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United Way's Funding Bind

United Way's Funding Bind

With a downturn in donations, TCB asks CEO Sarah Caruso how the nonprofit's business model is adapting and what roles it plays beyond grantmaking.

With a downturn in donations, we ask the CEO of United Way how the nonprofit’s business model is adapting and what roles it plays beyond grant-making.

The Greater Twin Cities United Way exists to help people in a nine-county area, but the organization got public criticism in April when it cut grant funding to nonprofits serving domestic violence victims.

United Way, widely known for soliciting financial support in workplaces, has been making hard funding choices because its revenue has been falling. Annual campaign contributions dropped from $82.4 million in 2014 to $74.9 million in 2016. Meanwhile, total revenue fell from $101.9 million in 2014 to $88 million last year.

Sarah Caruso, United Way’s president and CEO, is working with a board composed of many business executives to remake the 102-year-old nonprofit. Caruso took the helm of United Way in late 2009, just as Twin Cities residents were coping with the destruction of the Great Recession.

During her tenure, many United Ways across the nation have found it more difficult to annually increase donations from workplaces. In addition, at the Greater Twin Cities United Way, an increasing portion of contributions are now donor-designated. Instead of making general contributions to a United Way pool for multiple agencies, one-third of 2016 contributors identified a specific agency for their contributions.

Twin Cities Business interviewed Caruso at United Way offices in Minneapolis to examine the consequences of these shifting contribution patterns and how the United Way’s business model is adapting to new realities. This interview was edited for length and clarity.

What are the factors driving the declines in contributions to the annual campaign for the Greater Twin Cities United Way?

The employee campaign in companies is changing to become more open. So employees are having more choice, and donor designations are growing. In some cases, companies are having fewer dollars available for company matches or they are spreading them well beyond their headquarters communities. One thing that all United Ways are doing, including ours, is looking at revenue diversity and how United Ways are funding specific work in the community.

How the annual fund is doing really is not the proper measure of success for any local United Way, including ours. We are really trying to move away from the annual campaign number and the annual campaign focus to reflect much more on what we are trying to do in the community.

How many people are we serving? What sort of issues are we taking on? This can’t only be a money game for United Way. It should always be about what impact we are making in the community. What collective action are we doing across multiple organizations? How are we working with the public sector and private sector to effect change for those who need it the most?

As United Way donors increased their giving to specific charities, the amount of discretionary money that you had available for United Way agency grants dropped. Consequently, you needed to cut $6 million in 2017 from your agency partners. How did you approach those reductions in grant funding?

All of our programs received some cut, 5 percent was the minimum. Then we were asked by the board to look to where there are evidence-based outcomes. We chose to eliminate funding in two areas and also to reduce funding in two other areas.

It has been heartbreaking to have to make these changes. Some of the really strong reaction that we’ve heard is a sense of, “We want to be a United Way partner. We want to be part of this group of very high-quality programs and agencies.” They’ve been like, “Don’t you care about domestic violence?” Yes, we do care about domestic violence. It is really important, and we are funding seven domestic violence agencies in other areas of our work. So there has been high emotion and hard, hard decisions on our part, and we do want the public to know these are still great programs.

What are the two areas where you eliminated grant funding?

We eliminated the short-term shelter funding in domestic violence and the literacy program. Our literacy strategy was tutoring, and we still fund other areas of literacy through partners. But the tutoring approach, which we had been quite involved with, especially in the St. Paul and Bloomington schools, we had to stop funding that area.

What are the two areas targeted for reductions?

Out-of-school-time programming is one. It was historically a very large pot of money. We reduced that to make it roughly the size of our other funding strategies. The other is programming that focuses on independence, which covers people with disabilities and aging populations.

Beyond the $6 million in grant reductions you made this year, tell me how you handled administrative expenses.

We made administrative cuts on top of the $6 million in grant funding. It was an 11 percent administrative cost cut. I felt very strongly, and had complete support from the board, that we needed to take a larger cut on a percentage basis from our operations than we would from those multiyear grants.

Are you allocating $75 million in total grants and direct services in 2017, which is down from an earlier projection of $77 million?

Yes.

How have the cuts affected your year-round workforce?

