Traverse City Business News | ‘Grace and Flexibility’: How the pandemic is changing nonprofit grant-making


‘Grace and Flexibility’: How the pandemic is changing nonprofit grant-making

It could’ve been better; it could’ve been worse.

That’s the general consensus among nonprofits as 2021 draws to a close.

COVID-19 could have been kinder to nonprofit organizations, but it also could have been much more devastating.

Early on, the pandemic was eyed as a potential extinction-level event for nonprofits. The biggest question? Whether or not foundations and other grant-making entities would curtail their giving.

But other questions rained down as well: Would individual donors still be able to give in the midst of spiking unemployment rates the likes of which the United States hadn’t seen since the Great Depression? How would being cut off from the ability to host in-person fundraisers affect the bottom lines of nonprofit organizations? And what about arts and culture organizations whose entire models revolved around live concerts, theatrical performances, or other in-person events?

Since the beginning of the pandemic, trends and predictions for the nonprofit sector have mostly looked grim. According to a survey published by the Charities Aid Foundation of America in June of last year, 7.5% of respondents indicated that their nonprofit organizations had already ceased operations due to COVID-19. Of those still operating, nearly one-third said their nonprofits “could persevere under the current conditions” for less than 12 months.

Even this spring, as vaccine rollouts offered glimmers of hope, the outlook for nonprofits still looked stormy. In March, a study released by the nonprofit analysis organization Candid in tandem with the Center for Disaster Philanthropy predicted that, in a worst-case scenario, roughly 38% of U.S. nonprofits could close in the next two years due to lingering COVID-19 crises. A more realistic scenario – one where the pandemic persists but not at its worst possible severity – could still claim some 11% of nonprofits.

Problems that are leaving orgs vulnerable to COVID-related closures include limited cash reserves for operations, inability to offer normal programs and services due to COVID-19, and the strain many nonprofits are experiencing as more people come to rely on their services due to the pandemic.

There’s also been some good news along the way. In June, the Center for Effective Philanthropy published a new survey, which indicated that the effects of the pandemic on nonprofits weren’t actually as bad as anticipated: 66% of respondents reported either “moderate” or “significant” negative impacts on their organizations due to COVID – a high percentage that was nevertheless down from 84% a year earlier. On the flip side, 16% of respondents said the pandemic had led to either “significant” or “moderate” positive impacts for their organizations, including increased public awareness.

One of the big changes? More giving. According to Fortune, Americans gave a record $471 billion to charity in 2020. And it wasn’t just individuals giving more. More than half of the organizations that responded to the Center for Effective Philanthropy survey reported increases in government grants (58%) and foundation grants (52%). Even more (66%) said that foundations were being more flexible in their support than before the pandemic.

Northern Michigan nonprofits are reporting similar positives.

McDermott

“We’ve experienced a lot of grace and flexibility,” said Meghan McDermott, director of programs for the Groundwork Center for Resilient Communities. “I was amazed at how quickly the dynamics shifted.”

McDermott was happy to see those dynamics start to shift. In her view, the goals Groundwork is trying to accomplish as a nonprofit – a varied set of missions, ranging from improved local mobility and transportation, to food security, to environmental advocacy – can’t happen without “systemic change in philanthropy.”

The pandemic started nudging the needle in the right direction.

“During COVID, one of the things that was really remarkable is that some foundations started to say, ‘Okay, typically we give 6-8% of our endowments on an annual basis,’” McDermott explained. “But they recognized that there was an urgent need because of this totally unprecedented situation. And so, foundations said, ‘Maybe we need to change how we’re thinking about giving.’”

Those changes manifested in a few different ways. One of the biggest pushes was for foundations to be more liberal with their giving. Under federal law, tax-exempt charitable foundations are required to spend or give away 5% of their assets in any given year. Historically, though, most foundations haven’t gone much higher than that requirement.

