May 7, 2015

A Closer Look at the Philanthropic Divide and its Impact on New Mexico

The term “philanthropic divide” describes the asset growth differences between the 10 states with lowest foundation assets (bottom 10) and the 10 states with the greatest assets (top 10). This is an important indicator of financial health and giving capacity, given that foundations typically rely on endowed and invested funds to fuel philanthropy. New Mexico has ranked within in the bottom 10 states for total foundation assets since 2005.

Through a series of articles, The Grant Plant has been examining the philanthropic divide and how it relates to New Mexico: In 2011, “The Philanthropic Gap and Nonprofit Landscape in New Mexico,” explored the funding climate in New Mexico and attempted to assess the effects of the recession on foundation giving in New Mexico; and in 2014, “The Funding Landscape in New Mexico: A Post-Recession Assessment,” re-examined the fallout of the recession on foundations nationwide and within New Mexico. In this current article, we re-visit foundation finance data points from the 2011 article. Our next article will examine how this asset capacity plays out through grant making to New Mexico’s operating charities.

Progression of the philanthropic divide: The characteristics of the foundations located within each state paint a picture of the giving capacity landscape, and in turn, the funding opportunities for nonprofits. Nonprofits in states with fewer foundations, foundations with lower assets, and/or foundations with lower income, face a more competitive grantmaking environment and often rely on out of state funders to support programs.

Asset gap differences for our 2011 article were based on two reports, one from The National Committee for Responsive Philanthropy (NCRP)[1] and one from the Big Sky Institute.[2] Those reports revealed a growing gap between the total foundation assets per state among the bottom 10 and top 10 states as follows:

  • Back in 1988, the state total foundation assets among the top 10 states averaged almost $9.26 billion, while the foundation assets of the bottom 10 states averaged roughly $63 million, representing an average assets gap of approximately $9.2 billion.
  • By 1998, the total foundation assets among the top 10 states grew to an average of $26.17 billion, while the average for the bottom 10 states increased to nearly $398 million, representing an asset gap that had grown to approximately $25.8 billion.
  • In 2005, there was an asset gap of approximately $36.1 billion (average total foundation assets among the top and bottom 10 states were not detailed in the article).

More recent Foundation Center data indicates that the gap between foundation assets among the states with the 10 lowest assets as compared to the 10 states with the highest assets, continues to widen, to $45.9 billion in 2012. The top 10 states held about 67% of the nation’s foundation assets while the bottom 10 states represented less than 10% of the U.S. foundation assets, while.

A closer look at foundation asset disparities: Though the net gap between the average assets of the top and bottom states is clear, the news isn’t all bad for the under-resourced states. The assets for both the top 10 and bottom 10 states have been growing at about the same rate; from 2002 to 2012 the bottom states had foundation assets grow by almost 95% while the top states had foundation asset growth of about 94%. The increasing gap in assets is basically a function of the asset head-start in better resourced areas – big money growing bigger amounts of money.

Having asset growth similar at the state level is good, but how have individual foundations fared for the foundation asset richest and poorest states? Is this a case of wealthier foundations or just more foundations within better resourced states? And how does New Mexico compare? We calculated assets per foundation for each of these groups and came up with the following:

Assets per foundation (independent, operating, corporate, and community) from 2002-2012:

  • Bottom 10 states: Assets per foundation rose 41% (from $3,092,506 to $5,234,899)
  • Top 10 states: Assets per foundation rose 11% (from $9,783,031 to $11,027,796)
  • New Mexico: Assets per foundation decreased 1% (from $5,228,584 to $5,165,060)

The gap between per foundation average assets is not nearly as profound as the state asset totals, showing that the philanthropic gap is both a function of the number and wealth of foundations within the states.

But what if this gap is just a function of population density? Indeed, for that time period, 9 of the 10 top states for assets were top 10 for population and 6 of the 10 bottom states were in the lowest 10 for population. We can look at the foundation assets in relation to population by calculating the state foundation assets per capita. This shows the gap in resources is real. Foundation Center 2012 financial information shows about a four-fold difference:

  • The per capita for the top 10 states was $3,313, as compared to $814 for the bottom 10 states.
  • New Mexico per capita was $701, as compared to a national average of $2,263.

What do foundation assets indicate for nonprofits? Foundation assets are an important indicator of the state’s ability to support its nonprofits and respond to emerging needs. Higher asset states and foundations typically generate more interest income off of invested funds. This additional revenue tends to be: 1) Used for foundation operations; 2) Reinvested to further grow assets; and 3) Made available for grantmaking and other charity support. Additionally, states with greater foundation assets typically have significantly more foundations. Nonprofits in states with fewer foundations, fewer corporate givers, and limited access to out-of-state foundations often struggle to secure adequate funds to capitalize new initiatives, sustain current programs, and secure operating funds for day-to-day expenses.[3]

How do foundation assets compare to the average grantmaking per foundation among the top 10 and bottom 10 states? In the past 10 years, the foundations with greater assets had significantly higher annual grantmaking totals than the foundations with lower assets. Again the growth rate is comparable for these two groups (though not for New Mexico). Specifically, average annual grantmaking per foundation (independent, operating, corporate, and community) from 2002-2012 is as follows:

  • Bottom 10 states: The increase in average annual grantmaking per foundation increased 24% (from $210,778 to $275,835)
  • Top 10 states: The increase in average annual grantmaking per foundation increased 27% (from $617,046 to $841,364)
  • However, New Mexico average annual grantmaking per foundation decreased 15% (from $300,493 to $261,556)

What is going on with New Mexico? New Mexico has continued to rank among the bottom 10 states since 2005. In 2012, New Mexico foundation assets were just over $1.46 billion, representing less than 0.2% of foundation assets nationally. If the state’s foundation assets had been in line with the national per capita asset, New Mexico’s foundations would have held an additional $3.26 billion given our population size, more than doubling the actual asset amount.[4]

The asset growth and giving levels among New Mexico foundations have fared much worse than the average levels of the bottom 10 states. From 2002 -2012, New Mexico foundations have experienced a 1% decrease in assets per foundation, while giving per foundation decreased 15%. The rate of giving did not increase proportionally from 2002 to 2012 with the increase in number of foundations.

 Conclusions

When assessing the philanthropic divide among the states with the highest and lowest foundation asset bases, it is important to consider a number of factors: 1) Broadly, the dollar gap continues to increase; however, the within group growth in foundation assets over time is about the same (~95% from 2002-2012); 2) Annual grantmaking per foundation is greater among foundations within the top 10 states, as compared to bottom 10 states, but the rate of increase is similar; 3) Per capita grantmaking is much lower among the bottom 10 states, as compared to the top 10 states; and 4) New Mexico has not enjoyed the same rate of increase for assets per foundation and grantmaking per foundation.

Contact: Wendy McCoy, Resource Development Officer wendy@thegrantplantnm.com

[1] Strengthening Democracy, Increasing Opportunities. 2010. National Committee for Responsive Philanthropy.

[2] The Philanthropic Divide. 2007. Big Sky Institute.

[3] The Philanthropic Divide 2007. 2008. Big Sky Institute.

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