Why Common Core Will Fail

You've likely heard or read about Common Core by now. The latest in educational "fixes," promoted by the Bill & Melinda Gates Foundation, the National Governors Association, and the Obama administration, the Common Core initiative was developed "to provide a clear and consistent framework to prepare our children for college and the workforce." And it will fail to improve our failing schools, wasting time, resources, and money in the process.

There are lots of critics around who can explain the problems with Common Core and how the standards were developed. But I have a different issue with Common Core: it attacks the wrong problem.

I've been thinking about this for a while, but it was brought to the fore for me last week when I attended Social Innovation Summit 2013 at Stanford University. Among two days of presentations, ranging from a panel on "Unleashing Green Chemistry," to a speech from Robert Swan, OBE, Arctic Explorer, there were several that touched on innovation in education with examples that work.

Beth Schmidt was a new 10th grade English teacher who was frustrated when only 5% of her inner-city students turned in their writing assignment. The problem, she soon realized, was that the research assignment she gave them had no relevance to their lives. When she tied the assignment to their desires and interests - to their passions - 85% turned it in.

The problem wasn't that she or her students didn't have access to uniform, national curriculum standards. The problem was that the "achievement gap" between her school and successful ones in her region was a direct result the hope and opportunity gap that low-income kids face when thinking about their future.

Today, Ms. Schmidt is the founder of Wishbone, a crowdfunding site that helps low-income high school students to pursue their passions through attending extra-curricular camps and other programs, redefining their future, and opening up new opportunities.

At Roosevelt High School, in Boyle Heights, East Los Angeles, Grammy winning recording artist will.i.am's i.am.angel foundation has partnered with College Track to give kids not only the tools to go to college, but to finish college. After-school programs combine the students' passions with practical advice and strategies to pay for school and stick with it.

According to Enrique Legaspi, Chief of Staff of the i.am.angel Foundation, Roosevelt has 2,600 kids, a 50% dropout rate, and only one college counselor. Contrast that to Taft High School in Woodland Hills, where I graduated from many years ago. Taft currently has 2,700 kids and a 12% dropout rate. Both schools are within the LA Unified School District. Both are in California, which already had high standards before the Common Core.

The difference was that, at least when I attended Taft, there was an expectation that we all could and would graduate, and that most of us would go on to college and have reasonably successful careers. The middle-class was the lowest rung we were expected to shoot for. Not so in Boyle Heights.

Ask the kids dropping out from either school if the lack of unified national curriculum standards was at fault. I doubt that's the reason they'll give. Lack of relevancy or hope for opportunity is far more likely. Kids in failing schools need more than a new textbook; they need someone to show them a realistic path to a good life. As will.i.am said to us (via satellite), "Athletics shouldn't be the only thing that gets kids out of the ghetto."

Microsoft's TEALS program (Technology Education and Literacy in Schools) puts engineer volunteers (not just from Microsoft, but other tech companies as well) into classrooms in districts that could not otherwise afford technology programs. Sometimes this is in person, but frequently they teach virtually, and so can reach places mostly forgotten by the rest of America.

At the Social Innovation Summit we saw a short video focusing on the effect the program is having in a small, rural community in Kentucky, where the TEALS volunteers are giving hope where there was none before, showing the children of coal miners the possibility of a rewarding career that does not carry the risk of black lung disease, and giving them a reason to pursue a college education. (Computer programing is not part of the Common Core, in case you were wondering.)

The examples above are from a single two-day conference. One came from a frustrated teacher starting a nonprofit organization, another from an entertainer/philanthropist giving back to his old neighborhood, and the third from a corporation concerned about training their next generation workforce.

Each very different players, with different approaches and resources, but all focusing on the individual passions of the children and creating opportunities for them to succeed. Each takes local circumstances into consideration. None of them are top-down, one-size-fits-all approaches. These are just a few of the hundreds of examples of successful programs out there.

For schools that are already succeeding in sending kids on to higher education and professional careers, Common Core is an annoyance at best, and at worst a distraction that will keep them from giving needed attention to the few students who are failing. For them, transitioning from one set of curriculum standards to another is just so much fixing what ain't broke to begin with.

