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ARTICLE:
Pursuing Operating Support: Tips
From Experts
TABLE:
Grant Makers That Provide the
Most Money in Operating-Support Grants
Plenty of other nonprofit founders have run into the same
problem, since $4 out of every $5 that foundations give are
earmarked for a charity's programs, which means they cannot
be used to pay for basic operating costs like utilities,
rent, supplies, and clerical help.
Mr.
Phalen decided not to give up on his pursuit of foundation
money, however, and in 16 years his organization has
blossomed from a small program into a $31-million-a-year
organization that operates in several cities around the
country.
The
turnaround came after a conversation with the founder of a
successful competitor, a for-profit effort that had
attracted $40-million from venture-capital investors who
placed no restrictions on how the money could be used.
Perhaps, Mr. Phalen figured, foundations would respond if
BELL approached them as though they, too, were investors. So
he came up with a "business" plan to show grant makers and
promised that if they let him use the money for
administrative overhead, he would be able to achieve greater
efficiency in running the program by cutting the cost of
tutoring a child from $3,300 to $2,000 and enabling the
organization to help more kids.
"I
started to speak more as a business person, and much less as
a traditional nonprofit leader," he says.
Not
only did foundations respond to the pitch, but also the size
of the typical foundation grant BELL received grew from
$25,000 to $100,000.
Focus on Results
BELL
is one of a small but growing number of charities that have
managed to persuade foundations to provide them with
unrestricted grants that can pay for basic operating costs.
To be
sure, only a few grant seekers succeed since grant makers
are generally reluctant to make unrestricted awards. Many
foundation officials and trustees say that they cannot be
sure their grants produce results unless the money is tied
to a specific program. Others fear that charities will fail
to spend unrestricted dollars wisely or will become overly
dependent on them.
But a
handful of foundations have changed their policies to
provide more operating support. After reviewing its grant
policies, the Philadelphia Foundation decided last year to
allow charities to apply for unrestricted grants and gave
away nearly 40 percent of its $4-million grants budget in
such awards.
"When
you pay the bill in a restaurant, you don't tell the owner
to only spend the money on paying the chef," says Nancy Burd,
former vice president for grant-making services, who
recently left the foundation to start her own business. When
a foundation tells a nonprofit organization that it can only
use a grant for a very specific program, or even part of a
program, she adds, "it's upside down. It's the opposite of
the way the entire rest of the world operates."
More
grant makers might follow the Philadelphia Foundation's
example if charities were aggressive in explaining why they
felt they needed operating support, nonprofit consultants
and foundation officials say.
Beverly A. Browning, a Buckeye, Ariz., consultant who writes
grant proposals for nonprofit groups, says charities should
be more willing to turn down grants with multiple
restrictions. Too often, she says, such requirements divert
the group from its mission and create new expenses.
"Nonprofit groups are turning themselves into pretzels for
foundations," she says. Small charities, in particular, are
often in dire need of help with basic expenses, she says.
But "they're afraid to go to funders and tell them, because
they're fearful they'll never get another dollar."
Phil
Buchanan, president of the Center for Effective
Philanthropy, a Cambridge, Mass., group that conducts
research for foundations about ways they can do a better
job, says grant makers and grant seekers alike "have to
resist this notion that any administrative expense is waste,
because that's crazy. Effective organizations invest in
their systems and their people."
Bank
of America's growing willingness to make operating grants is
a direct result of charities speaking up about what they
needed, says Andrew Plepler, president of the company's
foundation.
Mr.
Plepler says local charities that received operating support
from the foundation made a deliberate effort to tell
trustees of the foundation why the money made a difference.
Most
trustees didn't understand how badly charities needed
operating support, he says, but the feedback from grant
recipients helped persuade the board to continue making such
grants after it first did so in 2004. Since then, the
foundation has provided more than $65-million in
operating-support grants through its Neighborhood Excellence
Initiative, in addition to other operating support it
provides through other grant programs.
"Until you talk directly to a nonprofit and hear their
story, it's hard to get your arms around operating support,"
Mr. Plepler says. "When nonprofits speak in terms of what
it's like to really run the organization, people get more
comfortable with it."
Remedying Social Problems
Assertiveness is only part of the challenge for grant
seekers. Some nonprofit groups that have succeeded in
winning operating support say that grant makers want proof
that a charity's work will make a difference in healing
social ills.
The Low
Income Investment Fund, in San Francisco, which provides
loans and other financial assistance to builders who create
low-cost housing, child-care centers, schools, and other
facilities in poor neighborhoods, has spent significant time
and effort gathering such data to show grant makers.
Devoting so much attention to getting statistical
information has paid off: It has received $5.3-million in
unrestricted grants since 2004.
Abbie
McBride, the charity's director of planning, policy, and
development, says the fund does not simply record the number
of housing units and child-care places that have been
created and the number of low-income people served.
"We
try to go a little bit beyond that and say, 'So what? If a
kid gets child care, what does that do?'" Ms. McBride says.
To
answer that question, the charity looked at several studies
of the benefits of preschool education to determine whether
receiving early-childhood education lessens the chance that
a youngster will need remedial education or get involved in
illegal activity.
