In Philanthropy, The Times Are A-Changin’

Periods of upheaval usually give rise to the greatest social change. The Great Depression led to the New Deal and a social safety net for Americans. The devastation of World War II gave rise to economic integration in Europe and the eventual creation of the EU. The assassination of Martin Luther King Jr. added fuel to the burgeoning civil rights movement in the U.S. With the outbreak of COVID-19, we again find ourselves in an era of upheaval, propelled not by a stock market crash, armed conflict, or assassination, but instead by a microscopic virus. Is it possible that the pandemic is ushering in a similar period of change? If so, how has COVID-19 affected the charitable sector in particular?

Much like the mutation of viruses, this public health crisis has forced us to adapt by sheltering in place, social distancing, and shuttering businesses, sending the global economic system into a tailspin. Nonprofits in particular have been hit hard, their budgets coming under strain at a time of increasing demand for their services. As these organizations struggle to readjust, an interesting thing has happened: The philanthropic community has responded by abandoning its “business as usual” approach. In fact, the recent pace of change in this area may be unparalleled in recent times. Let’s take a look at a few developments that, even as recently as six months ago, may have seemed unimaginable to most.

Foundations are letting nonprofits take the reins.

If you’ve ever applied for a grant, you know that most funding is awarded for specific projects or programs. For years, there have been calls for foundations to offer general operating support in order to allow nonprofits to determine the best allocation of resources. Back in 2018, Vu Le of the popular blog Nonprofit AF wrote, “When you restrict funding, you send a clear message to us: ‘We don’t trust you to know how to best do your job. In fact, we know more than you do.’” Mostly, though, calls such as these seemed to fall upon deaf ears.

Then, along came COVID-19 and the ensuing lockdowns, and those old grant contracts, most of which were awarded for programs that necessitated face-to-face contact, suddenly became obsolete. At the same time, many nonprofits were also facing revenue losses due to cancelled fundraising events and abruptly unemployed donors. Organizations such as food banks saw demand for their services skyrocket, with needy families in places such as Philadelphia forming long queues in order to access donations.

As governments struggled to coordinate an approach, the philanthropic sector acted swiftly to meet changing needs. Recognizing “the critical need to act with fierce urgency to support [their] nonprofit partners as well as the people and communities hit hardest by the impacts of COVID-19,” the Council on Foundations issued a pledge to offer flexibility to nonprofits as they navigate the challenges of this crisis. Key elements of this pledge, which has been signed by over seven hundred grantmakers to date, include removing or relaxing conditions on existing grants and ensuring that new funding is provided in the form of unrestricted support.

A number of large foundations have made public commitments to their existing grantees. In a message to grantees dated mid-March, the Ford Foundation announced that their “primary grant-making modality is now general operating support,” and that existing project grants could be switched to unrestricted support. The Foundation made additional changes such as increasing the overhead allowance and offering multiyear funding. Other funders followed suit.

The Kresge Foundation and the Ralph M. Parsons Foundation announced that restricted grants could be converted into general operating support, while the Open Society Foundations offered to renegotiate existing grant terms in order to cover costs incurred by the pandemic.

In addition to revamping existing grants, community foundations and other funders have offered a spate of new COVID-19 related funding opportunities, many of which include unrestricted support. For example, in California, the Community Foundation for Monterey County’s COVID-19 Relief Grants provide operating support to nonprofits and public agencies serving vulnerable populations or those affected by the pandemic. Another funder offering general operating funds is the NextFifty Initiative, which supports Colorado nonprofits working with adults aged fifty and up.

Foundations have also eased administrative requirements.

Another common refrain from nonprofits is that the administrative requirements of grants are too burdensome. On the GrantAdvisor website, where nonprofits can post reviews of foundations, those grantmakers with lower ratings are oftentimes labeled as “bureaucratic,” and tend to have lengthier application processes.

However, this is another area in which foundations have made adjustments. In addition to transitioning to unrestricted support, the Council on Foundations signatories pledged to “reduce what [they] ask of [their] nonprofit partners, postponing reporting requirements, site visits, and other demands on their time during this challenging period.” Acting on this commitment, the Kresge and Parsons foundations have put grant reporting on hold for their existing grantees.

