Funding civil society infrastructure – Paying your dues?

Dan Siegel and Jenny Yancey with Caroline Hartnell

While sustainability is a key issue for all non-profits, it is a particularly pressing one for civil society infrastructure organizations – those that provide support of various kinds for the sector as a whole. This is even true of the US, which must present the world’s ‘best case scenario’, with its large and well-established non-profit sector and wealthy foundations. How, then, can it ever be possible for infrastructure organizations to be sustainable in poor countries?

In 1989, few in the philanthropic world thought about the notion of ‘civil society’ or funding the infrastructure that supports and sustains it. Over the past 15 years, however, the financing of civil society infrastructure has emerged as a critical challenge. The emergence of this issue can be traced to the convergence of several trends, including:

· The rebirth or emergence of civil society, most notably in Central and Eastern Europe and South Africa, alongside a more general global NGO revolution, still dramatically unfolding.

· The growth of older philanthropic sectors. In the US, for example, the doubling in the number of non-profits over the past 20-25 years helped spur the rapid rise in new support organizations and associations of non-profits and foundations.

· These two trends contributed to a greater awareness of the core building blocks needed to support the nonprofit and philanthropic sector, both in more established contexts and in countries where the sector is literally being built from scratch.

All three sectors of our society – government, business and non-profit – need complex systems to strengthen and sustain them. The business sector, for example, depends upon a network of support that includes banks, capital markets, research centres, legal and regulatory bodies, business schools, management consultants, trade associations and business journals. Likewise, the non-profit world requires its own infrastructure of support.

Recognition of the importance of civil society infrastructure is nevertheless still rather limited. It is often best understood conceptually by those living amid newly emerging civil sectors. This was clearly brought home to us ten years ago, when we worked as Founding Co-Directors of the Civil Society Development Program in Central Europe.[1] As part of this two-year effort, we designed and led a six-week study trip for CSDP’s staff of 15 Hungarians and Poles to expose them to the history of the US non-profit sector and its ‘support infrastructure’.[2] Similar trips were later made to Germany and England.  During these trips we were greatly struck by how American and West European non-profit leaders tended to have a much weaker analytical grasp of the core building blocks of a civil society infrastructure than the Central Europeans.

The funding puzzle

Infrastructure organizations face particular funding challenges. Of course, there are many different types of infrastructure organization, and their financing prospects depend upon the society where they work, their membership or client base, and the actual support and service roles they provide.

For organizations serving or representing NGOs, the financing puzzle often depends upon the mix of their support roles, which might include providing training and consulting services; engaging in advocacy or addressing public policy issues; producing publications and other information about the sector, and hosting conferences. Each of these roles carries with it distinct financing possibilities and limitations. While advocacy activities or developing data for the sector are likely to depend on grant funding, it is often possible to sell publications and charge fees for training and conferences. The Directory of Social Change in the UK, for example, receives between 80 and 95 per cent of its income from publication sales and fees for training and other services. The New York-based Foundation Center, which had less than a dozen foundation donors during its first 15 years, now has support from about 600 foundations and corporations nationwide. However, most of its income (60 per cent) comes from non-profits paying for its publications and services. Many infrastructure groups combine several of these support functions, and this may enable them to cross-subsidize hard-to-finance activities.

Organizations with wealthy members are in an advantaged position. Associations like the US Council on Foundations, the European Foundation Centre, Philippine Business for Social Progress and the Southern African Grantmakers Association will be more easily sustainable because their members are endowed foundations or corporate grantmakers that can afford significant annual membership fees. However, like most support NGOs, these funder associations also solicit grant funding for special programmes as well as earning income from mission-related training, publications and consulting services. Contracting with government or large funders to undertake research, evaluation and regranting projects is another source of income.

Sources of funding

The role that foundations play in funding infrastructure organizations, notably in their start-up years, is especially critical given that most other sources of NGO support tend to overlook infrastructure groups.

· Individual citizens and wealthy donors usually see their giving as a personal expression of their values and life experience. It is often targeted to direct service NGOs or issues that have had an impact on the life of the donor. Civil society infrastructure tends to be too invisible or abstract to attract individual donations.

· Corporate investment is usually linked to specific issues and communities, and often driven by marketing considerations. While more promising than individual giving, corporate support for infrastructure organizations is typically limited.

· Government or public sector financing of infrastructure organizations has also tended to be rather limited or non-existent – surprisingly so given the scale of public funding of NGOs worldwide. The conceptual case needs to be better made by civil society and creative funding mechanisms tested to leverage government financing of the infrastructure.

· Bilateral and multilateral donors have to varying degrees funded infrastructure organizations in poor countries and emerging democracies (eg USAID and the European Union in Central and Eastern Europe).

Origins and growth of the US infrastructure

It is instructive to consider the experience of funding for civil society infrastructure in the US. The US has 1.6 million non-profits and a relatively developed, albeit still inadequate, infrastructure. It is also home to a number of globally engaged foundations (Ford, Hewlett, Kellogg, Mott, Rockefeller, etc) that provide support for civil society infrastructure in other regions and countries.

