A New Era of Service and Innovation

By: Robert Egger

Across America, in cities big and small, urban and rural, elected officials are now making some, if not the most difficult decisions of their careers. Faced with alarmingly escalating deficits, and mandated by law to balance their budgets annually, lawmakers are feverishly looking for new sources of revenue to offset declining property taxes. Simultaneously, they are being forced to make deep cuts in services and programs that they know will affect their constituents in profound ways.

Yet, in far too many state houses and city halls, as well as in the nation’s capital, officials are considering measures that would increase the taxation of, or cut funding to, foundations and charities. Perhaps, they are not aware that these same programs and organizations provide some of the most reliable sources of revenue in every community.

Like millions of Americans, many legislators still view our country’s commercial engine through a bifurcated lens. They believe that for-profit businesses drive the economy and create wealth, while not-for-profit organizations simply make grants, collect donations, and provide services. However, in the last 20 years, as philanthropy has grown exponentially in America, we now have evidence that our country’s charities and foundations are actually driving the economies of many cities.

In a recent study for the Philanthropic Collaborative, noted economist Robert Shapiro produced a first-of-its-kind analysis of the economic impact of philanthropy in America. This study shatters the myth that tax deductions for foundations and charities represent lost revenue for cities. In fact, it conservatively suggests that these groups create a nine-to-one return on investments, well surpassing that of many blue-chip corporations.

According to this report, in 2007 alone, $43 billion in combined foundation grants produced $364 billion in direct economic benefit to local municipalities. But the impact did not stop there. These investments also added $500 billion in household income throughout the country. Considering that foundation giving represents only a small portion of the $300 billion annual revenue for charities in 2007, this report suggests that our country’s philanthropic community may very well hold the keys to future economic recovery.

This report could not have come at a more important time. As legislators scramble to identify untapped economic resources, the untaxed assets of our county’s nonprofits might seem an all-too-tempting target for short-sighted legislation.

For example, when decreasing property values have all but hamstrung local budgets, it might seem logical to pass legislation that would tax the property of institutions of faith or higher learning, or limit the ability of nonprofit groups to purchase additional lands. But tapping the resources of groups that train the unemployed, support the arts, create green jobs, or provide pre-K education for our children might actually stifle long-term economic opportunity. Similarly, as we enter into an era of significant transfers of wealth, do we really want to limit the opportunity for Americans to develop family foundations or donor-advised funds? Doing so could inhibit the kind of research and development experiments that many governments rely upon charities to provide, so that local governments can allocate future funding to efforts that will yield even greater returns.

This is not to say that we must accept philanthropy as it exists. In these lean economic times, all sectors of our community must be willing to sacrifice when needed, and evolve to meet new opportunities. That is why this report is so compelling, particularly to a new generation of business, government, and nonprofit leaders who seek a more synchronized approach to serving our community and strengthening our country.

As America begins to explore new technologies and tactics that will help us regain our footing in the new world economy, we must not adhere to outdated views about the roles of government, business, or philanthropy. Nor can we afford to view them as separate and unequal partners in this imperative process.

America is on the verge of a new era. We just inaugurated the first president whose first job was at a nonprofit organization. His visionary campaign called for a robust new era of service and economic innovation. Let us understand that the real opportunity for America lies in aligning these visions. And no group is more ready to contribute to the mission than America’s philanthropic community.

Robert Egger is the founder and president of DC Central Kitchen. Based in Washington, DC, the nonprofit organization recovers unused food, prepares and delivers meals to partner social service agencies, and trains and employs homeless men and women for the food service industry.

Positive Change in Trying Times

By: Terri Lee Freeman

It was the worst of times, it was the best of times.

Perhaps, when the current economic crisis is finally over, we’ll be able to look back and say that this inversion of Dickens’ famous words from A Tale of Two Cities rings true. Without question, both the philanthropic and charitable fields are suffering these days. But the optimist in me says that the ominous, dark clouds that hover over us today will eventually reveal their silver linings.

For now, though, the economic environment has reinforced that foundations are also nonprofits—and subject to the same forces that are creating havoc for charities. My own organization offers a good example. Donor-advised funds make up close to 96 percent of our assets. The fee income generated by these funds is what enables us to operate. Consequently, we live and die by new contributions.

So, if we play this out, any decrease in investment value, (brought on by a drop in the number of new contributions or interest rates paid on investments) will mean a decrease in our assets and operating income—at a time when the relevance and need for community foundations has never been greater.

Since the beginning of our fiscal year (April 1, 2008), our foundation’s assets have lost approximately 16 percent of their pre-recession value. That’s a loss of some $80 million. As you can imagine, this drop is discouraging in terms of our ability to support nonprofits. But perhaps even more, it has taken a psychological toll. Many people devoted a lot of years and very hard work to build our assets to their previous 35-year high of nearly $390 million.

Despite our current operating situation, we remain unwavering in our dedication to bringing about positive change in our community. And with so much at stake, we’ve moved quickly to ensure we can continue to address local needs. Internally, we’ve taken a number of steps, including halting all discretionary operating expenses. Further, we are taking every opportunity to demonstrate our leadership and commitment to our community by:

• using our trustees’ time and talents more effectively
• convening leaders from across sectors to address local issues
• leveraging unrestricted dollars with donor contributions

So, how are we doing this? Based on our discretionary grantmaking from previous initiatives, we will be able to support our partners direct services and long-term sustainability.

Second, we’ve helped create a multi-sector workgroup to address the current crisis and design a nonprofit sector that will be sustainable, innovative, and a true partner with the public and private sectors in the future.

In the end, any discouragement we may feel from our loss of assets is far surpassed by the knowledge that our foundation and our generous donors are making a tangible, positive difference in the lives of our nonprofits and our residents. Thus, the silver lining.

Out of this economic crisis will come incredible innovation. Outstanding new community leaders will emerge.

Yes, many nonprofits nationwide do, in fact, face closure. But those who work collectively with other nonprofits, capitalize on relationships they’ve developed over the years with their donors and foundation partners, and proactively develop new, smarter ways of doing business, will emerge stronger than before. The result will be a more efficient, effective, and sustainable nonprofit sector. Much the same, the philanthropic field will benefit, as it learns to make even more strategic investments, streamline the grantmaking process, and conduct more rigorous due diligence.

These difficult economic times can be a time of introspection, enabling us to see what’s truly important and the critical role our institutions play in communities. And when we look back on these difficult years, we’ll recognize just how much better off our communities truly are. And, collectively, we can take pride in our contribution to that improvement.

Terri Lee Freeman is president of the Washington, DC-based Community Foundation for the National Capital Region.