Social Currency

Hillary PenningtonHilary Pennington is Vice President of the Ford Foundation's Education, Creativity and Free Expression program. She is an expert on postsecondary education and intergenerational change. In this latest installment in our series of conversations with foundation leaders, Hilary and NFF CEO Antony Bugg-Levine discuss how to improve funder/nonprofit dynamics.

 

Antony Bugg-Levine: Our latest State of the Sector Survey results continue to show nonprofits reporting discomfort discussing core aspects of their financial state honestly with their funders. Yet we’re also seeing some foundations partner with nonprofits in new ways to overcome common constraints. What worries you, and what excites you, about the ways foundations support nonprofits?

Hilary Pennington: I've been thinking about the perennial way in which foundations starve nonprofits through "project-itis" -- consistently funding them to do particular kinds of projects without paying attention to the organization as a whole, and what it takes for it to be a sustainable and durable organization. It does seem as if there is a beginning of a healthy pushback on this issue, that people are more willing to say that unrestricted does not mean unaccountable, and there are ways to work together.

Many of Ford's particular kinds of grantees, including advocacy organizations and social justice organizations, are always going to be disproportionately dependent on foundations. So the challenge for us is: how do we keep that relationship alive, not on autopilot, both for us and the grantees?

Core support can be critical for building organizations, but it can also create a kind of dependence, and in some cases, an expectation of continued support at the same levels.  It may be more useful for a funder and nonprofit to admit to each other, at the beginning, that it will likely not be a "forever" arrangement. As such, a funder has an obligation to help the grantee grow their resources. You have an obligation to advocate for them, introduce them to other funders, and to be an opportunity-spotter for areas of growth and development.

How do you ensure that a grant that is unrestricted is not unaccountable? In my earlier conversation with Ben Cameron of the Doris Duke Foundation, he spoke eloquently about how to achieve that balance in arts organizations. With the social justice organizations you work with, what have you learned in terms of what works and what doesn't work to enable the funder/nonprofit relationship to be one that is empowering and trustful but one that also includes mutual accountability?

Ideally, you establish a relationship of trust so that a grantee can safely say, "we gave you this plan, and we thought were going to be on track for reaching it, but because of these reasons, it is not turning out the way we expected." Sometimes, it is about seizing opportunities. For example, there are nonprofits that are part of the social justice movement that may find there is a moment that happens -- in this case, events in Ferguson and elsewhere -- where the work they do is poised for a breakthrough. So you also want an organization, particularly one where funding is very project-based, to feel safe saying, "we may want to consider a different growth trajectory. If we had an infusion of capital, here is what we would do, and how we would use it to take advantage of this unexpected moment of potential."

One of the only ways you get these kinds of relationships is to invest time. Ideally, you the funder need to be physically in the space of the grantees' organization, not always in your own offices. You have to ask the questions and create a feeling of safety that someone could answer them. You need to ask the leader, "what do you need?" "what is going on?" "what aren't you getting?" and things like that.

That is a good list of what funders can do to create the conditions in which honest conversations can take place. When you think about nonprofits that are coming to you with an ambitious request to support change or invest in a moment that has a lot of potential, what makes those kinds of requests most compelling?

Part of what makes those requests compelling is when people don't overpromise. So, when you see a fairly disciplined weighing of choices and tradeoffs, instead of shooting for the moon. I think when nonprofit leaders are able to say, "we are going to try and do this, for this period of time, and this is how we will know we are successful, and here is our fallback plan if we are not, and here is when we will stop if we reach success," that is encouraging. 

You said that after years of program-focused grants, there is a slight cracking of the edifice that says you can't trust grantees with anything other than program grants. What do you think is causing that, and do you think there is momentum around a more sophisticated conversation about what it will take to make sure organizations are, in your words, sustainable and durable?

One thing driving this is the failure of some organizations that people thought were strong but got project-ized to death. I can think of more than one example where an organization that had money in the bank failed, in large part because its money was so restricted. In some cases, nonprofits and funders have ignored warning signs like requests for forward-funded grants or extra money here and there, and never had an explicit conversation about what is failing and why.

There are three predicable moments of crisis or deficiencies which nonprofits and their funders tend to gloss over: a transition in executive director, a lack of financial sophistication, and a lack of board strength -- especially for small, rapidly growing organizations with small staffs.  When faced with these moments or realities nonprofits and their funders would benefit from more proactive conversations about what is needed to meet mission over the long term.  

One very real challenge we saw in our State of the Sector survey this year is that demand for services continues to rise. 76% of nonprofits reported an increase in demand for services - the 7th consecutive year that a majority have reported increases. For the first time this year, we asked about what happens when nonprofits can't meet demand. 71% report that people go without the service.  

How do you as a funder think about the balance between the very compelling needs to expand a program now versus the kinds of things an organization would need to do -- not only with money, but with the leadership's time -- to improve long-term durability such as improve board strength and financial sophistication?