Historically, the initial national infrastructure to support the philanthropic sector developed in response to increased scrutiny and skepticism in some quarters of government about the role of foundations in society. Congressional hearings in the 1950s and late 1960s, which raised threats to the tax status of foundations, spurred the development and growth of organizations such as the Council on Foundations and the Foundation Center, and later Independent Sector. These national groups were designed to defend and advance the foundation and non-profit world, and provide accurate data about its activities and role in public life.

With the explosion in the number of US non-profits and foundations during the past 20 years, new support organizations have arisen to complement the longer-standing national infrastructure organizations. If you look, for example, at organizations promoting philanthropy and serving the needs of foundations and new donors, the US now has 650 community foundations, 29 regional associations of grantmakers and 250 smaller funder networks, as well as groups like New Ventures in Philanthropy and Social Venture Partners. Global Philanthropy Forum, Grantmakers Without Borders and the Synergos Institute are three of the organizations involved in strengthening global philanthropy.

But foundation funding for infrastructure is highly uneven across the US. While states such as Michigan, Minnesota and North Carolina have vibrant non-profit sectors, well-resourced philanthropic foundations, and healthy local and statewide infrastructure, other states like West Virginia, Montana and New Mexico struggle with the lack of locally based philanthropic capital and infrastructure.

Broadening the investment base

Most non-profits acknowledge one central principle of sustainability: keep your funding sources diverse. Unfortunately, the funding base for civil society infrastructure in the US has historically been quite narrow, with a small circle of eight to ten large private foundations informally constituting the so-called infrastructure funders. Until recently this group had remained virtually unchanged over the past 20-30 years.

In recent years, civil society infrastructure has faced a serious funding crunch owing to changing priorities and declining endowments at several leading foundations. But the greatest impact has been felt from the departure of two major US foundations from the field: Atlantic Philanthropies in New York and the California-based Packard Foundation. These two foundations had provided some $20-$30 million in grants annually to build the capacity of non-profits and advance the sector infrastructure in the US and globally.

‘The number of foundation CEOs and programme staff who think of the non-profit sector as a field is quite limited,’ says Elan Garonzik, Program Officer for Civil Society at the Charles Stewart Mott Foundation. ‘We infrastructure funders have not been good at getting new funders to the table.’ Indeed, the explosive growth of new donors, family philanthropies and larger foundations in the US has not yet witnessed the arrival of enough new players and funding streams to pick up the slack of diminishing resources.

‘I think the development of infrastructure may feel slow right now, but it is inevitable,’ says Barbara Kibbe, who formerly directed the Organizational Effectiveness and Philanthropy Program at the Packard Foundation and recently became Vice-President for Program and Effectiveness at the Skoll Foundation, also based in Silicon Valley. ‘All professional fields go through a developmental process. The recent explosive growth of philanthropy and the non-profit sector got ahead of its own infrastructure. New funders like Skoll are looking at what kind of infrastructure is now needed.’

Challenges in the developing world

The funding base of US civil society infrastructure may seem rather flush to readers in Santiago, Nairobi, Seoul or Sofia. Given that many countries have a shortage of local grantmaking institutions, let alone ones that are willing to fund something as meta-level as civil society infrastructure, the challenges of financing are far more complex and pressing in most of the rest of the world.

One major problem in poorer countries is the lack of indigenous grantmaking organizations. If there are too few prepared to fund civil society infrastructure in the US, they are non-existent in many countries. In Latin America generally, the majority of foundations are corporate foundations. Many of these don’t make grants at all, and those that do are unlikely to support infrastructure organizations apart from their own ‘trade’ association, eg GIFE in Brazil and Grupo de Fundaciones (GDF) in Argentina. Mexico is an exception, where Manuel Arango, founder of CEMEFI (Mexican Center for Philanthropy) and himself an influential philanthropist, was able to mobilize support from his peers in the business community. In the Philippines, too, corporate foundations are the main grantmakers.

There are, of course, very few countries where government has really taken steps to bolster institutions and resources needed to support civil society. Croatia is one example (see p33) and Hungary perhaps another (p34).

Information about how infrastructure organizations are financed in different countries or regions is largely anecdotal. Taking the example of grantmaker associations, it seems that the funding mix in the Philippines and Latin America is not so very different from the pattern found in the US. While membership fees provide 63 per cent of income for the Council on Foundations (USA), they provide almost 75 per cent[3] for Philippine Business for Social Progress, 60 per cent for Fundemas (El Salvador) and 30 per cent for GDF (Argentina). In each case, the balance is largely made up from a combination of fees for services (to members and non-members) and grants for specific projects. Both GIFE (Brazil) and the Council on Foundations have a capital fund to cover fluctuations in membership dues and to meet sudden demands. This probably demonstrates not so much a surprising convergence as the fact that there are, at the end of the day, a limited number of funding options.

