A Philanthropic Stimulus Plan for Progressive Nonprofits

Originally published in The Chronicle of Philanthropy, 3/18/2020

The novel coronavirus — and the likely economic recession it will touch off — affects not only individuals but families, organizations, and small businesses.  Grant makers have stepped up to help with this pandemic — including the Bill & Melinda Gates Foundation, Robert Wood Johnson Foundation, and others. Their work alongside governments, universities, and public-health facilities will help stem the spread and support research for a cure and vaccine development for Covid-19. But even as we focus on the science, this pandemic has exposed and exacerbated our communities’ needs and demonstrated the urgency of calls for a better health-care system, paid family leave, and real protections for workers and their ability to earn a decent income.

According to the Organization for Economic Cooperation and Development’s latest Interim Economic Outlook, Covid-19 presents the greatest danger to the global economy since the financial crisis of 2008. Recessions affect the most vulnerable in our society the hardest – the sick, the elderly, people of color, and low-income Americans. This increases demand on nonprofits serving these people to do more with less. But that is not a solution. Instead we need systemic change — and that means empowering the nonprofits that can successfully press for it.

But nonprofits, especially groups providing and advocating for a social safety net, are typically underfinanced. A report released by Candid shows that half of all U.S. nonprofits are operating with less than one month’s cash reserves, leaving those organizations particularly vulnerable.

If normal patterns follow, we won’t see them getting the help they need from grant makers. Generally, foundations give 5 percent of the average value of their endowment from the previous three years, meaning a steady decline in giving during and after a recession.

What’s worse, according to data provided by Candid, foundation investments in helping nonprofits achieve financial sustainability after the last recession dropped more precipitously than their overall giving. During recessions is precisely when we should be both supporting and strengthening nonprofits, especially those that serve the neediest and advocate for them.

Deepak Bhargava, a veteran social-justice leader and former executive director of Community Change, told us that “in economic downturns, we must do everything in our power to protect and expand the social safety net that offers a lifeline to those who are most deeply impacted and also strengthen the community-led organizations that advocate for that safety net. The community-based nonprofits that serve, organize with, and advocate for low-income people are on the front lines.  They are and yet are also most at risk during an economic crisis.”

What is putting these groups at risk?

Undiversified revenue.

Many nonprofits depend heavily on grants from federal, state, and local governments or foundations, which means most of their revenue is restricted for specific purposes. This means that nonprofits have little funding to test new revenue-generation ideas or expand what’s working. Research by the Progressive Multiplier, an organization that works to improve fundraising by advocacy groups, shows that organizations need the ability to test new approaches to earning revenue in ways that go beyond government aid and philanthropy, and they need funds that will allow them to build on what they learn.

Ups and downs of election-year funding.

Civic engagement and advocacy organizations face extreme boom and bust cycles. They receive excess funding in even years when elections are underway but inadequate funding in off years. This prevents organizations from building their reserves during off cycles to more effectively expand their reach during boom times.

Limited investment in revenue generation during recession years.

 Candid data shows a significant drop in funding for financial sustainability and fundraising during and after the last recession. Nonprofits should not have to sacrifice long-term fundraising investments during economic downturns by cutting their budgets for recruiting and keeping donors. These investments are critical to helping groups learn new approaches to earning money and raising it; sustainability doesn’t happen without startup support.

What Philanthropy Can Do

Now is the time to put an end to these concerns. As the coronavirus spreads and the downturn deepens, philanthropy has the opportunity now to fund organizations to push Congress to mitigate the economic burden on Americans. One crucial way that philanthropy should support these organizations is to do what Congress does: adopt a stimulus package. Here are the components that would strengthen nonprofits in 2020 and beyond:

Help groups quickly test efforts to improve their fundraising efforts.