To be a good partner to the nonprofit, you would help them try and do some of each, but the longer-term things are most likely to be given short shrift and are probably the most important things for funders to help them do. Arguably, a better board and savvier financial leadership would help them serve more people downstream.

Part of the challenge is the dynamic between most nonprofits and foundations. We think we know what you want to hear, which is requests for grants to expand our programs, so we ask for that. We don’t feel comfortable telling you what our real needs are because we don’t want to risk losing your support if you think we’re in trouble. I think it would be a reckless nonprofit CEO who unilaterally disarms from that dynamic; at the same time, we can't maintain a system where nonprofits and funders deceive each other. What do you think will encourage a more open conversation between nonprofits and our funders about what we all need to deliver on our long-term vision?

This makes me think about a conversation we convened a few weeks ago with Paul Shoemaker of Social Venture Partners. Paul brought together a group of seasoned philanthropists who have moved from funding individual organizations to more thinking about systems and policies. They talked about how it takes years of deep relationships, of showing up and helping nonprofits work on initiatives together, before you even get close to the truth, because of how dysfunctional the nonprofit/funder dynamic can be. It is possible that some of the newer entrants to the world of philanthropy -- who are often criticized -- are able to work at a much more relational level, because that is how they view their philanthropic investments, which could be helpful. 

A focus on the long term has emerged as a core trend in our annual survey.  When we asked people about their greatest challenges, "achieving long-term financial sustainability" was the most popular of more than 20 choices, with 32% of organizations saying it was a top concern. That said, when we look at what actions nonprofits are taking, many say they are expanding programs, and adding more staff.

Which might make things worse!

Exactly. It strikes me that in one sense we are coming out of the financial crisis, the fog is lifting, and people are able to look a little further and see long-term sustainability as a concern. At the same time, short-term actions don't seem to be matching the long-term concerns. Is that consistent with what you are seeing with the organizations you work with?

I don't see there being a lot of deep change as the result of a near-death experience. I see most people coming out of crisis mode and returning to old habits. I also think we still have too many organizations that are too small and too duplicative, and we don't have good ways of talking about the implications of that reality and how it might be addressed.  Too often, funders handle redundancy by giving each nonprofit a little bit -- perhaps too little to really thrive.  And the organizations themselves are not willing and able to say, if someone does this better than me, I'm willing to stop doing it. Or, if someone else does this better than me, I'm willing to let us stop existing. The incentives in the sector are not well set up for people to mutually support each other.  This is also a very sensitive area for foundations. We all know that forced marriages don't work!

I've been on the receiving end of that suggestion and it did not create a wonderful working dynamic for any of us.

Me, too! But wouldn't it be interesting if, instead of giving an organization a grant to be doing something they shouldn't be doing, a funder said," if you can find someone who can partner with you, who is great at doing that, come back and we would be willing to fund that partnership"? That is the kind of changed behavior that I don't see, post-crisis, despite what one would expect.

We at NFF do a lot of work to support the de-stigmatizing of mergers, and to help our clients and partners recognize they are a strategic response to serving the mission in the long term, and not a sign of desperation. One reason they don't happen enough is that we on the nonprofit side tend to be too precious about our own culture, not just mission. What do you say on the flip side around funders? While there is inefficiency from a fragmented and sub-scale world of nonprofits, private foundations also get precious about wanting to fund on their own and perpetuate their favorite grantees.

The Four Freedoms Fund for immigration reform is a great example of collaboration. A group of funders took the long view of a set of interlocking changes that required national action, state action and local action, and they thought about the field when they began to pool their resources, and then they thought about how to deploy resources to particular organizations, and spent money linking those organizations to each other. From the beginning, they were all trying to work together strategically toward a shared set of goals, and they co-designed the work and that strategy. That model is not appropriate for everything, but similar efforts have happened around postsecondary prison education that we, the Gates Foundation, and others have worked on together.

Funders tend not to advocate among each other as well as we could. Sometimes, it is just a matter of getting on the phone and coordinating resources to help an organization get over a hump or get to the next level. That said, when there is a situation like 10 times, or 100 times, more people than a soup kitchen can serve, that's a whole level of problem that I think philanthropy is not well-equipped to solve.

We also need to get better at evaluation and understanding impact. I know your survey found that many nonprofits are asked to measure impact, but very few funders fully cover those costs; that needs to change.

Yes, only 3% of nonprofits say evaluation always gets fully funded. But I think that goes back to this question about how do you balance the compelling need to fund programs that allow them to break even doing what they are doing, and the long-term benefit that evaluation would have.

That tradeoff requires constant conversation and adaptation. It is not like there is one answer that is going to be right forever, like you should always put eight percent into a grant for funding evaluation; it is going to depend. Which means that foundations need to be more honest with themselves about what they are going to accomplish with the amounts of money they have, and organizations need to be more honest with themselves about what they can accomplish.  

One thing that strikes me is in a time where we talk a lot about analysis and measurement and outcomes, one thing I take away from this conversation is that there is no substitute for trust-based human relationships built on a commitment to know each other in a real way.

