Philanthropy Forum: Federations Need to Adapt

North American federations could and should be doing much better than they are. They matter. They are important. They embody the ideas of community, common cause and the ability to respond to collective concerns. They are vital institutions and we want them to succeed.

Federations have been the hub of a vast system that involves community centers, family services, bureaus of Jewish education and so many more organizations. But this system is becoming unglued and changes need to be made.

This call for action comes from someone who has worked for three decades with more than 70 federations, including New York, Los Angeles, Cleveland and Baltimore. I have worked as a consultant with the Council of Jewish Federations, the United Jewish Appeal, and scores of constituent and beneficiary agencies. I believe that federations are essential. I don’t have all the right answers. But I think I have some of the right questions.

Telling the truth about endowments

Endowments are a big federation success story, but trouble is bubbling both on and below the surface. Many federations proudly promote the size of their endowments, noting how much money is under federation management. Is it real? Touting an amazing growth of funds under the federation roof paints a not-quite-honest picture. Here are some of the key issues that need to be addressed:

a.. Part of or apart from the federation? More and more federations are losing control of their endowment funds as they evolve into quasi-independent entities or completely separate organizations. Should endowments be part of the federation? Separation may not be good for federations. But is it good for Jewish philanthropy and the community?

b.. Are endowments Jewish philanthropies or not? A close examination of federation endowment funds shows many, if not most, of the grants and dollars from donor-advised funds and supporting foundations go to non-Jewish causes. Is this good, bad or unimportant for federations? How much do these funds actually help the Jewish community?

c.. How should endowments report their holdings? Endowment funds are really a mixed bag of unrestricted and restricted funds under federation oversight. Philanthropic funds and supporting foundations are donor -controlled, not federation-controlled. How can these funds be described more honestly and accurately? How can endowments more truthfully report their giving?

d.. How do endowments measure success? Are endowments doing well if they manage more and more money, give money to secular causes or give more to Jewish causes? How do we assess what the outcomes should be for endowments?

e.. Should endowments spend down? Endowment advocates will tell you that the money they hold on to is for an emergency or a “rainy day.” Exactly how hard does it have to rain to loosen up dollars? And where does it need to rain — and upon whom?

f.. Endowment directors and federation executives — who’s in charge? Any healthy business has to have a clearly functioning chain of command. What happens when the endowment director has more perceived power and authority than the federation executive, as is the case in a number of communities? How can federations align their professional leadership to avoid dysfunctional management?

Retooling the broken federation-agency system

The federation-agency relationship, the core of the federation allocation system, is outmoded. It does not work anymore, especially in the context of a single umbrella campaign.

Most of the money that federations give away through the allocations process are entitlements, with the largest amounts going to the same agencies year after year. How can federations develop new, more flexible ways of allocating funds?

There has been an explosive growth in the number of innovative programs and organizations, only some of which now get small, leftover grants. What should the federations’ relationship be to these new and growing networks of Jewish organizations at the local, national and international level? Who should be in and who should be out? Does the constituent/beneficiary agency structure make sense any more?

One example of a regular recipient is the Jewish Agency for Israel, which is one of the major beneficiaries of overseas funds from the federation system. Many donors have no idea what the Jewish Agency is or what it does, and others are openly hostile to it.

What should the federations’ relationship be to the Jewish Agency? Are there other organizations in Israel that should be supported as well, or even substituted?

Coming to terms with the annual campaign

The annual campaign is what built the federation and generates hundreds of millions of dollars annually. But in real dollars it has declined precipitously since 1967 when adjusted for inflation. The donor base is aging, especially for the largest gifts. Among the real questions facing the annual campaign:

a.. Does an umbrella campaign still make sense? Federations provide a small percentage of the annual operating budgets of many agencies. Should federations raise and distribute money to local agencies, or would it be better to simply help them raise it themselves?

Should federations once again consider running one campaign for local needs, and a separate one for Israel as they used to? Donors increasingly want to control where their money goes. Would federations increase the number of donors and how much they give by once again splitting up the campaign?

And what about the American Jewish Joint Distribution Committee? The JDC is well-respected by its donors and serves a particular role in helping needy Jews around the world. Is it time for JDC to go its separate way and run its own national campaign?

b.. How can federations turn around their shrinking donor base? The number of donors to the annual campaign is down over the past 20 years. Individual federations may see small blips upward from time to time, especially after a crisis in Israel. Federations invest very little in developing, acquiring and managing donor lists. How can local federations and the United Jewish Communities invest in a national database system?

One potential source of new donations are non-Jews. The vast majority of Americans are supportive of Israel, and many use Jewish community centers, Jewish vocational services and other Jewish organizations. How can federations expand their donor base and annual campaign by reaching out to tens of millions of Americans, especially those who support Israel?

Part of the problem is name recognition. The United Jewish Appeal, UJA, once was the most recognized name or acronym in Jewish life. Should the federation system reclaim the UJA name as part of its effort to revitalize its national campaign?

c.. The annual campaign is built on a pyramid, with the largest gifts setting the scale for all gifts. Major gifts have been stagnant at the top, and the pyramid is not high enough anymore. Donors capable of giving $5 million or $10 million to the annual campaign do not do so. How can UJC create national and international peer groups of the wealthiest donors to radically change the standards of giving?

Administration and function

Federations are shooting themselves in the foot on some basic administrative issues that seriously harm their image. Some internal housekeeping measures will help them better relate to donors, other Jewish organizations and the Jewish public in a healthier way.

a.. Overhead issues: Federations perform many services, including community relations, Jewish education and others, as programs within the federation that are viewed as administrative overhead and make the bottom-line fund-raising costs look much higher than they really are. How can federations structure themselves so that programs and services are delivered by separate agencies or sub-agencies?

b.. Consensus or paralysis? Federations rely on a consensus model to get things done, trying to get the most people representing the most points of view to reach some common ground. The result is often the least common denominator, with the fewest people terribly unhappy, but nobody really happy either. Is this still a good model? Is it efficient? Getting everyone to “buy in” may bring community harmony but also paralysis.

c.. Finding the right executive: Federations often seek the impossible — someone who knows the federation business as an insider, and someone with fresh new perspectives, who is unsaddled by the old way of doing business — i.e., an outsider. What is the mix of skills and experience necessary to run a federation? What do federations really want in their executives besides miracle workers who will solve every issue discussed in this article?

d.. Establishing better relationships with private foundations: In a number of communities, private Jewish foundations give away more money than the federation, and in a growing number of places, a single Jewish foundation does so. Many foundations often complain that federations are too slow to respond to changing needs and are too bureaucratic.

Federations complain that foundations start projects that they do not finish and leave the mess for federations to clean up. How can federations work closer and more effectively with private foundations?

The bottom line is that federations need to change. We will make a better system by tackling the real issues, not hiding from them. If not, federations will remain part of the Jewish philanthropic landscape, but nowhere near as important as they ought to be.

While federations have evolved significantly in recent years, the change is not happening comprehensively or quickly enough for them to be the powerhouses in Jewish philanthropy they would like to be or have been in the past.

Gary Tobin is the president of the Institute for Jewish & Community Research and writes frequently about American and Jewish philanthropy.