When foundations unintentionally undermine policy change
New research finds grants to mobilize political power remain scarce
While millions of Americans struggled to pay their bills and provide for themselves and their families during the Covid-19 pandemic, the wealthiest Americans saw their finances flourish. Indeed, the collective wealth of American billionaires grew by 55% during the past year.
One consequence of this “K-shaped” recovery is that nearly 9 in 10 affluent households maintained or expanded their rates of charitable giving during the pandemic.
Philanthropy has long played an important role in the United States during times of economic distress. In response to the Covid-19 pandemic, hundreds of foundations across 38 states signed a pledge outlining how they would work to address the effects of the global health crisis though their grantmaking.
A key element of the pledge is to “Support, as appropriate, grantee partners advocating for important public policy… includ[ing] lending our voices to calls to action led by grantee partners.” This explicit charge to use grantmaking to support policy reform reflects a key tension for private foundations: many seek to affect broad policy change, but they are prohibited by law from funding political activities that are necessary for that change.
The federal government regulates how philanthropies can spend their money. Most importantly, the 1969 Tax Reform Act prohibited private foundations from funding lobbying, political campaigns, or other overtly political activities.
Despite these restrictions, foundations — as exemplified by the pandemic response pledge — remain interested in shaping public policy. So, how do philanthropies exert their policy influence without engaging in explicitly political activity? And what are the consequences of their strategic choices for the myriad advocacy organizations that rely on philanthropic support to carry out their missions?
Our research recently published in Interest Groups & Advocacy looks to the case of anti-predatory lending reform to answer this question. First, we explore data from the Foundation Center to see how the 15 largest foundation funders of consumer financial protection awarded grants to address predatory lending between 2002 and 2012. Our data include 112 separate grants that awarded over $18 million in total to recipient organizations.
We find that just over half of all grants in our data (65 of 112) identify policy advocacy — defined as any grant that acknowledged policy change as the purpose or legislators as the target of a project — as a major goal. The remaining grants focus their funding on direct service delivery.
Next, we looked at the specific activities funded by foundation grants that nominally support policy advocacy. The figure below illustrates our findings.
In keeping with Congressional restrictions, we show that two-thirds of the “policy advocacy” grants provided funding for public outreach and education, and about half offered resources for research on the effects of predatory lending or programs to combat it. Another quarter of advocacy grants gave funds to support litigation. Less than 10 percent of these grants designate funds for direct mobilization to help pass policy reforms.
The result is that foundations that want to influence policy provide funds primarily to educate the public about a policy problem or to generate research to support foundations’ preferred policy solutions. But grants to mobilize political power — a necessary driver of policy change — remain scarce.
What are the consequences of these funding constraints for the organizations that rely on foundation support? To learn more, we explored archival records and conducted interviews with personnel from three major advocacy organizations that received substantial foundation support to combat predatory lending.
We found that, for organizations whose operating budgets aren’t overly reliant on foundation support, sponsored activities like research and outreach can be supplemented by other funding sources to help support more direct mobilization.
By contrast, for organizations that rely largely on philanthropic support, the restrictions on foundation funds can foreclose other necessary activities for policy reform. As one staff member worried, “A lot of grassroots lobbying, most foundations would never fund. … Who’s going to pay for that?”
We also found that grant recipients whose organizational mission was primarily geared toward direct political mobilization experienced greater tension with the mandates of foundations than those organizations that focused primarily on research and expertise as a form of political influence.
For example, a staff member from a mobilization-oriented organization explained how their primary funder pushed for a consumer education campaign, noting that “the whole idea of the campaign came from the foundation.” The organization was forced to allocate most of their available resources to the effort, and when “the ad campaign completely flopped” the organization struggled to identify other activities that would satisfy their funders while “keeping kosher in terms of lobbying rules.” When they were unable to reconcile the needs of their funders with the organization’s goal of mobilizing grassroots political power, the organization lost their foundation support and was forced to shut down their operations.
While this is a particularly dramatic example of what can happen to a recipient organization when a mismatch exists between their funders’ policymaking aspirations and the reality of what foundations can actually support, it is an important cautionary tale.
As philanthropies continue to play a significant role in addressing major policy challenges — from the response to Covid to climate change to criminal justice reform, our research suggests that they, along with recipients of foundation support, must be mindful of the limitations of philanthropic support to drive critical policy reform efforts.