Report #127: October 2004

1. GEORGETOWN SCHOLAR ARGUES ANTI-TERRORISM CLIMATE IS LEADING FOUNDATIONS TO ENFORCE 'FUNDING CHILL' FOR SOME NONPROFITS

Foundations are acting as enforcement agents, or police, in monitoring charities suspected of terrorism, contributing to a "funding chill" in the sector, according to Teresa Odendahl, the 2004-2005 Waldemar A. Neilsen Chair in Philanthropy at Georgetown University's Center on Public and Nonprofit Leadership. Odendahl, former director of the National Network of Grantmakers, gave a lecture at Georgetown Oct. 19 about the relative lack of protest and debate within the sector about the impact on nonprofits of the U.S. war on terrorism. Odendahl said that foundations are consumed with checking government lists of international nonprofits - and a whole cottage industry has developed to help foundations conduct background checks on charities and apply risk assessment tools. Foundations are also keeping a watchful eye on grantees, sometimes to the point of interference, she said. They are also requiring grantees to sign anti-terrorist funding "certification" forms, which reminds her of anti-communist loyalty oaths under McCarthyism of the 1940s and 1950s. Odendahl is currently conducting research exploring "when and why" foundations accepted the de-facto legitimacy of governmental "voluntary" measures, as well as the broad effects these measures have had on the nonprofit sector. At the outset, she suggests it's likely that small nonprofits or grassroots advocacy groups, especially those outside the United States, are being disproportionately affected by these practices, but also that general nonprofit operating support is once again getting passed over for "less risky" project-specific grants.

2. OMB WATCH REPORT HIGHLIGHTS FEDERAL GOVERNMENT'S EFFORTS TO CURB NONPROFIT ADVOCACY

A new report from OMB Watch supports, at least through anecdotal information, Teresa Odendahl's charge of a funding chill in the nonprofit sector. OMB Watch reports that the federal government has put "unnecessary constraints" on foundations and others funding international efforts, and has worked in piecemeal fashion to stifle nonprofit advocacy and criticism. Following-up on a report from last year, the new paper, Continuing Attacks on Nonprofit Speech: Death by a Thousand Cuts II offers numerous examples of selective enforcement of laws against nonprofits. According to the report, released Oct. 26, many federally-funded nonprofits have been threatened with loss of funding for straying from Bush administration positions, and others have been audited for suspicious purposes, a practice that stifles advocacy by frightening away other funders and cuts into programmatic resources by diverting funds for legal defense efforts. Furthermore, a number of nonprofits were fearful of publicizing their experiences with government intimidation through the report, according to its authors, OMB Watch's Kay Guinane and Robert Bothwell, former executive director of the National Committee for Responsive Philanthropy.

3. ORGANIZATIONS DRAFT ALTERNATIVES TO FEDERAL ANTI-TERRORIST FUNDING GUIDELINES

Teresa Odendahl paid particular attention in her Georgetown lecture to the Treasury Department's Anti-Terrorist Financing Guidelines. According to Odendahl, these guidelines, which were issued almost two years ago, contain some measures that are inconsistent with existing law. Many nonprofit observers have been critical of the guidelines, in part because of the concern that they are having a chilling effect on international giving. In hopes of convincing the Treasury to withdraw or revise its guidelines, a working group made up of more than 25 organizations, including OMB Watch and the Council on Foundations, has drafted an alternative document, Principles of International Charity. The document, which will be discussed in a future meeting of working group and Treasury officials, specifically addresses concerns about foundations and nonprofits acting as enforcers of U.S. law, noting that nonprofits "are not agents for enforcement of U.S. or foreign laws or the policies reflected in them."

4. COMPENSATION OF FOUNDATION LEADERS DRAWS MORE PRESS SCRUTINY, CRITICIZED AS 'WORST ABUSE' IN FIELD

Several news accounts have suggested that nonprofits' increasingly business-like practices are contributing to declining public confidence in the sector, with executive and trustee compensation, especially at foundations, receiving the most criticism. The final article in a four-part series on executive pay in the Milwaukee Journal-Sentinel reported Oct. 12 on foundation officials, both chief executives and board members, drawing six-figure compensation with annual increases two and three times greater than the inflation rate. The Sept. 29 Atlanta Journal-Constitution editorialized that compensation is a way to measure the willingness of executives to share the average Americans' pain in a time of increased economic pressure. The increases beyond inflation in compensation at all nonprofits, coupled with what the editorial said are the many nonprofits that have given their leaders bigger pay increases than their counterparts in the for-profit world, are "not a great way to increase public confidence" in the sector.

