News and analysis
January 07, 2015

Local Governments and Nonprofits Test Crowdfunding for Civic Projects

Rendering courtesy of the Downtown Denver Partnership

In Denver, the roughly $150,000 needed to design a milelong protected bike lane is coming from the business community, the local Gates Family Foundation, and a nearly completed $35,000 crowdfunding campaign.

Fresh from municipal bankruptcy and locked in a court-mandated spending plan, Central Falls, R.I., controlled little of its budget. But officials found wiggle room in their fiscal straitjacket by borrowing a new idea from the world of philanthropy.

About a year ago, they launched a crowdfunding campaign similar to what’s found on Kickstarter, the online platform where artists, entrepreneurs, and others seek donations to bankroll creative projects. Using a Kickstarter-like website, the former mill town posted a proposal to beautify and clean up its landmark park. It promoted the project through videos, mass emails, and social and mainstream media—typical fundraising tools. Within weeks, it had raised $10,000 to buy new bins for trash and recycling in the park, designed by local artists as public art.

Central Falls is one of dozens of municipalities that has gone hat in hand online in recent years. They are part of a niche group of local governments, nonprofits, and community groups experimenting with "civic crowdfunding" campaigns to raise cash for programs and infrastructure designed for the common good.

The campaigns are typically small, aiming to raise from $5,000 to $30,000 and pay for things that might not even merit a line item in a municipal budget. In Philadelphia’s first successful crowdfunding campaign, for instance, it raised $2,163 for a youth garden program—this when the city spends about $4.5-billion a year.

The architects of civic crowdfunding campaigns are using the cash raised online to attract bigger dollars from state and federal sources. They’re also earning grants from private foundations that see robust crowdfunding as evidence of community backing for a project.

In Denver, the roughly $150,000 needed to design a milelong protected bike lane is coming from the business community, the local Gates Family Foundation, and a nearly completed $35,000 crowdfunding campaign.

That campaign is mobilizing millennials and other young city residents who previously had little to do with debates about public infrastructure, says Gates President Thomas Gougeon. "It’s a funny alliance. You have the downtown movers and shakers—the business leaders and property owners—as well as the 20- and 30-somethings."

Pawtucket, R.I., is eyeing a crowdfunding campaign to help raise some of the $75,000 in matching funds for a National Endowment for the Arts grant. Last year, the City of Naperville, Ill., and a local nonprofit each put up $25,000 for to install a historic statue in a local park—two-thirds of the total cost—then turned to crowdfunding to raise the remaining $25,000.

"I can imagine a future where crowdfunding is more integrated into how we fund government projects," says Stephen Larrick, director of planning for Central Falls. "We’re always trying to figure out how to fund the triple P—the public-private partnership. This is a means of doing it."

New Platforms

Several online platforms devoted to civic crowdfunding have launched in the United States in recent years, among them Citizinvestor, which worked with Central Falls and Philadelphia; ioby, a partner in the Denver bike-lane campaign; and Neighbor.ly, whose projects include neighborhood-based crowdfunding campaigns to expand a Kansas City, Mo., bike-sharing program.

Each typically takes a small commission from funds raised—usually 5 percent or less, plus a smaller percentage to cover credit-card transaction fees.

Ioby, which stands for "in our backyard," is the lone nonprofit. Backed by more than two dozen grant makers, including the Kresge and the John S. and James L. Knight foundations, it helps neighborhood groups do crowdfunding as well build a volunteer base, get 501(c)3 status, and generally increase capacity.

"We look at ourselves as a one-stop shop for anyone looking to make positive change at the neighborhood scale," says executive director Erin Barnes.

Even as they promote new technology, the crowdfunding platforms say a campaign’s success depends in large part on good old-fashioned fundraising strategies. "You have to prepare the ground before you open the campaign," says Rodrigo Davies of Neighbor.ly. "The fundraising effort doesn’t begin on day one of crowdfunding; it begins several months before, when you’re testing the idea, testing people’s excitement about the idea, and identifying the people who are going to back you and be ready to act when the campaign opens."

Citizinvestor, which hosts projects backed by local governments, says its partners succeed only when they aggressively promote a project and do outreach through social and traditional media. "You want your city to be behind the project," says Tony DeSisto, a co-founder of Citizinvestor. "The ones that can do that are successful."

Crowdfunding's Limits

Proponents of civic crowdfunding readily acknowledge its limits. Chief among them: People aren’t always eager to pony up for something they believe their tax dollars should cover.

New Haven launched three campaigns late last year on its own crowdfunding platform created by Citizinvestor, and none are faring well. "There’s an interesting dichotomy when you talk about city hall asking citizens to give. The messaging around this has been a really delicate dance," says Mendi Blue, the city’s director of development and policy. New Haven’s tax rate is relatively high, she says, and "we don’t want people to feel like we’re just asking them to open their wallets again."

Even the most ardent boosters caution that crowdfunding can’t raise big dollars to spark significant change in a city. "We don’t think it’s realistic or even desirable to have communities funding million-dollar projects through philanthropy," Mr. Davies of Neighbor.ly.

Neighborh.ly, in fact, is abandoning its three-year old crowdfunding approach. Later this year, it will open a "community investment program" which allows individuals to buy bonds in the city project of their choice. Purchasing municipal bonds typically requires a broker and a hefty investment, but Neighbor.ly hopes to democratize that process. "You should be able to invest directly in places you love," CEO Jase Wilson wrote in an email to company followers.

Unlocking Big Dollars

Despite the limits of crowdfunding, advocates believe it can play a critical role. Story Bellows, co-director of Philadelphia Mayor Michael Nutter’s office of innovation, says the city wants to use crowdfunding to pay for hard-to-fund pilot programs, particularly in low-income neighborhoods. Million-dollar projects often have political backing and a momentum that carry them through a city’s budget labyrinth, she says. "It’s tougher to cobble together smaller dollars for some of these projects that have a lot of interest outside of city hall."

Ms. Barnes at ioby says crowdfunding can help small groups identify and energize people within their community who will support their work beyond the online campaign, whether as donors or volunteers. "We want to build the capacity of these grass-roots groups," she says.

Sarah Shipley, who is spearheading the crowdfunding campaign for a nonprofit bike-share program in Kansas City, says even a small crowdfunding effort can unlock big dollars. Her group’s online campaign netted roughly $20,000, but that success plus media attention led to $50,000 in grants from private foundations. With federal matching dollars, the bike-share program might ultimately get a six-figure infusion of cash.

According to Ms. Shipley, building a successful crowdfunding effort takes the months of planning required of a capital campaign, but the payoff can be big. "If I can raise $20,000, then I can open the gates to a whole bunch more money."

Send an e-mail to Drew Lindsay.