Why the Cleveland Foundation cut its contribution to The Fund for Our Economic Future
January 31, 2010, 10:12AM
CLEVELAND, Ohio — In March 2007, Cleveland Foundation head Ronn Richard — one of the region’s most powerful figures — told hundreds of civic leaders that his foundation was “a proud and rock-solid member” of the Fund for Our Economic Future.
Nearly three years later, Richard’s exuberant pride has turned to anger and suspicion.
Richard and foundation officials say they are bearing unfair and unprecedented criticism, following a stunning decision in December to slash the foundation’s contribution to the future fund.
The fund is a philanthropic pool of money that’s unique in the country for its collaborative approach to economic development. Each major donor to the fund gets a vote on how the money is spent.
But that acclaimed collaboration has shattered, revealing a rare, pitched power struggle among prestigious foundations that decide how much of the philanthropic money in Northeast Ohio is spent.
After sending $22 million to the future fund in its first six years — more than a third of its funding — the Cleveland Foundation board voted unanimously to send just $300,000 over the next three years.
The move heightens financial uncertainty for six key development groups working to boost the region’s economy. They receive millions of dollars in grants from the future fund.
Cleveland Foundation officials say that, instead of working through the future fund, they plan to send similar amounts of money directly to those development groups, as long as they perform well.
he foundation’s funding decision followed months of infighting with future-fund leaders.
Richard and David Goldberg, chairman of the Cleveland Foundation’s board, said in an interview that the future fund’s mission and 16-county target area grew beyond the foundation’s Cleveland-centered goals.
Cleveland “is the core of the region,” Richard said. “Unless we revitalize downtown Cleveland and its neighborhoods, we can’t bring back the region.”
But leaders of the future fund said the foundation has essentially rejected the collaborative spirit of an effort that’s helping spur the region’s economy.
“I find [the decision] unfortunate,” said David Abbott, chairman of the future fund’s board and executive director of the George Gund Foundation. “It does put apparently less value on a meaningful collaboration of a very rare sort in our field.”
“There is no doubt in my mind that the Cleveland Foundation is the most magnificent collaborator of any foundation in the United States of America,” Richard said.
Richard, Goldberg and top staffers of the Cleveland Foundation requested a recent meeting with Plain Dealer editors to counter what they believe is an organized campaign by future-fund leaders to attack the foundation in the news media.
The foundation officials are hurt by the criticism of their philanthropy, one of the country’s largest community foundations whose work typically generates good will.
Clearly, the Cleveland Foundation’s pullback has angered the future fund’s philanthropic partners.
“It is sad, indeed, that our community foundation — one of our region’s most powerful institutions — chose control over collaboration,” Rob Briggs, executive director of the GAR Foundation in Akron, and Cathy Lewis, former chairwoman of the Cleveland Foundation, said in a Dec. 30 letter to the editor in The Plain Dealer.
A Dec. 27 column on The Plain Dealer’s editorial page, written by officials from two area foundations, detailed the future fund’s success and the need for continued collaboration in the region.
It did not mention the Cleveland Foundation by name. But it was enough for Goldberg to resign his seat on the board at the Mt. Sinai Health Care Foundation, which was among 18 nonprofits that signed the column.
“I can’t serve on an organization that basically insults another organization that I’m chair of,” Goldberg said.
Future-fund staffers drafted and circulated the column as a way to answer questions from the public about the fund’s prospects, given the Cleveland Foundation’s funding decision, future-fund officials said.
It’s “silly and absurd” to describe the column as an attack on the foundation, Abbott said.
The fund is born
The Fund for Our Economic Future is a philanthropic innovation, watched closely by nonprofit leaders across the country.
It was created in 2004, growing out of years-long talks among business and nonprofit leaders in Cleveland and Akron who wanted to transform Northeast Ohio’s withering, rust belt economy.
The fund is a pool of money to which 69 of the region’s major foundations, universities and corporations each contributed at least $100,000 over the past three years.
That money supports Advance Northeast Ohio, a strategic plan crafted after extensive economic research and input from 20,000 residents.
In its first six years, the future fund gathered more than $60 million for the strategy’s four missions: expanding and attracting business, developing talent, boosting minority-owned companies and promoting government collaboration.
Some $41 million went to six organizations focused on building up businesses in promising sectors, such as bioscience and advanced manufacturing.
The six organizations had a $1 billion impact, the future fund reported, jump-starting dozens of new companies, attracting venture capital and drawing big state investments.
The future fund is a key force in bringing the six organizations “to scale, and they are getting returns, even in the middle of a recession,” said economist Edward “Ned” Hill, dean of the Levin College of Urban Affairs at Cleveland State University.
The Cleveland Foundation took a lead role in organizing the collaborative fund. That’s one reason civic leaders are puzzled that the foundation decided to chop its funding.
Tension over strategy
Foundation officials insist the funding decision shouldn’t be puzzling to anyone, particularly since the foundation first raised concerns in fall 2007.
They said reasons for greatly reducing the foundation’s share included these:
The fund covered nine counties when it formed in 2004. Now, it covers 16 counties.
