Community Development Grantmaking Research Debuts

What is the geographic distribution of grants that support community and economic development (CED) from large foundations? Are smaller and more impoverished communities at a disadvantage when vying for grant dollars from such foundations? Researchers from the Federal Reserve Banks of Philadelphia and Atlanta set out to answer these questions, and to provide a clearer picture of variation in CED grantmaking to communities across the nation.

The research indicates that population size and economic distress matter; larger and poorer places attract more grant dollars per capita. Additionally, the findings hint at the importance of a community's capacity to absorb philanthropic capital. Cities that have larger nonprofit sectors are likely to be more effective in attracting grant capital or in receiving a greater numbers of grants from large foundations.

A new tool for funders and communities
Variation Across Metro Areas To expand the accessibility of this effort beyond a research paper, the Federal Reserve Bank of Atlanta launched an interactive web tool that allows funders and communities to manipulate the data behind the research. The tool displays grant flows from large foundations for CED purposes to metro areas across the country. Users can compare and contrast the size and composition of CED grants in one city to those in self-selected peer communities. Users can also explore and compare the size of local CED nonprofit sectors.

Research findings and implications
The complete findings and methodology of the Following the Money study will be published in a forthcoming article in the journal The Foundation Review this fall. In the meantime, here are some key highlights:

  • "Civic capacity" is significant in predicting both the number of grants and the grant dollars per capita received from large foundations. Areas with more nonprofits per 10,000 residents or that have a large foundation within their boundaries attract both more and larger CED grants.
  • Population size matters. More populous metro areas attract more and larger CED grants, even on a per capita basis.
  • Economic distress does not appear to put communities at a disadvantage for receiving CED grants from large foundations. For every percentage point increase in the poverty rate, communities, on average, see 6.8 percent greater grant receipt.
  • Finally, communities with higher educational attainment were, on average, able to attract a larger number of grants.

The Philadelphia Fed created an infographic that visually depicts the main findings of the research.

Philanthropic investment offers several distinct advantages to communities. Foundations can often operate more flexibly and quickly than public organizations. What Attracts Grant Capital Their investments are often "first-in" or "patient" capital, which is able to take risks, seed innovations, and spur other types of public- and private-sector investments. Foundation grants sometimes substitute for public funding in severely distressed circumstances. The fact that some communities appear more effective than others at attracting such investments means they are likely more effective at attracting other capital as well. It also means these communities will likely have additional public resources to invest or use to address community needs.

Since the strength of the local nonprofit sector appears strongly related to per capita grant dollars, communities can use this as a lever to boost their attractiveness to philanthropic investments from large foundations. Communities that can improve the quality and size of their local nonprofit sector—for instance, by building local capacity—are more likely to receive greater per capita grant amounts in the future.

Data and caveats
The data that underlie the research findings in the paper as well as the web tool derive from the Foundation Center's FC 1000 dataset, which tracks grants of at least $10,000 by the largest 1,000 foundations in a given year. For reference, the FC 1000 dataset captured some 43 percent of grantmaking by the 86,000 foundations that operated in the United States in 2012. The study examines some 169,000 grants, totaling almost $15 billion, between 2008 and 2013. It analyzes total giving during these years to smooth out spikes or troughs in year-to-year variation in giving to particular communities.

As with any data-driven research and statistical analysis, there are some limitations and caveats. For instance, the analysis includes only the 1,000 largest foundations, and it excludes small grants (of less than $10,000), or smaller, more locally focused community foundations. Such organizations are often key to the local grantmaking infrastructure, particularly in smaller communities, and this research thus likely underestimates the total number of grant dollars that flow to such areas. The research findings thus only pertain to grantmaking by the nation's largest foundations.

Nonprofits per 10,000 Residents Additionally, other factors that are harder to quantify and were excluded in the research may influence grantmaking and receipt. The quality and vision of local leadership in both the public and nonprofit sectors likely play a role in grant receipt, as do the reputation of and relationships between nonprofit leaders and foundations.

Starting a conversation
The data and research provide greater insight on the supply of grants and grant dollars that support local CED initiatives. The researchers hope that these findings, along with the interactive data tool, will support local conversations with and among grantmakers, nonprofits, and government officials on the scale and local impact of foundation grants. Such conversations could lead local funders, nonprofits, and public agencies to pursue changes in strategies and partnerships. Additionally, the findings show that communities that want to attract more investment from large foundations should buttress the capacity of their local nonprofit sector. The researchers plan to expand on this work, and address some of the limitations, by examining different data sets, and by engaging in interviews with foundation and nonprofit leaders. For now, the research and data tool paint a clearer picture of the variation in CED grantmaking by the largest foundations to communities across the United States.

The Atlanta Fed has visited cities like Chattanooga, Tennessee, and Cedar Rapids, Iowa, to explore the role of philanthropic investment in the revitalization of small U.S. cities. For more information and data on the economic performance of these and other small-city metro areas, explore the Small City Economic Dynamism Index. Finally, information on other types of community investment, particularly as guided by the Community Reinvestment Act (CRA), can be found here.