What Role Should Philanthropy Play in Local Communities?

What obligations — if any — do foundations and new donors have to local communities in which they are based? And what role should they play in addressing rising income inequality? Many would argue that the issues donors care about — often a personal decision — should be the only determinant of a foundation’s grantmaking. But we believe that foundations have some obligation to the places where their donors have lived and built their companies, and that they should also help the least well off.

During the first golden age of philanthropy, the Rockefellers, Carnegies, and Fords invested in national issues and causes, but they also invested heavily in local civic institutions in the cities where their companies (and families) were based. And they helped provide safety-net services for the poor in their communities. Philanthropy was often defined by place, and the world was much less global.

Today, U.S. philanthropy is in a second golden era, driven by increases in ultra-high-net-worth giving, particularly in wealthy communities where technology is booming. But is this recent giving boom helping address increasing disparities in wealth? And is it helping heal the communities in which this wealth has been created? We recently set out to research these questions in Silicon Valley — a bellwether for trends in the rest of the nation — and published findings in our new report, The Giving Code: Silicon Valley Nonprofits and Philanthropy.

The good news is that philanthropy in Silicon Valley is booming following a decade of unprecedented growth. Silicon Valley now includes more than 76,000 millionaires and billionaires, and 12,550 of the region’s households have more than $5 million in investable assets. As a result, between 2008 and 2013, Silicon Valley-based individual giving rose from $1.9 billion to $4.8 billion — a 150 percent increase. In the last decade, the number of private foundations in Silicon Valley has doubled, as has corporate giving, while assets of locally owned donor advised funds (DAFs) have grown almost 1000 percent. Data from three top DAF providers shows an estimated $9 billion in these accounts alone.

But here is the rub: the boom in Silicon Valley philanthropy has not made a dent on local poverty or inequality. If anything, it has mirrored divides. This is because the vast majority of giving by Silicon Valley’s wealthiest philanthropists goes to national and global causes, leaving less than 10 percent donated locally. And of that local giving, the majority goes to large institutions, such as hospitals, universities, and private schools (which tend to benefit the wealthiest), instead of to the community-based nonprofits providing critical human services to the region’s most disadvantaged groups.

To make matters worse, the local cost of living — a fallout of the region’s tech boom — has climbed so high that a stunning 30 percent of local residents (roughly 800,000 people) now rely on some form of public or private assistance to get by. Silicon Valley’s middle class is literally disappearing, decreasing by 11 percent since 1989. As a result, local nonprofits are reporting a sharp increase in the number of families accessing their services, such as healthcare, food banks, and shelters.

Unfortunately, many local nonprofits lack the operating budgets to meet these rising needs. Thirty percent are running deficits, almost half have less than three months’ cash reserve, and they are all struggling to compete for talent and pay increasing rents. To compound matters, many of these nonprofits don’t know how to access all this new wealth, even though it might be just down the street. While new donors and their foundation staff use a business-like approach to giving, focusing on metrics and impact, many nonprofits don’t know how to effectively connect to these new philanthropists.

So what is standing in the way of philanthropists and local nonprofits working together to address local systemic problems in Silicon Valley and elsewhere?

For one, the social sector in Silicon Valley is similar to communities across the country in that it is comprised of thousands of very small nonprofits, many with just a few employees and tiny budgets. This creates fragmentation in effort and confusion among donors, who reported to us that one of the biggest barriers to giving locally is navigating the overwhelming landscape of nonprofits. These donors also report being frustrated by the focus on “organizations” with limited scale, rather than solutions to social problems. Additionally, new donors don’t always understand the language and frameworks used by nonprofits, who fail to communicate clear goals and metrics. As a result, new donors and local nonprofits are often talking past one another and failing to connect.

In digging deeper, we discovered there are few trusted local intermediaries to bridge the gaps to be helpful translators and brokers of knowledge and relationships. Increasingly, the wealthy are choosing to give through national donor advised funds, family offices, or wealth management firms that aren’t schooled in social change, and which don’t have relationships with community based organizations or the constituents they serve. The changing landscape of giving is creating deeper disconnects at the community level, rather than helping bridge these divides.

We urgently need new intermediaries to help fill these gaps and provide opportunities for leaders from both sides — philanthropists deploying capital and nonprofits needing capital — to come together and learn from one another. We believe established foundations have an important opportunity to be part of the solution by playing a critical intermediary role with new donors eager for guidance and help.

One starting point would be for foundations with local giving programs to help emerging philanthropists navigate the landscape by sharing more about their local giving strategies and grantees. Foundations could go a step further by inviting donors inside their doors for periodic briefings on their work and learning. They should also consider incorporating prospective philanthropists into their planning and outreach, viewing them as an important stakeholder group and potential collaborators in their work.

The widening gulf between the wealthy and working poor, between local nonprofits and philanthropists, and between new donors and institutional funders, is hardly unique to Silicon Valley; these forces are playing out across America. We believe nonprofits and philanthropists in all communities have an opportunity to overcome these extreme imbalances and find new solutions by working together. But new kinds of intermediaries are needed. Foundations are well-positioned to leverage their knowledge, relationships, and political capital to help lead the way.

Heather McLeod Grant (@hmcgrant) and Alexa Cortés Culwell (@AlexaCulwell) are the co-founders of Open Impact, a social impact advising firm. They have spent their careers as leaders in the nonprofit and philanthropic sectors, and recently co-authored the report, The Giving Code: Silicon Valley Nonprofits and Philanthropy.

At the 2017 CEP Conference April 4-6 in Boston, they will lead a breakout session on philanthropy’s role in addressing rising disparities.

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