 During recessions, some individual donors give less or less often. For organizations that already run successful fundraising programs, investing in improving and expanding those now is paramount and lessens the blow from any future declines.  As examples, Progressive Multiplier provided $25,000 to PushBlack, the nation’s largest nonprofit media platform for black people, which engages 4.6 million subscribers with emotionally driven stories about black history, culture, and current events.  The grant allowed PushBlack to develop a model to “supercharge” its experiments with subscriber donations. As a result, the organization increased the number of people who make recurring gifts from 2,000 to 8,000, and is now generating $50,000 a month from those supporters.

Another grantee, People’s Action Institute, advances racial, economic and gender justice by investing in state and local organizations and campaigns to win real change in people’s lives. Thanks to experimentation, People’s Action has expanded its fundraising program to build a more robust planned-giving program.  It has secured more than $400,000 in planned gifts.

Show  groups how to turn increased public awareness into long-term financial viability.

While none of us would have hoped for this moment, the current pandemic places a spotlight on many of the issues that progressive nonprofits are working to improve — such as paid leave and universal health care. Moments like this offer a great opportunity to recruit new donors. However, organizations can only capitalize on this moment and turn new donors into an active power base if they have the funds, expertise, and capacity to do so.

That trifecta is rare for most small and medium-size progressive organizations. Linda Wood, senior director of Haas Leadership Initiatives at the Evelyn and Walter Haas Jr. Fund, told us, “This is a time of great experimentation in fundraising, but grantees need to be able to take risks to try them out. We can help by releasing restrictions on grants.” Rachel Baker, the fund’s director of special initiatives, added: “And we can make additional grants so grantees can try out new fundraising and revenue-generation strategies and get the expert support they need to succeed. Now is the time to act.”

The National Immigration Law Center, which defends and advances for rights and opportunities of low-income immigrants, gained unprecedented visibility helping fight the Trump administration’s Muslim ban. Its very small pool of individual donors grew from 280 to 15,500 over 18 months. With a grant from the Haas Jr. Fund, the center’s leaders developed strategies to build long-term relationships with new donors and  a stronger pool of supporters to help with future policy fights.

Tiffanie Luckett, the center’s senior officer for individual giving, said, “We caught lightning in a bottle by acting quickly in the aftermath of the Muslim ban, but our subsequent work to integrate fundraising and communications strategies while developing relationships with this newly mobilized audience has allowed us to turn this moment into a long-term strategy to strengthen our supporter base and diversify our revenue streams.”

Enable organizations to diversify their revenue streams based on what is “shovel-ready.”

An effective way for nonprofits to quickly develop new revenue streams is to play to their existing strengths. The Progressive Multiplier has been working with several grantees to create these new revenue streams based on available assets.

The Texas After Violence Project works to reduce the trauma created through the criminal-justice system. The organization has developed expertise in legal training so it created a continuing-education program that lawyers pay to attend. At the same time, the organization is creating a network of pro bono lawyers to support its mission.  The organization’s executive director, Gabriel Solis, said that support from Program Multiplier “allowed us to experiment with this concept without compromising our already limited funds.  Without it, this new channel would have never opened up for us.  [Now I’m] incredibly optimistic about the long-term viability of this organization.”

Increase flexibility and loosen restrictions on low-interest loans and other program-related investments.

Remove restrictions on existing grants and make it easier for organizations to use foundation support to experiment with ways to generate revenue. Foundations should invest in revenue-generation projects like an investor, picking the important mission-focused projects most likely to allow nonprofits to produce new income streams rather picking a small number of grantees based solely on their program work. Going beyond making direct grants also makes a difference: Program-related investments allow foundations to give nonprofits the capital they need to make a difference; what’s more, they are often repaid in part or in full. It’s a lot better to get 50 percent of an investment returned than just making a grant that offers no return.

Economic downturns are inevitable. They create moments for leadership and change.  This is the time to invest in people and organizations. We know that every nonprofit organization will not survive a recession. But when we act with courage and rigor, we can drive change in the reach and capabilities of advocacy groups. If we expect to strengthen the social safety net, which has atrophied over the past three decades and especially during the Great Recession, then philanthropy must adopt a new strategy.

As Bhargava, the veteran advocate told us, “This is a time to stretch to support vulnerable communities and the organizations that support and fight for and with them.”