Very true. Tony Bryk of the Carnegie Foundation for the Advancement of Teaching writes about the need for adaptive learning strategies that help organizations “get better at getting better.”  This way of thinking requires relationships, but also data, willingness to change, and shared aspirations for what better looks like. Thinking about the funder-grantee relationship in this way might help us all produce deeper and more lasting impact.

NFF's 2015 State of the Nonprofit Sector Survey results are out! Full survey results are available at nff.org/survey! Filter the data yourself with our Survey Analyzer.

------

"Although we manage to keep our financial heads above water – [our greatest challenge] is the uncertainty and constancy of operating on such a knife edge." - Arts, Culture, and Humanities organization, WA

In 2014, the social sector generated stories of both promising innovation and overwhelming challenges. In fundraising, the ALS Ice Bucket Challenge, which raised over $100 million from 3 million donors, reminded us of the power of individual giving and the underutilized potential of social media. In the same year, New York City’s largest human services agency reached the brink of bankruptcy after providing essential services for 80 years.  Over 100,000 clients are suddenly facing a disruption in services, coming to the end of what was for many a decades-long relationship with the agency.

NFF’s 2015 State of the Nonprofit Sector Survey focuses on the underlying causes of these dynamics by exploring the programmatic, financial, and operational issues facing nonprofits across the U.S. We launched the Survey in 2008, when economic crisis threatened the viability of many organizations. Seven years later, results from 5,451 respondents show some indications of recovery, stabilization, and growth. Nonprofits are adding jobs, engaging in strategic conversations such as leadership succession planning, and looking to retain their workforce. Yet as they raise their sights from the focus on short-term crisis, many are confronting the troubling reality that current practices cannot sustain organizations in the long-term or meet the needs of the communities they serve now. Many organizations have stumbled out of crisis looking to make the necessary investments to secure their long-term future. And it is a hard road ahead.

Below we’ve highlighted this year’s key findings. Stay tuned for additional research and analysis in the upcoming months!

Key Findings

"Currently there are over 1,000 households on our waitlist for 90 units of affordable housing." 
- Community Development organization, MA

Under-resourced communities are going without because nonprofits can't meet demand. Americans - particularly those in low-income communities - are still struggling to secure jobs, affordable housing, and healthcare.   

  • 76% of nonprofits reported an increase in demand for services - the 7th year that a majority have reported increases.
  • 52% couldn't meet demand, the third year in a row that more than half of nonprofits couldn't meet demand.
  • Of those who reported that they could not meet demand, 71% said that client needs go unmet when they can't provide services. 

"If we have a program that needs $40K to operate, we ask for $40K and the funder gives us $5K, the funder still expects the same type of programming as the $40K budget but for their $5K investment." - Youth Development organization, MA 

Recovery of the U.S. economy hasn't addressed the systemic and perpetual funding challenges facing nonprofits. While we are seeing some positive economic indicators, in many cases nonprofits are still hampered by insufficient funding and a lack of investment in long-term sustainability. 

  • For some nonprofits, financial health indicators have improved: 47% ended 2014 with a surplus, the highest in the history of our survey. 
  • However, 53% are reporting 3 months or less cash-on-hand  
  • Nonprofits said that top challenges were:
    • Achieving long-term sustainability (32%)
    • The ability to offer competitive pay and/or retain staff (25%)
    • Raising funding that covers full costs (19%) 

Nonprofits are navigating a time of immense need and change, while pursuing ways to build long-term sustainability and viability. Nonprofits continue to prove their ability to survive and thrive in tough conditions. They are working to ensure their ability to meet community needs now and in the years to come. Here are some of the ways they are investing in their futures:

  • 51% collaborated with another organization to improve or increase services offered.  
  • 44% hired staff for new positions.  
  • 33% upgraded hardware or software to improve service or program delivery. 
  • 29% conducted long-term strategic or financial planning.

This blog was originally posted on payforsuccess.org and can be found here.

White House Pay for Success Regional Summits: Fostering Dialogue and Building Momentum to Create Better Outcomes for Communities Across the U.S.

Nonprofit Finance Fund recently partnered with the White House Office of Social Innovation and the Laura and John Arnold Foundation to host a series of regional summits focused on Pay for Success (PFS) financing. PFS is an innovative funding model that helps improve the lives of those in need by driving government resources toward better, more effective programs. Under PFS, government officials identify high-quality programs and strong service providers, and tap mission driven investors to cover the upfront costs of those programs. The government then works with an independent evaluator to establish specific program goals. If those predetermined goals are achieved, the government repays those who made the original investment.

Seven PFS projects have been launched to date in the United States, and more than 30 are in the exploration phase. These initiatives are designed to address some of the country’s most pressing social issues, including homelessness, unemployment, child welfare, early education, recidivism, and public health. 

The regional PFS Summits were conducted to share information about current projects in an effort to advance the model thoughtfully. More than 400 representatives from federal, state, and local governments, nonprofit service providers, academia, philanthropic foundations, and impact investors attended the summits held in three cities that are at the forefront of PFS: Bridgeport, Connecticut; Chicago, Illinois; and Salt Lake City, Utah.

