Amid Record Levels of Inflation, Funders Can Do More to Meet Charities’ Needs

– by Rachel Schnoll and Steven Green

July 25th, 2023

As two funder representatives in the nonprofit sector, we have seen the negative impact of high inflation in recent years on the charitable organizations we hold dear. Thankfully, funders are stepping up to help grantees manage rising costs. But more needs to be done—especially as people are getting used to inflation.

In 2021, inflation rate rose above 4 percent for the first time since 1990. In a Gallup poll last fall, nearly one in five respondents said that inflation was the country’s most important problem. Now, only 10 percent of respondents feel that way. Yet, grantee organizations in various issue areas continue to grapple with the negative effects of inflation on their budget. Immersive travel programs, for example, face increased airfare and other travel expenses. Overnight camps face rising tuition costs of 6 to 8 percent. Jewish community centers face increased program and maintenance costs.

At the same time that social service agencies are experiencing increased demands at their food banks and shelters, the cost to provide these services has increased significantly. Inflationary pressures are driving the costs of basic food items up by 14 to 16 percent from last year, according to David G. Greenfield, CEO of Met Council, which runs an emergency kosher food network that feeds more than 325,000 of the neediest New Yorkers.

Nonprofits face additional challenges, including difficulty fundraising, surge in salary/benefits costs, rising borrowing costs, and increased economic uncertainty and risk of recession. Each challenge has a consequence. Salary increases coupled with shortfalls in fundraising mean reduced program budgets and fewer people being served. A rise in travel costs means that in-person experiences for staff and participants happen less frequently or become virtual gatherings. Increased uncertainty, which has possibly the most detrimental impact, means that grantee organizations are stifled in their abilities to dream big and plan with confidence.

As we face rising inflation, while also still dealing with the lingering effects of the pandemic, organizations need more dollars, more operational flexibility, and more time to get things done. How can philanthropy help in these areas?

Increase the grant amounts and expand how we give. Several major funders have increased grantmaking to existing grantee partners. Prominent examples include the Woodcock Foundation, which increased 2022 grants both retroactively and proactively by 10 percent, and the Aviv Foundation, which increased 2022 payments by 4 percent. We have seen variations of this model from many other funders, extending grant periods by multiple years and increasing grant amounts by double-digit percentages. There has also been an increase in mission-related investments (MRIs) and program-related investments (PRIs), most notably the Ford Foundation committing $1 billion of its endowment to MRIs, with an initial focus on affordable housing initiatives.

Award larger, longer-term general operating grants. Multiyear grants can mitigate against inflation, especially when inflation-conscious multiyear grantmakers build in inflation-adjusted payments in future years to account for ongoing cost increases. Since the Jim Joseph Foundation’s inception in 2006, the ethos has been about larger grants over a longer period. Moreover, by giving longer time horizons to grantee partners, we put less pressure on them to ask for dollars year after year. Instead, they are empowered to think strategically about their work and have space to experiment and fail forward.

Find ways to make time an ally. In challenging moments, time becomes increasingly valuable. Funders can help grantees free up time to pursue their work more effectively. Make the grant application and reporting process less cumbersome, for example. If there is an item in either process that is a “nice to have” rather than a need, consider eliminating it as a requirement. If a phone call can replace a report, offer that option. In addition, if an organization lacks the bandwidth to utilize a program grant, consider adjusting it to general operating support. This allows an organization to utilize time as they see fit.

Lower expectations and create more realistic benchmarks. As we emerge from the global pandemic, we must acknowledge that the world around us has changed, and maintaining the same programmatic and organizational benchmarks that were used in 2019 is not useful to anyone involved. Funders need to appreciate and accept that in an environment with high inflation, future outcomes are likely to decline each year if organizational budgets remain at the same level as in previous years. Set achievable goals that are set collaboratively and not prescriptively, so that everyone has the same understanding of what success looks like.

Talk openly with charities about rising costs. Charities would do well to openly share with their donor base how inflation has increased their operating costs—and ask funders and grantmakers to consider increasing their annual donations to cover this widening gap. After a disaster, whether natural or man-made, time and time again, generous fundholders at the Jewish Communal Fund in New York step up and meet these needs. Inflation is as much a crisis for charities as a natural disaster because they both have lasting consequences and take increased resources to respond appropriately—and it is important for charities to communicate with their donors about their needs amid inflationary pressures.

In addition to communicating honestly with funders, we offer the following recommendations for our grantee partners as they navigate this new normal: Do not assume all funders are feeling the impact of inflation equally, engage in scenario planning, request non-financial assistance, retain talent, and diversify revenue streams, funders, and investments.

There is no single way to guide our nonprofit partners to success. An important starting point for grantmakers and funders is to engage in conversations with grantee partners to better understand how inflation impacts their work and what they need to maintain and elevate their efforts.

Rachel Schnoll is CEO of the Jewish Communal Fund. Steven Green is a senior program officer at the Jim Joseph Foundation.

originally published in Philanthropy News Digest