Philanthropic Funding for Community and Economic Development: Exploring Potential for Influencing Policy and Governance

By Dale E. Thomson (University of Michigan-Dearborn)

Retired business executives donated $70 million to the City of Kalamazoo to help it respond to increasing fiscal stress. Four foundations purchased a 178-acre industrial site along Pittsburgh’s riverfront to redevelop as a mixed-use site with high sustainability standards. In Detroit, a riverfront park is being redeveloped with a $50 million donation from a local foundation. These stories suggest that, in the age of fiscal austerity, philanthropy is playing an increasingly prominent role in helping cities provide core services and promote community and economic development (CED).

But just how prevalent is philanthropic involvement in CED? What form does it take? How does it affect resource allocation? Does it open new opportunities for expanding influence by marginalized groups, or does it reinforce elite domination of urban governance?  This study published by UAR helps us understand the scale of philanthropic foundations’ involvement in CED in U.S. cities, identifies cities where their engagement suggests high potential for affecting policy and governance, and outlines key questions to answer through further case studies of those cities.  It does so by examining a unique database of foundation and government funding for CED for 30 legacy cities in the U.S. and framing the findings of that analysis within the growing literature on foundations’ roles in policymaking and governance.

The database compiles data for all CED-related grants awarded in each of the study cities in 2015.  It also includes 2015 government funding for each city, which I disaggregated to develop estimates of the government funding available for CED, as well as the governmental surplus/deficit for CED-related funding.  Finally, it incorporates federal CED funding provided by the U.S. Department of Housing and Urban Development (HUD). I used the data to compare foundation CED funding in each city to total government funds and deficits, government funding for CED and related deficits, and HUD funding to get a sense of both total foundation CED funding and its weight relative to other CED funding sources.  I was also able to run a regression analysis to assess the extent to which foundation funding for CED was driven by need and political variables.  Finally, because I conducted the analysis to identify cities where foundation funding might leverage influence on policy and local governance, I also examined the proportion of funding provided by foundations with an ongoing local presence.  This analysis was driven by an expectation that foundations who have such a presence are more likely than others to influence policy and governance.

The analysis showed that the scale of foundation giving for CED across legacy cities is substantial. Approximately half of the cities received at least $1 million in foundation funding for CED in 2015; about one-third received more than $10 million. For almost one-third of cities, foundation funding accounted for at least 5% of adjusted government funds, and, often, substantially more. Foundations are matching or eclipsing the financial role formerly played by HUD in more than one-third of cities where their funding equaled 91-419% of HUD funding. This points to the increasingly localized nature of CED support as the federal government further retrenches from CED funding and local foundations increase their giving.  It also raises questions about whether or not the funding is targeting high-need populations as required for most HUD funds.

Cities where funding is most prominent and the potential for foundation policy influence, governance, and incorporation into the regime are high, are larger cities experiencing fiscal stress that have a significant number of foundations with an on-going local presence and substantial assets.  Thus, cities that are immersed in austerity due to constraints on growth and revenue generation, are especially prone to foundation influence. Baltimore, Cleveland, Detroit, Pittsburgh, and St. Louis stand out.  Yet even smaller cities, such as Flint and Wilmington, and less financially constrained cities, like Minneapolis, showed evidence of high potential for foundation influence.  It is also important to acknowledge that, based solely on the funding analysis, there are many cities where the potential for foundation influence does not appear to be great.  Thus, this phenomenon is not equally important across cities, even legacy cities that share traits suggesting that they would be prone to foundation influence.

Why should we care about these findings?  Philanthropic foundations collect, invest, and redistribute tax-exempt contributions from wealthy individuals, families, and corporations. Some of the more prominent foundations supporting CED have billions of dollars in assets and distribute 100s of millions of dollars annually.  Yet they are largely immune from the market and political forces driving decisions of businesses and governments. They are created and run by elite actors but they often have social missions and long-term relationships with nonprofits serving marginalized communities.  There are few external mechanisms for holding foundations accountable for their decisions. This confluence of factors suggests that, as they become more active players in CED, foundations may either reinforce the elite domination of CED decision-making or broaden local governance to incorporate the voice of marginalized residents and communities more thoroughly.

It is overly simplistic to equate funding with policy influence or governance.  These complex phenomena reflect the interaction of multiple variables, which are often difficult to measure. Yet funding is a reasonable starting point, and the high levels of foundation funding come at a time when many foundations have taken increasingly active approaches when engaging with nonprofits and city government. Foundations have historically played prominent roles in advancing policies in critical areas at the state, national, and even international level. Efforts to drive local policy have been more limited, but foundations are increasingly influencing local education policies. Case studies have demonstrated a growing influence on CED in some cities.  This study shows that, while the potential for foundation influence on CED policy and governance is not universal, it is widespread across legacy cities, and there’s a select group of cities where it is especially high.  Case studies of these cities can determine whether or not this potential has translated into policy influence and governance and what the outcomes of these changes mean for marginalized communities and democratic process.

Read the UAR article here.

Photo by Vidar Nordli-Mathisen on Unsplash

Author Biography

Dr. Thomson, Chair of the Department of Social Sciences and Associate Professor of Political Science at the University of Michigan-Dearborn, teaches courses in public policy and administration, urban politics and revitalization, and state and U.S. politics.  His research examines the role of institutions in city policymaking, allocation strategies for community development resources, and the capacity of community development corporations.  His publications have appeared in venues, such as Urban Affairs Review, the Journal of Urban Affairs, Housing Policy Debate, and Nonprofit and Voluntary Sector Quarterly, as well as books from Penn Press, University of Michigan Press, and Michigan State Press.