Our core employee base went down by nine. We’ve gone from 119 to 110.

The Twin Cities has a large philanthropic community and an extensive and well-developed nonprofit sector. In 2017, what is the overarching mission of the United Way? What is your niche in the giving community?

Our mission is very clear, which is to unite caring people to create pathways out of poverty, which help individuals and the community. The real operating principle is pathways out of poverty, so our niche in the community is working with people living at 200 percent of poverty or below with social services and education.

Our specialty is not only the work we do with people in poverty in the nine-county area, it is also how we make those grants and the quest for excellence in impact that we have been charged with by our donors and our board. We often have other foundations come to us for advice about how to make grants, what research we are tapping into nationally and how we are measuring impact.

We have about a dozen staff in our community impact department, which is a much larger number than most foundations are able to have. Our community impact and evaluation team are the real secret sauce at United Way that differentiate our ability to choose powerful programs.

Some funders focus on meeting people’s short-term, basic needs, while other funders target education and jobs programs to improve people’s economic standing on a permanent basis. How have you and your board decided to allocate United Way resources?

That question is so foundational to our work. As a large nonprofit and as a pillar in the community, we embrace complexity. We understand that there is not one solution or a one-time fix for an individual, much less a systemic poverty issue.

We understand longevity and the need to innovate. Much of this work is not very glamorous and sexy. So if you add all those factors up, the word I often come to is the “ecosystem.” What is the ecosystem that we can help build that will help individuals and perhaps groups of individuals move to a path of prosperity? That is the framework that we think about, and it is complex, and that’s why we do so much that people often don’t understand.

How does that thinking translate into concrete decisions?

It’s why we think about whether there should be more mergers and more efficiency in the nonprofit sector. For example, how do we understand women’s health for the Somali community, which is a very specialized and emerging area of need in our community? So the range of topics we think about varies.

We really look at community trends. So when I came in and we were dealing with the Great Recession, we put more money into food, safety-net and job training programs. We knew how important it was to have a strong safety net, but also donors were asking us to do so.

Now, in a time where we are all frustrated with the opportunity gaps not closing, equity is a big focus for us. We are doing some wonderful work with small, culturally specific organizations, helping them build capacity to deliver very high-quality work to populations that we know are really underserved.

There is a lot of energy behind our job training efforts because we all know a good job is the path towards prosperity. That is an area that we have a lot of energy behind as the economy is improving and the need for skilled workers of all kinds is emerging.

We have innovation and flexibility that reflect the period that we are in as a community.

What are the top two challenges facing United Way right now?

Donor giving changes and the persistent opportunity gaps in the Twin Cities.

Opportunity gaps or racial inequities have been discussed for a very long time, but community leaders seem to have difficulty getting traction and making major progress on this problem. What do you think it is going to take for investments in education, family supports and other interventions to bring about greater change?

Where would this community be if the investments United Way and others have made historically weren’t there? How much worse off would we be? We are making a difference even as the gaps are unacceptable.

I think we have helped, but not enough. The things that give me energy are things like the Northside Achievement Zone and the St. Paul Promise Neighborhoods. I get a lot of energy when I think about our program called Career Academies.

That program addresses what does that young person who has almost made it to the end of high school need over a three- or four-year period to get to that living-wage job? That is such a great question because we can solve that. We know, because we are doing it now with thousands of high school students.

We can guide them to jobs and career paths they are interested in. Give them college credits before they leave high school. Get them connected to post-secondary training while they are still in high school, so they don’t fall off that path the summer between high school and college.

How do Career Academies work?

United Way’s role is really helping high schools that have kids who are struggling. We design the high school experience. It is based on a program out of Harvard that is now in 35 states. The program varies from school district to school district, which it should, because the districts are running it and funding it going forward. We are funding the transformation.

The program finds cohorts of children, young people—primarily juniors and seniors—who might be interested in IT or health services or construction. It then builds generally a half-day curriculum for those children that could have math, English and a specialty class that ties to the area of interest, such as a coding, construction or sports medicine class.

Those kids stay in that cohort during the academic day. Some of those classes are tied to community colleges, so they are getting post-secondary enrollment option credits. The data on these young people shows better standardized-test scores, higher graduation rates and higher entry into a career-training pathway. We are in seven or eight school districts now.

