Funding Intermediaries as a Strategy for Local Grantmaking: The John D. and Catherine T. MacArthur Foundation & the Local Initiatives Support Corporations (LISC) Chicago

by Joseph Hoereth

Jan 1, 2007
The current case study (starting on page 94) focuses on the experience of one foundation, the John D. and Catharine T. MacArthur Foundation, in its effort to improve grantmaking effectiveness and the impact of its support on some of the most distressed neighborhoods in Chicago through the special funding of Local Initiatives Support Corporation (LISC) Chicago, a community development intermediary.This case offers an example of a strategy taken by a large foundation to improve its efficiency by shifting its community development grantmaking from a 'retail' system to a 'wholesale' program. The new program, the New Communities Program (NCP), is managed by LISC Chicago which distributes funds from the MacArthur Foundation and other funders to community-building activities at the neighborhood level consistent with comprehensive plans created by residents in those neighborhoods. The case unearths several important questions for students of philanthropy to consider. How might intermediaries help foundations be more effective? What sorts of challenges do intermediaries face that do not exist in a direct foundation to grantee relationship? Are there features of the community development context that make it better suited for intermediaries?
  • The question of whether intermediaries improve grantmaking effectiveness by achieving greater impact cannot yet be answered and it may be unlikely that time would provide a clear answer. Intermediaries need to demonstrate that they can achieve scale; that they add value resulting in a greater than proportional increase in impact.
  • Giving fewer, larger grants reduces the grant review and transaction costs of processing applications and awards. In most cases, the transaction costs are the same for a small grant as they are for a larger grant, so efficiencies can be gained with fewer grants to process. Fewer grants also means less administrative monitoring and fewer payment schedules to track over the long-run. This suits community development which demands long-term grants for systemic changes.
  • Among the trade-offs of using of intermediary are questions of increasing complexity, meeting and preserving multiple donor intents, measuring outcomes, and assigning credit and blame.
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