Several key themes emerged from this series of summits, and we have listed the top 10 takeaways from our discussions about opportunities, challenges, and next steps in PFS development.

  1. Federal support catalyzes the development of the PFS field, but state and local activity is where the on-the-ground change occurs in communities across the U.S.
  2. Definitions of “success” fall across a spectrum. For some governments, capturing cost-savings is required for PFS projects, but others are willing to pay based on the value of improving efficiencies and capturing long-term societal benefit. 
  3. Data is critical. Uneven availability of evidence and performance data on social services and a lack of access and ability to analyze administrative data are barriers, but partnering with evaluators and academia to learn about “what works” can push the field forward.
  4. PFS can help scale existing and rigorously evaluated programs, but is also a vehicle to build the evidence base for promising, innovative approaches. 
  5. With deep ties to neighborhoods and communities in need, service providers are the lynchpin to delivering on outcomes, and they must be at the table. Bolstering the financial, operational, performance management and leadership capacities of nonprofits is critical for adaptation in an outcomes-driven environment, PFS and beyond. 
  6. Philanthropy can play a number of roles to support the nascent field: from convener to field builder to advocate to capacity builder to investor.
  7. Project templates and document transparency can drive transaction costs down and shorten lengthy timelines for future projects.
  8. Elected government leaders can champion PFS efforts, but ongoing support and education for agency and career staff is required to affect long-term systems change beyond election cycles.
  9. Implementation matters: recognizing that no U.S. project has shown results thus far, it is critical to obtain real-time feedback from existing projects in an effort to improve future iterations of PFS activity.
  10. PFS is one piece of a broader systems change effort across government and providers to use data-driven, evidence based approaches for our communities’ most challenging social issues.

Read More

Nonprofit organizations (501 (c) 3s) experience a unique set of financial problems that stem from both how the sector operates outside the traditional rules of supply and demand and the way our culture views philanthropy. Often, nonprofits enter the market when for-profit and governmental sectors can’t, won’t or shouldn’t, generally due to a gap or failure in the market economy. Their customers are often unable to pay for the services that they provide, and demand for services often goes UP as ability to pay goes down.

This systemic flaw is why nonprofits use two tools to subsidize their operations: tax exemption and access to tax-advantaged charitable contributions. Unfortunately, this system has its drawbacks, and many of them stem from an antiquated ideology our society has about what it means to be ‘nonprofit.’ For example, ‘surpluses’ (AKA ‘profits’) are often looked at critically and seen as antithetical to the authentic mission-driven organization. Expenditures on ‘overhead’ are also called into question, perceived as a sign that an organization is not spending their money on their mission. This ideology has serious consequences for nonprofit health—and their ability to fulfill their mission. Without surpluses, nonprofits struggle to achieve long-term stability and are frequently operating from month-to-month, without the breathing room to plan for the future of their organizations and the long-term impact of the work they do. Programmatic growth also often increases the need for fundraising and decreases “self-sufficiency.”

Nonprofit leaders live with these management realities every day. To cope with the organizational implications, however, takes a unique set of financial disciplines that often get overlooked when mission is the primary focus. Below, we share a few foundational finance tips as a refresher to help new or emerging leaders remember to keep business and finance as an integral part of decision-making.

Read More

Arts and culture nonprofits play a vital, yet often overlooked, role in community services and local identity. Arts and culture organizations (A&Cs) frequently serve as anchor institutions in a neighborhood and become core components of the local fabric. Cities and countries are often synonymous with their arts and cultural offerings: New York City’s Metropolitan Museum of Art, Mexico City’s Museo Nacional de Arte, and less formalized institutions like Vietnam’s night markets are all examples of the important link between art and local identity.

NFF has long understood the value of A&Cs in the public sector landscape. Every year our State of the Sector Survey queries organizations from around the country. So far, we’ve heard from over 750 arts and culture organizations that encompass a broad range of sub-sectors. Reflecting the overall geographic distribution of survey respondents, we’ve had the highest response rates in New York, California, Illinois, and Massachusetts. Survey respondents have varied immensely in scope, from a symphony orchestra in California to a theatre company in Illinois. Overall, here’s what nonprofits are saying:

  • Thus far, the majority of arts and culture organizations have reported making a meaningful investment in audience development  

The vast majority of this audience development (and/or engagement) was targeted at school-age children via arts education programs conducted on-site or in partnership with schools. Like other sectors, A&Cs reported that they were actively engaged in data collection and data-driven decision-making to inform programming.

  • Arts & culture organizations face challenges comparable to the entire sector

When asked about organizational challenges, arts & culture organizations struggled with similar challenges as their non-arts peers. The vast majority grapple with achieving long-term financial stability and the ability to offer competitive wages in order to attract new staff and retain current hires.

  • Arts programming has made strides to engage with audiences in new ways

Many organizations have adapted and moved beyond their four walls to bring programming to nonconventional spaces in the form of free concerts, arts education after-school programming, or weekend programming for low-income families.

