Social Innovation Fund: Where Is the Money Going?

Blue Avocado Investigates [1] • By Rick Cohen • July 19, 2009 • forward article

Email [2] print article

With this issue, we inaugurate a new column from Washington's pithiest, most independent critic: Rick Cohen. Although many of us aren't deeply involved with policy matters, all of us do want to have a general view of what's going on. In future every-other-issue columns Rick will report on the role of foundations in tax cuts, how the Obama administration sees the nonprofit sector, and the apparent disappearance of faith-based funds. His first column takes on the much-publicized, little-analyzed new federal Social Innovation Fund:

Despite the fact that President Obama's staff is still trying to figure out what social innovation really means, we've got a pretty good idea on what will be in the $50 million Social Innovation Fund [4] -- and what won't be. For starters, it's now the $35 million Social Innovation Fund (more on this below).

First, grants to regrantors

Because the program needs non-governmental grantmakers that can provide matching funds, the Fund is largely structured to pass money to and through established grantmakers, particularly community and private foundations.

Of the total amount, 5% comes off the top for evaluation and R&D, and only 10% will go as grants awarded directly to "community organizations." The remaining 85% will go in grants sized between $1 million and $5 million to "grantmaking institutions."

It is not yet clear how much the regrantors can use for their own initiatives and administration.

Both regrantors and the community organizations that receive regrants (at $100,000 or more for three years) will each have to bring matching moneys to the table on a 1:1 basis. For example, if a foundation receives a $1 million award, it must match the award with another $1 million. For the moment assuming no administrative fee, that means the foundation would be granting $2 million, and the organizations that receive those grants would also need to match them with $2 million. Thus, the $1 million from the SIF will be matched by an additional $3 million in non-governmental funds.

The Corporation for National and Community Service sees grantmakers as attractive partners noting that "Grantmakers know the nonprofit community and possess the skills necessary to find the most promising approaches and help develop them." Presumably true in some cases, but plenty of nonprofits might not agree -- and most local nonprofits are neither funded by nor visible to private foundations.

The $35 million in SIF is approximately what foundations such as Surdna, Edna McConnell Clark and the Minneapolis Community Foundation each grant out in a year. So for many foundations, the few millions in SIF money are bubkis (next to nothing); then why are large foundations so interested in SIF? It's obvious, say the experts: Imagine taking your much ballyhooed (by you) foundation initiative and landing the imprimatur of Barack Obama's endorsement. People in the know are whispering about foundations lining up for SIF access and influence.

Government capital meant to trigger philanthropic funds

The White House is animated by the concept of using the Fund's dollars for "growth capital" that will help groups "scale up."

The idea is a reverse twist to the historic Ford-Rockefeller-Carnegie model of philanthropy: fund an organization, give it growth capital, and when it reaches scale, put big federal money into it for replication across the nation.

Except with the Social Innovation Fund, the initial money isn't from philanthropy, but from the government, and is meant to trigger philanthropic matching dollars.

In various White House conversations about the emerging SIF program, including a June 30th convening, the models in mind are well-known and already well-funded, such as the Harlem Children's Zone, [5] Teach for America, [6] and Nurse-Family Partnership [7].

The good news is that the funding is flexible and it's for growth and operations, not for strings-attached specific programs. But moving to scale works for some kinds of groups and programs but not for others, particularly those community organizations whose power and legitimacy come from their community roots.

Congressional dissatisfaction with the Corporation for National and Community Service

In July, House appropriators did the unthinkable after months of social innovation hoo-hah: They cut $15 million [8] from the $50 million White House request for this high profile program.

Does this unusual reduction reflect congressional distrust of social innovation and nonprofits? Although they also whacked other nonprofit programs (zeroing out the Strengthening Communities Fund [9] in FY2010), Appropriations Committee members gave a green light to plenty of other programs close to President Obama's heart and message.

But there is no question regarding a high degree of antipathy in Congress toward the Corporation for National and Community Service [10] (CNCS) where the Fund will be lodged.

And for the moment, it is leaderless. The President's nomination to head the Corporation, Maria Eitel of Nike, withdrew her name as a candidate citing health issues. But some observers think her and Nike's connections to overseas sweatshop operations [11] might have also been in play. The absence of a CEO weakens an organization in the Capitol Hill scramble for appropriations.

The Corporation also lost points for dismissing its Inspector General in the wake of his findings concerning the misuse of AmeriCorps funding in Sacramento [12], California. And beyond his findings about that organization, the now-dismissed IG's most recent report on the Corporation's overall operations [13] paints a devastating picture of the agency's internal operations.

House appropriators cut $90 million from President Obama's FY2010 request for the Corporation, criticizing the Corporation's budget formulation [14], human capital management, contracting, and information technology process, and called for a comprehensive plan for closing these "management gaps." But these cuts should be understood not as a slap to Obama, but as a Congressional shot across the bow of the Corporation to get its ship in order.

Why doesn't the Social Innovation Fund get more scrutiny?

The Social Innovation Fund may be the signature philanthropic effort of the Obama era. And the competition is not among nonprofits applying for new money, but among foundations and other large intermediaries vying for the Administration's coveted seal of approval.

With a blend of large private foundations, the highly mobilized service community, and President Obama in the mix, the Social Investment Fund garners just about no critical commentary.

And where does all of this leave community nonprofits -- where so much real social innovation is initiated and incubated? Unless they're already in the embrace of well-connected foundations and their initiatives, community nonprofits -- at the heart of social innovation -- are unlikely to find themselves winners in the foundation-dominated Social Investment Fund.

Rick Cohen is Blue Avocado's newest columnist; his columns will appear in every other issue. Rick's background includes community organizing, municipal government, executive positions at LISC, Jersey City government, and the Enterprise Foundation, and eight years as Executive Director of the National Committee for Responsive Philanthropy [15]. He is National Correspondent for the Nonprofit Quarterly [16], and lives in Washington, D.C. where he never has a shortage of things to be grumpy about.