For schools that have high dropout rates and low hopes for their students, Common Core may provide a temporary lift, as new grants, materials, and teacher training become available. But in the long run, this too will peter out, as it will do nothing to address the lack of economic opportunity available to low-income kids, and nothing to change either their expectations, or the expectations of those around them.

You say you want to close the achievement gap in education? Then work to close the opportunity gap in the economy. Hope requires more personal attention than just a modified curriculum.

(Note: this is cross-posted on both, my personal and work blogs, as it is relevant to the general voting public as well as nonprofit professionals.)

The Waiting is NOT the Hardest Part

...  A Proposal for Uniform Feedback of Grant Application Denials

From Guest Blogger: Brian Leitten. Mr. Leitten is an experienced non-profit leader and consultant, chief executive and attorney. He provides consulting services nationally to non-profit and healthcare leaders from his office in Port Orange, Florida. He can be reached at Leitten Consulting - consulting.leitten.com. 

Every year I assist clients in preparing grant applications that are submitted to 30-50 different private, community and corporate foundations and government agencies. The grant applications could be as simple as a letter of intent or a letter introducing the non-profit and explaining the grant request; or it could require a multi-page write-up with a significant number of supporting documents. Often, the foundation or agency has a very particular format that the application and supporting documents and it is generally the case that no two grant applications require exactly the same information presented in exactly the same format. In short, uniformity has not yet come to the grant application process.

Once the hours or days of preparation have been invested, the grant application is thrown into a virtual 'black hole'. After submitting the application, applicants wait to receive a decision. Most foundations are excellent at acknowledging receipt of a grant proposal, but from there communication falls off a steep ledge. Some grantmakers do provide a target date for making decisions on submitted grants; many do not. Non-profits can do nothing but wait. Many times they never hear back from a grantmaker on the outcome of the consideration of their application. I know of one application that was approved, a check was mailed (to the wrong address) and eventually canceled because the grantmaker (without bothering to inquire) assumed that the money wasn't wanted.

I find myself disagreeing with song writer and rock musician Tom Petty when I hear him sing 'The Waiting is the hardest part'. For me and the clients I serve, the waiting is the 2nd hardest part. The hardest part is receiving a denial letter with no explanation or feedback about why your proposal was not funded. Unfortunately, the typical denial communication goes something like 'Thank you for your application. We receive many more applications for support than we are able to accommodate and we will not be able to provide funding for your request'. This type of response is nothing more than a forced nicety and provides no help or feedback to the grant applicant. Without feedback, non-profits are unable to improve their grant submission process. This means that they could continue to submit grant applications containing flawed elements with no awareness of the problem and that grantmakers could continue to receive and waste time reviewing grant applications that have no chance of success.

It struck me that adding one rather simple step could greatly improve the feedback loop and eliminate the costly waste that continues to hamper the grant making system. I propose adoption of a uniform, one -page feedback sheet that would accompany all denial letters and emails. The feedback sheet would contain a list of common reasons for denial that could easily be checked off without adding any significant time burden to the denial communication process. It's likely that one or two issues led to a decision not to fund, and the checklist would be an easy and convenient way to deliver that message. This would provide extremely valuable information to the applicants that can help them improve future applications and not waste time seeking grants for which they have no chance of receiving. For the grantmakers, it would provide a wonderful opportunity to improve the quality and relevancy of future applications and avoid significant amounts of future time spent reviewing applications that they will end up turning down.

I submit the following one-page feedback sheet as a starting point for creating a uniform communication tool for grant application denials:

(click here to see full-size image)

This kind of uniform feedback would be a major step forward in enhancing the grant application process for non-profits and the foundations and agencies that support them. It would eliminate or reduce a significant flaw in the current process and return "The Waiting' to the top of the 'Hardest Part' list.