Furthermore, Harvard University's Marion Fremont-Smith cites excessive compensation and the provision of benefits to insiders as "the worst abuses" in foundation fiduciary matters. The Philanthropy Roundtable's September/October Philanthropy includes a press release, to help grantmakers "assist the nonprofit sector in securing social and economic justice for the nation." Among the key points made in its 22 contributed essays: a wide gap remains between foundation assertions of diversity efforts and the actual numbers of minorities in foundation leadership positions; foundation funding for environmental policy advocacy is less than funding for conservation and preservation, which will be detrimental to the environmental movement in the long run; American grantmakers are ignoring environmental issues in the developing world; and grantmakers need to provide greater funding for youth political mobilization and civic engagement activities.

7. COLLAPSE OF NONPROFIT SECTOR IMMINENT, PROFESSOR SAYS, SUGGESTING A SHAKEOUT WILL LEAD TO A 'LEANER' SECTOR

Within this decade there will be a systemic collapse of the nonprofit sector, predicts Mordecai Lee of the University of Wisconsin-Milwaukee. Lee writes in a commentary in the September issue of the American Society for Public Administration's monthly journal PA Times that this collapse, much like the Great Depression stock market crash, will result from the "astounding increase" in both the absolute number and rate of growth of nonprofits over the past half-century, especially the last two decades. Nonprofit causes are getting "narrower and narrower to the point of absurdity," and there is significant duplication of effort and competition for funding, he says. Lee also cites the marketplace mentality pervading the sector as another reason why a collapse appears imminent. However, he concludes, "all in all, there probably is no reason to fear this predicted population crisis" of the sector, given that it will likely improve the sector by making it leaner. Email Lee to request a PDF copy of his commentary.

8. FIRST ENCYCLOPEDIA OF PHILANTHROPY ISSUED, DETAILING THE SECTOR'S HISTORY, KEY TOPICS, AND LEADING PRACTITIONERS

After spurning the idea a decade ago as too daunting, even foolish, Dwight Burlingame of Indiana University's Center on Philanthropy recently completed Philanthropy in America: A Comprehensive Historical Encyclopedia. An edited, three-volume, 923-page work, the encyclopedia traces philanthropy's history, from ancient times to today; reprints some important historical documents; defines key topics and ideas in the field, from civil society to donor-advised funds to e-philanthropy; and identifies key philanthropists, including those that gave their time as well as their money. The book is available in both print and electronic versions, costing from $285 to $450, from educational and reference book publisher ABC-CLIO.

9. TODAY'S FUNDERS TAKING A MORE 'COMMONSENSE' APPROACH TO PUBLIC EDUCATION REFORM, SHAKING UP THE 'STATUS QUO,' MAGAZINES SAY

In its Oct. 11 issue, Forbes magazine reports on the effort to break up public elementary and secondary schools into small schools, a movement that it says has galvanized the foundations of today's wealthiest Americans. Their new approach is a "commonsense" method of reform that contrasts with more established education funders' "status quo" attitude, according to Frederick Hess. Hess of the American Enterprise Institute wrote an article in the September/October Philanthropy about changes in foundation giving for education over the past decade. The article focuses on givers, including the Broad, Milken Family, and Bill and Melinda Gates foundations, who view efforts to tweak or support the public education status quo as not bold enough. Instead, according to Hess, these givers work to "force the system to improve against its will," or at least to give people alternatives to the current structure. These givers should be heralded, Hess implies, given that the significant controversy their approach provokes would lead most philanthropists to cave in and "soft-pedal" efforts to promote fundamental change in public education.

10. KAUFFMAN FOUNDATION A LEAD PARTNER IN MULTI-SECTOR EFFORT TO HELP MINORITY-OWNED BUSINESSES SUCCEED

The Ewing Marion Kauffman Foundation is a lead partner of a national, multi-sector effort to increase opportunities for successful minority-owned businesses. The foundation issued an Oct. 15 press release announcing the Urban Entrepreneur Partnership between it, the National Urban League, the Business Roundtable, and Bush Administration officials. According to the release, minorities, and African Americans in particular, are more likely to engage in start-up business activities than white people, but they typically lack the resources and connections to make them successful. Initially based out of the local offices of the National Urban League in Atlanta, Cincinnati, Cleveland, Jacksonville, and Kansas City, the Partnership will help small business entrepreneurs get up to speed on common business and management practices and offer access to private-sector contacts and capital.

