Many nonprofit leaders are eyeing 2023 with trepidation. Although Covid relief buoyed many organizations, now groups are feeling the sting of inflation and looking out for additional clouds gathering on the economic horizon.
Meanwhile foundations say they are watching endowment investments carefully and taking steps to prepare for a possible recession. Many grant makers are considering reverting to payout minimums and calculating what a downturn would mean for their assets. (One report estimated foundation assets were down 19 percent in 2022.)
Most foundation leaders are careful stewards of foundation assets, but the mission of a charitable foundation is not to preserve assets but to use them when and where needed. Foundations must resist the urge to “hunker down” amid economic uncertainty.
The Black Equity Collective sets a powerful example. It gave automatic 10 percent inflation-adjusted increases to existing grantees. This blanket increase will help community organizations cover rising costs, and no one had to fill out any paperwork or do additional work to receive the extra money. This kind of approach can save the jobs of nonprofit workers. The Black Equity Collective went a step further and implored grant makers in its network to do the same.
Bold philanthropic action in this crucial moment could make a tremendous difference to nonprofits, enabling them to act with confidence to sustain their communities.
After all, it is a better and more efficient use of philanthropic dollars to keep people housed rather than to help unhoused people find permanent homes. It is better to preserve health through nutritious meals and preventive care than treat medical conditions through emergency-room visits.
As so many people are struggling amid inflation and other pressures, now is the moment to ramp up support that will mitigate the harm of an economic downturn. Here are a few ways to do that.
Increase payouts. This is what nonprofits need most. Like everyone else, nonprofits are being hit with higher costs. Programs that they estimated would cost $50,000 to deliver might now cost $65,000.
The Elmina B. Sewall Foundation provides a strong example. In December 2021, the foundation’s board approved a three-year grants budget, which enabled staff members to increase awards of multi-year grants. Recognizing the critical need to recover from the pandemic and seeking to transform how the foundation works with its grantees, the board also approved the expenditure of 8.5 percent of its assets — more than it had ever allotted before — for each of the three years.
In the same spirit, other grant makers should take similar steps, including:
- Automatically increasing the size of current grants.
- Implementing a multi-year grants budget or auto-renewing grants without requiring additional paperwork.
- Giving more than minimum payouts, even if it reduces endowments.
- Considering a “going out of business plan” and trust that future foundations will address future problems. Spending down assets as a strategy for maximizing community impact is a radical suggestion for many foundations, but many pressing needs demand consideration of all solutions.
Be flexible. When the economy is shaky, it is more important than ever that leaders can be responsive to the urgent community needs that arrive at their door. Grant makers should:
- Let nonprofits determine how best to spend money. That means releasing restrictions on how and when the funding is used. If general operating support has a “use by” deadline, it isn’t truly unrestricted.
- Release or simplify application and reporting requirements to give nonprofit leaders and staff greater flexibility and focus. In the application, ask only for what you truly need to make a decision. For reporting, consider having that be a conversation with your grantee rather than a written report.
- Accept grant applications and reports written for other grant makers.
- Listen to nonprofits’ needs and be willing to change your funding strategy, perhaps by replacing or repurposing program grants to support operational costs such as cost-of-living increases for nonprofit workers.
Reach out to grantees and community nonprofits now. Many nonprofits worry about revealing signs of instability or uncertainty to funders. Foundation leaders can take the first step here by creating space for nonprofit leaders to share their financial stories and unmet needs. If your relationship is based on trust, this will be easier. Here are a few steps to take:
- Ask nonprofits leaders what they need and offer as much financial support and flexibility as possible.
- Speak to nonprofits early in the grant-request process so they can understand whether funding is likely — and skip an application if they’re not a fit.
- Give grantees early notice on whether you intend to renew their grants so they can plan ahead.
- To ease pressure on nonprofit leaders, offer to accept provisional budget requests which allow for revisions in case expenses or timelines change.
Advance equity. Economic downturns disproportionately hurt BIPOC communities. Foundations not already doing so, need to take action to counter systemic racism and avoid exacerbating inequities. Seek out and support community BIPOC-led and -serving organizations. During a downturn, some foundations retrench and move to support larger, more stable nonprofits. But this is often at the expense of smaller (more likely BIPOC-led) community-based organizations that especially need support. Understand how your investments and grant making contribute to, or address, racial inequity and take action accordingly.
Support nonprofit workers. According to a 2019 report, nonprofits employ one in 10 workers in the private work force, the third-largest work force of any U.S. industry. These workers enable nonprofits to change lives for the better. Attracting and retaining the helpers and essential workers we rely on to keep our communities housed, healthy, safe, informed, engaged, and educated is a top challenge for many nonprofits.
You can help by asking grantees: Can you pay a living wage and provide strong benefits? If not, what more can we do as a grant maker to make that possible?
Nonprofits fuel the economic engines of their communities. Advocate for policies supportive to nonprofits and efforts to reform how governments direct revenue to nonprofits.
By releasing more money, giving grantees flexibility, asking nonprofits what they need, backing BIPOC-led and -serving nonprofits, and supporting nonprofit workers, foundation leaders can help protect nonprofits and the people they serve from economic harm. Act now.