Get Seen By Private Foundations

If you've done any sort of prospecting for new foundation grants, either using one of the resources from the Foundation Center or any other publisher, you've certainly come across those listings that describe the perfect prospect - interested in your mission, located nearby, lots of money to give - but then you come across those fatal phrases: "Applications not accepted," or it's partner, "Contributes only to pre-selected organizations."

Many, if not most, of the private, family foundations seem to have this notice in their listings. These foundations are typically small (under $1 million in endowment), have no full-time staff, and no means of effectively screening and evaluating the volume of material they'd receive if they did open themselves up to unsolicited applications. And so, they typically make their grants each year to the same small set of nonprofits that their Board members are already aware of. The only way in is to know a family or Board member personally.

Foundation Source is a company that has, for about a decade, worked with these private foundations, providing management and back-office services, advisory services, and online research and application services. They manage over $4 Billion in assets for more than 900 foundations, granting out about $250 Million each year.

The majority of the clients that Foundation Source serves are those smaller, family foundations that currently do not want your unsolicited application. And they are about to make it a whole lot easier for nonprofits to be seen by these mysterious, but important, funders.

Foundation Source will soon launch it's Access website, which, among other things, will allow nonprofits to set up organizational profile pages, and Project Proposal pages, that will potentially be seen by the 900+ foundations managed by Foundation Source. You will also be able to associate your organization's profile page with different Cause Pages (such as Emergency Relief, or maybe Hunger).

When the private foundations, already using Foundation Source for their research and granting, are searching for an organization working on certain topics, there you are with your profile and project proposal pages, and they will be able to simply "click and fund," or, at least, invite a formal application - which will be a single online application for all 900+ foundations.

Sounds too good to be true? Of course, there is a hitch... Following the formal launch there will be a fee for you to post Project Proposal Pages (although maintaining your organizational info will be free). When I spoke to representatives from Foundation Source they were still working out the pricing details.

The good news, though, is that if you pre-register now, before the launch on October 1, you will have complete free access to all the site features through April 30, 2011.

Whether or not Access will provide a good return on your investment after that will depend on what fees they charge and whether or not their foundation clients really use the system to find projects to fund. But, the free trial is certainly a no-brainer, and sure to provide a positive ROI.

To pre-register and get the six-month free trial, go to access.foundationsource.com and sign up before October 1.

Nonprofits, Foundations, And Capital Formation

 On Sean Stannard-Stockton's Tactical Philanthropy blog, he commented that "One of the most bizarre criticisms of the Giving Pledge is the idea that it will hurt the economy." He quotes Forbes columnist John Tamny, who wrote:

“But while it’s exciting to contemplate the giving nature of Gates and Buffett, if their true desire is to help their fellow man, they should hoard every penny of their significant wealth..."

Stannard-Stockton's  response is demonstrate how nonprofits contribute to the economy, saying, in part:

"Nonprofits employ people, nonprofits buy goods and services from for-profits, nonprofits are an important economic engine of the US economy. In fact, nonprofits are a bigger portion of the economy than many other industries."

Certainly, for all the reasons mentioned in his post, nonprofits contribute to and benefit the economy of our nation and our individual communities.

But, in relation to the Gates-Buffett pledge, there's another "dirty little secret" of why the Forbes readers (assumed captains of industry) should support philanthropy of this scale: Endowments.

Of the money pledged by the 40+ billionaires, most of it will not be heading directly to our community service organizations; it will be sitting in foundation endowments, being granted out at a rate of 5% each year.

With that 5% barely being the earnings on the endowment, where's the principal of that endowment going? It's being invested. It's purchasing stocks and shares of mutual funds. It's in long-term bank accounts, giving banks the capital to loan to small businesses.

If John Tamny (and Forbes Magazine) is sincere when he says that "money saved and invested constitutes capital... and... capital formation... naturally stimulates job creation" then he should be encouraging more billionaires to tie up their wealth in foundation endowments.

Yes, nonprofits help build the economy, both through our direct actions assisting in our communities with job training, treating addiction, feeding the hungry, distributing gently used clothing, and offering counseling, support, and affordable housing (not to mention enriching our lives through the arts, cleaning our environment, protecting our children, etc.), but our sector is also responsible for the creation of dedicated capital for investment, something that our nation desperately need right now.