On the one hand, giving less money in a year means a bigger and faster-growing endowment, which increases the odds of a foundation surviving long into the future. On the other hand, critics of the practice say that foundations exist for the sole purpose of distributing that money, and shouldn’t just hoard it – especially in times of great need.

That brand of criticism grew louder during the pandemic, with more nonprofits calling on foundations to dip deeper into their endowments. One nonprofit leader told the New York Times last June that “the house is on fire right now” and suggested that “if (foundations) don’t save the nonprofits, they’re going to have to rebuild the entire sector.”

The same Times piece reported on an unprecedented effort by some foundations to help nonprofits in need. At the time, the Ford Foundation had just announced plans to borrow $1 billion so that it could distribute more grant dollars. Four other major foundations – the John D. and Catherine T. MacArthur Foundation, the W.K. Kellogg Foundation, the Andrew W. Mellon Foundation, and the Doris Duke Charitable Foundation – pledged to take similar steps to increase their giving.

Not only are many foundations giving more money, but McDermott said the entire relationship between nonprofits and foundations has started to change. Before the pandemic, there was a dynamic in the philanthropy world where nonprofits were expected to prove that they were worth a foundation’s time. It was, at best, a system marked by distinct imbalances in power. Now, McDermott thinks the people at foundations and the people at nonprofits are seeing each other more as equals, as partners, and “as human beings.”

“I think there was a level set to understanding that partnership in a way that probably wouldn’t have happened without the pandemic,” McDermott said. “Because there was always this sort of distance and intimidation factor – this idea of, ‘You (the nonprofits) need to earn your seat at the table and be accepted by us (the foundations) who have all of the resources.’

“There was no flexibility on deadlines, or really any flexibility at all.”

Now, things are different. For example, McDermott noted that one of Groundwork’s partners is Munson Family Practice – which, at press time, is currently mired in level red status caused by spiking COVID-19 cases, hospitalizations, and deaths in the northern Michigan community.

“So, Munson is in code red, but we also have a grant report that’s due today,” McDermott said. “And one of the questions (on the report) is, ‘Are you expecting any unexpected delays?’ Normally, pre-pandemic, I would have said, ‘We need to figure out a way to write ‘Munson isn’t responding to us’ in a veiled way, to make sure it doesn’t seem like our partnership isn’t strong.’ Now, we can just be honest and say, ‘The COVID caseload is insane right now, and all of our medical partners are experiencing burnout.’”

McDermott says that the pandemic has led to a “refreshing” degree of candid communication.

“We can be that candid with our foundation partners, because there’s that level set of reality, or humanity, or whatever you want to call it,” she said. “That is really refreshing to see in philanthropy, and I don’t think it would have happened without a global pandemic.”

Umbarger

Emily Umbarger of Interlochen Center for the Arts has experienced a similarly flexible and welcoming grant-making atmosphere since the start of the pandemic. Umbarger is Interlochen’s director of sustainability – a relatively new role within the 93-year-old arts institution. Interlochen established a sustainability department in 2016, as a way of doing its part “to protect and preserve our environment.”

In the five years since, the program has grown to include a botanical lab and community garden, complete with hoop houses, raised garden beds, an apiary, a chicken coop and more. Interlochen Arts Academy even now offers an agricultural science elective course, where students can learn everything from aquaponics to composting to plant and animal care.

Half the food produced by the on-site agricultural facilities goes to the campus cafeteria; the other half goes to the Interlochen Food Pantry. There’s also an industrial compost facility on campus that Umbarger said processes about 100 tons of organic matter a year – including every plate scrap from the cafeteria.

From the beginning, grant funding has been instrumental in growing Interlochen’s sustainability program – and in keeping it operational. Umbarger estimated that the program has a budget of “around $200,000” and that 90% of that money every year comes from grant funds.

Umbarger said that, in the early days, getting grant money for sustainability programming at Interlochen was like “sticking our necks out there,” given that the program was starting from scratch. The fact that Interlochen Center for the Arts had “an amazing track record of being responsible stewards of any sort of grant funds” helped the program find its footing and land its first grant dollars.

