Ever since becoming president and CEO at the Council, I’ve shared with anyone who would listen , how honored and excited I was to preside over this great organization during the greatest growth of philanthropy in world history.

Never did I realize that I’d also preside over its greatest evaporation of resources as a result of the economic crisis of 2008. Today, most foundations have witnessed a 30 to 45 percent loss in value—or an estimated $280 billion over the past year.

In surveying our own communities, we see the painful realities of a dramatic increase in need coupled with a dramatic decrease in resources.

Gara LaMarche, president and CEO of the Atlantic Philanthropies, succinctly captured the environment when he recently spoke to members of the Grantmakers for Children, Youth and Families:

Virtually every foundation endowment stands at considerably less value today than it did only a few weeks ago. And assuming our institutions meet the commitments they have previously made, which most will, there will be dramatically less new money to give out in the next few years, at least.

Corporate philanthropy will be dramatically reduced

Government revenues and social spending will continue to shrink … [and] this will have a sharp effect on the funding and programs of non-profit organizations.

And in what kind of social climate? One in which human needs—unemployment, greater health problems, even fewer covered by insurance, hunger, homelessness, crime, and violence—grow ever more acute.

What we are facing, then, is a kind of perfect storm.

How Should Philanthropy Respond?

This is a leadership moment for all of us who are part of this noble sector called philanthropy. Quite simply, as this sector has grown in size it must also grow in service.

Recently, my board chair, Ralph Smith, of the Annie E. Casey Foundation, and I issued an Open Letter to the Field. In it, we encouraged each philanthropic organization to carefully reflect how it could best play a constructive role in this economic crisis.

Specifically, our letter recommended that we:

1. Reach out to the nonprofit sector, especially those we currently support – recognizing that the nonprofit sector will bear the brunt of shrinking resources and growing need.
2. Play an active and visible role in helping communities and regions identify the scope and extent of the challenges they face – and in finding solutions that make sense.
3. Pay special attention to those situations where the loss of philanthropic resources could be the unintended consequence of mergers, consolidations, or government intervention resulting from this economic crisis.

But we are not just asking the field to do more. The Council on Foundations is taking several major steps to ensure you have the information, tools, and resources you need to tackle the key issues that confront our sector.

We are beginning with the launch of this e-journal, Thought > Action > Impact. Through this journal, we will give voice to some of the most influential leaders from the public, private, and nonprofit sectors on topics that matter most to you. We aim to give you views from a variety of perspectives, as well as practical advice you can adapt to your own organization.

We are also introducing Economic Xchange, a central platform for sharing tools and resources to help colleagues weather the current economic crisis. The Council has reached out broadly throughout the sector, to colleague organizations, members and others to identify questions, information, events and resources that foundations may find useful. We will continue to add to this platform – but more importantly, invite you to contribute your comments, documents and ideas.

In the end, if we can draw on this economic crisis to fundamentally raise the vision of our work, we will create a more strategic and effective philanthropic sector.

This is a challenging moment in American and world history. This is not the ride we envisioned. But it is the journey we must take.

The question before us is whether we’ll use this time to just survive, or to commit to real progress in ways we never before imagined.

Staying the Course in Hard Times

By: Karl Stauber

When the storm winds blow hard, it is easy for institutions to reconsider their direction and strategy. And, in almost 35 years in philanthropy, I’ve seen the winds blow hard a few times.

When I entered the field in the 1970s, it was common to wait in line for two hours to fill-up gas, home mortgages were at 17 percent interest rate, and, soon thereafter, we learned what “stagflation” was all about.

How long the current downturn will last and how bad it will be, no one knows. So should we change our direction and strategy? Well, that depends how you saw the work before the current crisis.

There is a continuum in our work with charity at one end and philanthropy at the other. Both are important; they are related, but different.

Charity is older and based in many religious traditions that assume the poor will always be with us and we are responsible for reducing their suffering.

Philanthropy is a modern concept that assumes that we should strive for social equality and our resources should be used to eliminate the causes of poverty. (I have chosen poverty as the core concept but one could legitimately choose concepts like ignorance, ill health, etc.).

Charity is largely focused “downstream” and philanthropy “upstream.”

Crises, like our current one, often promote a charitable response. Ideally, these responses should be the responsibility of individuals and governments. But, as we learned from the Gulf Coast hurricanes of 2005, sometimes others have to step in.

But, crises also create great opportunities.