Stand up for the nonprofit sector; the most productive sector of all.

Proposal to Funding Conversion Rates

Often, my posts here start as replies to emails I receive from readers. Today I got an email with the following question:

I have written grants for years. I believe I have been fairly successful. My grant submission in relation to funding rate averages from 6-12%. However, I just applied for a full-time position where the organization listed that it REQUIRED applicants to have a history of a 60% funding conversion rate for grants submitted.

And my reply to the reader (in part) was:

The industry rule-of-thumb I've heard is that 1 in 12 proposals gets funded, or about 8.5%, and that's in a good year.

A professional grant writer should be able to do better than that, hopefully even one in four or better, but it really all comes down to the organization they're writing the grant for, and that organization's reputation and existing relationships with foundations.

An established, larger, or older nonprofit might be only working with the same foundations year after year, and only responding to direct invitations to submit a proposal. In such a situation where nothing is sent out as a "cold call," a 60% success rate might be easily achieved, or even exceeded.

Meanwhile, a newer, start-up nonprofit might be very happy with results of one in 15 proposals being funded, as virtually every proposal or LOI they send out is an introduction to the agency and an attempt to just get a foot in the door. Relationships with foundations have to start somewhere, and the LOI is traditionally that place.

So, your question was, is it reasonable for a prospective employer to "require" a 60% conversion rate. My answer is simply to turn it back onto them. What is their current conversion rate? Do they have established relationships with funders or have they had scattered luck?

If you're preparing for a job interview, you can figure out some of those answers by going to guidestar.org and downloading their 990 tax returns for the last few years. Check out who is funding them, and whether the list is completely different each year, or from a stable group of sources. Are they large grants, small grants, what percentage of the budget is funded through grants?

Meanwhile, in your letter and resume, you should explain that your success rate is based on the assignment given. If they client asks for LOIs to be sent to "a dozen new funders" that it will naturally be less successful than when a client asks you to write for a specific funder who has requested the proposal.

If they don't like that explanation, then, frankly, you're better off not working for them. If your job performance is going to be judged by an unrealistic goal your tenure will be short, stressful, and unhappy. Accepting a job you can only fail at is never a good career move.

How Philanthropy Destroys Charity & More on Volunteer Giving

I have two short items to blog about today. The first is to point you to an article in the Guardian (UK) called "Why business won't save the world," in which the author talks about efforts, such as the Gates Foundation's work in vaccine development, and asks some very good questions about the effect on nonprofit work when a few wealthy individuals drive the nonprofit sector's agenda.

At the heart of the issue is the "philanthro-capitalists' desire for data and control" taking precedent over considerations of need. As the author states:

Investing in new vaccines against malaria is great, but there's no vaccine against poverty, inequality, violence or corruption, areas in which there are no "short-term returns on investment", only a long, hard slog through politics and social change. Does that mean only the easiest causes will be funded?

This is something I've felt and feared myself for some time, as the agencies I work with strive "to reach their numbers" and potentially loose sight of the individuals those numbers represent.

The other short note I wanted to post was to share a comment Monica posted on a previous blog here, "Money Follows Involvement." In that post, I restated my conviction that volunteers have already shown their dedication and interest in your cause, and that not asking them for donations was leaving money on the table.

Monica wrote (in part):

I have been volunteering with one specific organization for over a year and they have yet to ask me to donate... If this organization has not asked me, I bet that they haven't asked other volunteers either - effectively missing a large pool of constituents.  ... Hank Rosso suggests that the most likely potential donors have three characteristics – linkage, ability, and interest. Since the volunteer is involved it is clear that linkage to the organization and interest in mission are already in place. The remaining characteristic is ability. Often an organization will know if their volunteer has the ability to give, if the organization doesn’t know, the only way to find out is to ask. ...

I usually think of the "linkage, ability, and interest" equation as the "Triple A Qualifications: Ability, Affinity, & Access." Whichever terms you use to remember this by, it's excellent advice. And thank you, Monica, for sharing your story.

