The Funding Environment for Community and Economic Development Nonprofits in St. Louis

Earlier this year, the philanthropic subsidiary of the electric utility company Ameren pledged to donate $1 million to support an initiative of Beyond Housing, a community and economic development (CED) nonprofit in the St. Louis area.

CED nonprofits like Beyond Housing provide critical programs and services to foster economic resilience and mobility in low- and moderate-income (LMI) communities. While CED nonprofits are natural partners for financial institutions seeking to provide loans or investments for Community Reinvestment Act credit, sometimes grants are a more appropriate capital source for these organizations.Grants can be more appropriate than other forms of capital—for example, debt—in instances such as long-term planning or for activities in which expenses exceed revenue. Grant-based funding can provide crucial support for operations, programs and initiatives. This financial assistance can allow nonprofits, which tend to operate on tight budgets, to reach a wider clientele and ensure the continuity of services and programs they offer.

Besides contributing to the financial stability of an organization, grants can generate important spillover effects. These include:

• Enhancing credibility—Receiving a grant from a reputable entity can enhance a nonprofit’s reputation and legitimacy. When a grantmaker endorses a nonprofit through funding, it signals trust and credibility to other potential donors, partners and the broader community.
• Leveraging additional support—A grant can act as seed money, which can be leveraged to attract additional funding.
• Building capacity—Grants can focus on building the internal capacities of nonprofits, such as leadership development, technology infrastructure or strategic planning. This can lead to long-term stability, greater efficiency and enhanced impact.

For Beyond Housing, Ameren’s pledge of $1 million in grant funding is substantial. It is also a single data point, or anecdote, concerning the philanthropic sector’s financial support of CED organizations in St. Louis. What does the larger landscape look like?

Given the limited analysis that exists regarding grant-based funding to CED organizations in St. Louis, the St. Louis Fed conducted novel research utilizing grantmaking data from 2015 through 2019. The analysis focused on differences in philanthropic grants to CED organizations based on dimensions such as leadership characteristics and the physical distance between grantmakers and nonprofits.See the full 2023 report, Grants in the Gateway: Community and Economic Development Grantmaking in the St. Louis Area (PDF), for additional findings and methodology. Overall, CED nonprofits received 6.4% of total grant dollars. Giving tended to be highly concentrated and locally sourced, and it presented some challenges for Black-led organizations.

Main Findings: How Funding Flowed from Grantmakers to CED Nonprofits

CED Funding Is Concentrated

Giving to CED nonprofits appears to be highly concentrated, with the top five recipients securing 45% of total grant dollars, and the top five grantmakers accounting for more than 80% of total giving. Within CED nonprofits in the St. Louis area, this might lead to a select few organizations with robust internal capabilities to effectively carry out their mission. For instance, the substantial funding might allow them to invest in long-term projects, research and staff development to expand their reach while taking advantage of economies of scale. Concentrating private grant dollars within a relatively small number of CED organizations could also result in fewer opportunities for existing nonprofits to scale their services or could be a barrier for new nonprofits entering the CED field.

Having more than $4 of every $5 coming from just five grantmakers can present considerable funding risk to the CED nonprofit field in St. Louis. Should one or two of these grantmakers change their giving priorities or face economic challenges, CED organizations could struggle financially. Decreased funding of this nature could also inhibit the nonprofits’ ability to attract other forms of capital, such as government grants that require match funding.

Local Grantmakers Lead the Way

Nearly three-fourths of funding to CED organizations in St. Louis came from grantmakers based in the region. This highlights the importance of local networking and relationship-building in CED nonprofits’ efforts to raise philanthropic funds. The Philadelphia Fed found a similar dynamic when analyzing grantmaking by community foundations and United Way chapters across the country (PDF). The vested interest from local grantmakers suggests an opportunity for regional and national grantmakers to leverage local grantmaker relationships and expertise when they consider funding CED work in St. Louis.

Black-Led CED Organizations Face Local Funding Challenges

In the spring of 2022, the St. Louis Fed held a roundtable discussion with a group of stakeholders representing Black-led CED organizations. Grantmakers’ lack of trust in the capabilities of Black-led CED organizations was identified as a substantial barrier for these organizations in obtaining funding. The stakeholders noted that Black-led nonprofits often find themselves on the outside of the St. Louis funding community, although they expend substantial energy to cultivate relationships with local funders.

Our analysis provides insights into this dynamic. While grantmakers in the region provided 72.1% of grant dollars to all St. Louis-area CED nonprofits, only 58.1% of funding to Black-led CED nonprofits was locally sourced. In addition, nearly 20% of Black-led nonprofits focused on CED, however, they received only 7.3% of giving to all Black-led nonprofits. Further work is necessary to increase our understanding of giving to Black-led CED nonprofits.

Insight into CED Grantmaking Is Only a First Step

Providing CED organizations, funders and researchers with insights into the regional dynamics around grant-based funding is crucial for assessing its effectiveness in promoting economic mobility. A deeper grasp of the factors shaping this funding environment will help enable stakeholders to both think and act more strategically in pursuing economic resilience in LMI communities.

Notes

1. Grants can be more appropriate than other forms of capital—for example, debt—in instances such as long-term planning or for activities in which expenses exceed revenue.
2. See the full 2023 report, Grants in the Gateway: Community and Economic Development Grantmaking in the St. Louis Area (PDF), for additional findings and methodology.