financial behemoths that bet their profits on exotic mortgages and poor credit risks — and creating more clients for nonprofits while homes, jobs, and health insurance are being lost.

Foundations haven’t been exempt from bad news. A steep decline in our portfolios has diminished, or in some cases, decimated many of the philanthropic sector’s grant programs. Add to that, severe government cutbacks as formerly robust tax bases take dramatic dives, causing some municipalities to teeter closer to insolvency, unable to support community programs.

Now is the time for foundations to temporarily consider shifting their strategies to provide the nonprofits with funding to keep the lights on and the doors open. Our experience during the last decade has taught us that core operating support can make all the difference to struggling organizations coping with dwindling budgets and increasing demands during this tough economic environment.

With most corporate and small business profits tanking, rising unemployment has fueled increases in the uninsured and homeless, accompanied by spawning even more penalties, such as rising food and gas prices, which have caused greater pain to the poor and struggling middle class. This economic tsunami has multiplied the traditionally heavy demands shouldered by nonprofits providing services to increasing numbers of people seeking shelter, food, clothing, and health care. There appears to be no immediate light at the end of this tunnel.

How then can we as foundations respond to nonprofit organizations without adding to their woes? We’ve seen creative approaches among our peers, including convening grantees, providing technical assistance, promoting collaboration, and providing loans.

But to struggling organizations, a one-year general support grant of $150,000 makes all of the above pale in comparison. Even better, a grant — unlike a loan from a financial institution, government, or grantmaker, for instance — doesn’t have to be repaid. And that’s one less burden for nonprofits to carry.

It’s all the more poignant when considering that nearly two-thirds of grantmakers report they will reduce their funding in 2009, according to a recent Council on Foundations’ survey. It’s likely that in 2010 this funding will decline even further. Therefore, the type of funding provided to nonprofits increases in importance.

Our foundation has operated its Responsive Grantmaking Program since 2001, accepting unsolicited letters of interest and dedicating at least half of our grantmaking dollars each year to core operating support. In 2007, core support accounted for 63 percent of our grants and, in 2008, 73 percent. Indicative of the increasing strain on health and human service organizations, this number jumped to 90 percent in the first half of 2009.

One of the strengths of private independent foundations is their diversity in grantmaking approaches. There is power in our sector exercising its independence to implement myriad types of grant programs, including strategic initiatives and long-term funding.

But there’s also power in flexibility. It’s bold to strategically increase core support while temporarily putting on hold some or all grant programs that are too difficult for nonprofits to implement now as they focus on surviving. It tells the nonprofit sector that we not only feel your pain, we want to lessen it. This power has already been flexed by the Los Angeles-based Weingart Foundation and the Gulf Coast Foundation in Florida with their recent announcements to increase core support grants in 2009.

I respect the duty of each foundation’s board of trustees to develop strategies and activities they deem appropriate to achieve their charitable missions. I also believe that we owe it to nonprofits to not conduct business as usual during these times. After all, they are on the front lines helping people survive what history will chronicle as the toughest economic period since the 1930s.

The core operating support strategy can serve as a temporary bridge to help organizations cross these troubled waters while they help the poor, working poor and newly out-of-work middle class who have now joined the ranks of the underserved. We can prevent nonprofits from drowning now so they will still be around when our economy improves and our grantmaking portfolios rebound.

Gary L. Yates
President and CEO
The California Wellness Foundation

This article originally appeared in the June 2009 “Perspectives” column of Independent Sector’s Memo to Members.

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