A Hidden Burden on Low-Income Communities That Philanthropy Can Help Fix

March 14, 2024

Matched-fund requirements make accessing federal infrastructure and climate dollars all but impossible for the very communities grant makers seek to help.

Of the more than 54,000 Americans living without electricity to refrigerate food, charge a cellphone, or power a laptop, the vast majority are Native Americans, most on the Hopi and Navajo reservations in the southwest.

The federal Bipartisan Infrastructure Law and the Inflation Reduction Act finally offered hope of correcting the historic wrongs perpetrated on these Native American communities. But the funding came with a significant catch. When Hopi leaders sought a $50 million grant under the infrastructure law to bring electricity to the 35 percent of tribal residences without power, they were required to put up the equivalent of two-thirds of the tribe’s annual general budget in matching funds — an unaffordable expense.

The Hopi asked for a cost-sharing waiver but were refused. They didn’t get the grant.

Matched-funds or cost-share requirements, a seldom discussed feature of many federal grants, have long been a favorite tool of legislators. They require any community seeking funds to put so-called “skin in the game,” stretch federal dollars further, and spread risk. And they figure heavily in the more than one trillion dollars made available in the infrastructure law and the Inflation Reduction Act, or IRA.

Almost 75 percent of federal funding aimed at helping communities withstand climate change and nearly 95 percent of the funds targeting exclusively rural areas requires or gives preference to places that provide matching funds. Of that, less than a third of the grants offer waivers or flexibility to reduce match requirements. In addition to the requirements stipulated by specific legislation, cost-sharing is also the preferred approach for grant funding in many federal agencies.

Sometimes this makes sense. Large municipalities often provide support and incentives for sports arenas and other development projects. When necessary, they issue bonds, use reserves, impose special fees or taxes, or get philanthropic help to raise matching funds.

But for low-income communities, including Native American and rural areas, cost sharing is one of the most significant obstacles to federal dollars. Since many of these grants are competitive, those that cannot provide matching funds inevitably lose out. The result is that the very populations philanthropy seeks to help are denied the game-changing support needed to create sustainable infrastructure and address environmental injustices, such as pollution-spewing factories built in residential neighborhoods.

Fortunately for grant makers, there’s a straightforward solution: Make matching funds available to communities that can’t afford them.

An Unaffordable Obstacle

In a study for the Ford Family Foundation, Oregon rural nonprofits listed cost-sharing requirements as one of the top three obstacles to federal funding. Already stretched to provide basic services, the communities these groups serve do not have the capital or philanthropic connections to raise matching funds. In some cases, state laws limit communities’ ability to raise revenue through taxes or other means, making it even harder to come up with the matching funds.

Communities can offer in-kind support such as volunteer services and donated space and equipment to help meet the cost-sharing requirement, but many nonprofits describe this as a bookkeeping nightmare that still fails to produce the required sums. They can also request cost-share waivers, but in practice these are rare and difficult to obtain.

Ines Polonius, executive director of Arkansas-based Communities Unlimited, which works with hundreds of nonprofits serving high-poverty areas in the South, says that in her 25 years in the field she has never once heard of a group receiving a waiver when applying for federal funding.

On the rare occasion when a cost-share waiver is granted, it often comes at a cost. Last year, the Chesapeake Bay Trust applied for a $50 million U.S. Department of Agriculture urban forestry grant for low-income communities facing higher levels of pollutants and other environmental hazards than most places. But to get the grant they would have needed to come up with a 100 percent match. The nonprofit successfully argued that the project would be run by and for disadvantaged groups and received a waiver, but the grant amount was reduced by more than 60 percent to $17 million.

In many cases, the cost-sharing requirement discourages smaller and poorer communities from even seeking federal aid. No matter how worthy the project, if they can’t provide a match or get a waiver, their application will be denied.

Addressing these barriers should be a priority for grant makers given the enormous potential of federal infrastructure and climate funds to alleviate suffering in low-income areas. For inspiration, they may want to consider the strategies Native American and some rural grant makers have deployed to ensure funds flow where they’re needed most.

Lessons from Tribal Philanthropy

Among the most notable is the Tribal Nations Conservation Pledge and Funding Collaborative. Organized by Native Americans in Philanthropy, the pooled fund brings donors together to provide matching funds for tribes applying for the National Fish and Wildlife Foundation’s America the Beautiful Challenge grants.

In 2023, these funds helped tribes win 40 percent of these competitive grant awards. Philanthropic matching funds of $1.5 million translated into more than $50 million in federal support. More foundations should consider setting up similar funding collaboratives to provide matched funding for federal grants.

This is also an area where rural grant makers can have a significant impact. The TLL Temple Foundation, which serves 17 rural counties in East Texas, is working with Communities Unlimited to bring federal aid to long-overlooked areas. The foundation gave the nonprofit a $400,000 grant to help East Texas communities meet federal match requirements for the infrastructure law and IRA funds, part of an array of services they are funding to ensure these communities win federal grants.

Federal attitudes towards cost-sharing are also beginning to change. The U.S. Forest Service has issued policy guidance waiving match requirements for all agreements with tribal governments, and is working on ways to reduce or waive the requirement for other underserved communities. It’s also expanding its definition of in-kind support to include expertise such as traditional ecological knowledge. And several states, including Texas, North Carolina, Colorado, Vermont, and Minnesota are establishing match funds for some federal programs.

Philanthropy can use its influence to accelerate and amplify these trends. Most importantly, grant makers can make overcoming the match fund barrier a more visible focus of efforts to help low-income communities win federal funding. In addition to providing matching funds, that means helping community leaders negotiate waivers or reduced matches, and advocating for state funds that can cover cost-sharing requirements.

Longer term, philanthropy can press federal and state governments to restructure the match-fund requirement so that struggling areas aren’t left behind. Philanthropy has often seeded new ideas like this that eventually became government policy. It’s time to do it again.

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Source: A Hidden Burden on Low-Income Communities That Philanthropy Can Help Fix