September 24, 2001
For the Neighborhood Reinvestment Corporation

Rick Cohen presented this speech via videotape at the "Mutual Interests: Building Strategic Funding Relationships" training event in Albany, NY, September 21-23, 2001. This event was organized by the New York/Puerto Rico district of Neighborhood Reinvestment. The event presented information and strategies for linking business planning with resource development. Cohen, formerly of LISC and Enterprise and now head of a philanthropy watchdog group, provided the national context by discussing issues that impact fundraising for community development. A primary point was that community development organizations need to be more proactive in bringing their work to the attention of funders. He presented several strategies for doing so, including attending and speaking at conferences where funders educate themselves and shape funding priorities.

There’s no question that I would rather be with you speaking in person than talking to a piece of equipment, albeit with good people like Sean Bennett from Neighborhood Reinvestment associated with it. Please accept my heartfelt apologies about my absence, but everyone knows the circumstances of September 11th that disrupted everyone’s lives and plans in odd and diverse ways.

Some of you who know me know that I am frequently a bit out of my element in my current position at the National Committee for Responsive Philanthropy. NCRP is a philanthropic watchdog organization, in many ways, a critic of organized philanthropy during its 25-year history. Its blatantly unachievable mission is to make philanthropy more responsive to people and organizations with the least wealth and opportunity, more relevant to critical public needs, and more open and accountable to all, in order to create a just and democratic society. Imagine the NCRP fundraising challenge. We have to face foundations and say, please give us money so that we can tell you how bad you’re doing…sometimes.

Those of you in this audience who know me from my prior work life realize that my reference points on these issues of philanthropic responsiveness and accountability are strongly rooted in community development. This is where my nonprofit roots are, going back to work with one of the original Anti-Poverty agencies in the late 1960s. Over the years, I’ve wandered through the Local Initiatives Support Corporation as their in-house strategic planner and around the Enterprise Foundation directing all of Enterprise’s field programs. Lots of my connections are with NeighborWorks organizations, not only through my work with the two mega-intermediaries, but in the public sector. I was director of Jersey City’s Department of Housing and Economic Development once upon a time, and I sunk a large portion of the City’s CDBG budget into Neighborhood Housing Services there—for better or for worse.

For that reason, I was struck by the news reported by the Foundation Center that the share of foundation grant funding for community improvement and development fell last year for the second year in a row. That's 3.9% of overall grant dollars going to the kinds of organizations and functions that include settlement houses. Support for civil rights and social action also showed a decrease, down to 1.3% of total grant dollars.

Those figures are really estimates. They aren't based on the performance of the 50,000 foundations handing out money today, but only some 1,000 of the largest, including the top 800 or so. That means the data is skewed to represent the funding behavior of foundations like Ford and Rockefeller and Surdna and MacArthur that have long traditions of supporting community development, neighborhood-based organizations, and social action. What about the other 49,000 foundations? I suspect that the performance of the foundation sector does not measure up even to these numbers.

Therein lies a challenge for all of us in this program. When does the nonprofit sector begin to posit for organized philanthropy some measures of performance and accountability that ask what is philanthropy doing to be responsive to the needs of the people and constituencies who are least well served in our economy--and unfortunately by our government? And how do nonprofit community-based developers, property managers, and lenders put themselves in the forefront for changes in philanthropy—and more effective fundraising in light of a turbulent philanthropic environment?

It’s probably important to step back and point out just how turbulent times are going to be for nonprofit fundraisers. There is no way to talk about issues with NeighborWorks® members without referencing what happened on September 11th. Without a doubt, the creation of numerous September 11th funds is an important and necessary response to the need of people to write checks to express their concern and commitment to the people harmed across this nation. The efforts of foundations such as Carnegie, Casey, and Lilly and corporations such as General Electric to devote millions of their charitable grantmaking to victims assistance and disaster relief are clearly motivated by immense and understandable altruism.

But long term, there is a huge challenge from September 11th, and NeighborWorks® members should recognize that they are not bystanders, but potentially centrally important actors in the response. Based on the history of charitable giving during recessions, and we know that the economy was facing some tough sledding even before the stock market freefall during the last few days, major individual donors and corporate givers retrench as their portfolios and profits shrink. We have the experience of the Oklahoma City terrorism where charitable giving shifted hugely to disaster relief, leaving other service providers bereft of charitable support. And of course, as I’ll talk about later on, foundations tend to make grants from their endowments at the absolutely minimal level required by law—5% of net assets or less. As of today, September 21st, when I’m videotaping this talk, with a ten to fifteen percent decline in the stock market since late 2000, it is conceivable that foundations might be inclined to cut back and watch their pocketbooks rather than their missions.