Many leading infrastructure organizations in poorer countries and in emerging democracies have relied heavily on foreign foundation funding during their start-up years. They then face the challenge of using this seed funding to leverage local and earned income activities to become more sustainable. Sometimes the expectations seem not to be realistic. The Philippines Development Centre in Manila, for example, opened by the Association of Foundations in February 2003 with three-year funding from Ford, aims to be self-sustaining from user fees, training, etc in three years. This would seem like a nigh-impossible challenge even in a richer country where NGOs can afford to pay for these services.

External start-up funding can also play a negative role. The potential problems of exporting Western models of organization to other countries and cultures are well rehearsed. As Mayan Quebral points out in relation to the Philippines (see p13), it can also fuel the suspicion that civil society is controlled by foreign governments and multinational corporations, often with their own agendas and rationales for investment, and make it more difficult to get local support. It can also create unrealistic expectations. Where externally funded organizations offer services for free or set fees at well below cost, this can breed a culture of the ‘for-free sector’ and make it hard to set fees at realistic levels.

Paying your dues

Investing in civil society infrastructure is a bit like paying taxes. It may not be immediately gratifying or easily measurable. But it is a basic civic obligation, part of paying your dues for where you live. Indeed, all funding sources for NGOs should consider the larger ecology or support system that is needed for civil society to succeed, rather than relying on a small number of large foundations to underwrite the support system from which all benefit.

A distinction is often made between grants and ‘other’ sources of income, with foundation grants seen as time-limited and so basically unsustainable. But if foundations regard paying for infrastructure as paying their dues to the sector, this need not be the case. The $50,000 that the largest US foundations pay as their membership fee to the Council on Foundations is not so very different from an annual grant. Nor is it unimaginable that this acceptance of the need to support the field could be extended to other parts of the infrastructure of civil society. In this case foundation grants to support infrastructure organizations could be seen as part of a sustainable funding mix.

But it’s much harder to argue that funding from foreign foundations is sustainable. In the long run, funders are unlikely to go on supporting infrastructure bodies in other countries indefinitely – nor is building permanent dependence on foreign foundations an ideal scenario for civil society in those countries. In this case, then, the distinction should perhaps be between countries with wealthy foundation sectors that could, in theory at least, support the civil society infrastructure and countries that don’t have them – most, if not all, poor countries!

Making the case

However, more robust financing of civil society infrastructure, even in richer countries, depends upon the conceptual case being better made to existing and new funders, partners and investors. It is a case that needs to be made both by NGOs and by the support organizations themselves, and especially by the limited but prominent circle of funders that currently finance them.

Over the past decade, the funding world has become increasingly concerned about enhancing the effectiveness of their grantees, and more willing to provide funds to build non-profit capacity. More funders need to make the leap from building the capacity of individual organizations to strengthening the capacity of the overall sector.

‘If you believe in the importance of civil society institutions, then where do you think the risk capital for the civil sector and its infrastructure is going to come from?’ asks Susan Berresford, President of the Ford Foundation. ‘We take it as a given that we ought to be working on philanthropy as part of the support system. As a major institution in the philanthropic landscape, it would be irresponsible if we [Ford] did not think about the health of our own field.’

Not surprisingly, those leading foundations that support infrastructure do so not only because they are large and wealthy, but also because they have funded nationally and globally and are therefore better able to ‘see the whole’. They understand the critical role that infrastructure organizations play as the vital connective tissue that strengthens civil society.

Understanding is one thing; stepping out actively to broaden the investment base is another. Foundation CEOs and programme officers often hesitate to draw upon their experience and ‘rally the troops’ – theirs is largely a go-it-alone field. Leading by example and working quietly behind the scenes through peer-to-peer networking and dialogue certainly has its place and value. Yet this is a particularly critical moment when more visible leadership is also needed to expand the resource base for civil society’s support system. In the US, a more formal and open affinity group process spearheaded by current and emerging foundations and infrastructure leaders could help to leverage new players, ideas and resources.

If the need for this kind of support was better understood and advocated for, especially by existing funders, new investment mechanisms would surely begin to be explored. Pooled national funds from private and public sources are one possibility. Especially in countries where wealthy foundations don’t exist, this is likely to mean government taking a lead, as has happened in Croatia. Getting governmental and multilateral bodies to see non-profit infrastructure in the same light as corporate infrastructure would be a huge step forward – and one that must involve recognizing the important role civil society can play in social development.

1 As planned, this resulted in the creation of two indigenous NGO support and training centres in Central and Eastern Europe The Civil Society Development Foundations in Budapest (http://www.ctf.hu) and Warsaw.

2 The CSDP was undertaken with Warsaw based Co-Directors Tim Cross and Ann Philbin.

3 Of core operating costs as opposed to programme funding.

Dan Siegel and Jenny Yancey are Co-Directors of New Visions PRD (Philanthropic Research & Development), based in the San Francisco area. They recently completed a study of the emerging donor education field (available at http://www.newvisionsprd.org) sponsored by Ford, Hewlett, Kellogg and Packard Foundations, and are Co-Producers for Global Civil Society and Philanthropy programs at the satellite channel Link TV. They can be contacted at dsiegel@newvisionsprd.org and jyancey@newvisionsprd.org


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