Building the Infrastructure that Sustains Nonprofits: Latest Research Findings

Nonprofits are a core sector of the economy. Often, where business or government leaves off, it is nonprofits that fill in the gap; delivering critical services that neither business nor government can deliver. Yet frequently, the nonprofit sector is dismissed as incidental. Think about it, how often do you hear a robust discussion regarding the health and well-being of the nonprofit sector on the nightly news or read about it in the "A" section of your newspaper? Rick Cohen of Nonprofit Quarterly provides us with a glimpse of the latest research findings regarding the critical issue of nonprofit infrastructure. Food for thought. (And by the way...I am thrilled to have a contribution from Nonprofit Quarterly, a fabulous and informative publication that I have relied on for years). Bunnie

Building the Infrastructure that Sustains Nonprofits: Latest Research Findings

by Rick Cohen, National Correspondent, Nonprofit Quarterly

(Editor of the Cohen Report)

In December 2008, the Nonprofit Quarterly completed a study (http://www.nonprofitquarterly.org/images/infrastudy.pdf) and published a special winter 2008 issue of the magazine (http://www.nonprofitquarterly.org/images/infraissue.pdf) on the condition, funding, and functions of national infrastructure organizations—trade associations such as the Council on Foundations and Independent Sector, capacity-building resources such as BoardSource, Bridgespan, and the Center for Effective Philanthropy, research and database providers including the Urban Institute, Guidestar, and the Foundation Center, groups that promote advocacy and civic engagement such as OMBWatch, the Alliance for Justice, and the Center for Lobbying in the Public Interest, and watchdogs like the National Committee for Responsive Philanthropy, Charity Navigator, and BBB Wise Giving Alliance--that support nonprofit and philanthropic activity in the United States.

Why bother about the nonprofit and philanthropic infrastructure, especially now while many nonprofits and foundations writhe in financial freefall due to the plunging economy? That’s exactly why infrastructure matters. When the infrastructure functions, it strengthens the sector, bolsters its advocacy, increases its accountability, and expands its reach and support of nonprofits across the country.

The core finding of this study, funded by the C.S. Mott Foundation, concerns the question of reach. The current system of financing the infrastructure—including foundation funding—tends to favor organizations that support and represent the larger nonprofits of the sector. The infrastructure groups that serve the thousands of smaller and mid-sized nonprofits that constitute the overwhelming bulk of the sector (remember, 85.7% of nonprofits filing 990s and 93.6% of all nonprofits have annual revenues of less than $1,000,000) have been consistently underfunded.

In crises like this one, as in the responses of New York nonprofits after 9/11 and Gulf Coast nonprofits after Hurricanes Katrina and Rita, nonprofits that were well networked were able to identify and distribute resources faster on behalf of their constituents than those that were unconnected. They were also able to find many effective points of collaboration with other organizations to ensure that clients were served on the most holistic and effective basis possible.

Components of a solid national infrastructure already exist to aid local nonprofits in this historic pinch but infrastructure funding is unbalanced and has not been approached systematically. The result is that the national infrastructure does not have the consistent reach that it should to the many corners of the sector (rural areas, the south, marginalized communities) even while some infrastructure organizations representing the elite of the sector build significant reserves.

Specific findings from the study include these:

Funding has been heavily concentrated in a limited number of individual institutions rather than in a comprehensive distributed system of infrastructure. Over the past five years, 104 national infrastructure organizations received foundation grants adding up to more than $1 million. The top ten of these received more than half of the total, although some portion of the funding of the top ten includes pass-through technical assistance and regranting funding they administer on behalf of selected foundations.

A very small number of foundations account for more than half of all infrastructure funding. Although 1,300 foundations were identified as having made grants to infrastructure over the past five years, more than 55% of the funding to infrastructure organizations comes from only 10 foundations and a mere five foundations account for 40% of infrastructure funding (excluding grants to university-based centers).

There has been a relative lack of attention to building an appropriate overall financing system for the infrastructure. As a result, there is little government money in the system and some organizations have been driven towards business models in which they serve only the elite of the sector, that is, the larger nonprofit institutions that can afford to “pay” for functions and services that the bulk of smaller nonprofits cannot.

There has been a relative lack of foundation support to the national networks serving and representing small to mid-sized nonprofits in the U.S. on the state and local levels. This severely limits the reach and potential for learning and innovation in the sector.

Relationships and personal politics are perceived by many infrastructure groups as a better indicator of who receives funding than mission, reach or work product.

Because of leadership changes among some of the major foundation grantmakers to the national infrastructure, there is the unfortunate prospect of future reductions in foundation support for the infrastructure. Several years ago, it was the post-2001 cutbacks in infrastructure support by two leading foundations (Atlantic Philanthropies and the Packard Foundation) that led to a series of meetings (and eventually a special 2004 issue of Nonprofit Quarterly makes the case for funding the nonprofit infrastructure).

There appears to be an increasing separation of the philanthropic infrastructure from the rest of the nonprofit infrastructure. Nonprofit infrastructure organizations frequently think serving a broad definition of the sector, but the philanthropic infrastructure organizations tend to limit their focus to the foundation world. This may be a contributing factor to the insufficient attention of the national infrastructure to other than larger, better endowed institutions

Intense competition and lack of cooperation among some infrastructure groups is cited as having retarded progress in a few key areas; although there are signs of promising collaborative efforts that merit attention and support.

Foundations can and should rethink their funding priorities to make a difference in rebalancing the national infrastructure to better serve a broader array of nonprofit organizations. The NPQ infrastructure report offered the following recommendations for foundation action, which will occur only if the nonprofit sector advocates for a different foundation approach to the infrastructure.

Invest in the national networks of state associations and nonprofit capacity builders whose members are widespread, serving nonprofits of all types and sizes on a state and local basis. As the excellent work of the National Council of Nonprofits demonstrates, these networks are critically important now, perhaps more than ever, as watchdogs of state and federal policies and programs and guiding nonprofits to carry out nonprofit roles in the national economic recovery.

Invest in advocating for federal government support of the large nonprofit databases to feed a future of good research. There is general agreement that the development of these databases such as Guidestar and the Urban Institute’s National Center for Charitable Statistics has been one of the most valuable accomplishments of the infrastructure, but they cost a great deal to establish and maintain and there are concerns about their accessibility as some move toward charging fees. Government generates and makes available huge amounts of data for other industries and sectors; it is time to make government funding of this component of the national infrastructure a national nonprofit advocacy priority.

Invest in a pooled bank of patient capital (removed from the foundation/grantee relational melee). The focus should be to help necessary but as yet undercapitalized components of infrastructure in immediately extending their reach and impact, and in building their fee producing markets.

Invest in a national agenda of research that has practical use to nonprofits. While all research need not be completely utilitarian, there is an acute need for a venue that dedicates itself to the promotion, “translation” and broad dissemination of research that responds directly to practitioner concerns.

There are many “missing in action” foundations on the national infrastructure scene, and local state associations, management support organizations, loan funds and other elements of infrastructure desperately need local philanthropic subsidy to serve the full range of local nonprofits. Considering the marked concentration of current infrastructure funding among a relatively few foundations, major funders of the national infrastructure would be wise to champion a “good citizenship” code of ethics among philanthropy that urges support of these necessary connectors and resource banks.

Contact Rick at rick@npqmag.org