11. TWO FOUNDATION-LED INITIATIVES ANNOUNCED TO HELP IMMIGRANTS AND THEIR COMMUNITIES

Helping immigrants and the communities in which they reside is the focus of two new foundation-led initiatives. The John S. and James L. Knight Foundation announced in an Oct. 7 press release a $13.5 million effort to help immigrants in 26 communities across the country become citizens, vote, and play an active role in community civic life. This effort will also establish an American Dream Fund to provide operating support to local organizations working on immigration legislation, according to the release. A related Knight Foundation initiative is the Four Freedoms Fund, which was launched with other foundations in 2003 to support nonprofits engaged in immigrant rights activities across the country.

The Minneapolis Foundation will match contributions to a new donor-advised fund, which could result in $1.5 million of new resources to help immigrants in Minnesota, according to an October press release. The foundation is partnering with the social-change nonprofit Headwaters Foundation for Justice in this effort to help small nonprofits serving the needs of "new Minnesotans - Hmong, Somali, Liberian and others," reported the Oct. 11 Star Tribune.

Of Related Interest

Survey: Nonprofit Sector Faces a 'Looming Crisis' As Health Care Costs Continue to Rise
There is a "looming crisis" in the nonprofit sector because of the rising cost of providing health care benefits to nonprofit employees and the unavailability of spare resources to cover the increases, according to a foundation-funded study. A survey by the Nonprofit Listening Post Project of Johns Hopkins University, led by Lester Salamon, found that nearly two-thirds of the service-oriented nonprofits responding reported health benefit cost increases significantly higher than those experienced by businesses. And the costs are expected to continue rising, the Project's Oct. 6 press release [http://www.jhu.edu/news_info/news/] said, leading to its prediction of a coming crisis. The project bulletin also noted that recent proposals to offer tax breaks to small businesses to avert a health insurance crisis would provide no relief to nonprofits.

Foundation Critic Finds Flaws in Book That Is Critical of Foundations But Sees Book's Value As Discussion Tool
Long-time foundation critic Robert Bothwell notes some serious flaws - as well as important issues to explore - in Joan Roelofs' year-old book, Foundations and Public Policy: The Mask of Pluralism. Bothwell drew on his experience monitoring foundations at the National Committee for Responsive Philanthropy in his review of this largely overlooked book, which is itself critical of foundations. In the Fall 2004 issue of Nonprofit Management & Leadership, Bothwell writes that Roelofs overstates foundations' influence on public policy; is overly critical of nearly all left-leaning private foundations; and fails to offer evidence for many of her bold assertions. Despite this, Bothwell says, the book raises a host of critical questions about wealth and power in a democracy that foundations and social change activists should ask themselves - and university-based nonprofit scholars need to investigate more extensively.

GuideStar, An Important Source of Information on U.S. Nonprofits, Sets Up International Arm
Having just celebrated its tenth year of providing information on American nonprofits, Williamsburg, Va.-based GuideStar has announced its expansion to several countries worldwide. The organization reported in an Oct. 4 press release its formation of GuideStar International, currently working to set up agencies in the United Kingdom, Germany, and South Africa to share technology, data, best practices, and international fundraising. GuideStar's founder Buzz Schmidt will lead the international arm as it considers expanding to other countries.

Related Reading

Activist: Foundations Should Push for Fair Taxation, Help Public Understand Benefits of Taxes
Nonprofits and foundations should advocate for fair taxation for all and push for a real nationwide debate about taxes, according to Kim Klein, a social-change activist and publisher of Grassroots Fundraising Journal. Klein contributes an essay, "Nonprofits and Taxes," to the Fall Nonprofit Quarterly, which argues that tax debates are often too narrowly focused on raising vs. cutting taxes. People reflexively favor the latter, but the tax debates don't always make them aware that tax reductions can lead to funding cuts for schools, hospitals, or other valued institutions, she says. Klein would like us to set goals so that in ten years we can truthfully say that America has "joined the ranks of other developed countries with a fair and equitable tax system that supports, among other things, health care, education and the arts." The country can't say that now, she argues.