The Northern California region of “Silicon Valley” is a leader for high-tech innovation, accounts for one third of the venture capital investment in the United States, and boasts the most millionaires and billionaires per capita.

According to a 2012 study by CFInsights, which compared data from 31 US community foundations, including those operating in major metro areas like Silicon Valley, giving to local causes from donor-advised funds averaged 68 percent nationwide—more than double Silicon Valley’s rate. In 2011, Silicon Valley Community Foundation, the second largest community foundation in the country, with more than $2 billion in assets, awarded only 33 percent of its $238 million total grants to local causes.

Over the past five years, giving to local nonprofit organizations (excluding higher education and large institutions) by the top foundation contributors in the Silicon Valley counties of San Mateo and Santa Clara declined by 20 percent—from $55.5 million to $44.3 million—likely as a response to the economic downturn. The majority of these foundations count giving to local causes as a small percentage of their overall granting budget. The handful of foundations that do focus a significant part of their resources in support of local, community-based organizations have overall giving budgets that are relatively small in size, with a few exceptions.

How is it that a region burgeoning with new wealth and so noteworthy for its overall philanthropic giving, is uniquely spare in providing for its own neediest causes and populations? To better understand these trends, we at Philanthropy Futures, with support from the David and Lucile Packard Foundation’s local grantmaking program, took a deeper look. We interviewed 26 leaders from nonprofits, county government, and both private and corporate philanthropy, and reviewed the foundation’s 2012 survey data from 111 local grantee organizations. According to this data, the overall wellbeing of the Silicon Valley community and its nonprofit sector face unprecedented threats.

Leaders we interviewed noted a growing chasm created by wealth in the region and intensifying economic hardship for expanding groups of residents, which in turn increases demand for many nonprofit services. Those interviewed cited four main threats to community and nonprofit wellbeing in Silicon Valley—threats that resemble trends nationally:

1. The economy remains challenging for most.

Despite data from the Brookings Institution, Milken Institute, and others showing that Silicon Valley is now back on top, the region’s most vulnerable residents—especially children and families—face worsening conditions, including growing unemployment and loss of wages, rising rental rates for housing, large government funding cuts including city and county layoffs, reduced federal food aid, the elimination of redevelopment agencies, and the loss of community development block grants. The cost of living in the region is one of the highest in the country, with an average home price nearing $700,000. Only 83 new affordable housing units were approved last year, and food stamp participation has hit a decade-high level of five percent, according to the 2013 Silicon Valley Index.

2. Unaddressed areas of growing need

Many serious social issues remain largely unaddressed due to a shortage of community leadership, as well as a lack of public awareness and funding support. These issues include food security, housing and homelessness, foster care, and public education. According to our own analysis, the city of San Jose alone has nearly 75,000 low-income students attending schools that fail to meet their needs—more than San Francisco and Oakland combined. And echoing a national trend, this population of students will graduate from high school unprepared to meet the needs of our 21st century economy. In Silicon Valley, residents with graduate degrees now earn about five times more than those who lack a high-school diploma (2013 Silicon Valley Index).

3. Fragile nonprofits

Local nonprofits need capacity-building resources and tools to manage through tough times. Many nonprofits are struggling to adapt their business models to adjust to a “new normal” in light of lost government funding (at levels never experienced before), accompanied by increased demand for services, as well as public pressure to try new approaches. In 2012, 92 percent of Packard Foundation local grantee organizations reported an increase in demand for their services, with 52 percent reporting the increase as “significant.” During the same period, 28 percent of local grantee organizations also reported a decrease in funding.

4. A weak philanthropic base

Despite being home to some of the world’s largest and most profitable companies, the region sorely lacks a cohesive core of individuals, corporations, and foundations committed to fueling innovations and solutions to its most urgent areas of need. This may be due in part to the timing of the economic slowdown of the last decade and more globalization, which has resulted in philanthropic dollars being spread more broadly. Donors may prefer to contribute internationally, focusing on countries where they come from or where larger scale social benefit can be achieved for a fraction of the cost (think India). The lack of support for local causes in Silicon Valley may also be attributed to many social problems remaining largely invisible, and physically separate, from the wealthy neighborhoods and high profile corporate campuses that are more iconic to the region. And for many in Silicon Valley, the region is a short term landing place, or merely regarded as a place where they commute for work.

Three main opportunities emerged during these interviews that align to national research on more effective philanthropy:

1. Maintain or increase current support levels, offering general operating support and capacity building grants.

A 2012 national study of philanthropic practice by Grantmakers for Effective Organizations asserts that funders can best support nonprofit resiliency by providing multi-year funding as well as general operating support and capacity building grants.

So it comes as no surprise that in our interviews, nonprofit leaders overwhelmingly placed a high value on these forms of support, especially from foundations locally attuned. There is a great need for what grantees call the “unsexy stuff,” such as collaborations and mergers, strategic planning, community assessments, data collection, and leadership development to strengthen the pipeline of nonprofit leaders at all levels, including the next generation. Any further declines in this funding could have a potentially large, negative impact.

2. Increase communication and coordination with nonprofits and government.

Nonprofits expressed a desire for greater communication with the staff of foundations so that they can establish partnerships to identify and solve problems. Local government leaders saw opportunities to work more closely with foundations, both to share timely data that could benefit funders’ work and to explore partnerships. This could set a new standard for local philanthropy, improve efficiencies, and model the way for new forms of public/private partnership. Models such as the Strive Partnership in Cincinnati are demonstrating the power of shared priorities and metrics across sectors for improving student achievement outcomes.

3. Catalyze greater regional philanthropy.

The fundraising environment in Silicon Valley is especially challenging, presenting an opportunity for current and new actors to help build more philanthropic support for the region and its community-based nonprofits. Community foundations are uniquely positioned to educate those with new wealth about the opportunities and needs for giving locally, but they need help strengthening their own fundraising capacity first in light of intense competition.

Nationally, investment firms such as Fidelity Investments and Schwab Charitable are winning new donor advised funds at tremendous rates—for their national reach and fully scaled offerings—even though they lack the local focus and expertise that most consider the mission of community foundations. Nervousness about the so-called “fiscal cliff” also drove new contributions at the end of 2012, with Schwab Charitable reporting a doubling of new donor-advised funds in the fourth quarter of 2012 compared to the same period in 2011. Unfortunately, all this positive philanthropic activity does not guarantee that the charitable awards paid from those donor-advised funds will go to support local causes.

Despite being one of the wealthiest regions of the world, Silicon Valley is struggling to attract local philanthropic resources to local causes at a rate that keeps pace with other major metro areas in the United States. It begs good questions. What have other communities learned about what it takes to build local support for local programs? How are other communities creating new business models for nonprofits in light of government funding cuts?

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