Equity and Philanthropy: The Flow of Capital in St. Louis

Capital is essential for community and economic development, with capital from governmental and philanthropic sources playing a pivotal role. While community development organizations in the Eighth District have experienced a 28% and 42% increase in foundation and government funding (PDF), respectively, feedback suggests that the distribution of those dollars has not been equitable. Additionally, research suggests that, historically, such funding has not been equitably allocated (PDF), with organizations led by people of color and that serve communities of color receiving less. As we seek to inform strategies for community and economic development (CED) in the St. Louis region, it is imperative that we understand the current distribution of funding and recognize the catalysts and barriers to creating sustainable impact.

Equitable funding is key to creating economic equity. In pursuit of this goal, the St. Louis Fed’s Community Partnerships and Investment team is analyzing capital flows from philanthropic sources and the federal government to CED nonprofits in St. Louis over the period from 2015 to 2019. To ground its analysis, our team held a roundtable discussion with a group of local stakeholders, who ranged from community development corporations to large nonprofits, to understand:

• The definition of a Black-led CED organization
• The experiences of Black-led CED organizations in St. Louis
• The unique challenges and opportunities for Black-led CED organizations in St. Louis

Understanding the Experience of Black-Led Nonprofits

Robust data is lacking at the community level on how Black-led organizations identify within the St. Louis market. A 2018 Deaconess Foundation report highlights this lack (PDF) regarding funding levels, needs and priorities. Participants in our roundtable discussion agreed that, at a minimum, these organizations should have a chief executive, as well as a range of board members, identifying as Black. One participant pointed to a board composition where 60% of members identify as Black or African American.

The group also observed that the presence of Black decision-makers within the CED organization was highly important. These representational leaders are described by Angela Jackson, John Kania and Tulaine Montgomery as “proximate leaders.” They write: “Leaders who are proximate to the communities and issues they serve have the experience, relationships, data, and knowledge that are essential for developing solutions with measurable and sustainable impact.”

Beyond developing our understanding of a Black-led organization, we followed the roundtable discussion to insights on three major themes: trust, partnerships and responsiveness.

Trust

Lack of trust was identified as a substantial barrier to advancing equity within the CED funding ecosystem. Stakeholders voiced concern that philanthropic giving may be predicated on an organization’s, or even an individual’s, level of social capital. Many in the group noted that trust may remain confined to a small contingent of organizations, and those that center around people of color are often outside this network. An assumption seems to exist that Black-led nonprofits aren’t able to absorb large amounts of capital, and regional funders appear not to trust their organizational or operational capacity. The leaders of one organization described receiving scrutiny regarding their need rather than for the merit of their application. This has led the bulk of the organization’s funding to come from outside the region.

Partnerships

Stakeholders noted that building partnerships is key to being successful in the funding ecosystem, even if sometimes it may not create large returns for Black-led nonprofits. Black-led organizations often receive recommendations to partner with white-led or larger nonprofits to be more competitive for funds, implying the need for an endorsement of their capacity or viability. In this light, the need for building partnerships among organizations led by people of color is a consequence of lack of trust.

It is important to note the power dynamics often present in these types of partnerships, because funder dollars don’t necessarily flow downward to grassroots organizations led by leaders of color, or, when they do, the amount may be smaller than the percentage of funds offered to their white-led partners. As one roundtable participant shared, despite the emphasis on the need for partnerships, it can be rare to see more than one Black-led organization with a significant level of access to regional financial and social capital. What’s more, organizations tend to find the funding environment highly competitive, driven by both funders and nonprofits. Stakeholders observed an increase in interest from Black-led organizations for tax credits, grants and new investments, which at times may breed greater regional competition and can create barriers for other Black-led organizations to access higher levels of sustainable capital. One stakeholder noted: “The only time this will work is if someone from the philanthropic community takes the role to be truly inclusive.”

Responsiveness

The COVID-19 pandemic, along with reinvigorated calls for racial and social justice, produced an influx of funds to area organizations, especially Black-led organizations or those based in communities of color, like North St. Louis City. Stakeholders highlighted this as an example of philanthropy being reactionary rather than proactive by, for example, making early-stage investments in communities of color. They also noted that funding has been temporary, and they have not yet experienced a sustained increase of support. While substantial, these funds may have limited impact because organizations lacked prior investments that would have built their capacity to quickly deploy dollars at the neighborhood level.

One stakeholder raised the need for philanthropy to refocus on the strength of Black-led and grassroots organizations that saw themselves as the vanguard of discussions on equity before such conversations proliferated in other sectors. The group agreed that there is value in assessing which organizations and leaders made strides in advancing equity and creating mobility for vulnerable populations before large infusions of capital were at stake.

Next Steps

Through this roundtable discussion, our Community Partnerships and Investment team sought to explore how stakeholders created equitable outcomes for vulnerable communities of color in St. Louis. The resulting conversation, and others like it, will support our analysis of how funding is distributed to CED organizations, neighborhoods and other entities in an effort to better inform opportunities to create equity.