Latest Projects & More on Mergers

It's hard to believe that I've not posted here since December! In that time I've been hard at work in yet another Interim Executive Director (IED) position, as well as working with a local educational foundation on their strategic planning process, and teaching a grant writing workshop at a community foundation. It's been a busy several months, to say the least.

In the IED position, we are close to completing a merger agreement that will take this 30-year-old social service agency (about $1.7M budget, 20 employees) and transform it into a division of a larger ($7M budget, 100 employees) multi-service organization that's been in the community for over 100 years. It's an exciting proposition, and will hopefully give our agency the administrative capacity to expand its programs over the next several years, as well as round out the services of the  new, larger agency. But that doesn't mean it's easy.

Although this is my third time going through merger negotiations as an IED, I'm not one who is a default cheerleader for mergers, or who would ever say anything like, "There's too many nonprofits." On the contrary, I love having a vital marketplace of nonprofits, large and small, competing to make our communities better places to live.

When it makes sense to merge, I'm on board to help. But in tough economic times like these, many smaller organizations are under pressure to merge, whether it makes sense or not.

Last June, Emmett Carson, CEO of the Silicon Valley Community Foundation, had a guest editorial in the San Francisco Chronicle in which he wrote,

Mergers are not for the faint-hearted and, contrary to popular thinking, merging two weak organizations does not result in a stronger organization but rather a weaker one.

Mergers are expensive and disruptive. It takes money to consider how to integrate services, staff and systems, and time to think through the merits of such a strategy. Unfortunately, both are in short supply.

Even more challenging is the fact that merging organizational cultures is a delicate, complicated exercise under ideal conditions, and even harder when leaders are faced with the urgency of responding to burgeoning community needs.

Mergers require enormous amounts of energy from the boards and senior management of both organizations, which can distract them from focusing on their core work.
...

The alternative is to let the marketplace work. As financially strapped nonprofit organizations are no longer able to sustain their operations, they will cease to exist and those that are stronger can expand to serve other areas and constituencies. ...

While I may have put it in slightly less Darwinian terms as that, Dr. Carson is absolutely right. In some cases, it may be better to allow certain agencies to die rather than expend scant resources in trying to move them under another organization's roof. If the mission is vital to the community, somebody else will pick it up, if there aren't seven other organizations already working on that issue.

As we come close to completing our current merger, and I think about having been a part of this three times, I have another caution that I'd add to Dr. Carson's list: What will you do if you spend months negotiating a merger, and it doesn't happen?

It's looking very much like this current merger will go through. But there are still a million things that could prevent it from being finalized. In my first merger, things sailed right through. In my second merger, talks went on for 10 months, and then, when we thought we had a final legal agreement, it all fell apart, literally overnight. The agency had gone a full year without a permanent ED, we'd spent time, money, and energy pursuing a path that didn't pan out, and now we had to rebuild. We did, but that lost year will haunt them for some time to come.

The reality is, of those nonprofits that begin merger discussions, only 30% result in successful mergers. If/When my current project ends in success, I will officially be beating the odds. I'm sure we can do it. But caution is advised.

When Incentives Turn into Disincentives

All of us in the nonprofit sector are aware (or, should be aware) that the Foundations who support us have a minimum 5% payout requirement to maintain their nonprofit status. That is, they have promised the IRS that their grants and related expenditures will equal at least 5% of the total value of their assets each tax year.

There are those of us (and if you read this blog regularly, you know I'm one) who consistently call on the foundations to grant out more than the minimum, particularly in years, such as this one, when social need for nonprofit services is high and individual donations are low.

A little less known than the 5% payout, is the excise tax that foundations pay on their investment earnings. Currently, it is generally a 2% tax. However, it is lowered to 1% in any year that a foundation grants out more than their five-year average. This was meant to be an incentive for higher payouts in times of need.

Of course, it is a one-year incentive, since that higher payout raises the five-year average, the tax rate goes back to 2% unless grant amounts continue to rise each year. The return to 2%, according to some in the foundation world, actually then becomes a disincentive to increasing grants in the first place.

