What conditions led the foundation’s trustees to take such unprecedented action?
The COVID-19 pandemic presents an existential threat to the global economy, relations among nations and global health. In the United States, the pandemic has brought into sharp relief the results of decades of growing inequality in our economics, politics, and culture. The pandemic will likely accelerate some of the negative economic trends that serve to compound these inequities and the sense of hopelessness that an increasing number of Americans feel.
The communities that are hardest hit by the pandemic must have a voice in influencing recovery and reimagining a "new normal” that is more just and inclusive. Social justice and nonprofit organizations play a vital role in organizing and advocating on behalf of these communities, but they are already experiencing significant harm from the economic fallout of the pandemic:
- According to a Nonprofit Finance Fund survey in 2019, only 25% of nonprofits have at least six months of cash reserves on hand. On average, the unrestricted net assets of black-led organizations are 76% smaller than the assets of their white-led counterparts.
- In a recent CAF America survey, 73% of nonprofits said they have already seen a decline in contributions, and half said they expect to see revenue decline by more than 20% over the next year, while the need for services is expected to increase due to the coronavirus pandemic.
- Economists and fundraising experts predict that the drop in charitable giving will likely be more significant than that of the Great Recession in 2008, and recovery will likely take longer.
Now more than ever, the foundation is committed to ensuring that key social justice organizations protecting and promoting the rights and priorities of vulnerable and marginalized communities have the resources to be strong and resilient during the challenging days ahead.
With this background, Ford Foundation President Darren Walker suggested to the foundation trustees that Ford issue social bonds to double its grantmaking for the next two years.
What will these funds be used for?
The proceeds from Ford’s sale of social bonds will be used to help stabilize and strengthen key organizations fighting inequality, including social justice and creative expression organizations. These funds will be in addition to our standard grantmaking budgets, and will allow us to increase grantmaking from $600 million to over $1.1 billion per year in 2020 and 2021.
Why is this considered a new approach to philanthropy?
Innovation, creativity and bold ideas often emerge in crisis. In the past, foundations have issued debt for construction and building acquisition but it is uncommon for foundations to issue debt for grantmaking purposes. It's also considered innovative because most foundations primarily provide project grants in one-year increments. This will allow for grants in increments of three-to-five years.
We are honored that Ford will be the first foundation to issue a designated Social Bond in the U.S. taxable bond market.
How much new capital could be generated for nonprofit organizations if this approach is adopted across the sector?
If broadly adopted, billions of new dollars could be injected into the nonprofit sector, providing much needed financial assistance at a time when the entire nonprofit sector is at risk of being fundamentally upended by the virus and its economic fallout.
Do you hope that other foundations will follow suit?
Yes, Ford worked closely with several foundations in a joint response to the crisis. Together, the goal is to make over $1.8 billion of additional resources available for additional grantmaking. In addition to Ford, the foundations include: the Doris Duke Charitable Foundation, W.K. Kellogg Foundation, the John D. & Catherine T. MacArthur Foundation, and the Andrew W. Mellon Foundation.
Are the foundations making grants together?
No. Each of the other foundations will determine priorities for the distribution of the new funds based on their grantmaking guidelines and priorities. In the coming weeks, each foundation will share its plans and timing of deployment of the new grantmaking funds.
Ford has a multi-billion dollar endowment. Why issue a social bond instead of taking the funds out of the endowment?
The pandemic has caused significant volatility in the capital markets resulting in a reduction of all foundation and university endowments, including Ford’s. Given the likely continued market uncertainty, investment professionals argue against liquidating assets during times like these if we are committed to our fiduciary responsibility of long-term stability and capital growth for future grantmaking. In light of this, Darren Walker suggested considering a long-term debt offering. After numerous meetings and review of financial analysis and market performance scenarios, the Ford trustees approved a debt offering of 30 years or longer. The exact term of the bond will be determined based on market conditions at the projected offering date of late June.
We will take advantage of the foundation's triple AAA rating, strong financial health, and the historically low cost of borrowing. The annual debt service will be in addition to the annual budget and will have virtually no impact on our grantmaking budget.
Who are the underwriters for the bond issue?
The co-lead managers are Wells Fargo and Morgan Stanley. There is also a group of diverse co-managers of the bond issue.
Will you issue another bond if the impact of COVID-19 lasts more than 2 to 3 years?
No, the Ford trustees are clear that this is a once-in-a-century action by the board. This undertaking is being done to ensure essential grantees are financially resilient and equipped to influence the socio-economic recovery from COVID-19. The foundation feels strongly that philanthropy cannot and should not attempt to replace government.
Will the money be distributed between global and U.S based organizations?
Yes, the foundation will make grants in the U.S. and in each of the 10 regions where we work.
How can my organization apply for funding?
Grants will be provided on an invitation basis. Most of the funding will go to support current key grantees across the foundation’s program areas.
Will additional grantmaking require Ford to increase its staff and administrative costs?
The foundation will seek to use current capacity to support the efficient execution of increased payout. However, in limited cases it may be necessary to retain temporary consultants to augment capacity.
Why not use the funds for emergency relief rather than institutional support to nonprofits?
The foundation has helped organize a number of emergency relief funds to provide food assistance, housing, and cash payments to workers who have lost their jobs and grants for global health as part of its response to the pandemic. The foundation is now focused on providing longer-term, general operating support to social justice organizations so they can be effective in reducing inequality and injustice as we recover from the effects of COVID-19.
Will $1 billion really have that much impact on such a large problem?
The foundation’s primary goal is to shore up and strengthen key organizations that are advancing the fight against inequality at a time when the need is more pressing than ever. Offering multi-year, general operating support — which is a signature of the kind of grants Ford provides — to these organizations will help build resilience, durability, and sustainability now and in the future. We hope that other donors will join us in supporting organizations led by and working on behalf of marginalized communities.
Will these funds be administered and distributed in the usual way?
The foundation will continue to exercise due diligence in the administration and distribution of grants while making every effort to respond in a timely way to the pressing needs of the organizations we fund. Most of the funds will be used to deepen investments in key social justice organizations that already receive grants from the foundation.
Will you be publicly announcing the recipients of these funds?
Yes, the foundation will continue its practice of communicating grant awards on fordfoundation.org.