Tuesday, December 28, 2004

They get it up north

There are somethings money can't buy, like smart, dedicated people across a nation doing really interesting work in the world of social change. Just north of the United States is a small nation known as Canada. We American progressives yearn for the colder climes on a regular basis, for the politics of our friends above are much closer to those we would wish for at home. I've also been noticing some very interesting players in the Canadian philanthropic/nonprofit/social sector. Here are three:

1. Community Foundations of Canada

2. Social Capital Partnershttp://www.socialcapitalpartners.ca/financing.html

3. Common Ground. Nonprofit technology consulting focused on networks and affinity groups.

$25 Billion: Idea #5: Sustainable resource endowments

To read the full blog, click Philanthropy 2225

OK, here's another idea - Sustainable endowments. Foundations - most of them - are here in perpetuity. Their endowments are all about the future. Why don't foundations and their CFOs take the lead in creating financial vehicles that also are about the future - sustainable resource-backed financial products. How about funds based on the future, non-extractive value of old growth redwood trees? Or the 100 or 200 year value of pristine watersheds? Intact ecosystems? Renewable energy funds? Shouldn't there be a way to match the long-term existence of endowments with long-term sustainable investment strategies? And if any entity is well-positioned to imagine, pilot, and create such products, permanent endowments would seem to fit the bill.

Monday, December 27, 2004

Blueprint R & D corporate contribution

The staff of Blueprint R & D has selected the recipient of this year's gift. Changemakers, is "a national public foundation that models and supports community-based social change philanthropy. We work within the philanthropic sector to shift WHERE money is directed -- to address root causes of social and environmental problems -- and HOW it is given, urging individual donors and philanthropic organizations to become more accountable, strategic, inclusive, collaborative, democratic, and creative." For mor eon how the staff made this decision - and the other worthy organizations that we couldn't afford to support - please download: Blueprint 2004 Gift.doc

Thursday, December 16, 2004

$25 Billion: Idea #4 Community Investment Securities

In Michael Lewis best selling books, Liar's Poker, we learned of the ways and means of bond traders. The book captures the creativity and destruction inherent in the world of financial markets, including the wizardry, salesmanship, and opportunism that can lead to new financial products. The story turns around Louis Raineri, a Solomon Brothers manager who created mortgage-backed securities, changed the regulations to allow their sale, ushered in a housing boom, lowered mortgage rates for consumers, generated hundred of millions of dollars in business for Wall Street, helped precipitate the Savings & Loan crisis, and lost his job for his efforts.

Lets hope the same doesn't happen to Frank Altman, of the Community Reinvestment Fund, who has performed the same act of creating new financial products - this time for the social sector. Inc. Magazine named Altman one of their Entrepreneurs of the Year, and their
story captures the nuance, risk and opportunity better than I ever could.

Here's to seeing an idea become action and a step toward a real social sector financial market.

$25 Billion: Idea #3: Social Dividend Reinvestment

Social Dividend Reinvestment: Idea #3 for new sources of philanthropic capital.

We all know about pro bono contributions to the social sector. Lawyers do legal work, designers produce reports, CPAs sit on boards and help keep the books in order. These contributions are enormous and the social sector wouldn't function without them.

Can we build on this resource and draw direct financial support from it? In those subsectors where nonprofits and commercial providers both function - health, for example - nonprofits make up 85% of all hospital facilities and the majority of all medical teaching programs. Yet they are considerably disadvantaged compared to their commercial brethren when it comes to raising capital. Moody's Investor Services, which grades bond worthiness in many industries, has downgraded 9% of its nonprofit hospital portfolio to below investment grade.

Given the convergence of nonprofit and commercial sectors, the infrastructure of financial services that exists for commercial investment, and the need for new capital sources for philanthropy, can we find ways to draw capital for the social sector directly from the financial services that underpin so much of the economy?