According to C. David Campbell, president of the McGregor Fund, a Detroit-based foundation:

"This year, most of the foundations in Detroit will be paying out much more than they have in the past because of the needs... But that will leave all of us in the position of paying more taxes going forward, which ironically will further diminish what we have to support nonprofits."

Enter Senator Charles E. Schumer, New York Democrat, and his buddies, Senators Debbie Stabenow and Carl Levin, Democrats of Michigan. Senator Schumer has proposed eliminating the current two-tiered system with a single excise tax rate of 1.32% in all years.

According to Robert S. Collier, chief executive of the Council of Michigan Foundations

"We are confident this will stimulate more giving by foundations... simply by making the administration of tens of thousands of smaller and midsize foundations much easier because they won’t have to spend a lot of time with their accountants trying to figure out if they have to pay 1 percent or 2 percent."

I'm all for anything that will encourage foundations to do what they're supposed to - support nonprofit organizations - but, really, was figuring out a two-tiered tax system really that much trouble for the foundation world?

And, more to the point, are foundations really saying that the only reason they can't step up and grant out more in this fiscal emergency is because they'll only save on one year's taxes? I know that many foundations are stepping up, and that this does not represent the attitude of the entire sector.

Now, I'm not saying that I'm against Schumer's bill. It's probably a great idea. I'm just saying that certain foundations need to increase their giving in an emergency, excise tax or not.

Question: Seeking merger funds

From my email:

There are two nonprofits in my community that are considering a merger/acquisition scenario. I have advised them to bring in a consultant, which they will consider. Do you know of any capacity-building or other grants available that could help with the consultant and other costs of this major strategic move?
Redmond, Oregon

From my reply:

Usually funds for something like that are best sought locally. I can't think of any national foundations, off hand, that are interested in funding merger type activity.

Your best bet is to have honest (and confidential) conversations with the local community foundation, the local United Way, and some of the local funders who are already involved with one (or both) of the organizations.

Market failure and collusion in the philanthropic marketplace

That's a bit of a heady title, but stick with it and humor me for a minute or two longer. I'm going to use a lesson from basic economics 101 to explain why nonprofits are unnecessarily forced spend too much time and energy chasing dollars instead of achieving their missions.

Cast your mind back to college days. and remember that intro to economics class. Remember how the supply and demand curves are supposed to work? In a functioning market, each are at least somewhat elastic. When demand outpaces supply, shortages occur and prices rise till supply can catch up. When supply outpaces demand, prices begin to drop. In each case, the correction (either dropping prices or increased supply) brings the market back into equilibrium. Ta daa! The invisible hand at work.

When these forces fail to bring the market back to a working situation, for whatever reason, the resulting state is called a market failure. One possible cause of a market failure is collusion; where a number of players one side of the equation agree to withhold either supply or demand in order to manipulate the market for their own ends.

Okay, so now let's look at the market for foundation grants to nonprofits. It is an accepted fact of life that the demand far outpaces the number of grants awarded. We know that the rule of thumb is that only one in twelve proposals will be funded (some of us do somewhat better than that, but it's balanced by those who do worse), and that none of us who have been at it long can boast of a perfect record of every proposal funded.

Because of a low supply of grants from foundations, nonprofits pay a higher than market price for searching out, applying for, and managing what few grants are available to them. Economics 101. That higher price nonprofits pay to receive grants has to come from somewhere, so it comes from programs; from mission.

This would suggest that there's a shortage in the supply chain of charitable dollars. But that's simply not true. Foundations are sitting on massive endowments that could satisfy most any nonprofit's needs. These dollars have already been earmarked for charitable purposes and the donors have already received their tax benefits at the expense of the public treasury. So why are they not being distributed?

And that's where the collusion comes in. While the IRS requires that foundations spend out a minimum of five percent of their endowments each year, the majority of U.S. foundations have taken that five percent to be the industry standard (a few notable exception spend at higher rates, and they are to be commended).