One common worry that nonprofit leaders have voiced during the pandemic is that foundations and other grantmaking entities would focus their efforts on organizations that offer essential services – thereby leaving arts-focused entities like Interlochen behind. Ultimately, though Umbarger said that her program has had little issue landing grants.

“I think because of the work that we’re doing, we didn’t have trouble,” Umbarger said. “(Our work) is pretty specific: It deals with agriculture, growing food, education, health, nutrition, and environment. The grants that I’ve been applying for have all been really focused on those areas. So, I’m not competing with (every other nonprofit), or even with my own colleagues at Interlochen.”

Umbarger says that she has noticed some leniency on behalf of the grantors.

“Some of the grants that were very specific about community classes or student-facing activities, we might have had to go back and say, ‘Listen, we thought we were going to do this right away, but we’ve had to have a little adjustment here because we don’t have classes right now, or we’re not seeing kids in person,’” she said. “And all of (the grantors) across the board, have been extremely forgiving and willing to give an extension on those time periods.”

For its part, Traverse City’s own Rotary Charities has given substantial funds to arts-based organizations over the past year – including the Dennos Museum, Parallel 45, the Glen Arbor Arts Association, the Northwest Michigan Arts and Culture Network, and the Garden Theater in Frankfort.

While the organization’s fiscal year 2020-21 grants were down over 22% compared to the year before ($1,184,231 in FY 2020-21 grants, versus $1,743,683 in FY 2019-20), Rotary still gave 61 grants to 51 local organizations. Beyond arts and culture, top focuses included addressing homelessness (Housing North and the Northwest Michigan Coalition to End Homelessness both received $125,000 grants); improving early childhood education (a $50,000 grant for United Way of Northwest Michigan); and establishing stronger practices for DEI (diversity, equity, and inclusion) in the local region (grants to Title Track, TART, the Leelanau Conservancy, FLOW, and the City of Traverse City to fund racial justice training).

That trend – of funds stretching across several common categories, rather than hitting different organizations or missions in a more piecemeal approach – is part and parcel with what McDermott hopes will become the norm going forward in the nonprofit world: more shared missions, more synergy and more collaboration.

“I think the model for grant-making (before the pandemic) had typically been perpetuating an individual savior complex,” McDermott said. “The idea that one organization, within one year, is going to do a very targeted project that will contribute to, say, ending homelessness. But do we really think that, as a society, we can end homelessness with one organization in 365 days?

“If someone could do that, it would already be done.”

The question is: If one organization armed with one big grant can’t solve systemic problems like homelessness, can five or six (or more) working in tandem find more success? It’s a question that more players in the northern Michigan nonprofit scene seem to be asking.

Take the Northwest Michigan Coalition to End Homelessness, a collaborative that spans approximately 200 agencies across 10 counties. Or take the Community Development Coalition of Northwest Michigan, a collection of more than 30 private, public, and nonprofit entities working together to address the region’s systemic challenges via a scorecard initiative launched last year.

These efforts and others, McDermott thinks, could pave the way for a smarter, less siloed approach to nonprofit changemaking in the region. And with foundations perhaps more flexible with their funding than ever before, she’s hopeful this moment will provide an opportunity for local organizations to band together and strike while the iron is hot.

“I’m from a big city, where you tend to get into nonprofit turf wars pretty quickly,” McDermott said. “Maybe it’s just the nature of this community being relatively small, but it’s always been a little more collaborative than other regions I’ve worked.”

In terms of nonprofits’ pandemic survival, McDermott says a sense of needing each other through skills- and resource-sharing has emerged.

“The pandemic made us see what we’re all in the same storm, and I think it made people more willing to shed any little piece of turf or tension around organizations working together,” she said. “I think people have started to recognize that, in a really humbling way, we need each other.”

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