What if there were a "social dividend" drawn from all financial transactions in health care facilities financing that would a fund a "trust" for nonprofit facilities. The percentage could be tiny and still throw off a large enough revenue stream to make a difference. Instead of (in addition to?) taxing hotel patrons to finance the arts, what if there were a Social Dividend drawn from Hollywood movie receipts to fund educational programs for the next generation of film directors, artists, and producers? How about a dividend on textbooks, test prep, and school construction companies that would fund such a trust for education?

President Bush has made it clear that he believes in the "Ownership Society" and is actively promoting tax reform that would reward investments and dividend income. The administration is also pushing hard to make trillions of dollars of social security resources available for investment in corporate stocks and bonds. The nonprofit and philanthropic sector has an enormous incentive right now to look at these revenue streams as capital for the work they do in the public good. Looking for social returns on investment is a start. But building social dividend incentives into corporate investments and financing is where the money is.

Does this exist already? Got a better idea? Want to make this happen? Email me at lucy@blueprintrd.com or comment on this post at Philanthropy 2225.

Wednesday, December 15, 2004

The $25 Billion Question: Idea #2 Mutual Funds

To read the full blog, click Philanthropy 2225

For the problem statement to which this post is a brainstorm, scroll down to "The $25 Billion Question: December 14, 2004"

How about values-screened mutual funds that draw donors to issues and grow everyone's gifts? Here's how it might work:

Environmental groups and foundations band together to develop a strategy for addressing an issue, lets say ocean pollution. They pull together the criteria by which other organizations that work on ocean pollution could address the issue and each contribute to a set of meaningful outcomes. They vet the organizations against the criteria (the criteria are public), they get agreements from the organizations to work together as set forth in the strategy and toward the outcomes, and they then turn to "NPO mutual fund purveyor" to market the fund, lets call it the "Clean Oceans Fund." The Clean Ocean Fund is then open for investment: anyone can get in, big foundations, individual donors, charitable gift funds, etc. The criteria and vetted organizations list serve as prospectus, regular progress reports toward the common outcomes serve as quarterly reports. Community foundations, charitable gift funds, private banks, private foundations, networks of grantmakers, ocean communities can all get into the fund and monitor the progress toward the objectives. A small fee (no load!) is built into the price of investment (Only $9.99 per Trade! Think online trading) that pays for marketing, due diligence and performance monitoring by the NPO Mutual Fund Purveyor. The dollars invested go to the groups in the fund.

Repeat across issue areas - education programs, campaign reform, health access, independent film creation, etc.. Market through every available philanthropic financial purveyor as time-saving, return oriented, funds screen based on values and issues.

Existing efforts to work from: Funding Exchange docket online

How does it fill the $25 b gap? By encouraging more donors to participate, by giving everyone access to credible, independent information, and by making the price of entry low, more people with small discretionary resources can get in the fund.

Tuesday, December 14, 2004

The $25 Billion Question: Idea #1 Community Remittance Funds

Philanthropy is facing a $13-25 billion annual drop off in capital inflow as a result of the estate tax repeal. This is the estimate provided by the Congressional Budget Office if the repeal at its 2009 scheduled level was in effect today.

So, where are we going to find $25 billion? Some will point to the "intergenerational transfer of wealth" and say "There! Over there! There it is!"

I don't think its quite this easy. Sure, some of the wealth built by the WWII generation and now passing to baby boomers goes to philanthropy. But this is actually the same river of revenue from which the estate tax repeal will be diverting resources. It seems a bit much to just sit back and hope the river is big enough that the dam doesn't really get in the way.

Starting now and continuing for the next few days, I'll give you a few other ideas on how to find and cultivate new sources of philanthropic revenue over the next 5-10 years. These are half-baked ideas. Most may be unworkable, but some might have some stickiness.

We know one thing - we need to keep growing philanthropic revenue, and the estate tax repeal is not likely to help that cause. So lets start brainstorming and maybe we'll get somewhere. Comments are more than welcome on these ideas, the need to address the issue, how to take it further - perhaps we can get a real conversation going or even real R & D on new philanthropic financial products.

