COF: Dangers of Government Stimulus

From May 2 – May 7, the Tactical Philanthropy Blog Team will be covering the Council on Foundations conference from Atlanta. The individual blog team members represent a range of opinions and have been given no editorial directions. The opinions expressed in these posts do not necessarily represent the opinions of Sean Stannard-Stockton.

By Kathleen Enright, Grantmakers for Effective Organizations

In my last post I articulated a framing question for my experience at the conference: What needs to change for philanthropy to contribute powerfully in the new context?

One of the major topics at the conference has been the opportunity presented by the economic stimulus package.

The benefits are obvious. More dollars on the ground in the hands of people and institutions who understand community need, have learned some things about what works and are ready to dig in and do the hard work necessary to make a difference.

But in talking with Alicia Philipp of the Community Foundation for Greater Atlanta she wondered out loud whether the stimulus package represents a huge opportunity for the communities and organizations we care about or whether it may serve to distract and even possibly weaken some of those efforts.

Recognizing that there are structural problems in the way nonprofits are funded as well as capacity gaps in some of their financial management structures, this new money may compound those problems.

Gayle Williams of the Mary Reynolds Babcock Foundation touched on this point in the session Helping Nonprofits in Tough Economic Times in describing a situation with a grantee. Babcock Foundation serves low wealth communities in the rural Southeast. One grantee with a budget of $250,000 is preparing to receive a $2 million influx in stimulus money. Yet they currently lack the financial structures to handle it. Gayle says that a big role they are playing now is to help prepare organizations to prudently and effectively handle these resources.

Then there’s the issue of full cost recovery. As Dione Alexander from Nonprofit Finance Fund points out, most government contracts reimburse only 60 or 70 cents on the dollar. Somewhat like a naive entrepreneur’s belief that although he loses a dollar on every widget, he’ll make it up on volume, some nonprofits believe that stimulus package money will relieve their financial woes.

They are in for a surprise. In fact, it might just exacerbate them.

As funders, the issue of full cost recovery should be high on our radar. Both ensuring that nonprofits have the financial savvy to know the true costs of their services and that funders are willing to pay the full costs in program grants or contracts.

Grantmakers for Effective Organizations released a short piece at the conference “Smarter Grantmaking in Tough Economic Times” that addresses some of these questions. And we are beginning to look at some work on full cost recovery drawing on some lessons and experiences in the UK.

But a question that it would be great for all of us to ask is: What can philanthropy do to help high performing nonprofits make the most of the stimulus package and emerge from this crisis more relevant and structurally sound?

Kathleen Enright is CEO of Grantmakers for Effective Organizations.