Going forward, the challenge for philanthropy in responding to these hideous terrorist acts is to remember what makes our society special—and for philanthropy to remember its role in society. Foundations and hopefully corporate givers should be thinking about how to respond long term. We need to fight against racism and discrimination—and ignorance, evidenced by hate crimes such as thugs beating up Sikhs thinking that their turbans mean that they are Arabs. This nation needs to better understand and appreciate its diversity and its democracy. The place where multiculturalism is most powerfully expressed is in American neighborhoods, the neighborhoods where NeighborWorks® members work. The strongest response to what happened with the destruction of the World Trade Center was the stolidity of New York City neighborhoods. Just look at the 8 year old kid quoted in the New Yorker; when his parents suggested that they get out of town for a while, the kid said no, he wanted to stay in his neighborhood, defend his neighborhood. I think there is a message for NeighborWorks members, not trivial, not as a manipulative fundraising technique, to remind funders that the strength of the United States in contrast to the values of the people who destroyed much of Lower Manhattan, is in the strength of neighborhoods. That message is more important than ever and is consistent with the roles of your organizations.

The confluence of events surrounding the philanthropic reactions to September 11th are consistent, except regarding scale and horror, with the kinds of questions that led to the founding of NCRP. A quarter century ago, a body of nonprofit leaders operating under the name of the "Donee Group" issued a report that said that philanthropy had an obligation to think about and address the critical social and public issues of our society. A quarter century later, nonprofits now call themselves grant-recipients instead of donees, but the message is still the same. Are foundations living up to what should be their obligations to society?

To ask the question with this audience--and I ask it wherever I go--to ask this question requires two changes in thinking. The first is that nonprofits--and I should point out, government also--have a role in examining and critiquing what philanthropy is contributing to society. The discussion about what foundations do or don't do shouldn't be limited to foundations talking among themselves. We as nonprofits are the delivery system for foundations. They need us. As we listen to them, they should listen to us.

The second change is to be willing, as the founder of NCRP, Pablo Eisenberg puts it, to overcome the mystique of philanthropy, the sense that somehow as nonprofits we are beggars at the philanthropic table and content to try to gauge what foundations and donors are interested in and be happy with whatever goodies fall off the philanthropic table into our laps--or our budgets. He says be candid, forthright, courageous, and risk-taking in our dealings with foundations.

For my organization, that means being willing to challenge how foundations behave and what they fund or miss. It also means taking on foundations as a public policy issue. Too often we forget that foundations exist not simply as Victorian exercises of voluntary kindness, but as tax exempt institutions where private individuals--foundation trustees and foundation staff--get to administer tax exempt resources for the public good without much oversight, criticism, or due process.

For NeighborWorks members, it means talking honestly with funders, addressing them on core issues in their portfolios and around the dimensions of the challenges of community development. In a down market, NeighborWorks® members have to make compelling cases for funding, but the case starts with institutional character. Speaking with confidence and intelligence about the philanthropic environment affecting nonprofit community development is an essential part of the case statement for support.

So, what are the elements of philanthropy that might merit the attention community developers, especially NeighborWorks members?

First, as the data I cited earlier indicates, there is a relatively puny proportion of foundation dollars going to social change. According to the National Network of Grantmakers, 2.4% of grant dollars go to social change. A major researcher on philanthropy says that around 1% goes to social movements. It’s no surprise to any of you, but NeighborWorks® organizations are part and parcel of social change in this nation.

Despite some of the courageous funders, according to Gara LaMarche of the Open Society Institute in New York, foundation grantmaking is characterized by timidity toward staking out bold positions and major funding on behalf of advocacy for social change. I should point out that that isn't the case for conservative foundations, which are quite aggressive in their funding of organizations and ideas.

