Funding America’s Rural Nonprofits

How are foundations funding rural nonprofits today? That’s a difficult question to answer, as the definition of “rural,” much less “rural nonprofit,” is a subject of great debate even within the federal government, which has at least 15 different definitions of rural. Many rural nonprofits have probably given up on seeing philanthropy double its rural grantmaking in five years, as per the challenge issued by Senator Max Baucus (D-MT) to the Council on Foundations seven years ago, because of the historic underfunding of rural communities by foundations.

From the perspective of examining subsectors of rural nonprofits, however, one can discern interesting dynamics that suggest changes in foundation support for rural groups. This analysis draws on the foundation support for rural community development corporations that are members or partners of two networks, the Rural LISC program of the Local Initiatives Support Corporation and the NeighborWorks Rural Initiative under the aegis of NeighborWorks America.

Rural community economic development groups that are connected to LISC and NeighborWorks are generally among the strongest, in part because of the access and credibility they get from their association with national community development intermediaries. As a result, the data on foundation grantmaking for these organizations reflect foundation grantmaking for groups more likely than the average rural CDC to access philanthropic resources. Eighty of the 250 members of NeighborWorks are in the Rural Initiative; 58 CDCs are in the Rural LISC program, with substantial overlap with NW.

Although not representative of all rural community developers, these groups do give a taste, at least, of how institutional philanthropy treats the top groups in the subsector. For the purpose of this analysis, groups without any foundation support in recent years have been excluded, as that might be as much the nonprofit’s choice to abjure foundation funding as it is philanthropy’s to consider funding for the group to be excessive and unnecessary. In addition, some members of the rural networks were predominantly urban in their focuses, with the bulk of their program activity geared to metropolitan populations, leaving only a small portion available for more rural groups; they, too, were excluded from the analysis. The statistics are drawn from the online grants database of the Foundation Center for the years 2006 through 2011—and thus not necessarily guaranteed to reflect all grants—and from the encapsulation of Form 990 data available from Guidestar.

Foundation grantmaking for these rural CDCs—67 that received foundation support during these years, basically from a low-base—has progressed in recent years, but without major leaps forward for many organizations:

As of 2010 and 2011, foundation support for these top rural CDCs had not greatly increased above the level of foundation investments they had received five years earlier. These statistics, however, combine foundation grantmaking with foundation program-related investments (PRIs), loans, and other capital investments. Removing those non-grant investments from the calculation paints a somewhat different picture of foundation support for these Rural LISC and Rural NeighborWorks groups.

Two dimensions of these totaled foundation grant and loan dollars bear mentioning. One is that a few large grants to the largest rural CDCs skew the average grant size (or grant and loan size) upward. Most of these groups are spending significant efforts for relatively small grant dollars—in many cases, grants of only a few thousand. Although the foundation grant totals per organization reach six figures in four out of the six years, remember that groups that received no foundation grants at all were excluded from the analysis. Had they been included, the average foundation grant totals per organization would have been significantly lower.

The other is the impression that foundations lean increasingly toward lending and capital investments, rather than program and general operating grant support. Early indications in foundation investment patterns seem to show that, just as in 2011, one-quarter of foundation dollars will go to rural CDCs as loans or PRIs in 2012. Overall, for these larger, more experienced rural community developers, foundation support has fallen well short of Senator Baucus’s call for doubling.

The sources of rural philanthropy haven’t changed much. The top funders of rural community economic development between 2006 and 2011 do not show an influx of new money:

This is a wildly significant concentration of foundation investment in these rural community development corporations. Just relying on Foundation Center numbers, we can see that the top 10 foundations in this list account for more than 52.2 percent of foundation grant and loan investments.

Significantly, many of the nation’s top rural CED grantmakers are regional, rather than national, in their emphases. Rural nonprofits within the charitable footprints of the California Endowment, Mary Reynolds Babcock in the Southeast, Rasmuson in Alaska, and Meyer Memorial in Oregon, as examples, start with a bit of a leg up because of these foundations’ appreciation of rural CED in their regions. That isn’t the case for CDCs in other rural areas without a foundation or two that has taken some sense of ownership of, and commitment to, rural community development.

Scarcely present in this list are those foundations typically found among the top overall grantmakers in the nation. Generally, the rural funders in the top 50 grantmakers nationally are Ford, Kellogg, California Endowment, Bank of America, Kresge, Annie E. Casey, JP Morgan Chase, and Wells Fargo. Smaller foundations, notably F.B. Heron and Mary Reynolds Babcock, do yeoman jobs in supporting rural community developers, while other large foundations seem to be fading from the picture somewhat. A more generalized rural community economic development analysis of foundation grantmaking conducted a few years ago that examined grantmaking between 2004 and 2008 had Kellogg as the nation’s second largest rural development grantmaker, though it’s not so in this analysis of grantmaking to the LISC and NeighborWorks rural groups. Others with high rank in that prior analysis that do not rank highly in this analysis are the Northwest Area Foundation, the McKnight Foundation, the C.S. Mott Foundation, the Bill and Melinda Gates Foundation, the Walton Family Foundation, and the John D. and Catherine T. MacArthur Foundation.

Banks put forth 13.9 percent of the grantmaking—possibly a higher percentage, if some additional financial institutions are included in the calculation—while 6.0 percent came from community foundations. Those are reported grants; many corporations do not necessarily make their grants through corporate foundations, which are obligated to make their grantmaking public. Some community foundations do not fully report their grantmaking because a portion comes from donor-advised funds, and there is no way to distinguish in public reporting the proportion from community foundations’ general grantmaking pools versus what they distribute from DAFs that they manage.

Foundation support represents only a piece of the non-governmental support rural community developers receive, beyond money from events and program services or earned revenue. Drawing on the statistics from the Form 990s of 93 of the LISC and NeighborWorks rural community developers with four years of comparable information (2008-2011), the following patterns emerge:

Some grants to California-based groups skew the numbers, particularly for 2009, so that a different calculation emerges without California included:

Thirty-eight out of the 87 rural community developers in the non-California analysis were still raising less private sector funding in 2011 than they had four years earlier in 2008; including California groups, it is 40 out of 93 that had lower private sector revenue totals in 2011 than they did in 2008.

Despite what appear to be marginal advances in foundation grantmaking for rural community development groups, when it comes to private sector revenues reaching the operating budgets of rural community developers, the challenges are real and persistent.

To put the foundation numbers in context, remember the size of the U.S. philanthropic sector. Annual grantmaking numbers are, even with a few years of recession, massive and, with the rise in the stock market in 2010 and 2011, surpassing pre-recession totals. With the 2012 market run-up, despite corrections, foundation assets available for grant support are presumably even higher.

Source: Foundation Growth and Giving Estimates (Foundation Center)

There is much that institutional philanthropy can and should support with north of $600 billion in tax-exempt assets.

It would appear that, despite opportunities to do so, the nation’s largest foundations are retreating from supporting housing and community development activities:

Source: Distribution of Foundation Grants by Subject Categories (Foundation Center)

The implication to be drawn is that the best rural community development organizations in the nation have a hard row to hoe in tapping foundation support. It is doubly challenging because foundations have started to lose interest in supporting housing and community development. A foundation sector that has long recovered from its recessionary downturn has the capital to meet Senator Baucus’s long-forgotten challenge and to reinvest in the stabilization of American’s urban and rural communities. In the aftermath of the recession, now is not the time for foundations to pull back, either from rural or from housing and community development.