VPP | Perspectives: Nonprofit Funding Environment: VPP Learnings

The Changing Nonprofit Funding Environment: Implications and Opportunities

INTRODUCTION | VPP LEARNINGS | WORKSHOP SUMMARY |

VPP Learnings

UNDERSTANDING THE ENVIRONMENT

The session confirmed VPP’s sense of how radically the playing field on which Venture Philanthropy Partners was created back in 1999-2000 has changed. VPP has come to appreciate further the number of influences and barriers that impact the situation faced by the community-based organizations it supports.

Economic stresses on low-income families and on organizations that serve them are deep and serious. Participants agreed on the dire fund shortage for nonprofits in this sector, a shortage exacerbated by a rising need for services as communities are hit hard by the downturn in the US economy.
The situation for children of low-income families and community-based organizations is going to get worse. A number of factors were identified that may impact the situation greatly, including rising healthcare costs, increasing federal and state government expenditures on Medicare and Medicaid that are forcing cuts in youth and family programs, structural problems at the state level and within public entities, a decrease in public trust for charities and philanthropic organizations, and increased scrutiny of nonprofit accounting and governance practices. Participants raised the critical point that this is not just an issue for low-income families. Working poor families, and even some in the middle class, are seeing a decline in their financial health as a result of rising unemployment and increasing costs for such basics as transportation and healthcare.

OPPORTUNITIES FOR THE FIELD

In considering participants’ confirmation of the troubling scenario of continued funding cuts and increased demand for services, and their proposed responses and strategies, we at VPP see some opportunities for the field to capitalize on these points of disruption and discontinuity. The current environment provides some openings to advance positive change for organizations and communities overall, in what is otherwise seen as a rather “gloomy” outlook.

ADVOCACY

Broad-based Strategy – The group voiced overwhelming support to improve and increase advocacy on behalf of children of low-income families, which suggests there is a strong interest in, and perhaps an appetite for, action. Although the impediments to progress here are formidable, efforts must be made to drive change and unlock public funding. In a sense, we need to advocate in support of advocacy. We need to look hard at many of the strategies suggested by participants, including persuading funders to support advocacy initiatives and to encourage nonprofits—their leaders, boards, and constituencies—to be more directly engaged. Communication strategies are key, and efforts must be made to help sharpen the messages around the needs of children of low-income families that will shape public opinion and better inform discussions with legislators. Messages should be broadened beyond the needs of children of low-income families to focus on all children. Initiatives to improve research, and, more importantly, find better ways to disseminate this research to the relevant audiences are needed. Efforts to encourage linkages among research organizations, advocacy efforts, and the people “on the ground” who are impacted by public policy and funding should be undertaken.

COLLABORATION AND CONSOLIDATION

System Change – If a trigger occurred to drive change in the way the sector and the actors in the sector do business, then systemic change leading to improved services for children could be possible. Today’s funding crisis could be that trigger for change. One of the more aggressive responses to this funding crisis is to strengthen the service delivery system for children through the consolidation and collaboration of public agencies and nonprofits. Many states are looking at how they can promote systems integration, considering the consolidation of departments, and exploring the blending of funding streams. This thinking should be pushed further, beyond just internal public department consolidation. There is an opportunity to outsource more service delivery to qualified nonprofit providers or provider-coalitions that have the demonstrated performance and potential to provide the same or better services at lower cost and/or improved quality. Furthermore, innovative strategic alliances could be formed that blend together public, private, and nonprofit service providers, ensuring a more seamless continuum of quality services for children and families, particularly in the National Capital Region.
Addressing Geographic Imbalances – The National Capital Region has undergone a dramatic shift in its demographics due to growth in the region through the ‘90s. The result is a grave imbalance between the needs in particular areas of the region and the social, health and human, and educational services available. There is a great need—and opportunity—to better inform public and private funders of the demographic changes and the gaps in services. Certainly, research to juxtapose and compare the existing services to the changing demographics is an essential first step. But there is also an opportunity to help high-quality service providers expand to cover other parts of the region, to encourage the consolidation of similar or complementary organizations, and to help high-quality nonprofits already providing critical services to enter into strategic alliances with government agencies or emerging CBOs already present in underserved areas of the region.
Strong Intermediaries – The community-based organizations serving children are still, for the large part, relatively small organizations and several thousand exist in the National Capital Region alone. There is a clear need for stronger organizational infrastructure. Building strong intermediary organizations that could serve as “anchor” providers could help the myriad of smaller nonprofits improve their effectiveness and reach. Funders should encourage current organizations already positioned to be such intermediaries to scale their efforts or promote the creation of a larger player by aggregating several prominent organizations in areas such as advocacy, strategic communications, funds development, talent recruitment and development, technology, facilities, and consolidation.

TALENT

Recruitment and Development – Both nonprofit organizations and grass-roots advocacy movements will need new leaders and programs that support the development and training of such leaders. Recruitment and retention tactics must be better developed at the community-based organization level, including incentives for working in the nonprofit sector. Special attention needs to be placed on the creation of often new senior management positions within CBOs – Chief Operating Officers, Chief Financial Officers, and Fund Development Directors. Without senior management teams, these organizations will continue to lack the ability to grow to scale.

OTHER IDEAS

Governance and Accountability – Another interesting opportunity may lie in the sector’s response to the Sarbanes-Oxley legislation and its implications to nonprofit governance and accountability. Although Sarbanes-Oxley has the potential to adversely impact fundraising and dampen board expansion, potentially exacerbating the situation for nonprofits in the months and years ahead, conversely, it could lead to a rethinking around board composition, governance, and accountability, providing a major, long-term opportunity for increased effectiveness in the field.

SUMMARY

While the opportunities and strategies touched on above may be a good start to addressing the funding crisis at hand and other areas of concern (e.g. talent) for CBOs, the challenges we’re facing are difficult and complex and will need more analyses, pooling of resources and effort, and solutions that work toward systemic change.

By addressing the issues of collaboration and consolidation, talent and other important ideas for change and growth, community-based organizations and their stakeholders can maintain, and perhaps even increase, their impact on the communities they serve. Without a mobilization within the public sector, however, we’re just “tinkering on the edges.” To get to the root of the problem—the declining financial health of low-income and working poor families—requires far more dollars and commitment from the public sector. We must build the argument that investment in broad-based advocacy may be one of the more effective ways to benefit children and families.
We must build the argument that investment in broad-based advocacy may be one of the more effective ways to benefit children and families. If we seek to advance change, we must do more to support high-quality CBOs, taking into account the environment for those organizations and the constituencies they serve.