In response to the current political, social, and economic challenges, numerous foundations are increasing their support and adapting their strategies to address pressing issues. There have been growing calls for foundations to “do more”, with coalitions and pledges forming to promote increased spending and fight back against threats from the administration—such as efforts to restrict DEI initiatives, proposals to limit charitable tax deductions, 501(c)3 status revocation and more--even as private foundations themselves are facing a potential shift in the tax regime and other existential pressures.
Many foundations are stepping up their efforts to fill gaps left by federal budget cuts and to protect democratic institutions. For instance, some foundations are increasing their funding or grantmaking percentages to ensure that essential services and programs continue to operate.
They are also focusing on providing more unrestricted support, allowing nonprofits the flexibility to allocate funds where they are most needed. Additionally, foundations are enhancing their communication with grantees to better understand their needs and to provide timely and effective support.
To understand how foundations can respond to meet the moment, Commonfund Institute has been referring to the tools and resources we developed and co-created during the COVID-19 pandemic. Granted, the current climate is not the same as the pandemic, but we have found that these tools and resources remain highly relevant, particularly for scenario planning, risk management, and taking bold steps to support grantees and the communities we all care about.
When a foundation considers spending more, especially more than the required 5% IRS minimum, it's essential they ask several important questions to ensure that their decision aligns with the foundation’s mission and long-term sustainability. Here are some key questions to consider for a foundation spending strategy:
Mission Alignment: How does increasing spending align with the foundation's mission and goals? Will it enhance the foundation's ability to achieve its objectives?
Legal, Compliance and the Regulatory Landscape: Are there any legal or regulatory implications of spending more than the 5% IRS minimum? How will the foundation ensure compliance with IRS regulations and state and municipal regulations? Given the proposed federal tax regulations by this administration, how will tax increases on foundation endowments impact projections for spending in the future?
Programmatic and Organizational Assessment: How long will the foundation increase its spending and at what percentage? How will the foundation utilize the additional spending – multi-year grants? Increased payouts to existing grantees? New grants to new grantees? Technical assistance and other capacity-building activities?
Financial Sustainability: Can the foundation sustain the higher spending rate without compromising its long-term financial health? What are the projections for the foundation's endowment under different spending scenarios? How would those projections change under different public policy or regulatory scenarios?
Stakeholder Engagement: How will the foundation communicate the decision to increase spending to its stakeholders? What feedback mechanisms are in place to gather and consider input from beneficiaries, donors, and other stakeholders?
Operational Capacity: Does the foundation have the operational capacity to manage the increased spending effectively? Are there sufficient resources, staff, and systems in place to handle the additional workload?
Risk Management: What are the potential risks associated with increasing the foundation’s spending rate related to its mission, liquidity, strategic initiatives, or any other risks? How will the foundation mitigate these risks to ensure the stability and effectiveness of its programs?
Commonfund Resources for Meeting the Moment: A Foundation spending strategy
Foundation Spending Strategy – Meeting the Moment in 2020 and Beyond is a resource that can help foundations make informed decisions when guiding the investment and spending activities of their organization to “meet the moment.” Taken from our 2019 Council on Foundations- Commonfund Study of Foundations, Meeting the Moment is a resource that calls for investment committees and senior staff to scenario plan and considering different spending model strategies while also striving to exist into perpetuity. Finally, Balancing Purpose, Payout, and Permanence: A Strategy Guide for Foundations, is a resource that can help foundations more deeply reflect on how a foundation balances four factors-purpose, conditions and trends, time horizons, and assets for mission-especially in times of greater crisis and opportunity.
A proactive approach to scenario planning, leveraging the resources above along with others, may help foundations mitigate the adverse effects of the current political and economic climate on the sector, ensuring that communities receive the necessary resources to thrive. The Institute will continue to gather resources and tools to support foundations.