The Cleveland Foundation’s main service area — and the lion’s share of its donors — include just Cuyahoga, Lake and Geauga counties.
In a December 2007 letter to the future fund, Jacqueline Woods, chairwoman of the Cleveland Foundation at the time, said her board was concerned that the future fund “was attempting to do too much and to take on too many activities across a very broad geographic region.”
Future-fund leaders responded that the Cleveland Foundation is taking a shortsighted view of the economy.
Counties like Wayne and Mahoning tie into the region based on commuting patterns, labor markets and supply chains, said the Gund Foundation’s Abbott.
Fuel cell research in Stark County and agricultural research in Wayne County will benefit the entire region, said Brad Whitehead, president of the future fund.
“To draw a narrower geographic boundary misses the fact we are all part of the same economic region,” Abbott said. “That’s how we compete globally. It’s the region that matters.”
Last fall, the foundation offered to pledge $3 million to $4 million to the future fund for the next three years, instead of just $300,000. But it wanted to earmark the money for the six economic development organizations.
“The first time in our 100-year history we offered multimillions, and people said, ‘No, thank you,’ ” Richard said.
Members of the future fund said the Cleveland Foundation’s push to earmark its money would bypass collaborative decisions on what’s best for the region. Those decisions are made by a voting committee of funders.
“The philosophy of the fund is we are more powerful as a region when we work collaboratively,” Whitehead said.
But foundation officials said precedent had been set on earmarking.
The Mt. Sinai Health Care Foundation is allowed to send its contribution directly to BioEnterprise, a development group fostering growth of bioscience companies, Richard said.
Mitchell Balk, president of Mt. Sinai, got the future fund’s approval for the earmark because his foundation gives grants only in health and medicine. And it was funding BioEnterprise before the future fund formed, he said.
Abbott and Whitehead said they never turned down the $3 million to $4 million. They urged the Cleveland Foundation to take its case directly to the funders’ committee for a vote.
Cleveland Foundation officials said they were warned that the vote might not go in their favor.
Goldberg said he was the one who “pulled the plug” on talks to send $3 million to $4 million in earmarked money to the future fund.
Debate and decisions over funding were taking too long, when other needs beckoned, he said.
“I basically said we need to move on and not get pulled around by the nose ring,” Goldberg said.
Abbott said reaching collaborative decisions often included “sharp elbows,” which philanthropic officials aren’t used to.
The Cleveland Foundation officials noted that the future fund’s strategy for the next three years calls for 71 percent of its funding to go to the six organizations focused on growing businesses and jobs.
Those economic development groups received 84 percent the past three years.
Future-fund officials responded that the percentage for business building could go up, but the budget is in flux because of the Cleveland Foundation’s decision to cut back.
The future fund also plans to spend 13 percent of its budget, double the previous amount, on developing skilled workers, in response to employer needs.
Cleveland Foundation officials said they are also concerned about the $1 million effort known as EfficientGovNow, which dispenses grants to communities that work on combining services.
The program is worthy, Richard said, but “is using a lot of money that is not in alignment with our top priorities.”
Future fund officials argued that EfficientGovNow supports government collaboration and efficiency. It was one of four key strategies that the future fund launched at the March 2007 meeting, which Richard emceed, future fund officials noted.
Cutting government costs will increase the region’s economic competitiveness, Abbott said.
“The world has changed in the last six years,” Richard said. “Lehman Brothers collapsed. Our endowment dropped by $500 million. And the needs skyrocketed.”
The foundation spends about $25 million yearly on an array of community programs, dealing with everything from pre-kindergarten literacy to Alzheimer’s care.
Add to that a rising need for new business and jobs in Cleveland neighborhoods devastated by foreclosure, Richard said.
So the foundation has launched efforts like a new laundry cooperative in Glenville.
“I don’t think the people who are upset with us have any idea what’s going on in these neighborhoods,” Richard said.
Richard noted that the future fund now has five full-time workers, when the memorandum of understanding struck in 2004 called for the use of loaned staff from participating foundations and consultants.
“They added a lot of head count that, frankly, I don’t know if that was the right thing to do,” Richard said.
Operating costs in the last three-year cycle averaged about $1.1 million a year. That includes a $353,000 yearly contract with Whitehead, who is paid separately from the fund by several foundations.
The future fund’s hires and budget were approved overwhelmingly by fund members, Abbott said.
“I don’t recall staffing levels ever being raised as a complaint by anybody,” Abbott said.
A new model
Abbott is encouraged that more than 92 percent of fund members due to renew their membership have done so, raising some $7.7 million so far for the next three years.
Fund officials hope to raise at least $15 million, little more than half what was raised the last three years.
Despite the drop-off, he and Whitehead believe the fund will endure, and not just because it recently organized from an informal collaboration into a tax-exempt charity.
The region needs a place to make collective economic decisions about its future, even if the process is messy, they said.
“We are seeing what it’s like to move from an old model of . . . city-centric, fairly centralized decision making to one that is more distributed,” Whitehead said. “It’s fascinating to watch.”