Determining your Funding Strategy

Here, we’ll discuss basic decisions regarding building up your program’s coffers.

To give a sense of how far your funds will go, we spoke with an organization that had raised $9 million for a cash assistance program serving residents in one Bay Area city. They said that it only covered 40 percent of the need and that they were actively raising a second round of funding that would exceed that amount. Needs are extremely high.

Some of the organizations that we spoke with started programs with as little as $1 million. But then if you crowdfund, then your money will be rolling in as you go. Everyone agreed that starting a program will help folks in need, regardless of size. Around $10 million per distribution phase was the norm for programs we spoke with that targeted one city. However, groups set up funds to serve their communities with much smaller budgets, and sometimes found they were able to disburse more than they planned to. Regarding individual payments, the most common ranges we saw in our research were one-time payments of: $200, $400, $1,000, and $2,000.

Here are the key benefits to using private funds:

Speed: The majority of organizations we spoke with relied on private dollars because they wanted to move quickly. Private dollars are nimbler and come with potentially fewer record-keeping obligations than public dollars. One organization said:

“States’ [funding will] always be slower. They’re accountable to Feds and taxpayers. There are so many more areas for oversight than with private funds.”

Organizations that we spoke with that did not use public dollars said that they only relied on private funds because the restrictions imposed by public funds would slow down the process of establishing a fund during a time when speed is critical.

Flexibility: Private funding usually won’t come with the same level of scrutiny that comes with using taxpayer dollars. One group said to us,

“If we included taxpayer dollars, people might argue about fairness: ‘why do these people get benefit from our tax dollars and others don't?’”

By using private funds, there’s more freedom to make choices about how to distribute the money. As another organization put it,

“Flexibility is king.”

However, if you choose to take private funds, be aware of these realities:

Fundraising for private dollars takes time and bandwidth. If an organization is soliciting donations from individuals, outreach and fundraising infrastructure is critical.

Being steered by your funder’s priorities: If you raise private funds, keep in mind that large private donors may impose limitations on how funds can be used. During the course of our interviews, we heard from groups that had set limits on how much money a family could receive based on funder requirements. There were also cases where eligibility criteria or the geographic location of recipients were imposed by private funders.

Being funded to offer direct cash, but not to cover overhead expenses: Another concern raised was that private funders were eager to see 100 percent of the funds go to direct cash assistance, with little support for overhead, additional staffing, and technology development—all of which cost money and all of which are critical to delivering cash assistance securely and quickly. One organization had invested $1,000,000 of their own funds to support cash delivery efforts, citing a lack of interest from funders to support general operations and overhead required to establish and operate the fund.

Regarding the last two issues here, we recommend raising conversations with your funders from the start so that you can negotiate how to meet your objectives and get financial support for operational expenses.

We heard folks raise two reasons for using public funds:

To scale: The need for cash right now far exceeds what private philanthropy could cover. Public funds can come in larger amounts than private funds. Also, they can come in with less upfront effort; the fundraising and outreach efforts required when seeking private donors can take a lot of bandwidth.

To involve the government in relief efforts: Some folks felt that it was important to communicate that the government is responsible for playing a role in economic recovery.

If you decide to use public funds, be prepared to move slower. We recommend setting up reporting structures in advance and working with the state or county to determine what records you’ll need to maintain and submit. Being prepared for the paperwork will make the work easier for your team. It might also increase your chances of securing funding; we heard that public dollars were more likely to be distributed to known and trusted partners who already had a reporting infrastructure in place.

Many states have had questions about potentially using CARES Act dollars for cash assistance. Currently, CARES Act dollars may only be used to cover costs that are:

• Necessary expenditures incurred due to the public health emergency,
• Not accounted for in the budget recently approved by the state, and
• Incurred between March 1 and December, 20, 2020.

While the guidance leaves some room for ambiguity, the correct response is to assume that these dollars cannot be used for cash assistance programs. Based on the current guidance, “emergency financial assistance” is acceptable, which is illustrated by examples such as providing assistance to pay rent to avoid eviction or to cover funeral costs. However, universal cash assistance is not included as an acceptable expense. Hopefully, future iterations of legislation assisting states will allow for more flexible emergency grants.

Start by focusing on speed. Families that are most vulnerable need cash as soon as possible to avoid being late on bills and covering other basic expenses. To this end, start with the type of funding that will enable you to get cash out quickly—even if you’re starting with a lesser amount than you might have if you were to wait longer. Those we spoke with nearly always relied on private funds for the sake of speed.

Focus on scale later. You don’t need to start at scale initially. In fact, there are benefits to starting small, learning when your stakes are lower, and then iterating and improving on your work. Most organizations that we spoke with are rolling out multiple phases of cash as funding sources come in. If you choose to use public funds in order to scale, think about using them for a later phase of your program.

If you use both private and public funds, keep them separate. The consensus was to keep public and private dollars from mingling.

Once you have secured your funding source, you’ll need to find someplace to put it.

Where you can store your funds

Resources for this within your city might include a mayor’s fund or a community foundation or trust. A mayor’s fund is a privately funded 501(c)3 that supports programs aligned with key areas and priority initiatives for the city. A community foundation or trust, is an independent nonprofit organization established within a particular community that invests in programs and activities aimed at improving the area and life of its residents. Not all cities have these but check if your city does because if so, they might be resources for you to use.

In addition to relying on city resources, there are also nonprofit organizations able to hold funds and manage the distribution of cash (we heard from a number of community-based organizations (CBOs) that they relied on independent nonprofits to manage their funds by playing a fiscal sponsor role). Governments often have relationships with CBOs and external partners whom they trust with the delivery of a service. Government entities that have chosen to distribute funds via a 501(c)3 have cited their ability to use the funds more flexibly and move quickly among the reasons for doing so.

If you are setting up a program, reach out to your mayor’s fund or community foundation/trust to start learning about your options early. Also discuss this issue with the CBOs that you end up partnering with. And if you rely on a nonprofit to hold your program’s funding, as we’ve mentioned in other places, be careful about not placing too much of a burden on them. You should plan to remain responsible for the strategic decisions that will come up as you manage your program.

Storing public funds

We heard cities and states tell us that they chose to keep public dollars within government agencies and then distribute funds via their social services agencies. They said that involving a third party like a nonprofit would create too much complexity in signing agreements. In some instances, local government agencies are using public dollars for social services such as rent and food assistance, where the infrastructure for direct cash payments might not exist.

Other CBOs or nonprofits have chosen to manage their funds centrally while opening the outreach and application process to other coalitions and organizations that help identify potential recipients.

Regardless of where you decide to hold funds, be sure to seek advice from a tax expert or financial advisor. While the common understanding at the moment is that emergency cash assistance is not taxable income and will not have bearing on a recipient’s tax requirements, the organizations involved in administering the cash transfer may have different responsibilities for reporting or auditing reasons.

*Note that if you are involved in running a cash assistance program and you have lessons of your own to share, believe that we left something out, or believe that we got something wrong, please let us know. We’ll be collecting feedback through the end of July. Thank you!