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What Is the Value of Foundation Grants? Measuring the Economic Impact of Foundation Grant Making



August 13th, 2013

The author, director of federal affairs at The Philanthropic Collaborative, reports on a recent event in Washington, D.C.

On July 25, The Philanthropic Collaborative and the Urban Institute’s Center on Nonprofits and Philanthropy co-hosted a half-day conference on the need to quantify and share with policy makers the economic impacts of foundation grant making. The series of roundtable discussions brought together about thirty leading minds in the field, including reporters, foundation leaders, economists, and academics, and also sparked several robust conversations about the need to better understand and share the long-term social impacts of grant making.

With Congress in the midst of many hard decisions on spending and taxes, the conference couldn’t have been timelier. Because of this challenging political environment, the charitable sector’s value and tax-exempt status have faced substantial scrutiny.

The day’s first panel discussed “What does Congress know about foundations?” and ”How do we communicate with lawmakers the long-term value of philanthropy?”

Many lawmakers are unfamiliar with the operations of foundations, and correcting misconceptions takes time. Many panelists could speak to the experience of having seen blank faces on Capitol Hill when they begin to explain foundations’ operations, grant making, and metrics for success. The changing media environment has also played a role in decreasing awareness of what grant making is all about. Instead of looking at grants as long-term investments and ways to cultivate new solutions to societal problems, 98 percent of media coverage of foundations is merely transactional—that is, “Foundation X made a grant of Y dollars to Z grantee.” It seems there are fewer local reporters who can devote the time to do a careful examination of the long-term effects of grant making.

In addition, the relevant congressional committees overseeing the sector are numbers oriented, and their understanding of foundations is limited because the long-term economic research and value metrics are lagging. But to open the door with these policy makers, advocates need meaningful and reliable data points. While it may seem bizarre to explain the value of providing housing to returning veterans or food to the hungry in terms of long-term economic return, that type of information is needed in this tight budgetary environment.

The next panel focused on what we do know about foundations’ impact and reviewed the methodology of two economic reports commissioned by The Philanthropic Collaborative. The Social and Economic Value of Private and Community Foundations by Robert Shapiro and Aparna Mathur of Sonecon uncovered the long-term return on investment of foundation grants and foundation-operated programs. Economic Impacts of 2010 Foundation Grantmaking on the U.S. Economy by economist Steven Peterson at the University of Idaho used economic modeling to measure the short-term and long-term, and the direct and indirect, benefits of foundation giving on the American economy.

The studies’ authors explained the reports and noted where follow-up research could be directed. The conference attendees unanimously agreed on the need for accurate and reliable metrics on the economic returns associated with grant making—especially metrics that could stand up to outside scrutiny. The ensuing conversation elaborated on potential ways to house data from reports on the nonprofit sector in one location, so future authors could more easily build upon the work of their predecessors.

The third panel looked at next steps—that is, where do we go from here. Panelists universally agreed on the need to clean the current data set on foundation grants—that is, sort through the research and apply a critical eye to reveal the best facts, figures, and statistics on long-term impacts. We also need to encourage others in the sector to share their data.

There is also plenty of opportunity for new research in the field. Specifically looking at foundations’ long-term impacts is a relatively untouched area of research. An examination of the marginal benefits of the ‘last dollar’ invested (in other words, how valuable is $100 given as a seed grant versus $100 to support continuing operations) or a longitudinal study could be very appealing to new researchers. Some additional topics that panelists proposed for study include employment statistics, geographical impact data, and, most importantly, data on the beneficiaries of grant making.

The challenges of uncovering this kind of data were revealed in a 2009 study by The Philanthropic Collaborative on the end beneficiaries of grant making in the field of health. When writing Broad Benefits: Health-Related Giving by Private and Community Foundations, Phillip Swagel, former assistant secretary for economic policy at the Treasury Department, and his team had to actually call about 200 grant recipients and ask what populations their programs served. After this great effort, the study ended up finding that health grants are reaching America’s most underserved communities. The report found that two of every three dollars of health grant making in the United States is reaching low-income and minority communities.

Panelists suggested researchers consider using available data from the Bureau of Labor Statistics, existing but unexplored data at the Foundation Center, and other already-available sources, such as Internal Revenue Service Form 990s.

Research could also explore the diversity and flexibility of the sector. From the emerging social impact bonds movement to B corporations and other hybrid models, foundations and individual donors are pursuing innovative approaches from which the public sector (as stewards of taxpayer dollars) has shied away. Long-term studies that evaluate the financial savings to the government of foundation-funded projects—both by replacing public programs and by funding new projects—would be incredibly useful tools for federal, state, and local lawmakers around the country.

In summary, the conference was a thought-provoking experience for everyone involved. By collecting and sharing data about the effects of grant making, we are helping lawmakers appreciate the sector’s social and economic value. Events in the spirit of the July 25 conference should be continued so we can better understand the long-term value of private philanthropy.

The Philanthropic Collaborative brings together foundations, charities, and elected officials to provide information to policy makers and others about the economic and social impacts of foundation grant making. For more information, please visit www.philanthropycollaborative.org.

The July 25 conference agenda has been copied and pasted below. 

 

Emerging Issues in Philanthropy

A Joint Project of the Urban Institute Center on Nonprofits and Philanthropy,

The Tax Policy and Charities project, and The Philanthropic Collaborative

 

Measuring the Economic Impact of Foundation Grantmaking

 

The Urban Institute

2100 M Street N.W., 5th Floor

Washington, D.C. 20037

 

Thursday, July 25, 9:00 am to 2:00 pm

Breakfast will begin at 8:30am and lunch will be served at 11:45am.

 

Please join us for a half-day conference explaining the need to quantify and share with policymakers the economic impacts of foundation grantmaking.  This series of roundtable discussions will bring together leading minds in the sector and foster in-depth discussions around several pressing topics.

 

Making the Case (9:15 – 10:15):  Policymakers have long asked other industries to justify their treatment in the tax code.  Recently, that same level of scrutiny has been applied to the nonprofit sector.  Foundation grantmaking is a huge source of economic growth and job creation, but there are signs lawmakers do not fully understand this impact.

  • Michael McHugh, The Philanthropic Collaborative (Moderator)
  • Sue Santa, Council on Foundations
  • David Cay Johnston, Investigative Reporters and Editors, Syracuse University
  • Rick Cohen, Nonprofit Quarterly

 

What We Know (10:30 – 11:45):  Foundations make important contributions to the economy, but the field of knowledge on the economic impacts of grantmaking is relatively small.  As The Philanthropic Collaborative, Urban Institute and others uncover these impacts, it is important that researchers know what their colleagues are doing and what methods are most effective.

  • Gene Steuerle, The Urban Institute (Moderator)
  • Steve Peterson, University of Idaho
  • Robert Shapiro, Sonecon, and McDonough School of Business
  • Rick Clayton, U.S. Bureau of Labor Statistics

 

Focusing Efforts and Moving Forward (12:15 – 1:45):  After exploring what we already know, the next step is determining where more research should be done.  What information does the sector need to most effectively educate lawmakers and community leaders through the tax reform process?  What are the best ways to ensure the information we have is known and used?

  • John Tyler, The Philanthropic Collaborative (Moderator)
  • David Hammack, Case Western Reserve University
  • Michael Moody, Johnson Center for Philanthropy, Grand Valley State University
  • Steve Smith, American University

 

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