Category: Research

The COVID-19 pandemic and fights for racial justice highlighted questions about whether mission-driven organizations can effectively deliver on their social impact goals without engaging with the communities that they seek to impact. Philanthropic foundations, in particular, have come under scrutiny amidst recent and growing concerns about their undemocratic nature and shrouded grant-making processes.

Philanthropic foundations in the United States hold significant power in the policy landscape, as they can both define societal challenges and determine the manner in which those challenges are addressed. The work of foundations is tax subsidized, but they are held to few standards of accountability, leading to increasing calls for foundations to shift their power to affected communities, to democratize decision-making through greater stakeholder participation, and to be more accountable to those whose lives they affect.

As part of the University of Washington Philanthropy Project, Evans School researchers Kelly Husted, Emily Finchum-Mason, and David Suárez sought to understand how large philanthropic foundations – with substantial assets and power – engage the people they serve in their governance and grant-making policies and practices. They launched a survey of the 500 largest private and community foundations in the United States between May and December 2020 to answer this question. These are their key findings:

1. Many foundations solicited and incorporated feedback from grantees, community-based organizations, beneficiaries, and the public directly into decisions regarding governance and grant-making, but true decision-making power was rarely given to these stakeholders.
2. The vast majority of foundations are using stakeholder participation as a way to increase their innovativeness and effectiveness rather than to share power, despite the fact that rhetoric surrounding these practices is focused on breaking down power silos.
3. For the largest foundations in this country, the primary impediment to stakeholder participation was a perceived lack of time and capacity to implement, despite the sheer volume of assets that these foundations wield.

By learning more about grantmaking practices that are currently in place, the motivations for using these approaches, and the key challenges to incorporating stakeholder participation, researchers hope to lower the barriers that some foundations may face in making stakeholder participation an integral part of their governance and grant-making.

Greater accountability from philanthropic foundations represents an important step to a more equitable future. When large, powerful foundations listen to those they aim to benefit, they can more effectively direct their giving in ways that align with community needs.

About the UW Philanthropy Project

The UW Philanthropy Project is a multiyear research program seeking to understand the many important roles that philanthropic foundations play in American society.

This report confirms what those working for nonprofits already knew: Nonprofits are being asked to do more and more with less and less. Funding is down 30% and volunteerism is down 30-50%. Yet the need for, and dependence on, nonprofits continues to grow. This trend must be reversed in short order if nonprofits are going to be able to serve long-term.

The research team would like to thank the staff of all the nonprofit organizations that took the time to complete this survey. We realize that the leaders and staff of these organizations are under incredible pressure to serve their communities during this tumultuous time with increasingly tightening resources. Finally, we want to thank the nonprofit leaders and staff who piloted our survey and provided insights on how to maximize the relevance of the survey as it relates to nonprofit management, governance, and policy.

Erica Mills Barnhart
Associate Teaching Professor, Daniel J. Evans School of Public Policy & Governance

Emily A. Finchum-Mason
Ph.D. Candidate, Daniel J. Evans School of Public Policy & Governance

Mary Kay Gugerty
Nancy Bell Evans Professor of Nonprofit Management, Daniel J. Evans School of Public Policy & Governance

Kelly Husted
Ph.D. Candidate, Daniel J. Evans School of Public Policy & Governance

The COVID-19 crisis has caused deep and widespread strain across sectors and individuals since taking hold in early 2020. Despite this adversity, nonprofits—especially those comprising the modern social safety net—have continued to serve their communities during this tumultuous time (Kulish, 2020). This report seeks to understand (a) the major challenges facing nonprofits in Washington state as a result of the COVID-19 pandemic, (b) the strategies that nonprofits are using to mitigate the effects of the crisis, (c) how nonprofits are experiencing changes in funder relationships as a result of the crisis, (d) the degree to which nonprofits in the state have accessed assistance under the CARES Act, and (e) the most pressing needs nonprofits have as they face the ongoing uncertainty and hardship presented by COVID-19.

Not surprisingly, this report finds that nonprofits face considerable financial difficulty, with many already experiencing steep declines in total revenue and projecting declines over the next year. The average decline in total revenue experienced across nonprofits is approximately 30%. These declines are largely driven by a drop in program service revenue and are particularly challenging as many nonprofits are shifting their modes of service provision and incurring costs as they seek to prevent the spread of the disease. Declines in total revenue are projected to continue over the next year by an average of
16%, including a 4.2% decrease for health and human service organizations and a 25.6% decrease for other nonprofits.

Health and human service nonprofits are also seeing significant changes in service demand—an average increase of 28%—without a requisite increase in funding. At the same time, nonprofits are seeing a significant reduction in the number of people willing and able to volunteer in order to provide needed services. Other nonprofits, such as arts organizations, are seeing a drop off in demand that is jeopardizing their ability to survive.

Despite these challenges, we find that nonprofits are being flexible and creative in their response to the COVID-19 crisis. Many organizations have effectively reimagined what service provision looks like during this challenging and uncertain time, with nearly 64% of nonprofits changing how they provide programs and services. Approximately 58% of nonprofits have altered their short-term organizational goals, and nearly half have changed their programmatic priorities.

These changes come at a cost, and the strain on nonprofits is visible: 62% have had to pause one or more programs, and 14% have had to end one or more programs. Subsequently, many nonprofits have spent down cash reserves and made significant cuts to their number of staff, staff hours, and program capacity in order to stay afloat. Partnerships between nonprofits and local governments have become a common means of maximizing limited resources and tending to communities hardest hit by the crisis.

While some funders are moving to ease the burden on nonprofits through actions such as increasing funding and loosening grant restrictions for grantees, nonprofits reported that changes in funder/grantee relationships have been limited. A majority of nonprofits (for whom the questions were applicable) report that none of their funders have changed how existing funding can be used, reduced reporting requirements, or made new funding unrestricted so that it can be flexibly used to meet needs.
Many nonprofits—56% of our sample—have successfully accessed CARES Act Paycheck Protection Program loans to support their employees. While nearly 30% reported some difficulties in applying, 95% that did apply were approved for their loans. Qualitative evidence suggests that there is still confusion though about whether and how these loans will be forgiven, and while assistance with payroll is helpful, nonprofits note that other costs associated with operating during the pandemic are still challenging.

Finally, we asked nonprofits what types of assistance would be most useful during this time in the hopes of stimulating action on the part of policy-makers, government agencies, institutional funders, and donors. Nonprofits overwhelmingly responded that they require assistance in terms of additional funding—from foundations, government, and individuals. Nonprofits also stated that reduced restrictions on current funding streams, information about the emergent state and local regulations pertaining to COVID-19, and information and data sharing would be useful during this time.

Many nonprofits are currently struggling to cope with the hardships associated with COVID-19, the economic downturn, and an uncertain future. Based on our findings along with other recent research on nonprofit responses to the COVID-19 crisis, we recommend that:

1. Philanthropic foundations and corporate funders provide more funding to the nonprofit sector to alleviate short-term solvency concerns.

2. Institutional funders increase flexibility as nonprofits try to navigate their new implementation environment and survive these turbulent times by reducing reporting requirements, loosening restrictions on current funding agreements, and making new grants unrestricted.

3. Legislators, government agencies, and institutional funders support communities most affected by COVID-19 and the subsequent economic downturn, including Black communities, Indigenous communities, and People of Color (BIPOC), by: (1) targeting funding towards BIPOC-led and BIPOC-serving organizations and (2) developing partnerships with BIPOC-led organizations, listening to the concerns and needs of those communities and translating those needs into action.

Read the Full Report