Our State of the Sector Survey is open until Wednesday, February 18th and we look forward to hearing from other arts organizations from around the country. So please, strengthen the sector and share your nonprofit’s story today!

Ben CameronBen Cameron is program director for the arts at the Doris Duke Charitable Foundation. He is a passionate advocate for artists and their organizations, and a powerful partner to all of us working toward a well-capitalized arts sector. NFF has worked with Ben and the Foundation on projects including Leading for the Future, a pilot initiative designed to help a group of artistically outstanding performing arts organizations strengthen their business in a shifting environment. The Foundation has also provided support for NFF's analysis of arts sector trends and opportunities; this year's survey is now open at http://nff.org/2015.

This is the second in our interview series with foundation leaders about the intersection of philanthropy and financial strategy. We're honored to work with leaders such as Ben, who are challenging assumptions about how grantees and funders can pursue a more vibrant and viable arts sector.

Antony Bugg-Levine: We've seen some of the arts organizations we work with emerge from the 2008 economic crisis with a new or renewed sense of purpose, while others are still hunkered down trying to make sense of all of the changes. What are you seeing in the field, and what excites you about where the arts sector and its funders are going?

Ben Cameron: For organizations that survived the crisis, many can draw confidence from the fact that their communities have validated their importance, funders have indicated an interest to continue with them on the journey, and there IS a future for them, even while it may be challenging.

I'm excited when I see organizations stand back and ask, "What are the possibilities that this new world is opening to us?" and think expansively, particularly about how changes in demographics and technology might be an invitation to embark on new activities. This also demands that organizations be absolutely rigorous and unsentimental, and stop doing things that are serving them less well in order to free up time, energy and resources.

I am also personally cheered by the work of Ron Heifetz at Harvard's Kennedy School, who is exploring how we think about the capacity of an organization to continually adapt and change in the face of challenges that we can't yet foresee. The tendency for many arts organizations and their funders to be reflective about long-term capacity — of which healthy capitalization is one key — seems to me to be a positive way of helping a more vibrant arts sector thrive now and in the future.   

Read More

Guest Blog by Beth Bowsky, Policy Specialist for Government-Nonprofit Contracting at the National Council of Nonprofits. 

As someone who regularly uses data from Nonprofit Finance Fund's (NFF) annual State of the Sector Survey, it occurs to me that those who are asked to complete it may not realize how truly important the information they provide is or why it is more significant than ever this year.

At the end of December, new regulations from the federal Office of Management and Budget (OMB) went into effect. Most notably, the OMB Uniform Guidance mandates that the vast majority of nonprofits with government grants and or contracts that include federal money must be reimbursed for at least a certain minimum amount of their indirect costs. Except in cases where indirect costs are limited by federal statute, if a nonprofit has a federally approved negotiated indirect cost rate (NICRA), all government agencies — federal, state, or local — are required to honor that rate. Nonprofits that have never had a NICRA may elect to be reimbursed 10% of their modified total direct costs or negotiate a rate based on the federal cost principles. This new policy is a significant improvement in the recognition of indirect costs and will impact the vast majority of nonprofits that have grants and contracts from federal, state, and local governments.

Data collected by NFF and others was instrumental in bringing about this change in policy. As a result of the NFF Survey, we were able to show OMB that 41% of nonprofits reported “achieving financial stability” as their biggest challenge with another 16% of respondents noting that “raising funding that covers full costs” was the top challenge for their nonprofit. Meanwhile, approximately 60% of respondents with government grants / contracts say those sources never or rarely cover the full costs of the projects they fund. These findings caught OMB’s attention for very pragmatic reasons. It provided the data needed to support a 2010 report from the Government Accountability Office, which concluded that the inconsistencies in how nonprofits are reimbursed for indirect costs “place stress on the nonprofit sector, diminishing its ability to continue to effectively partner with the federal government to provide services to vulnerable populations.”

The Survey also found that even when governments do provide some reimbursement for indirect costs, it is woefully inadequate. Among those with government contracts, between 44 and 51% of respondents (depending on which level of government they contracted with) reported average indirect cost rate reimbursements of 9% or less. What’s worse is that over one-quarter of nonprofits reported the amount they are reimbursed for indirect costs has declined over the past 5 years.

NFF2014Survey_AICR

These findings are reinforced in a separate survey by the Urban Institute, in which 53% of nonprofits reported that governments capped reimbursement for indirect costs. 76% of these nonprofits with rate limits reported caps of 10% and below – and 24% reported zero reimbursement for indirect costs. To put these numbers into perspective, Bridgespan and others have estimated that typically nonprofit administrative costs are (or should be for efficient operations) in the range of range of 25 percent to 34 percent. However, every nonprofit is different and administrative costs can legitimately be either higher or lower than this range.