The second issue I would raise is foundation spending or payout. Despite double-digit growth in foundation endowments over the past decade or more, mandated foundation spending is set at a minimum level of 5% of net foundation assets. Please realize that foundation spending is not equivalent to grants. For many foundations, foundation payout in terms of grants is below 5%, in many shocking cases, even below 4%. Too many foundations have taken the statutory floor on foundation spending and turned it into a ceiling.

It isn't simply people like me, who might be characterized as, shall we say, on the left, who are thinking about the foundation payout rate. Harvard professor Michael Porter has been one of the leaders questioning the spending behavior of foundations. Even former President Clinton had the same idea, when in October of 1999, at the first ever White House Conference on Philanthropy, he cited the growth of the stock market and challenged everyone in the audience to consider raising their philanthropic giving by 1%--actually increasing the total amount of philanthropy from 2% to 3% of Gross Domestic Product. I'm pretty sure he was thinking of the individual rich donors in his audience and not worrying about the foundation payout rate, but his message made some foundation people in the room squirm.

Porter even suggests that the growth of foundation endowments means that it costs the federal government $1.48 in taxes foregone for every dollar of philanthropy actually spent on nonprofits. Porter's argument and his numbers or the estimates of others, including Barnard economist Perry Mehrling, who says that an 8% payout rate could work simply because of the flow of charitable capital into foundations and other funds, but there is clearly something here that says that the payout rate merits some review. In this nation, where the richest 1% of us owns 42% of the wealth--which is up from 19% in 1970--the role of foundations as owners of some of that wealth is worth examining.

The third issue is operating support. When I worked in nonprofit community development corporations, I got to watch great organizations with tremendous programs of neighborhood services and low-income housing struggle for the dollars to pay core operating costs. Foundation spending for core operating support is below 14% of all grant dollars, compared to over 18% not so many years ago. I should point out that at the White House Conference on Philanthropy, this was Hillary Clinton's issue. When a foundation executive rose to extol the virtues of foundations, she responded--off script--to bemoan the project-funding preoccupations of foundations to the detriment of nonprofits raising money for their core costs. Maybe she will remember this issue in the Senate.

I cannot help but wonder who gets the operating support. For most of the small, neighborhood-based groups I have worked with, making the case for operating support is a huge undertaking. I doubt it is as easy as the Hewlett Foundation's $400 million infusion into the endowment of Stanford University. I suspect that the bulk of operating support goes from foundations to organizations whose structure and finances they feel comfortable with--like universities--as opposed to grassroots community development organizations.

In New York City and around the nation, there are a number of foundations that have taken on the operating support question in the community development sector. I believe in New York, the funder collaboration devoted to increasing operating support for nonprofit community developers is the Neighborhood 2000 Fund. And the Ford Foundation must be credited with spawning multi-foundation operating support collaborations for community developers around the nation, but the overall foundation community to operating support for grassroots groups, advocacy groups, social change organizations, and others is still paltry compared to the need.

A fourth element of a philanthropic agenda for nonprofits is to ask where the money goes. Why the lower percentage to community development, to civil rights, to social action? Why the decline in overall giving for the category of grantmaking called public and society benefit? Why the absolute decline, not simply a percentage decline, in grantmaking for organizations addressing African-American issues and causes and the overall decline in total dollars addressing minority issues? How much goes to advocacy? How much to community organizing?

My fifth element is to move philanthropy into public policy. For all the talk about philanthropy and charity in this country, for the recent number for charitable giving topping $200 billion, in reality, we aren't that generous a society. And it's not simply a matter of judging the Congressional lemmings that voted for the Bush Administration's tax cut, which will be used in the future to cut back on federal spending, mark my words.

Having just emerged from the Capitol Hill battle over the estate tax, one indicator is pretty clear. 80 percent of the people who die with estates large enough to qualify for the estate tax, that means less than the top 2%, 80 percent of these estates leave exactly zero to charity. If you look at the giving of Americans, the least wealthy are the most generous. Of families with positive net worths, the lowest quintile or lowest fifth in this nation gives 13% of its wealth annually to charity. The remaining four-fifths of the U.S. gives less than 1%, the top fifth gives less than one half of one percent of its wealth for charity. I'll bet that the most charitable people you encounter on a daily basis happen to be the people who attend the programs and receive the services of the organizations in this room.

