September 21, 2015

Congress Should Kill the Social Innovation Fund

Bill Clark, CQ Roll Call, Getty Images

It’s not immediately obvious why appropriations committees in both houses of the Republican-controlled Congress have voted to end the Social Innovation Fund. The easiest conjecture is that this is a signature effort of the Obama White House that seeks to bring together government and philanthropy funds to solve social problems.

But in reality, opposition to the fund gets to the heart of questions about the role nonprofits play in America and what makes them special — their independence from government.

Still, there are reasons the fund might seem to be protected from criticism. Adding to its appeal: It is intended to solve problems everyone in America, regardless of party affiliation, is worried about: "economic opportunity, healthy futures, and youth development," as the fund puts it. What’s more, it does so in a way that may also, at first glance, again appear uncontroversial: Matching a government grant with philanthropic dollars would seem to extend the reach of each.

Social Innovation Fund grants come with a requirement for evaluation that would seem to increase the chance for effectiveness. As Paul Carttar, founding director of the Social Innovation Fund, puts it, the fund is a "bold experiment" that "represents an extraordinary asset for federal policy makers and nonprofit leaders alike." 

Or as the White House puts it — with some grandiosity, considering it will disburse just $40 million in the 2015 fiscal year — it is "committed to supporting community-based organizations in identifying solutions that will help achieve faster, more lasting progress, as opposed to marginal or incremental progress, on our social problems."

But after what its supporters view as its success over six budget cycles, the fund now finds itself at the center of a storm. That is in part because of concerns — including from some who are very much committed to social innovation — about the specifics of its structure and about its broader policies, which I’ll emphasize here. 

A growing number of thinkers worry that the fund may serve as a precedent that could undermine the independence of the independent sector. What’s more, the fund raises concerns for legislators who have no direct say over what kinds of programs it supports. All they can do is vote to approve all spending — or kill the fund, as they now seek to do.

The essential background is this: The fund, housed within the Corporation for National and Community Service, directs money to 20 organizations around the country — major nonprofits, including foundations. Those groups augment the federal money with their own philanthropic funds and, in turn, select nonprofits to carry out the programs. Beneficiaries of the grants must then seek their own additional matching funds. They are enabled, in part, by yet another organization, the private Social Impact Exchange, which operates a registry that private donors can use to find organizations that have proved they make a difference.

This structure is intended to ensure that the ultimate grantees are likely to be effective. But it has prompted concern that the fund is far from likely to support the green shoots of innovation, its name notwithstanding.

As Rick Cohen of the Nonprofit Quarterly has observed, the fund’s process itself — requiring a complex application, matching funds, and ongoing evaluation — is likely to be unfriendly to start-ups. "SIF joins much of mainstream philanthropy in exacerbating the gap between the big ‘haves’ and the smaller community-based ‘have-nots’ in the nonprofit sector," he wrote.

It’s as if private investors invested venture funds only with Fortune 500 companies rather than rolling the dice on the next Facebook. Indeed, even a relatively positive assessment of the fund published by Patrick Lester of the Social Innovation Research Center — whose research is often cited by fund supporters — notes the barriers to entry to SIF grant making for smaller, local nonprofits.

One cannot doubt that some of this funding — directed to everything from housing for people with AIDS to programs that encourage healthy diets among the young — supports good work. But there is a larger concern that should not be brushed aside — and helps explain why the fund is in the cross hairs of Congress.

It’s a concern about accountability. The Social Innovation Fund’s grants take a long, indirect path from Congress to individual nonprofits throughout the country, including in the districts of many congressmen and senators in 33 states. Congress approves only a lump sum for the fund. It is the fund’s staff — led by a White House appointee — that determines the spending priorities and chooses which outside organizations will make specific local grants. It is only slightly hyperbolic to describe this process as a series of executive-branch earmarks. If a member of Congress has concerns about a local organization that has received money, the fund offers no formal recourse other than doing what Congress is now attempting — stripping all funds from the entire enterprise.

Nor is the complete list of ultimate recipients all in one place. One must go to the list of direct recipients and link on each one to find who received all the funds. And those organizations, it is worth noting, are not limited to private, independent nonprofits; some are governmental organizations such as school systems and community colleges.

So, too, does the fund raise concerns for the foundation world. Notwithstanding the fact that such goals as "preparing youth for success in school; increasing economic opportunities for economically disadvantaged individuals, and promoting healthy lifestyles" appear uncontroversial, they can be seen as philanthropic purposes that have received a government seal of approval. Yet they are only a few of the many creative and idiosyncratic purposes that American philanthropy — which constitutes only 2 percent of gross domestic product — addresses. One fears that it will be a short step from a "public-private partnership" to a tax code that favors some types of charitable giving over others.

Nonprofits have served the United States well since the nation’s founding by being independent. The lure of increasing its reach and effectiveness through an ever-deeper relationship with government should be resisted. The Social Innovation Fund may well dodge a bullet in this budget cycle — should the federal government be funded through yet another continuing resolution rather than returning to a budget based on specific appropriations bills. But it deserves the scrutiny and skepticism it’s received.

Howard Husock is vice president for policy research at the Manhattan Institute and director of its Social Entrepreneurship Initiative.