For example, for years the New Orleans schools have slowly spiraled downward. Hurricane Katrina, however, produced an opportunity for New Orleans to recreate its schools. Local foundations played a critical leadership role in this transformative effort. It is too soon to tell if this will succeed, but without courageous local leaders, including foundations, we know from the previous decades, little would improve.

So the recession of 2008 (and beyond) is both a crisis and an opportunity.

Foundations, with their endowments and access to wealthy individuals and corporations, are blessed to have the depth to turn the current crisis into opportunities. But these organizations must have the courage and will to balance the short-term charity needs with the long-term philanthropic opportunities.

Many communities, like the region of Danville, Virginia, have been in economic decline for decades. In the last 20 years, this region has lost over 10,000 jobs and many talented people have left for opportunities elsewhere. The region has seen an increase in the percentage of the population under 18 and over 65, and in the last five years, childhood poverty has risen 35 percent. Somewhere between a quarter and a third of America has been in an economic crisis for at least a decade. But, there is no crisis until it hits places like Wall Street and California.

The Danville Regional Foundation is committed to the economic and cultural transformation of the area it serves. This requires staying at the “philanthropic” end of the continuum, even as needy people suffer.

Our “theory of philanthropy/theory of change” is simple and difficult: change the conversation, immediately change who is in the conversation, then change the behavior, and then change the outcomes. To do this successfully, you have to have a strategy and vision, resources, and courage. The closer you are to the ground, the harder the courage, especially in these difficult times.

Karl Stauber is the president and CEO of the Danville Regional Foundation, based in Danville, Virginia.

Grantmaking with Intention

By: Emmett D. Carson

Under normal circumstances, a foundation’s vision and mission should not be subject to change. The benefit of an endowment is to enable a foundation to pursue its mission regardless of the economic climate or prevailing attitudes. Nevertheless, the strategies and tactics for achieving a foundation’s mission should undergo frequent review based on changing circumstances, evaluation of results, and best practices.

The unprecedented nature of the current economic crisis certainly qualifies as changing circumstances. It should compel every foundation to examine its current strategies, and in rare cases, lead some foundations to reconsider their missions.

Each foundation has an obligation to consider whether, and how, to respond to this crisis.

Community foundations have at least three advantages in responding quickly to unforeseen challenges such as the worsening recession. They:

• have access to real time information from grantees, donors, trustees, and the public about changing circumstances
• can engage donors and others to support unexpected emergencies
• can use their convening and public voice to bring attention to issues and help develop solutions

Silicon Valley Community Foundation used all of these tools in developing its grantmaking strategies, after our establishment in January 2007 through the merger of Peninsula Community Foundation and Community Foundation Silicon Valley. Our mission is to create positive social change to address the region’s most pressing problems while inspiring greater civic participation in San Mateo and Santa Clara counties.

To identify the most pressing problems, we reviewed local data and the many existing assessments of the region’s needs. We then identified nine issues to examine more deeply: housing and basic needs, arts and culture, child and youth development, civic engagement, community economic development, education, environment, health, and immigration.

We then held community conversations in which hundreds of nonprofit, government officials, academics, grantees, donors and funders offered ideas on both new and existing approaches. For each convening, we developed an issue brief describing key facts and trends. We also conducted an online survey to solicit additional input.

Based on this feedback, our board of directors selected five grantmaking areas: immigrant integration, closing the middle school achievement gap in math, regional planning, financial literacy and asset building, and safety-net issues.

Our focus on economic security encompasses: foreclosure counseling, financial literacy and asset building, and efforts to curtail predatory lending practices. The safety-net strategies include direct support for nonprofit agencies affected by the economic downturn.

We committed $1 million and, when the crisis deepened, announced that we would provide an additional $1 million as a challenge grant. We also are planning a summit of nonprofit leaders to discuss the public policy implications of the economic crisis.

Our ability to select these areas came directly from what we heard in the community. Like the proverbial canaries in the coal mine, participants in our process told us from multiple perspectives that the economy was getting progressively worse. Of course, no one predicted the depth of the crisis we now face; however, many were uniform in their belief that strengthening the social-safety net was critical.

All we needed to do was listen.

Emmet D. Carson is president and CEO of Silicon Valley Community Foundation, based in Mountain View, CA.

