A Conversation on Capitalization

Because of the nature of cultural activity in our country, arts funders have dollars invested in many different “pies” including community revitalization, artistic growth and diversity, education, social justice, aging, racial equity, and economic development. One of the elements all these pies have in common is that funds are given primarily to nonprofit organizations to achieve their goals in these areas. These goals are best attained when the organization has enough resources—financial, human, and physical—to fulfill its mission. The recent economic downturn and a growing change in consumer behavior heightened a need for grantmakers to discuss how nonprofit organizations are surviving financially.

Inspired by a 2009 Philadelphia report entitled “Getting Beyond Breakeven,” funded by the Pew Charitable Trust and the William Penn Foundation, Grantmakers in the Arts (GIA) embarked on a year of discovery on how funders might help nonprofit groups become better capitalized in order to meet their goals. This spurred nationwide discussion about how funder behavior in the past may have contributed to a lack of stabilization and how changing that behavior might improve organizations’ sustainability.

The result of the research and discussion is found in our National Capitalization Project Summary and Literature Review. Included in the summary is a set of common practices that GIA is recommending funders adopt if it is within their capacity to do so. These practices include providing general operating support, fully funding projects including overhead and salaries, encouraging operating reserves, right-sizing, and communicating candidly with grantees about the timeliness of continued support. Also included in the report are discussions on supply and demand and the nonprofit business model.

Does the nonprofit business model encourage poor business practices? Can funders’ grant guidelines and requirements also contribute to grantees’ financial instability? Can funders change their own behavior and the ways they influence nonprofit organizations to improve the sector’s financial stability?

Janet Brown is the executive director of Grantmakers in the Arts