Urban Institute

The ability to tell the nonprofit story using real data is what convinced OMB of the need to require reimbursement of indirect costs in the new Uniform Guidance. This year’s Survey data is no less essential. It will establish a baseline against which we will be able to see how well the changes are working and suggest ongoing advocacy efforts needed for further improvements. 

Looking Ahead

This tangible recognition by the federal government about the importance of indirect costs is a major step forward. But, our work is not finished. The development and implementation of the OMB Uniform Guidance holds only the promise of better treatment for nonprofits. To make it a reality, it is vital that each nonprofit organization learn the cost allocation rules, revise its accounting procedures accordingly, and report its costs accurately. And, since the Uniform Guidance must still be interpreted and applied consistently by tens of thousands of individuals throughout multiple layers of government, nonprofits must also Know Your Rights...and How to Protect Them. This means doing so as individual nonprofits for each new grant and contract, as well as engaging in efforts with other nonprofits to sector-wide advocacy efforts for consistent and systemic compliance at the state and local levels.

The National Council of Nonprofits and its network of state associations of nonprofits have been working with OMB and other stakeholders to identify and troubleshoot anticipated barriers to implementing the new rules. See our recently published special edition of Nonprofit Advocacy Matters to learn more about how the Uniform Guidance applies to your nonprofit. If you have grants or contracts with government at any level, we encourage you to share those experiences – whether positive or negative via a form on our website to help our network identify trends quickly and build the evidence for better practices and additional reforms.

Together, we can realize the promise of the Uniform Guidance, see a big change in the 2016 State of the Sector results, and make an even bigger impact in our communities.

3,000 strong. We’ve been stunned by the sheer volume of nonprofit stories being shared from around the country. Our State of the Nonprofit Sector Survey opened on January 14th, and we’ve heard from organizations in all 50 states and who represent a broad range of service providers. The nonprofit sector has always been marked by incredible diversity, and it shows in the survey results so far. We’ve heard from arts and culture organizations in Hawai’i, affordable housing advocacy organizations in New York, and community development groups in Colorado.

The survey data reflects the broad trends and regional nuances expected from a national survey. Here’s a snapshot of preliminary findings gleaned from what nonprofits are saying:

  • Sustainable funding models are a priority
    Organizations are very concerned about the volatility of funding streams that characterize both public and private support. Many nonprofits are engaging in long-term fiscal planning and seek diverse revenue streams in order to achieve multi-year financial stability.

  • Rural nonprofits face unique challenges
    Nonprofits serving rural communities state they suffer from a triple threat: the frequent inability to provide services for their communities, a dearth of human capital, and the struggle to attract and maintain funding streams. Many rural nonprofit providers frequently feel like they can’t compete with their urban counterparts and have populations with comparable, urgent needs.

  • The Affordable Care Act (ACA) has changed the landscape
    From an organizational management perspective, ACA implementation has been complicated and challenging. However, once nonprofits have successfully implemented ACA regulations, they’ve reduced their healthcare expenditures. Equally promising, nonprofits are reporting that expanded coverage through ACA and state-based Medicaid expansions has had a profound impact on their clients’ lives.

  • There is a critical need for affordable housing across the country
    Nonprofits are very concerned by the lack of high-quality, low-cost housing options in their service regions.  Low and moderate income housing developers are unable to meet the ballooning demand.

  • A human capital crisis is brewing…
    From fundraisers to leadership to front-line direct service workers, nonprofits report difficulties attracting and retaining top candidates. Many nonprofits are monitoring competitive wage indices and are concerned about their inability to offer attractive compensation packages. Additionally, many organizations recognize and understand that offering a living wage is mission critical and aspire to adequately compensate staff.

Stay tuned for updates in the spring when we release our annual State of the Sector report. We are entering week 3 of data collection and hope you will consider joining this sector-wide community organizing action!

Share your story today and take the survey!

Using data to support change. This is one of the goals of our annual State of the Nonprofit Sector Survey. As one of the largest nonprofit data gathering efforts in the sector, Nonprofit Finance Fund's (NFF) Annual Survey supports thousands of nonprofits each year by aggregating their stories into a collective data set that is used by nonprofits, advocates, funders, and reporters to understand the needs and challenges of the sector. And we couldn’t do it without the participation of the thousands of nonprofit leaders that have contributed every year. In this blog, we wanted to share with you the underlying mission driving our Survey activities, and why it matters to the sector.

NFF's Survey Mission

Overall, we have a 3-part mission with the survey. These three aspirations drive all of our activities, from the survey content, to outreach, to how and when we communicate our results. 

To provide stakeholders and the public with timely data on trends, challenges, opportunities, and actions in the whole nonprofit sector

NFF's survey is open at the same time every year, from mid January -mid/late February. Once the survey is closed, we work as fast as we can to get the results out to the community, to ensure that they have access to timely data. Our initial results are released no later than the first week of May every year, and often earlier.