Organizations also have fewer hoops to jump through when it comes to applying for COVID-19 funding. Many of these grants have streamlined applications. In their simplest form, this may involve calling a program officer to discuss an organization’s needs. Oftentimes, it requires filling out a brief online form. Most of these COVID-19 funds have frequent deadlines or review dates as well, meaning grants are rolled out as quickly and efficiently as possible.

There is a movement afoot to increase the payout rate for foundations.

Another deviation from philanthropy’s “business as usual” approach relates to the 5% rule. Each year, private foundations in the U.S. are legally required to distribute 5% of the value of their endowments. In general, foundations tend to stick close to the 5% distribution requirement as this enables them to share the returns on their investments without touching their nest egg. The payout requirements for donor advised funds (DAFs) are nonexistent; DAFs are not mandated to give out any percentage of their endowments in a given year, meaning these funds can languish untouched.

Given the dire situation caused by COVID-19, some funders have taken it upon themselves to increase their payout rates and spend down their endowments. The Wallace Global Fund announced that this year it plans to give away 20% of the value of its endowment, or $20,000,000. Another grantmaker that is raising its payout rate is the Skoll Foundation, which plans a fourfold increase in 2020.

However, such voluntary increases may not be enough to offset the growing need unleashed by the pandemic. In an editorial published in USA Today, Scott Wallace, Co-Chair of the Wallace Global Fund, wrote, “…suppose a deadly famine was sweeping the land, and you had 100 tons of food. Would it be morally right to give away only 5%, hoarding the other 95% or 95 tons for generations yet unborn as today’s children shrivel and die of starvation?”

In an effort to address this situation, the Wallace Global Fund, working with Patriotic Millionaires and several other organizations and philanthropists, sent a letter to Congress requesting that, as part of the next COVID-19 relief package, the required payout rate for private foundations be raised to 10%, and that this new minimum rate be extended to include DAFs as well. The letter states, “Congress’s purpose in incentivizing these foundations and funds with tax deductions in the first place was to support charitable efforts. There has clearly not been a moment in the past fifty years in which the full deployment of our charitable sector was more necessary.” If implemented, it is estimated that over the next three years this change will release in excess of $200 billion in additional funding.

Governments have entered the philanthropic realm in new and unexpected ways.

In the fourth and final example of the changing philanthropic landscape, it is governments that are experimenting with new and innovative forms of giving.

The economic fallout from this pandemic has been swift and deeply impactful. As jobless figures spike, currently approaching 40 million in the U.S. alone, some governments are looking into a new approach: universal basic income. According to the Stanford Basic Income Lab, universal basic income (UBI), also known as basic income, “consists of a periodic cash allowance given to all citizens, without means test to provide them with a standard of living above the poverty line.”

Spain, which was hit particularly hard by the last recession, has immediate plans to roll out a UBI-type scheme to guarantee a minimum income to 850,000 vulnerable families. The monthly allowance under this scheme will range from 462 to 1,015 euros, depending on household size. Drawing on elements of the UBI idea, the U.S. has issued one-time cash transfers of $1,200 to taxpayers, with an additional $500 for each child, to help them meet basic expenses. Some U.S. politicians, including congresswoman Alexandria Ocasio Cortez, have floated the idea of “no-strings UBI programs.”

The state of California took the unprecedented step of extending direct cash transfers to undocumented workers, who were not qualified to receive federal assistance. Working in collaboration with the Blue Shield of California Foundation, The California Endowment, the Chan Zuckerberg Initiative, the Emerson Collective, and The James Irvine Foundation, California Governor Gavin Newsom announced a $125 million fund to support these workers. $75 million of this funding would be provided by the state of California, with an additional $50 million raised from participating foundations. It was estimated that 150,000 people would benefit from this assistance, which consists of $500 per individual adult or up to $1,000 per household.

While COVID-19 has forced the philanthropic sector to adapt to a rapidly evolving situation, the question remains: Are these changes part of a wider sea change or just stop-gap measures to get us through the worst of the pandemic? Only time will tell.