In the face of a contracting economy, with rising demand for the social services provided by the nonprofit community matched with fewer dollars to pay for it, this collusion of foundations has become the single largest impediment to nonprofits succeeding at their missions and a danger to the public safety, health, and societal well-being.

Alright. Maybe I'm going a bit too far here. I like to exaggerate to make a point. But the fact stands: In tough times the community of foundations have the ability - and I would argue social responsibility - to step up to the plate and increase the flow of grants.

And, while we're at it, maybe they can cut some of the administrative burden associated with the process. Oops. I know. This time I've really gone too far.

Introducing the Angelcheeks Foundation

This posting is a bit personal, as well as nonprofit related. A friend of mine lost his infant son a year ago to SIDS. While the family had insurance that covered the expenses of putting his son to rest, what they learned through the process was how many families are completely unprepared for such a tragedy.

In living memory of their son, he and his wife have now founded the Angelcheeks Foundation, to make grants to families in need, and to education on issues surrounding Sudden Infant Death Syndrome.

Below, you will see a video by the family and their friends (yes, I'm in there somewhere) that was released today to promote the foundation. Please watch it, and if you are half as moved by it as I was, please consider donating.

The soul of philanthropy: when giving becomes receiving

Michael L. Wyland of Sumption & Wyland consulting has written an op-ed piece on Argus Leader (dot-com) under the unassuming title of "Accountability changes philanthropic landscape" that perfectly expresses what I'm sure so many of us have been thinking for years.

The opening paragraph reads:

"There has been a major change in philanthropy in recent years. Accountability and impact are increasing the demands placed on charities because the purpose of charity from the donor's perspective has changed. It's become acceptable, in the name of accountability, for philanthropy to be about receiving rather than about giving. Hypervigilant and misapplied accountability risks killing the soul of philanthropy upon which charities rely for support."

I will add to that the charge that this hyper-vigilant accountability is killing the ability of small, local, and grassroots nonprofits to operate at all. The costs of compliance are out of line with the costs of providing needed services, leaving these organizations no options but to either merge with a larger organization or close their doors.

As Mr. Wyland states, the IRS, and all the various nonprofit watch-dog groups that analyze our IRS filings, all base their evaluations on data that is "overwhelmingly financial in nature... As long as every transaction is documented and as long as no one's enriching themselves at the charity's expense, the IRS and the watchdogs are satisfied."

But what happens to the small nonprofit whose administrative expenses seem too high only because of an effort to comply with all the data collection, analysis, and reporting requirements of their funders? The same funders who will then use that nonprofits' high administrative expenses as a reason to discontinue funding them.

In another recent post here, I called out Paulette V. Maehara (president and CEO of AFP) for admonishing nonprofits to "put the needs of donors first." I believe that we've coddled and begged and babied the donor foundation long enough. We need to educate them about the needs of our clients, and how they are best served by locally provided community-based nonprofits, and, perhaps, on the true definition of the word "charity."

Yet Another Reason to Diversify Your Funding (like you really needed another)

It's official: PND (the Philanthropy News Digest) reports that when corporations restructure, grants to nonprofits dwindle. Of course, we've all felt this for years, and we all recall such major events as when Chevron and Texaco merged in 2001 Texaco ended its sixty-four-year sponsorship of the Metropolitan Opera's Sunday afternoon radio broadcasts. Similarly, Mobil's long-time support for PBS's Masterpiece Theatre ended shortly after it became ExxonMobil in 1999.

The current worries were spurred by news of major restructuring coming at Altria Group, the parent of Philip Morris, Kraft Foods, and many others. Many have criticized Altria's funding in the past as an attempt at "green wash" (doing good deeds to cover up for bad, in this case being a major source of food and nutrition program funding through its Kraft division to make up for the damage done by the Philip Morris cigarettes division).

With over 700 current grantees sharing in close to $200 million in cash and in-kind gifts annually, a major shift in Altria's giving could have ripple effects throughout the nonprofit sector.

Still, the best way for nonprofits to protect themselves from corporate mergers and restructuring, said Gene Tempel, director of the Center on Philanthropy at Indiana University, is to avoid relying on a few big donors. "I give the same advice I would to shareholders. Diversify."