To coalesce the nonprofit sector into a data-driven community organizing effort, creating a collective voice and spurring the use of data for change

Because of the nonprofit sector's diversity--in mission, size, business model, geography, and a multitude of other factors--it operates in a decentralized way. Yet we believe that coming together in a collective effort can help magnify what we DO have in common. That's why we work with hundreds of partners-- nonprofit associations, funders, advocates, umbrella organizations, and more-- to get the word out to as many pockets of nonprofit communities as we can. If your region or sector is under-represented in the survey results, please reach out to us for advice about how to spread the word. We have created an outreach kit to help communities share the survey with their own networks.

Data is only as good as how--and if-- it's used. That's why we don't simply release the results and return to business as usual. After release, our staff spends the next 7 months of the year integrating the findings into their daily practices, communicating the results through presentations, and sharing them as widely as possible. We also talk about the results with advocates, government officials, funders, nonprofits, and other practitioners in the field, diving deeper into ways that the data can be used in practice. Below are a few examples. Click here to see more.

  • Nonprofit leaders like Cynda Mack, Vice President of the Metropolitan Development Corporation, have used the data to assess whether organizational leadership were on the same page about the strategic direction of the organization. "While taking the survey, I wondered whether the leadership would agree with all of my answers. We are a very diverse group and have been working very hard the last two years on Strategy, Dashboards, Logic Models, Theory of Change, Mission, Vision, Focus, etc. Answering the survey brought many of those exercises together to show a progression of change that made sense. I am hoping that leadership will see their hard work in our agreement on the answers and that we are on the right track to success."
  • The National Council of Nonprofits used the data to inform government policy recommendations on the treatment of Indirect Costs.
  • Grantmakers can use this dataset to remain responsive to the needs of nonprofits in real time and refine their philanthropic investment strategies.

To provide accessible, data-driven insights that inform discussion and, ultimately, improvements in social sector practices

We work hard to make the data as accessible as we can. As requests for data increased over time, we looked for ways to make it even more accessible. That's why we created the NFF Survey Analyzer, an open tool that allows anyone to filter the data to see results that are most relevant to them. You can filter the whole data set look at state specific results, and much more. If you have any questions about the Analyzer, please contact us at survey@nff.org!

Stories from 2014

Below, please check out stories from last year's respondents. We want to hear your story as well. We're proud of the impact our findings have had in past years, but we believe we can do better. Please help us continue our work on behalf of your organization and your peers across the country by contributing your knowledge and encouraging others to do so as well. Click here to take the survey today, and share the link http://nff.org/2015 with your peers and colleagues.  

"Nonprofits need to be visible in the communities they serve. Many nonprofits are only heard from when asking for support. The community needs to know that the nonprofit is a part of the community, the good it does, the care with which its leaders use the community's resources and the impact it makes in meeting the needs of the community. A community will support a nonprofit with time, talent and treasure IF the impact the nonprofit is making is known and appreciated as meeting a need in the community."
- Public, Societal Benefit Org, PA

"We are having to adapt programs to meet needs of a younger generation of veterans and one that includes significantly more women."
- Human Services Org, CA

"In the past 6 months... we have been able to secure new and expanded funding both for our core youth programs (restricted grants) and for general operating support from individual donors (major donors). We made the case by first refining our program offerings and getting very clear about our program strategy and what we are trying to do. This clarity has made asking for support, both from foundations and from individuals, much easier and more effective. As for major donors, we made the case by being very honest about our organizational challenges (both financial and programmatic), and sharing our vision of where we want to go. And then cultivating them earnestly - through mail, phone, and direct in-person meetings."
- Education Org, PA

"We initiated development campaigns targeted to specific audiences to support specific pieces of our work and also initiated "friendraisers" at board members' homes where we can talk about what we do and how we need their support."
- Workforce Development Org, MD

Kimberlee CornettAt NFF, we're fortunate to work with some of the most creative foundation   leaders who are wrestling with the challenges of connecting the resources they have to the social outcomes they seek. In this new interview series, NFF CEO Antony Bugg-Levine chats with some of these foundation partners about various aspects of philanthropy and financial strategy. We hope foundation and nonprofit leaders alike find sparks of inspiration and challenge in these explorations of how money can best support mission in the social sector. 

Our guest: Kimberlee Cornett is managing director of The Kresge Foundation’s Social Investment Practice. Kimberlee works closely with the foundation’s program teams  to make capital and financing available to organizations working on key, strategic priorities of the foundation. She identifies capital gaps and then structures loans, loan guarantees and alternative financing through banks, community development financial institutions and specialized lenders to meet specific project needs.  

***

Antony: The Kresge Foundation is a leader in social impact investing, going beyond grant-making to support nonprofits with other types of capital. What have you learned as you've built the social investment practice at Kresge over the last 4 years?

Kimberlee: There is a reciprocity between grants and investments. We knew this from an academic perspective, but are now developing muscle memory about it. I estimate that for every ten dollars we've invested, it has been supported by a dollar in grants. Some of these grant dollars have been used to better understand what types of capital are needed and to seed future investment. Serving as both grantmakers and investors gives us incredible leverage in terms of financial impact, influence, and knowledge, which makes us able to do our work better. The foundation is exercising a different way of making change around complex social problems using grants strategically as an onramp to other kinds of capital. Man cannot live on grants alone!