1. Community Remittance Funds
Immigrant remittances from the US to countries of origin like Mexico, the Philippines, and China aggregate into the billions of dollars annually. These billions are made up of millions of small gifts, coming together at both the point of origin (the immigrant community) and the point of focus (the home towns). How can we capture the similar community commitment that exists between intra-national communities? Rural to urban migrants? Generational migrants?

What if we could focus on aggregating the millions of small gifts from the hundreds of thousands of people who leave small towns for big cities but want to come back? (or leave big cities for the suburbs and want to give back?)

Community foundations are in the right place to do this, but they can't pay their overhead when they focus on lots of small gifts. Commercial gift funds have the infrastructure to reach all the smaller givers, but aren't going to invest in marketing to them.

Perhaps we can package these little gifts into big gifts, where the economies of scale make sense for community foundations or commercial funds to support the aggregating of little gifts into big gifts. After all, investment banks package individual mortgages into big securities, lenders package credit card debt, and community foundations package local gifts with outside matches.

Can we package the small into the big, securitize the package, and move the resources to where they're intended to go? Can we create a fee structure to do so that supports the transactional process? Might the transactional process itself be some sort of new philanthropic resource?

Three good things to realize about smaller givers as a market - 1) they aren't now influenced by the estate tax, so the repeal won't change their behaviors, 2) they already provide the majority of philanthropic giving, and 3) they come in every shape, size, race, creed, denomination, and preference - they are everywhere, and we have more and more tools to find them and help them find each other.

Monday, December 13, 2004

Quantifying change

Imagine you could look into the future and see a time when a sum equal to the total amount of your work and that of all of your peers, would be eliminated by the stroke of a pen. Fanciful idea, eh? And depressing, too.

Yet that is precisely what institutional philanthropy faces five years from now with the estate tax repeal.

Philanthropy is very good at discussing how hard it is to quantify change. But this is an act we can measure quite accurately. The Congressional Budget Office estimated that if the law which goes into full effect in 2009 had been in effect in 2000, charitable giving would have dropped by $13-25 billion. The lower number in that range is very close to the total amount of corporate contributions in 2003; the higher number is actually greater than the total Foundation giving in 2003. You can read the full report here.

In other words, an amount equivalent to all of the gifts of all American foundations will disappear from the revenue stream for nonprofits in 5 years.

So now that we can see into the future, what are we going to do about it? I'll post a few of my thoughts over the next few days, as well ideas I know others are pursuiing. I'd welcome your input also.

OK, so define "Anti-American"

The following is from the November issue of the Aspen Philanthropy Letter, an email newsletter sent out by Alan Abramson of the Aspen Institute's Nonprofit Sector Research Fund. Considering this morning's post on the Reece Committee, Rockefeller Foundation, and Alfred Kinsey, the following is remarkable (!)

A Congressional investigation into foundation practices is needed to expose activities that "seek to de-legitimize the American regime," according to John Fonte of the Hudson Institute. Fonte led a discussion at Hudson's Bradley Center for Philanthropy and Civic Renewal Nov. 30 based on a working paper that documents his allegations of "anti-American" funding from foundations.

In arguing that foundations sometimes support regime-threatening initiatives, Fonte points specifically to foundation funding of organizations which feel that the American system is inherently racist and therefore illegitimate, and to foundation support of groups that reject the traditional notion of assimilation of immigrants in favor of group rights, consciousness, and advocacy. [EMPHASIS ADDED BY LB] ...Congress ought to help foster a debate within philanthropy about foundations' responsibility to "perpetuate the American regime."

Last time I checked, Americans were constitutionally guaranteed the right to NOT "perpetuate the American regime." At least this is how I would read - and how the Supreme Court has read - the following: "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances." This sentence, which Mr. Fonte may think doesn't apply to American philanthropic foundations, happens to be the First Amendment to the U.S. Constitution.

