Carnegie
Corporation
of New York
Fall 2005
DOLLARS DILEMMA
In addition to these programmatic concerns, the ambitious new strategy
for replicating the Standards for Excellence also carried serious financial
challenges. Based on the success of the first stage of replication, both
of the project’s main funders—Carnegie Corporation and Atlantic
Philanthropies—agreed to renew support. However, both foundations
authorized only one year of additional funding and at a lower level—$350,000
from Carnegie Corporation and $250,000 from Atlantic Philanthropies. And
both decided not to consider any further grant requests. In each case,
the decision had nothing to do with the Standards for Excellence. Rather,
each for its own reasons elected to terminate (Atlantic) or substantially
scale back funding (the Corporation) for projects aimed at supporting
the health of the nonprofit sector. Geri Mannion, chair of the Strengthening
U.S. Democracy Program at Carnegie Corporation, says that the shift in
priorities is not unusual. “The Corporation, like many other foundations,
views itself as a catalyst for change, an incubator of ideas,” she
explains. “We step in when we think we can make a difference in
helping to support organizations that are critical to advancing ideas
and programs in different fields, but we can’t keep funding every
organization in every field we work in on an ongoing basis.” And,
Mannion adds, “for these kinds of efforts, foundations should never
be considered long-term sources of revenue.” Instead, she suggests,
the federal government should support efforts to oversee and monitor nonprofits.
Despite dramatic growth in the nonprofit sector in recent years, the Internal
Revenue Service employs fewer than 500 employees to examine the roughly
500,000 nonprofits required to file federal tax returns. The Boston
Globe reported in December 2003 that the total budget of the IRS’s
tax exempt division is just $72 million per year, even though a federal
excise tax on philanthropic foundations established in 1969 specifically
to support oversight of tax-exempt organizations generates more than $500
million in tax receipts every year.
For Maryland Nonprofits, the declining support from foundations (or forthcoming from the federal government) created an unexpected funding shortfall in 2004. As a result, the organization both dipped into its own reserves to support the program and made a tough decision to begin charging the replication states a $15,000 per-year licensing fee to continue in the project. The decision was unpopular, causing the first ripples of tension between Maryland Nonprofits and its partners. “It was a tax on our organization,” recalls Joe Geiger, director of the Pennsylvania nonprofit association. “It would have been preferable if there continued to be grant money to carry it through until the program could be self-sufficient.”
Looking ahead, Maryland Nonprofits began drawing up a new financial plan that relied more on earned income and less on foundation largesse—an issue for many nonprofits seeking sustainability for their programs that does not rely on competing for limited foundation dollars. The Maryland Nonprofits plan depends on a continually growing group of replication partners agreeing to pay ongoing licensing fees, as well as substantial earned income via training and publication fees. Some of the existing partners feel no hesitation to pay the fees and remain a part of the program. “We can afford it, and it’s something we want to do,” says Karen Beavor, executive director of the Georgia Center for Nonprofits. But an official from one other replication partner, who asked not to be identified, expressed reservations about continuing to pay licensing fees. “I’m not sure what we’re going to do in three years. We’ll have to reexamine things then,” the official said.
Berns is confident that once it has signed on twenty replication partners, the Standards Institute will be self-sufficient. “It’s just like with any business start-up,” he says. “You need to be able to capitalize the business long enough to become financially sustainable.”