This is the same advice I give my clients, and that I try to get across when I teach workshops. Diversify at all levels. By that, I don't just mean mixing individuals, foundations, corporate, and government money, but also diversifying within each of those areas.

It's not diversifying if you only have one foundation, one company, and one major donor. You need to build your base so that a loss of any one funder, or shift in any one sector, does not throw you off your plan. Stability and sustainability, not complacency, are our watchwords.

Should Philanthropy Go On Forever?

Most charitable foundations in this country operate as perpetual giving machines. That is, they manage their funds and grant making in such a way that they will never spend out their entire endowment. In fact, many manage to grow their endowed base, even while awarding out millions of dollars in grants each year.

The IRS mandates that foundations must spend down at least 5% of their endowment each year, or face penalties. The perpetual foundations usually treat that 5% minimum as their set goal, and rarely give above that. The other 95% stays tied up in investments and helps to grow (or at least maintain) the endowment.

Philanthropists will give you two main reasons for setting up perpetual giving machines.

The first reason most people think of is, "to maintain a legacy." If they can't live forever, at least the foundation bearing their name can. It's usually worded something like, "I want to continue to do good long after I'm gone."

Many in the nonprofit field - who would like to get their hands on the foundation money sooner, rather than later - look at this argument as pure ego. "We have problems that need solving now," we argue, "Why grant out the money 5% at a time, when if you grant it all today we could cure cancer and AIDS, develop renewable energy sources, and end childhood hunger in this generation."

The other main reason for the perpetual foundation is a simple economics equation. By managing endowments in a manner that grows them - even while making grants - more money is eventually generated for nonprofits. Basically, would you rather have $10 million today, or $30 million over time?

It's a sound argument in a strong economy. But all one has to do to argue with it is to remember back just a few years to the dot-com bust, and what it did to foundation endowments (particularly those in my area, which were heavily invested in tech stocks). The means for growing endowments are investments, and there are no guarantees.

More and more, in the last few years, I've seen articles about philanthropists who are saying, "To Hell with posterity," and making plans to give their fortunes away entirely in their lifetimes. The latest of these being Howard G. Buffett (son of Warren).

According to the Chicago Tribune, Buffett doesn't intend to let philanthropy go on forever (get passwords here). As you've certainly heard by now, the senior Mr. Buffet is giving his fortune away over the next few years. A portion of that will be going into the foundations of each of his children, including Howard, who intends...

... to try spending the yearly installments of about $50 million from his father as fast as they arrive. He is not considering having his philanthropy operate in perpetuity but expects to set a distant date at which it will disburse its assets and shut down.

Bravo Howard! Let's see who is the next philanthropist to get on board.

Tags: philanthropy, nonprofits, foundations, charity, philanthropists, Howard Buffet

Restricting Your Unrestricted Funds

A topic that has come up in several conversations lately is "how restricted are your unrestricted funds?" First, of course, you have to understand what we mean by "restricted" funds. I usually assume that all nonprofit managers and fundraisers know what I'm talking about, but there are those who don't.

When you apply for a grant for a specific program the funds you receive are restricted for use only in that program. If you find that you have a shortage in a different program, you cannot simply shift those funds to the other purpose without first clearing it with the funder. Likewise, you cannot use those funds for general overhead line items that were not included in your proposal budget.

"Unrestricted" funds refers to the money you raise without promising anything in return. Many people assume that any individual donor money falls into this category. That may be the case, but it's not always so! If your appeal letter specifies that "your donation will go toward program X" then any money the letter brings in is restricted to program X. Just because each $25 donor doesn't require a report on how their money was used doesn't mean you can spend it any way you choose.

It may not be "sexy" to raise money for the power bill or office supplies, but it's necessary. There are certain foundations who are aware of this and will fund general operating expenses. But you must also learn to make the case for truly unrestricted funds that can cover overhead to your individual donors.

Tags: nonprofit, fundraising, foundations, individual donors, restricted