Guiding Principles in Turbulent Times

Inspired by this challenge of our time, Dr. Bob Ross, president and CEO of The California Endowment, submitted the following “Board-CEO Principles for Managing through the Crisis:”

1. Re-affirm and stick to our values.
2. Balance “responsiveness” (to communities in need) with “responsibility” (to prudently steward the assets).
3. Guard against reacting to panic with panic. Take the long view, and wherever possible, make time our friend rather than our enemy.
4. Philanthropy is recognized as a voice and advocate for the underserved; let’s remain cognizant of how our actions may influence the behavior of others in our field.
5. In the months ahead we will face some tough decisions. It’s a good time to re-affirm the treatment of community, grantee, and staff with dignity, respect, compassion, and transparency.
6. Recognize that the severity and depth of the economic crisis represents an entirely new and unanticipated set of realities for us, and we must be willing to re-examine old assumptions, suggest and weigh new ideas, and welcome out-of-the-box thinking.
7. Keep in mind: the Chinese translation for crisis includes the notion of opportunity.

Comment

Alternative Means of Support

“Several years ago we started providing lines of credits to nonprofits at a cheaper interest rate than banks but higher than our T-bill investments. It was a win-win for everyone. We were able to save them [the nonprofits] thousands of dollars in interest, which was as good as writing the check.

“In the last month, we have initiated two new lines of credits because the nonprofits’ banks fell on hard times and were no longer providing access to funds. We may see this as a short-term problem in the nonprofit space as banks consolidate and the credit crisis continues. Without access to short-term money, some nonprofits will have difficulty maintaining inventory or managing their capital campaign…any foundations that express interest in this concept, I’m glad to share the line of credit template we are using.”

- Tony Wells, President, Tony R. Wells Foundation
In an email to Kathleen Enright, president and CEO of Grantmakers for Effective
Organizations, in response to her memo to GEO’s membership on the economy.

Comment

Harsh Reality: The Economy and Grantmaking Budgets

“As we involve the next generation in the foundation, we are all in agreement that we need to cut back on our payout rate (upwards of 8 percent). In this economic environment that will mean a cut in grants. Everyone is resigned to this, but obviously not happy about it.”

- Wendy Jaffe, Executive Director, Trio Foundation of St. Louis

Comment

A Relationship Based on Trust

“The fiduciary standard is simple: process trumps performance. A fiduciary manages the foundation’s money in an ethical manner, so the important thing to do is demonstrate that you are a good steward of the foundation’s assets and act in a prudent manner at all times. Always pay attention to details because good things happen by design. Regardless of the economic climate—but especially now—donors want to know that you are responsibly managing their money.”

- Blaine Aikin, president and CEO, fi360
Fi360 provides training, tools, and resources to promote a culture of fiduciary responsibility
and improve the decision making processes of investment fiduciaries.

Comment

Adapting to the Times

“Initially, conversations with regard to changes to the California Community Foundation’s grant giving were being held with the programs committee of the board. For its upcoming meeting in mid-November, grantmaking staff recommended two changes: (1) expediting the renewal of several recurring grants from March 2009 to December 2008 and (2) providing a three-month no-cost extension for grantees who would likely encounter difficulty in meeting the objectives and outcomes of their awards. Subsequently, these recommendations would be acted on by the full board in early December.

“Typically, the CCF board has three grantmaking cycles per year: March, June, and October. However, the board has expressed great interest in helping to accelerate CCF’s response to the impact of the economic crisis on the local nonprofit sector by reviewing off-cycle grant recommendations during this time.”

- Alvertha Penny, Vice President of Programs, California Community Foundation

Comment

Keeping the Faith

“The MacArthur Foundation’s endowment has declined this year, yet we remain committed to being a long-term, steady partner to organizations we support. We chose to maintain our grant-making levels in past recessions, and we intend to do so again now… MacArthur has increased our annual operating support for arts and culture groups in Chicago. And our $68 million foreclosure initiative responds to local needs resulting from the economic crisis, which threatens to disrupt hard-won progress in some of the city’s most challenging neighborhoods.”

- Jonathan F. Fanton, President, John D. and Catherine T. MacArthur Foundation
In a letter to the editor, (“In Tough Times, Foundations Must Keep Giving”)
published November 17, 2008, in the New York Times.

What are you doing? What questions do you have about proceeding in this economic climate? Post your comment below.

In this Q&A, Carol Lewis, president and CEO of Philanthropy Northwest, and Doug Stamm, CEO of the Meyer Memorial Trust and co-chair of PRI Makers Network, discuss program-related investments (PRIs). Philanthropy Northwest hosts PRI Makers Network—an association of grantmakers that uses program-related and other investments to accomplish their philanthropic goals.

