Our interview with Kelvin H. Taketa, president and CEO of the Hawaii Community Foundation, is meant as a peek behind the curtain; a funder’s reflection on challenges and opportunities posed by the current environment. It also happens to be a window into a community foundation that takes its traditional role very seriously. We loved Taketa’s description of building social capital as building trust and leadership within communities where there is an increasing gap between the very rich and the very poor — and little in between.

What can we expect of foundations over the next few years, given the current political and economic environment?
I think you’re going to see foundations struggling with greater public scrutiny. The media no longer treats the charitable world with any favorable bias simply because of its good intent. The general mood, aided by technology, will require greater transparency.  I just hope that we don’t equate the need to explain why we do what we do as a rationale for avoiding risk or controversy. 

Second, many foundations will be facing a reduction in their grant budgets, aside from contributions–depending on their investment performance and pay-out policy. Since most foundations calculate their payout on a rolling average of their asset value over a period of years (in our case four years), it may not start until 2003 or 2004, but it’s coming, barring a major recovery of the equity market in the near term.    

In Hawaii, we also expect that the slow down in the economy will reduce the level of grants and service contracts from state government to nonprofits.  Existing mandates in special education and new public employee contracts for example, leave little discretionary areas for balancing the state budget.  We are bracing for an attrition phase and expect to see some significant winners and losers in the near term.

And who do you think are going to be the winners and losers?

Organizations that are overly dependent on institutional support from government or foundations will have a difficult challenge.  Based on our past observations, individual giving will hold up fairly well.  It may not grow but it won’t contract to anywhere near the degree of institutional funders.

Given tough times ahead, what will you do? 

In meetings that we’ve held with nonprofit, community and government leaders, it is clear that the value of the foundation goes far beyond grants.  Because we provide funds statewide across all sectors, nearly everyone pointed to our unique ability to convene and organize.  We will increase our efforts to bring leaders together and share resources and ideas through workshops and various forms of meetings.

We have also rolled out a series of studies that have focused on giving patterns, executive tenure and the economic contributions from the sector.  These studies have provided a context for public-thinking about the nonprofit sector and have given a voice to the sector as well.  In tough times, this is going to be important.

We have the responsibility to speak out publicly and to talk to policymakers for several reasons. First, there is a belief held by public policy leaders that private fundraising can ameliorate the impact of government funding cuts on nonprofits.  Our studies have shown that government funds, especially in human services, are a huge portion of their revenues; moreover, Hawaii’s people are already giving generously (nearly 88 percent of all households contributed to charities in our last survey).  There is no way to make up the shortfall.

In addition, very few people realize that nonprofits are the fifth largest employer in the state; yet every time we talk about the economy or job quality, nonprofits are entirely absent from that discussion.  It is our responsibility in this new environment to speak on behalf of the field.  It is much easier for us than it is for a nonprofit that is seen as self-serving because of their dependence on government support.   

Finally, we are working to define the strategic tenets of our grant-making program.  This is a challenge for all community foundations–and it may differ from place to place based on the funder landscape. The opportunity and challenge for us at the community foundation is to be more proactive and simplify what we do. Where we are headed is to thematically focus on two areas that we think are most important: capacity building work for nonprofits; and building leadership and trust (“social capital”) in communities.

So, in a sense, we are going back to infrastructure. How do you justify that?

Most programmatic funding is either coming from government, individuals or other private foundations.  In my view, the relatively small amount of money that we throw into programmatic funding doesn’t sway, to any great degree, the design or the impact of programs.  We are expecting that the external pressure created by limited funds will provide new opportunities to help organizations with joint ventures, joint marketing or service agreements, and other strategies that will move a very fragmented field closer together.  We want to be ready to help when that happens.

How about the social capital piece? How do you justify concentrating on that?

That’s another kind of infrastructure investment.  In Hawaii, we are seeing a continuation of an economic condition that is widening the gap between the rich and poor.  There is less of a middle class and a lot of poor people mixed in with some incredible wealth.  Hawaii real estate is hot, especially as our economy limps along and the wealthy see it as a low-risk, high quality investment.  Gated communities springing up in a state that has always prided itself on open access from the mountain to the sea is a perfect symbol of the problem.  We need to be particularly attentive to increasing social strain and invest in bridges between communities; otherwise, as things get worse, the relationships will erode faster than practically anything.

So, let’s go back to this idea of building bridges; specifically what about community foundations and the trend to treat the donor as the primary informant in decision making. Can you give us a sense of where the Hawaii Community Foundation is with that?

We are here for the benefit of the community, not the foundation.  We believe our job is to help increase charitable investments in the community; whether donors decide to create a private foundation or a donor advised fund or go directly to a nonprofit, it’s all a win to us. So our clients are broader than just donors to the foundation. And we hope we can help them through their own journey to become better philanthropists. 

We are a small community in Hawaii. We haven’t seen the phenomenon of mega-millionaires setting up large foundations with great expectations.  Instead, people here tend to be more laid back, modest, humble. Some of these people have had the good fortune of making money and now they have the good fortune to be able to give it back, even though they have never made large charitable gifts before. This is really new to them.

It is not so much like treating them like royalty, more like being a patient partner as we all learn together how best to support our community.  We must recognize that the journey is partially a personal one for them, and one where we need to help educate and expose them to opportunities so that they can ask the right questions of themselves.

We have also started to meet more part-time residents who are building lavish vacation homes in Hawaii in an effort to encourage them to get involved in philanthropy here.  I don’t care if they set up a fund here at the foundation, we want to share information and help them investigate and explore opportunities.  

After September 11th, we spent a lot of time talking and working with nonprofit groups.  At the end of the day, the organizations that had clear mission and strategies and could effectively communicate their impact fared better than others.  It’s like a brighter light was shown on the sector’s strengths and weaknesses and I think that light is going to continue to burn.  So my view is, you have to be very clear about what you are doing and why–you are not going to please everybody but if you have a rational basis for what you are doing, you just put your head down and go.  And that’s what we’re trying to do.
It sounds you’re headed there, anyway.

Yeah, I think it is evolutionary for us. But also the external pressures for us to do something different have increased greatly over the course of the last year with the specter of declining payouts from foundations, a relatively flat economy and likely reductions in government support. It’s a triple whammy that I don’t think a lot of organizations see yet on the horizon.
Last year, we made a concerted effort to utilize our funding reserves, recognizing that it doesn’t serve any social purpose by sitting in the foundation. With what’s coming, I would hope that community foundations don’t take an overly conservative posture about maintaining reserves because the time to maximize the impact of your resources is when the needs and opportunities in your community are so great.  I think that when things get tough, you’ve got to wring as much value out of your resources as you can. Look for partnerships where possible and realize you’ve got to be tougher about your choices and  recognize that your decisions won’t please everyone.