At the risk of ending the day by repeating myself from this morning, What can we learn from history?

What can we learn from history?

I went to see Kinsey yesterday. With all the hullabaloo about Liam Neeson's and Laura Linney's performances, the movie reviews missed at least three key points about this film. It may be the first Hollywood hit to feature a philanthropic foundation (Rockefeller). It is one of the few to use a congressional committee as part of a key plot twist (the Reece Commission, also known as The House Committee to Investigate Tax-Exempt Foundations, 1954). And the movie demonstrates that, when we talk about the impact of philanthropy, we need to extend our time horizon from 3 to 30 or 50 years.

Given the enormous sigh of relief that organized philanthropy breathed last week upon the end of the 108th Congress, now is a good time to think about what history has to teach us regarding philanthropy, risk taking, public opinion and public oversight.

Philanthropy provides private resources a role in public life. It can be used to advance democratically-supported decisions about public resources, as it often does in complementing health, family support, or educational programs. It also provides avenues for the pursuit of minority or alternative views, as it often has done in the arts, scientific research, exploration, and, yes, health, family support and educational programs.

Unfortunately, the balance between minority and majority opinion are not always in the forefront of public oversight or private action. Nor are we culturally predisposed to bring a long-term sensitivity or a historical understanding to how these balances shift over time.

It is much more likely that the catalysts to public interest in nonprofit action will be driven by immediate crises or opportunities. For example, the need for public revenue has definitely increased attention to exempt resources. At the state and municipal level, the assumption that large landholdings and enormous real property holdings will never contribute tax revenue to local communities is a constant source of "town/gown" or "town/church" frictions.

Of course, rational issues like public and private resources are not always the real cause of overseer's interest in philanthropy. In the throes of the McCarthy era, the Reece Committee's chair himself stated, "The Congress has been asked to investigate the financial backers of the institute that turned out the Kinsey sex report last August." ( Pomeroy, Wardell. Dr. Kinsey and the Institute for Sex Research. NY: Harper & Row, 1972, p. 375).

The interest in foundations writ large stemmed from moral outrage at the sex research of Alfred Kinsey and - following the money - to the foundation that supported him. Political and moral disagreements would reappear in Congressional interest in foundation support of voter drives a decade later and in funding for human rights in Palestine four decades later. The most recent presidential election brought this opportunistic attention behavior to a new level, as charges of anti-Americanism leveled against Teresa Heinz Kerry drew from politically-motivated "analysis" of the family foundation she heads.

This is not to say that investigations of philanthropy are only catalyzed by political differences or moral outrage. There are other reasons that regulators have turned (and should continue to turn) their attention to the nonprofit sector. Abuse of tax exempt status to cover up financial shenanigans, for example. Violation of the public trust. Tax fraud and self-enrichment. These actions should draw attention to a sector that fundamentally rests on the public trust.

Ideally, we would proudly support ongoing calibrating that protect both the public good and private rights. Finding the balance between them is tricky in the best of times. In times of great political division or on issues of morality (what issues are not?) or in times of great power inequities, such balancing acts require ongoing feats of circus-level acrobatics.

Of course, one key component of maintaining your balance on the high wire is to keep your attention on a fixed point in front of you. Successful acrobats don't look at their feet - they keep their attention out in front. As we navigate the high-wire balancing act of public and private rights in the here and now, we should remember to look up and ahead. Keeping our eyes on the horizon keeps our balance intact as we take small steps forward. History has taught us this - and Kinsey brings it the big screen: We need to take a long-term view when we act, both philanthropically and in public life. Change takes time and time brings changes.

For more on the accuracy of the movie, see the history of the Kinsey Institute. For alternative views of the movie, Google "Kinsey Rockefeller" and you'll find plenty of voices blaming the Foundation and the scientists for what they see as today's moral failures.