foundations_phila grants-01Philadelphia’s non-profit organizations are emerging from the Great Recession to find they’re facing two life-changing realities. On top of a significant decline in the money available to pay for their everyday operation, the rules of the game for getting that money have changed.

 Over the past 10 years, two of the the four major philanthropic foundations that paid for much of their work have cut the amount they give by 30 percent – a significant loss that’s not likely to be replaced by other sources any time soon.

New leadership at The Annenberg Foundation has shifted its focus almost exclusively to the west coast. H. F. “Gerry” Lenfest has opted to give away much of his foundation’s resources. The Pew Charitable Trusts are devoting a larger share of their resources to national issues, leaving less for Philadelphia.

Meanwhile, the William Penn Foundation has grown its endowment and become the largest giver in the region, but its future course of giving remains uncertain with its leadership in a confusing transition.  [Full disclosure: AxisPhilly is funded by a grant from the Wm. Penn Foundation.]

Overall, using inflation adjusted dollars, giving from the biggest foundations has declined from $185 million in 2003 to $130 million today.

And that’s mostly on the arts and culture side. The Inquirer’s Peter Dobrin has traced the effects of declining support for the arts in a recent series.

For the city’s social service organizations, local experts estimate recent cuts in federal spending for housing, employment, health and food programs has meant a decline in available dollars from somewhere between 30 and 40 percent.

The Great Recession brought more than just steep cuts in the amount of money to go around all the non-profit agencies that, when you consider them as a whole, represent the region’s third largest employer.

It also brought a whole new way of doing business. These days, funders expect more than good intentions. They want results, and they’re also looking for proof.

Look at the details of funding from foundation reports of 10 years ago and the phrase “for the general support of….” and “to support operating expenses….” is repeated again and again. These days, however, that money is going to fund specific programs, which are tied to specific outcomes.

Pew“The whole sector – arts and culture, social services, parks, they’re all being affected,” said Andrew Swinney, president of the Philadelphia Foundation. “I know there may be some organizations that are in a kind of denial about it, and were hoping that things would get back to the way they were. But we are now in a new normal.”

That definitely means doing more with less. It also means turning a non-profit into something that functions more like a for-profit business.

Inevitably, there will be some winners and some losers in this new game. Some of the region’s arts, culture and social services groups in business today will be gone five years from now – in part because of the contraction in money, and in part because some could not learn to adapt to the new demands.

“It’s just the reality of where we are right now,” said Jill Michel, president and CEO of the United Way of Greater Philadelphia and Southern New Jersey. “The organizations that got that instinctively, coming out of the early stages of the recession, and have already re-thought their business model, have a clear advantage.”

 

New Rules

The new way of doing business comes down to more than just getting results. It also means being able to prove it.

“Most philanthropies are looking for measurable impact – not unlike an equity investor,” said Jeremy Nowack, the former president of the William Penn Foundation who is now working as a consultant. “They’re asking themselves: If I fund a project, how might I then be able to trace it and see whether it had any effect?”

For arts and culture organizations, it’s one thing. They can count ticket sales and memberships, and come up with imaginative new ways to build and engage a larger audience – The Philadelphia Opera Company, Eastern State Penitentiary and Laurel Hill Cemetery are several organizations that are doing just that.

But for social service non-profits, which do the work of feeding and housing people in need, documenting success is more challenging.

“Thirty years ago, most philanthropy was really thought of as pure charity,” said Farah Jimenez, head of the People’s Emergency Center CDC in West Philadelphia. “People would give to a church, for instance, and nobody ever came back to ask the pastor how many lives he saved that week.”

“Now, if I give out food, I can document how much I give,” she said. “But the question that’s being asked is, ‘as a result of our having intervened in your life, how are you now increasing your ability to feed yourself’?”

And social service organizations can get hit twice if private funders who had been supporters get spooked by the loss of public money.

“Big donors are feeling that pressure to perform too,” said Katherina Rosqueta, executive director of the Center for High Impact Philanthropy at the Wm Penn FUniversity of Pennsylvania. “They have to make choices, and they may be wrestling with knowing that ‘I can never replace public funding, so how sustainable is this organization’?”

“Not only is there less money available, both private and public, but needs are increasing, so it’s important to understand that this pressure is not going to disappear,” said Frazierita Klasen, director of the PEW Fund for Health and Human Services in Philadelphia. “The existing organizations may need to look at new organizational structures, and for opportunities to form alliances.”