Unfortunately, social change philanthropy and giving for neighborhood revitalization are not likely to be helped by the policy recommendations of the Bush Administration and its Congressional allies. Although they were stymied on their complete elimination of the estate tax for the moment--yes it was repealed, but the repeal will occur 10 years from now and, due to a quirk in the legislation, last for only one year--although they were stymied on the estate tax repeal, they will try again. That threatens some significant percentage of over $16 billion annually in charitable bequests, not to mention simply being a horrible tax break that benefits only the super-wealthy.

President Bush has called on states to offer tax credits, not tax deductions, for charitable giving to nonprofits providing services to address poverty. These credits would be paid for by unspent TANF or welfare funds, and other federal block grants have been recently mentioned as additional candidates for compensating state treasuries. This is a component of the President's faith-based initiative.

Although the President was blocked by Senator McCain on this issue, he and Vice President Cheney called for paycheck protection, which could affect charitable giving in the workplace, restricting the use of charitable funds raised through payroll deduction by nonprofits that participated in public policy advocacy. With Elaine Chao as Secretary of Labor, it is hard to imagine that we have heard the last of paycheck protection or that the Bush Administration will not promote the same among states.

There's of course nothing in the President's agenda that looks at corporate philanthropy, particularly in getting corporations to fully disclose their philanthropic activity. There are lots of great corporate grantmakers out there, but increasingly, corporate philanthropy is shifting from corporate foundations to their marketing departments. Corporate philanthropy is increasing geared toward serving a corporate bottom line rather than corporate good citizenship. As a result, $50 billion in corporate philanthropy goes to sponsorships, tours, and cause-related marketing, $6 billion alone to sponsorship of sports.

It may be that the elements missing from the President's agenda on charity and philanthropy may be just as important at the items on the docket. For NeighborWorks® members and other neighborhood-based organizations, there is plenty more on the horizon that warrants activism and engagement.

How does courage in addressing philanthropic issues translate to your ability to raise money? Let me begin by citing the example of nonprofit community developers in New Jersey. Working through the Affordable Housing Network of New Jersey and the state’s regional association of grantmakers, nonprofit community developers brought foundations and corporations together to discuss what the problems of funders might be with community development. It was a great strategy, resulting in formal meetings with a panoply of funders and some excellent exchanges. The result? At a minimum, it elevated community development as an issue for the entire philanthropic sector, not simply a one-on-one discussion item between individual nonprofits and their funders. It also motivated the funders at the table to commit to bring others into the discussion, including funders whose missions clearly might encompass community development but who simply do not think of NeighborWorks® organizations, community development corporations, and others engaged in brick and mortar work.

That means exposing NeighborWorks organizations to philanthropic groups such as regional associations of grantmakers, donors forums, and even the informal meetings that many foundation program officers routinely have with each other for mutual support. If community development funding is decreasing as a funding interest of grantmakers, NeighborWorks® organizations and their community allies have to engage in proactive education of the many foundations who haven’t yet connected with community development—and with those whose interest in community development seems to have flagged. Too many funders think that philanthropic giving for community development is money not well spent, funding for micro-organizations tackling macro-problems outside of their skill and talent. While funders nationally through the Neighborhood Funders Group, an affinity group of community-oriented grantmakers, appear committed, locally the dialogue needs to be engaged by the parties most directly affected—you.

This kind of dialogue reflects another element of finding new sources of capital. That might mean collaborative fundraising efforts. It is beginning to be more difficult to find corporate donors as they merge and move. The formerly local, community banker might be located hundreds of miles away, without intricate knowledge of the funding needs of your organizations and communities. Remember that corporations tend to give more than half of their grantmaking in their headquarters cities, and unfortunately for nonprofit grantseekers, there are fewer major corporations to look to. Moreover, in bank mergers, for example, which are rarely mergers and more like acquisitions, the winning bank has to eliminate 40% of the administrative costs of the acquired bank, and that often means cuts in their philanthropic resources and staffing. That leaves the corporate givers with scant ability to analyze and understand the individual requests they are seeing. It might be for some funders that collaborative fundraising might mean an overall increase in resources for everyone, making a more powerful case to the ultimate decision-makers looking for impact.

It probably is not a mistake to assume that most of the NeighborWorks organizations in this meeting are funded largely by financial institutions that have a stake in your programs and capacities. The challenge is broadening your access to funding from corporate givers beyond the "usual suspects". You can keep going back to them or try to broaden the corporate commitment to neighborhood renewal. How do you do that? One strategy is to start focusing on corporate grantmakers who are not in the financial sector and probably smaller per-grant funders. The basis of the argument is corporate citizenship, not corporate self-interest or corporate compliance with federal policy incentives.