In general, a PRI is an investment—a loan or loan guaranty, a stock purchase, or a letter of credit—that is made to further a private foundation’s exempt purposes. The investment may be in a for-profit or nonprofit entity. Unlike grants, however, foundations get a return on their investment, either through repayment or return on equity.

Question: In the current economic downturn, what are the benefits to a foundation that wants to use a PRI strategy?

Carol Lewis: It’s a terrific time for foundations to look at PRIs. In the current climate, foundations are faced with some tough questions. Certainly one big question is how to meet community needs in very tough times, without spending the corpus of the foundation endowment? A PRI strategy, used appropriately, allows a foundation to remain highly engaged in supporting critical needs but does not necessarily require selling its assets to do so. We have investment advisers in the Northwest encouraging foundation clients to look at PRIs for the first time.

Doug Stamm: For a foundation, a PRI is an additional vehicle it can use to further its mission and goals. PRIs have also proven (especially in this economy) to be a more stable and positive return investment, because you are being repaid by the recipient organization. For a nonprofit that’s use to getting loans from a traditional lending institution, a PRI is another potential revenue stream, which may offer better terms and (potentially) greater funding.

Q: What are the challenges that foundations should keep in mind?

Lewis: Making a PRI requires a different level of analysis—as compared to making a grant. One goes through the same due diligence process as grantmaking, but the questions are different. For example, you need to know whether the organization is creditworthy. Will the nonprofit be able to pay back the loan?

In addition, foundation staff may not have the skill set required to issue and manage PRIs. It’s a fairly new area for most program officers. Remember, it is a combined program and investment decision, not a more standard grantmaking decision. Additionally, in most cases, loan documents will require legal review. It’s very important that staff receive support and training. The PRI Makers Network programs are popular because of the technical training and peer connection the group offers.

Stamm: PRIs can appear challenging but it all depends on how you choose to structure your program. Building on what Carol said, both the foundation and the nonprofit organization must first understand what a program-related investment is and how it works. The PRI Makers Network is a good resource to understand both these issues. The web site has resources—such as sample documents, forms, and publications.

Second, if a foundation doesn’t have the in-house capacity to structure and manage PRIs, then a consultant should be brought in. It goes back to the number of PRIs you manage and how complex they are. Based on your answers, you will need to ensure you have the appropriate staff and expertise to manage the PRIs.

Q: Describe a situation where a nonprofit would look to a foundation to support the organization with a PRI. From a foundation’s perspective, why would it make such an investment?

Lewis: Imagine a nonprofit that would like to own its own building because over time, it makes more economic sense than renting. But it may be challenging—especially in the current climate—for the nonprofit to accumulate the capital to purchase the building. Now imagine that the nonprofit can approach its donors to make a business case for owning rather than renting. Of course, the nonprofit needs to demonstrate it will have the income to pay back the PRI maker, but presumably, under the rent scenario, it would have to spend some portion of its operating budget on rent.

Foundations wishing to make PRIs have to consider projects where there is a reasonable expectation the loan will be paid back. My view is that those cases may be more prevalent than most funders imagine.

Q: Are there risks to providing loans to organizations—especially in the current economic climate?

Lewis: It’s a tight time in the credit markets and it’s difficult to borrow money. I don’t believe there’s a risk because these organizations are not highly leveraged and not dependent on credit markets.

Stamm: We manage many PRI relationships and we’ve had no major issues with our nonprofits. Before we make loans, we do carefully assess whether the organization will be able to repay the amount and we receive regular reports on the PRI and financial status of the nonprofits.

Q: Is there a particular size/type of foundation that lends itself better to making PRIs?

Lewis: There is no particular foundation that lends itself better to PRIs. The one question a foundation should ask itself is whether a PRI is appropriate for and aligns with its mission and the causes it supports. The foundation’s objectives will determine if such an investment will work in the local community.

Stamm: Any foundation can make a PRI—it just depends on the size and complexity of the PRI. It is tool that all foundations should consider in an effort to increase their impact.

Q: What advice would you give grantmakers interested in pursuing PRIs?

Lewis: I would recommend the following:

• Learn as much as you can about PRIs before making the decision to get involved.
• Work closely with the financial side of your foundation—you need to make sure you have the support of those responsible for managing the foundation investment decisions. They can help you determine the appropriateness of PRIs for your organization.
• Join the larger PRI community so that you can be in a continual learning mode about PRIs.

