American Foundations: Roles and Contributions

17. Foundations and Public Policy

371 17 Foundations and Public Policy steven rathgeb smith The broad restructuring of the American state, together with the evolution of public policy toward foundations and the nonprofit sector in general, are changing the capacity of foundations to support policy reform, innovation, and social change. Foundations operate in an increasingly complex environment that reflects the diversification of the American government’s policy tools. For operating nonprofit organizations, such policy tools include contracting with nonprofit and for-profit organizations, tax deductions and credits, loans, and bonds. For foundations, such tools have long included the tax deductibility of donations, which promotes the creation of foundations, and the greatly reduced tax on foundation assets. In exceptional circumstances, as in the case of German chemical patents seized by the United States during World War I, the government itself has used a foundation to distribute important assets. More recently, some foundations have partnered with public entities to support low-income housing or economic development, through local community organizations, or conservation goals, through land trusts. And as government-funded and private purchases of services have diversified the sources of nonprofit income, foundations have been forced to reevaluate their grantees and pay more attention to public policy. The author would like to thank Beth Lovelady, Benjamina Menashe, and Skip Swenson for assistance in the preparation of this manuscript. In addition, the author is indebted to Helmut Anheier, Putnam Barber, Mary Ann Colwell, Mary Kay Gugerty, David Hammack, David Harrison , Stephen Page, and Cory Sbarbaro for input on earlier versions of this paper. The Nancy Bell Evans Center on Nonprofits and Philanthropy, Evans School of Public Affairs at the University of Washington, provided important funding support. 372 steven rathgeb smith The greater complexity of the organizational and funding environment reflects significant shifts in citizen and donor attitudes. For example, the United Way has instituted a policy of donor choice, which offers donors much greater control over the destination of their donation than was previously the case. Donor-advised funds, often located within community foundations, are designed to give donors greater control over their donations. The venture philanthropy movement is predicated in part on the idea that donors should have much more direct engagement with their grantee organizations than is typical with traditional foundations.1 More broadly, the movement for greater donor choice and involvement reflects the widespread concern among policymakers, foundation and nonprofit leaders, and scholars of public and nonprofit management about the need to be more responsive to citizens. The increasingly diverse and complicated organizational and policy environment , as well as the steep recent drop in the value of foundation assets, challenges foundations to craft new strategies to respond to urgent public problems. In many cases it has become more difficult for foundations to identify a distinctive niche or role in their funding of specific agencies. Foundations have responded to this changed policy environment in several ways. They have increased emphasis on evaluation. They have made deliberate efforts to influence public policy. They have collaborated with government to support new program initiatives. Foundations have also undertaken to build nonprofit capacity. Foundations and the Changing Role of Government The federal and state governments provide the context for American foundations .2 In chapter 10 of this volume, Steven Heydemann and Rebecca T. Kinsey emphasize the complex and ever-shifting relationship between the federal government and foundations in the field of international relations, one that is equally critical for domestic affairs. Major events such as the McCarthy hearings , the Vietnam War, and the cold war profoundly influenced foundations, as several writers have noted. However, the state’s growing regulatory and funding role also has significant consequences. Many judicial decisions and legislative actions have legitimated and encouraged a more extensive regulatory and funding role for government. Incrementally, these actions have alternately expanded and restricted the scope for foundations. The 1960s brought more rapid change. Major new health legislation creating Medicare and Medicaid provided funding for nonprofit hospitals and related programs. Many other social and health programs were also established, 1. Letts, Ryan, and Grossman (1999). 2. Fremont-Smith (1965, 2004). foundations and public policy 373 including Head Start, community action agencies, and community mental health centers. In addition, many existing nonprofit agencies that had formerly relied on private gifts now had access to government contracts and governmentprovided fees. During...