There are several ways of achieving this. One is to begin working with the employees of corporations. Most everyone in community development forgets the importance of giving by private sector and public sector employees through payroll deduction campaigns in the workplace—and the importance of employee philanthropy for leading overall corporate grantmaking. The most generous people in this nation are probably charitable givers at the workplace, donating through the United Way or other workplace fundraising federations or intermediaries. Rarely do they ever have opportunities to give, except through occasional donor designation mechanisms, to community development, beyond the indirect support of that activity through traditional human service programs. NeighborWorks® organizations can and should be accessing workplaces through the Combined Federal Campaign, state and local government employee campaigns, and corporate campaigns. Increasingly, corporations are choosing to design employee-led workplace campaigns, modeled after the Boeing and Kraft Foods campaigns. Increasingly, corporations use the fundraising priorities of their employees to shape their own corporate giving, using corporate funds frequently to match employee giving at the workplace. Around the nation, community development organizations are pressuring United Ways to include fundraising for CDCs or joining alternatives to the United Way, typically what are called "social action funds", to gain access to workplace givers.

One of the surprising things about community development is its invisibility with a segment of philanthropy that should be its biggest fan. The variety of venture philanthropists, funders exploring grantmaking as investments in nonprofits as opposed to simple charitable check-writing, generally don’t know a thing about community development. Even among the social change-oriented venture philanthropists, national funds such as the Changemakers Fund based in San Francisco, do not discuss community developers as examples of potential grant recipients. Only the Center for Venture Philanthropy in the Bay Area of California seems to have caught on to this sector, establishing a special fund for homeownership development.

Realize that most venture philanthropists, many from high tech industrial backgrounds, would not know a nonprofit community development group if they fell over it. They have never been engaged at this level, they fear organizations with substantial government funding, and for all their rhetoric about social change, they typically support traditional areas of social endeavor, such as education and children’s services. Somehow, community developers have not conveyed an identity and persona of being sufficiently entrepreneurial, which is astounding. If there is any segment of the nonprofit sector that should be able to present itself in investment terms, attract grantmakers who want to support engaged grantmaking, it should be nonprofit community developers.

I don’t want to overstate the importance of venture philanthropy. It is a niche area of funding and generally restricted to regions where there is some presence of high tech sector entrepreneurs. Surprisingly, however, venture philanthropy is expanding, at least geographically. Even in Appalachia, there are venture philanthropists associated with the formation of venture capital investment firms. Still, venture philanthropy is very small to date, and most venture philanthropy to date is talk rather than money. Although venture philanthropists talk about strategic, long term investments in organizations, many still act like typical funders aiming their moneys at projects and hardly the most risky kinds of nonprofits. Most troubling of course is simply finding the venture philanthropists, who typically do not issue RFPs or accept unsolicited proposals.

Like the traditional foundations who gather in RAGs and donors forums, nascent and experienced venture philanthropists gather and talk to each other, often in corporate settings of high growth "gazelle" type of corporations that view themselves as corporate innovators and frequently high tech players. They won’t seek out NeighborWorks® groups; community developers have to find them.

What is the case statement for NeighborWorks groups that works for venture philanthropists? It is actually—or should be—no different than the core proposal that NeighborWorks® groups use with traditional and corporate funders. It must present the organizations as forward thinking, with a cogent, coherent vision for the future of their communities and the role of community development as a platform for making communities healthy and livable. It should offer measures of performance and impact that make sense and do not box the groups into widget-counting service delivery units. It should present NeighborWorks® groups as efficient instruments of neighborhood change, not simply outposted deliverers of City Hall services.

No one should minimize the challenge of any kind of fundraising in an era of plunging stock markets and huge competing issues. NeighborWorks organizations are members of a network, which enables them in theory to cooperate, share fundraising technologies, and think creatively about the emerging dimensions of U.S. philanthropy. Whether the issues are advocacy for a different kind of philanthropy or fundraising to get your share, the challenge is to be bold and creative. That’s where philanthropy is. That’s where the NeighborWorks® family of organizations ought to be.