Ford Foundation borrows $1B to help small charities weather coronavirus slump

The Ford Foundation, founded by automaker Henry Ford's son during the Great Depression, is borrowing $1 billion as it joins with some of the nation's most venerable charities to help smaller nonprofits survive an economic slump due to the COVID-19 pandemic.

The organization says it will be the first nonprofit foundation in history to borrow through the sale of labeled social bonds  -- securities earmarked for funding of projects with a tangible societal benefit such as clean drinking water, healthcare or affordable housing -- in the taxable American corporate bond market.

It's a move prompted by a unique moment in the nation's history, when a disease that has killed more than 400,000 people worldwide and infected more than 2 million Americans prompted a virtual shutdown of U.S. businesses, sending a once-flourishing economy into a tailspin.

The jobless rate surged, with more than 44 million people seeking unemployment benefits, while donations to nonprofits that provide meals and other benefits withered just as demand was peaking.

"The nonprofit sector will be fundamentally upended and diminished by the economic fallout from Covid-19," said foundation president Darren Walker, whose organization is teaming with the Doris Duke Charitable Foundation, the MacArthur Foundation, the W.K. Kellogg Foundation, and the Andrew W. Mellon Foundation to boost their collective grants by $1.7 billion beyond normal levels over the next two years.

So far, the Duke and MacArthur foundations have committed to issuing bonds alongside Ford. Each will issue its own debt through its own underwriting process, Walker said.

"The story here is really a story of something that doesn't happen enough in philanthropy and that is collaboration, real collaboration," said Walker. "I have been so inspired by my colleagues who joined and together crafted a strategy that ensured we would significantly increase our payouts in whatever mechanism, through whatever vehicle worked for us and our boards."

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The grants from the organizations will support nonprofits that are "advancing the fight against inequality at a time when communities who are most vulnerable have been hit hardest by the pandemic," the Ford Foundation added.

Social justice advocates say COVID-19 and the economic downturn it caused have highlighted existing racial and economic disparities in American society, with data showing minorities more susceptible to illness and death.

Lower-income workers at essential businesses such as grocery stores, pharmacies and meat-packing plants have continued reporting to their jobs, running a heightened risk of contracting the disease, while many white-collar professionals have been able to shelter in place and work from their homes.

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To date, more than 70 percent of non-profits say they have already seen a decline in contributions, and half said they expect to see their revenue decline by more than 20 percent over the next year, according to a recent survey by the Charities Aid Foundation of America.

It's a time that "requires foundations to step up in unprecedented ways with courage, and boldness and creativity," Walker said.

While the Kellogg and Mellon foundations are considering bonds, they are debating other financial models as well.

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The proceeds of Ford's bond sale will allow it to pay out more than 10 percent of the value of its total endowment in 2020 and 2021. In 2020 alone, the foundation has already provided 557 grants to 500 grantees around the world totaling over $136 million.