A recent article by Rick Cohen points to one of the classic tensions between foundations and government and one of the possible downsides of Warren Buffet’s gift to the Bill & Melinda Gates Foundation:

In President Bush’s proposed budget for the fiscal year 2007, the administration justified proposed cuts in its small schools programme by citing the availability of funds for the same purpose from the Bill and Melinda Gates Foundation. That made a foundation programme, where the decisions are made by a few administrators and the foundation’s two trustees, a potential substitute for a federal government action. …

This happens regularly in the US. In the administration’s 2006 budget, the White House proposed terminating programmes to educate children about the dangers of obesity due to the availability of projects sponsored by Disney and the Nickelodeon channel, again substituting charity for governmental obligations …

Mr. Cohen has it exactly right.  I’ll wager half my tax return that today, in some foundation in this country, you’ll hear an exchange like this one:

Program Officer:  ‘The city has decided it’s going to discontinue funding transitional housing programs, so ABC, Inc. is requesting $100,000 to replace lost city funds.’

Foundation Executive:  ‘Why should we replace lost city dollars?  Transitional housing programs for low-income people are a public responsibility and should be supported by tax dollars.  If we make up the funding gap, we’ll only encourage city officials to stop funding other programs.’

There are several possible outcomes to this discussion.  The foundation might decide to fill the gap for a year, to give the nonprofit time to find replacement dollars.  Or, as often happens, it might decide to hold the line.  It’s then left as an exercise to the program officer to determine how best to communicate the bad news to the applicant, to explain a decision that begs a thousand questions.

I’ll leave it to historians to describe, for a given community, how the line of scrimmage between public and private responsibility fell where it did.  The question then becomes, how and under what circumstances does that line ever shift?

Here’s an example of how that game is played: Elected officials succumb to public pressure to cap or reduce taxes.  Smaller tax revenues mean less public support for safety net programs for the poor.  Foundations yell “foul” and refuse to step into the funding breach, claiming that foundation dollars should be used not for funding basic services, but for testing new ideas, supporting programs unpopular with individual donors, and other like purposes.

Foundations have a few plays of their own in this game.  Many will support nonprofit advocacy efforts to shore up or increase public support for safety net programs.  It’s now elected officials who cry “foul” and threaten to strengthen legal strictures on advocacy funding.

It’s an old contest and the balance shifts this way or that with the blowing of political winds.

Is it the proper role of foundations to plug the gaps created by retreating public funds?  Those who say yes will often argue along Libertarian or humanitarian lines: government should be smaller, say the former, foundations should not leave poor people in the lurch, say the latter.

But consider carefully.  Foundations are the mainstays of advocacy organizations that challenge government, big corporations, and the media on a range of issues.  And they are often the only funders to support causes unpopular with donors, such as services for undocumented immigrants, programs for returning prisoners, and legal services for low-income people.  Do we really want to tie up more foundation dollars in basic services de-funded by government?

Keep in mind that total annual foundation giving in the United States is about $30 billion.  By my estimate, this entire amount would be swallowed up just by the operating expenses of the 50 largest nonprofit hospitals (and there would be another 2,800 such hospitals waiting in line).*  Despite the sector’s sometimes inflated sense of self, foundation giving represents only 3.5 percent of all nonprofit revenues.  Re-purposing these funds—moving them, for example, from advocacy support to direct services—would have a large negative impact on the advocacy community but very little overall positive impact on nonprofit bottom lines.

Foundations that elect to stand firm should, at the very least, help de-funded organizations make the case for restored public dollars and/or help these organizations find new sources of support.  Foundations, in their treatment of grantees, should be setting the example for other funders.  This means making general operating support grants and grants to strengthen nonprofit infrastructure.  It means supporting an organization over several years to help it grow.  It also means never chopping an organization off at the knees by suddenly withdrawing funding.

Still, it’s the poor who ultimately pay for this game of brinksmanship between foundations and government.  Foundations can do little more than soften an often nasty blow.


* As of 2004; data from nonprofithealthcare.com.

Albert Ruesga blogs on foundations, philanthropy, and nonprofits at White Courtesy Telephone.