Stamm: Here’s what I would suggest:

• Determine your foundation’s risk tolerance. After all, you are investing in an organization.
• Identify your PRI parameters, such as the terms under which you want to structure a contract: how much of your budget you may want to commit to PRIs; the size of your PRIs ($10,000, $100,000, or smaller or greater amounts), etc.
• Involve your CFO and finance team in the PRI process—especially on due diligence issues.
• Provide your staff with PRI training so that you can learn about others’ experience with this vehicle and how to manage a PRI program.
• Designate a point person at the foundation who manages the PRI process and relationships. This person should have the required skill set and/or access to people who can move the process along.
• Start small and simple: start with an area you are familiar and comfortable with. For example, the Meyer Memorial Trust started making PRIs in organizations involved in affordable housing because that was one of our grantmaking areas.
• Communicate your PRI program to the community; it’s a form of “expanded philanthropy” but people won’t know about it if you don’t share the details of your program and how it works.

Resources

This is intended as a primer on PRIs. To learn more about PRIs, visit the PRI Makers Network at www.primakers.net or consult your legal counsel for advice. In addition, the Council publication, Economic Development: A Legal Guide for Grantmakers by Jane C. Nober, includes a primer on program-related investments.

A Conversation with Representative Robin Hayes (R-NC)

As the co-chair of the Congressional Philanthropy Caucus and advocate for the philanthropic sector on Capitol Hill, Representative Robin Hayes (R-NC) shares his thoughts on philanthropy’s challenges in the next Congress, the continued need for private and public partnerships, and why he supports a “moratorium” on the private foundation excise tax.

As a member of Congress, what do you believe will be philanthropy’s challenges in the next Congress?

Representative Hayes: There are more opportunities for philanthropy to make a difference today, than ever before. But with opportunities come challenges.

Our economy is being stretched, and we are feeling the effects in our communities. While foundations are also feeling the impact, these organizations must help address and contribute to an economic recovery. To do so, foundations may need to reconsider their missions and extend their reach to others in their communities.

It’s incorrect to assume that the federal government is going to bail out everyone. It’s not possible! America has a strong philanthropic culture and community so private philanthropy has to step up.

What steps do you think Congress can take to help foundations maintain their grant commitments to local charities?

Representative Hayes: Congress should not penalize foundations by adding or increasing taxes. The Pension Protection Act is one example of how Congress restricted and penalized philanthropy. I believe we should encourage and offer incentives to foundations to help their communities.

Do you foresee any partnership opportunities between philanthropy and Congress?

Representative Hayes: I would encourage grantmakers to continue to demonstrate to their members of Congress philanthropy’s importance and value. Foundations are knowledgeable on the vital issues in their communities and they know how to reach people. There are many examples of private-public programs and initiatives; I would encourage foundations to look for ways to partner with their local governments.

Do you believe a revenue neutral private foundations excise tax (as supported by the Council) will be accepted by Congress?

Representative Hayes: What I would like to see is Congress place a moratorium on the excise tax that private foundations pay on net investment income for the next 12–24 months. Giving foundations an exemption, allows them to put more resources back into local communities. That’s an efficient way to meet our current economic needs.

Note to our readers: The Council supports a fixed, revenue neutral percentage that is not dictated by a foundation’s giving. Learn more about our position on this issue.

About the Philanthropy Caucus

The Council worked with Congress to create a Philanthropy Caucus—a bipartisan effort in the U.S. House of Representatives and the Senate. Representative Hayes co-chaired the caucus with the late Representative Stephanie Tubbs Jones (D-OH). The Senate Philanthropy Caucus is co-chaired by Senators Charles Schumer (D-NY) and Richard Burr (R-NC). Learn more about this initiative.

In conjunction with TAI, the Council on Foundations, in collaboration with colleague organizations, is launching Economic Xchange, an online platform for the exchange of information, ideas, strategies, tactics, and dialogue. This website is designed to provide you with the tools and resources to help you make the most informed decisions for your foundation and community.

• Visit the resources section to find articles and research on philanthropy and the current economic crisis.
• Read stories from your colleagues and see what advice and strategies they offer to help you and your foundation weather through this storm.
• Learn about the events on philanthropy and the economy being offered near you.
• Still not finding what you’re looking for? Search by popular topic or by foundation type.

We welcome your participation and seek your input. The website will be updated regularly. So, we urge you to visit Economic Xchange frequently and add your comments.