 

Numbers: good and bad

“Everyone’s trying to identify the programs that are going to produce the most meaningful change,” said PEW’s Klasen. “The question is, how?”

Good choices require good information. But there’s still a real question about exactly what information is useful, and what isn’t. Too much focus on the wrong numbers “can lead to the very harm that everybody’s trying to avoid,” said Rosqueta.

“If the information doesn’t inform good decision making, that’s even more of a waste – and worse, it can lead to bad behavior,” she said.

A case in point, Rosqueta said, is something she calls the “myth of the overhead ratio.” It’s the percentage of funds that cover overhead costs, and many funders use it, in part, to judge whether or not to fund a particular organization – mostly because it’s one of the few numbers that all of them use consistently.

But pressure to keep it low can lead organizations to be less than candid about their business, or to invest in the wrong things simply because of how that spending shows up on a balance sheet.

“You can argue over whether that number should be 10 percent, 20 percent, or even 30 percent – but that’s still an argument over the wrong data,” Rasqueta said. “Really what we should all care about are the outcomes.”

So the new focus on results can make it hard to get funding for basic operations.

And donors sometimes need help understanding that, said Debra Kahn, executive director of Delaware Valley Grant Makers. “We continue to try to educate funders about the need to pay for operating costs, and some are making some significant changes. The Philadelphia Foundation has really been a leader on that, for instance, and the Seybert Foundation, which supports education for poor children, recently made a policy change to go to entirely supporting operating grants.”

“The average donor wants to feed the hungry child,” said Michal. “But as long as you’re delivering on the outcomes, if you need to use the money we give to hire a human resources director, or even to paint your bathrooms, that’s what you do.”

 

Mayor’s poverty initiative

These are not academic questions. They need answers, and soon. Project Home, for instance, one of the city’s leading agencies for housing homeless people, will have to let go of some of their existing housing initiatives this year because of federal cuts.

“How are we going to make that decision? Are we going to say, the bottom performers have to take the hit? How do we measure that? We don’t know yet, and it’s something we’re struggling with,” said Laura Weinbaum, vice president of public affairs and strategic initiatives at Project Home.

So far, anyway, there’s no clear “industry standard” for measuring it.

AnnenbergIt’s possible that Mayor Nutter’s new poverty initiative may be part of the answer. One of its goals is to develop “a set of shared measurements,” so that everyone can clearly see what works and what doesn’t, said Eva Gladstein, executive director of the Mayor’s Office of Community Empowerment and Opportunity.

“The need keeps growing, and the resources are finite, so we need to the document outcomes, and do it as efficiently as possible,” she said.

Financial changes like these will inevitably result in fundamental culture changes for some organizations.

Project Home, for instance, is dealing with steep cuts by re-tooling its business model to become eligible for re-imbursement by Medicaid.

“There will be some things about it that will be great, in that it will put data and accountability at the forefront, we’ll have better evaluation, and we’ll also be able to hire some different clinical staff,” said Weinbaum.

“What won’t be so great is that caseworkers will literally have to think about their time in 15-minute “billable” increments. And we’ll probably lose some staffers who are all about the personal touch, and not so great at the numbers.”

And it’s not just the grantees that are looking at a culture shift. Some funders, too, are considering new ways of doing business.

“It’s really a flawed business model for the funders, too, because right now, we’re not coming together, as a community of funders, to talk about what the most important needs are, and how best to address them,” said Swinney. “Each of us has our own solution, we do things our own way, and so we wind up wasting effort and resources. Better planning and coordination among the big funders could help.”

And donors also need to help figure out how to get the numbers they’re looking for.

“If a donor says, simply, ‘I want you to give me more confidence,’ and then doesn’t provide the resources to develop that data, then they’re really just passing the buck,” said Rosqueta.

Jimenez agrees.

“In the new way of doing things, I’d love the funder to say: “I want to craft with you a strategy that will alleviate this problem. How can we do this together? This is what I am holding you accountable for, and in return I will fully fund it, and underwrite your ability to focus on solving this problem – and then lets come back in five years and see what we’ve learned.”

Photo: Verizon Hall at the Kimmel Center by Jean Pierre de Mann for the Associated Press