We're finding a similar dynamic with our clients' needs for advisory services and lending. One of the things organizations need most in today's environment is resources to enable them to adapt, but a loan is not the right starting point for adaptation in most cases. An organization needs a business plan before they need a loan. Can you speak more about the "knowledge leverage" you achieve by making both grants and investments?

Awhile ago, we did a sort of "speed dating" exercise with program and investment staff. We found that our program staff knew a lot that our investment staff did not; our investment staff knew a lot that our program staff did not. This approach is still in its embryonic stage, but it has helped inform the development of our comprehensive healthcare investment thesis, covering everything from grants to market-rate investments. We have now invested in two healthcare companies, with products that relate to safety net and vulnerable populations, and are looking at our third now. We call this our "better investor overall" project. If we really understand both sides of the equation, our hypothesis is that we may be a better investor with all of our capital resources.

That sounds unusual. For the grant and investment sides to come together, requires each side to change the way they think about how to optimize what they do. When Jed Emerson and I wrote Impact Investing, we couldn't find a single example of real collaboration between investments and grantmaking teams at foundations happening without the strong leadership of a foundation CEO or board. 

It is unusual. Our CIO happens to be someone who takes fiduciary responsibility very seriously, but also has an open door. He's open to strategic opportunities where the endowment can play a role.  

You and I agree that impact investing, while trendy right now, is not new. Community Development Financial Institutions (CDFIs) have been making impact-generating loans for decades, foundations have been using Program Related Investments (PRIs) since the '70s, and so on, but there is a lot of excitement around this latest wave. What new opportunities do you see?  

Things are changing. Right now we're seeing more product and platform development. We did exploratory work with a crowd funding site tied to real estate development, and looked at using it here in Detroit. We're an investor in Sustainable Insight Capital Management. There's the McKnight Foundation's commitment of $200 million in impact investments, the Pay for Success agreement that Bank of America Merrill Lynch introduced in New York[1], and other examples. So there is certainly new momentum.

What do you see as the unique highest and best use of a foundation PRI program in a world where others, including banks, are making impact investments? It does seem that compared with CDFIs and other banks, foundations could have unique risk appetite, and could use that ability to catalyze deals and help crowd in other flows of capital.

I believe our best tool is our guarantee, which is inherently risk capital, even though we are judicious in deploying it. That capacity seems to catapult deals forward, sometimes even more than loans. Right now, we're developing an investment channel/thematic approach that will take us deep into a space that relates to the overall objectives of the Foundation, uses multiple forms of capital (including market rate investments), requires sustained focus, cross sector solutions and policy reform. We are mid-stream in this work but expect to be making investments and grants in 2015.

In terms of the evolution of the role of PRI programs, there is a need for programmatically agnostic social investors who just want to see the market move faster. But that's not where we are today.

How do you measure the catalytic power of social investments?

One example is a current partnership where we're looking at how a “forward commitment” of a guarantee might expedite the raising of other capital so the financing can get into the market sooner. If the guarantee allows the fund manager to expedite the capital raising process then that is time and money saved for the Manager and new value at work in a community that much sooner.  A guarantee can also function as a stamp of approval for other investors. In the case of New York's Pay for Success contract, the Rockefeller Foundation's guarantee may have made the agreement easier to sell.  

What advice to you have for foundations that are considering impact investing? Start slow and find good partners? Or has enough been done that foundations can leap in?

I don't think it is necessary for foundations to slog their way through some of the early learning that we did! Engaging program staff at the onset can catapult an effort forward. There is also a case to be made for buying the investment capacity externally and not building it internally.

Well, social investment requires time and expertise and capacity that few foundations have. If everyone builds, it leads to fragmented efforts where few teams achieve the scale that fosters expertise. At NFF we’re excited to use our investment capabilities and expertise to support foundations looking to partner to achieve their impact investing goals rather than go it alone. But I do think it is important for foundations, even those just getting started, to have an internal champion to connect deals from a mission and human perspective to the foundation.  

Yes. A lot of times we have looked at what has helped us in terms of "skill and will" on program teams. Skill is an added asset but “will” is essential. We've recently interviewed a few candidates very carefully around “will”. Even if they weren't coming from a place where they had deep expertise with investment, we looked to see that they had an appetite and receptivity to using investment tools. Because we've hired people with “will”, we've seen a dramatic uptake in momentum.  Kresge is changing from the inside out because program staff are increasingly interested, motivated and seeking a wider range of opportunities.

Interesting. Even if program folks haven't done deals, making sure they’re open to learning and using different types of capital to reach goals is a great approach to strategic hiring. We find a lot of our work comes down to figuring out best ways to deploy various types of capital to support social impact, and there is an element of flexibility and creativity in every success story. Thank you for sharing your insight from your work as a leader and doer in impact investment. 

[1] http://payforsuccess.org/resources/new-york-becomes-first-state-launch-social-impact-bond