"At a
minimum, a dollar spent on early childhood learning will
save $4 down the road," Ms. McBride says. "Now, we can say
to a funder, We've done this many spaces, and the societal
savings is this many dollars in downstream costs."
The
Low Income Investment Fund's "track record of proven
accomplishment" first persuaded the F.B. Heron Foundation in
New York to begin providing unrestricted support to the
organization 15 years ago, says John Weiler, a senior
program officer at the foundation.
The
Heron foundation continues to provide unrestricted funds to
the charity — even though in recent years it has
started programs the foundation doesn't typically support,
like charter schools — because the Low Income
Investment Fund has been able to show the foundation how the
move benefits needy youngsters.
"We
don't support charter schools directly, but we recognize
that that's part of what it takes to have a strong
community," Mr. Weiler says.
Overhauling Operations
Foundations and other grant makers that award operating
support often require charities to prove they are well
managed. Foundation officials say they do this to be sure
that money won't be wasted.
Youth
Villages, a Memphis charity that serves troubled children
and their families, six years ago received a $6-million
operating-support grant from the Edna McConnell Clark
Foundation, after the grant maker examined the charity's
finances and administrative systems.
Patrick Lawler, chief executive of Youth Villages, says that
for much of the 28 years he has been at the organization,
the charity would not have been able to qualify for a grant
from the Edna McConnell Clark Foundation. When Mr. Lawler
joined Youth Villages, it received $150,000 a year in
government grants, and he and his colleagues held bake
sales, car washes, and other small-scale fund-raising
efforts to make ends meet.
To
improve the organization, he put together a patchwork of
short-term grants, some restricted and some not, that
enabled the group not only to build new facilities and
create a research division that tracks how effective its
programs are but also to improve its board and add
human-resources and accounting departments.
Those
were the things that made the difference to the Edna
McConnell Clark Foundation, he says.
"Unless you have a good bookkeeping system and accounting
system and have good human resources and know where the
money's being spent, it doesn't matter what kind of a
program you've got," he says.
Other
nonprofit organizations find that the work involved in
getting operating support begins after they get the grant
money, not before.
Nina
Auerbach, chief executive of Child Care Resources, a Seattle
charity that in five years has received more than $150,000
in unrestricted support from Social Venture Partners, a
coalition of donors, says that to meet the rules for the
grant, the group conducts time-consuming self-evaluations.
In addition, she and her staff members regularly spend time
on phone calls and meetings with officials of Social Venture
Partners to keep the organization informed about how the
money has been used.
The
benefits of the grants outweigh the work involved, she says:
Social Venture Partners provided advice and support as the
charity's annual revenue grew from $4.8-million to
$7.6-million.
Focus on the Mission
It is
difficult for most charities to turn themselves overnight
into the models of efficiency that many foundations prefer
to support with unrestricted aid. But some groups that are
struggling can win operating support by demonstrating that
they are doing work a grant maker cares deeply about —
and that without an infusion of money, the charity cannot
continue to carry out its mission.
The
Women's Community Clinic, a free health clinic in San
Francisco, received a three-year, $240,000 grant from the
California Wellness Foundation to help cover its costs as it
struggled to meet increasing demand for its services.
The
foundation decided to provide money for the basic costs of
the Women's Community Clinic to keep it from going bankrupt
because it couldn't sustain operations in the face of
increased demand and sagging government support, says Gary
Yates, president of the foundation.
"Sustaining the already-frayed safety net is one of the most
strategic things a foundation can do for those who lack
other access to health care," he says.
Other
grant makers sometimes provide operating support to help a
struggling charity through a rocky time. But they are
unlikely to make a second or third such grant unless the
charity overcomes its problems.
The
Highbridge Community Life Center, in New York, obtained a
$150,000 grant for operating support nine years ago from the
Clark Foundation, a small New York grant maker that has no
connection to the Edna McConnell Clark Foundation. But the
money came with a warning, says Edward Phelan, who recently
retired as the charity's executive director.
Charles Hamilton, the foundation's executive director, told
Mr. Phelan that the organization needed to shape up —
by taking steps like improving its board, adopting a
succession plan, or improving its management in other ways —
or it wouldn't get another dime.
Recalls Mr. Phelan: "He said, 'Tell me how your organization
is going to be different for having received this $150,000.
No BS, Ed. At the end of the year, we're going to decide
whether to continue giving you money on the basis of what is
different about your organization.'"
By
tackling the problems Mr. Hamilton cited, Mr. Phelan got
operating support the following year — and in the
seven after that. He made his board more active in raising
money. He also developed partnerships with other local
charities, enabling him to portray Highbridge as a one-stop
shop for Bronx residents who needed help. Last year's grant
enabled Highbridge to plan for Mr. Phelan's successor, but
he also used some of the money to renovate the interior of
the charity's building, a former church. And he was able to
cover expenses while the charity waited for state or city
reimbursement for its programs.
There is
"nothing like" operating support, says Mr. Phelan: "It gives
you some leeway. The organization comes out a better,
healthier, more competitive organization."
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