What is some of the key work that United Way is doing beyond making multiyear grants?

One of the things we are thinking about going forward is how we make sure we have relationships that are deep and meaningful beyond those who are receiving the three-year grants. We have a 100,000-volunteer deployment, and about 500,000 people use our 211 rapid-response line that links them to health and human services agencies.

We are having impact in our systems change work. This year there was terrific news out of the Legislature on the education bill, where $100 million more is going to early education for the biennium. We had a big hand in that.

The ecosystem we are working in is bigger than the agencies we fund with grants. They are core, they are so important to us, but our real impact is much broader.

Workplace campaigns have been the lifeblood of United Way. Does the fact that the Twin Cities has lost some corporate headquarters hurt United Way?

To some extent, yes. I think the real issue is United Way needs to build relationships with individual donors. The company part is a channel that has been a really good channel for us. But the money is coming, to a large extent, from the individuals. And how do we keep that relationship, whether a company gets sold or not?

We need to maintain a relationship whether an individual moves from Target to Medtronic to freelance. We have been working with other United Ways to build a digital engagement system. We are in year two of getting that effort up and running, and 70,000 individuals in the Greater Twin Cities area are already receiving digital communication directly. It is email and then mobile-enabled.

We also are going to sign on to a very significant partnership across the United Way network to build a technology platform that will work for corporate foundations as well as lift up and enhance what we are doing with individuals.

Are these changes targeted to millennials as well as freelancers who aren’t attached to a particular workplace?

We have adapted over the years in lots of different ways. This is the next big shift in our model—moving to digital engagement with individuals wherever they work, however they want to interact with us on specific causes they care about.

Some will continue to want to support United Way as a pillar of the community and lift up the whole nonprofit sector. Others will say, “I care about education and that’s all I want to hear about.” That’s all we’ll tell them about, and we can engage them to give, to volunteer, to advocate, to show up and celebrate success.

You have a lot of business executives on your board. How have they shaped United Way’s business model and priorities?

On the model changing, they are pushing me to go faster and do more. Our board, as I talk to my peers around the country, is progressive and forward-looking. We have to pay for these technology investments. As we’ve talked about how we are going to pay for them and what priority they are, the board’s general answer is: “Hell yes, do it.” And other United Way boards are much more into micromanaging. They ask, “Is there an ROI in one year or two?”

One of the things that we know is that the more people volunteer, the more they give and the more deeply they are engaged. And I said I really want to commit to achieving 100,000 volunteers a year. It’s going to be good for all of these reasons. I can’t tell the board when we are going to be able to monetize that. And they are like, “OK, I understand that.” I use that as an example to show the partnership and the willingness to push an experiment on behalf of engagement with the community.

You have a Stanford MBA and worked for General Mills. What led you to the philanthropic sector?

My oldest son, who is now 28, has very significant special needs. As a young mother, as a two-career professional family, when Michael was born we were thrust into a whole different world. It was one of the hardest and one of the best life-changing experiences I think I’ll ever have. Through Michael, I began to think about the world and see the world in a way I never imagined. That’s part of it. I am a very fortunate girl from St. Paul, who had two amazing parents that did amazing volunteer work. My mother is an emeriti trustee at the Science Museum and sat on the board of Planned Parenthood twice. My dad was on the board of nonprofits Hallie Q. Brown and Face to Face. I grew up in St. Paul, which is my primary qualification for this job. I attended Linwood Elementary School and then St. Paul Academy. Now I live in Minneapolis. So I get both sides of the river.

United Way Grant Awards Decline

Grants to United Way agencies dropped 11 percent between 2014 and 2016, but there was an uptick in grant-making to organizations designated by individual donors.

Source: Greater Twin Cities United Way

Revenue Base Erodes at United Way

The Greater Twin Cities United Way, like many United Ways in the United States, has seen multiple years of declining revenues. This pattern has surfaced in campaign contributions, and it has had a direct effect on the total amount of grants the organization can award. For 2017, GTC United Way has cut positions and frozen executive salaries to reduce its administrative costs.

 

Liz Fedor is the Trending editor of TCB and has served as a program officer for two Minnesota-based foundations.