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With a housing crisis, overlapping major disasters, and shifts in federal grant funding affecting many communities throughout the U.S., the search is on to find effective approaches for existing resources and to create and deploy new funding sources.
Once you’ve been assigned to distribute and implement a new or re-purposed funding source to meet your community’s goals: How do you allocate the funding? Should distribution be competitive, formula-based, or on demand? Or, should you use the funds to provide technical assistance?
Pro tip: The answer to which funding method is the “best” is, “It depends.”
Match funding model characteristics to program needs
To help you think through options, we created a sorting tool that shows broad characteristics of the most common program models used by governmental and public-private partnership (P3) funders. First, ask:
- What is the need, and what mission is your organization trying to accomplish?
- What type of funding are you making available – grants, loans, tax credits, etc.?
- What types of organizations can use funding or implement projects – city agencies, neighborhood nonprofits, homelessness advocate coalitions (like CoCs), developers?
- What delivery capacity do those organizations have – beginner to adept?
|
Funding model |
Why use this model? |
What does it distribute? |
How does it distribute? |
To whom? |
|
Formula allocation |
Funder needs consistent support for a broad national, state, or regional purpose. Funder is willing to delegate most project-level decisions to fundees. |
Grants, block grants, guarantee authority, or tax credit allocations (may include pass-through or renewal funding) |
Formula based on widely available, reliable data representing need related to funder purpose(s) |
A predetermined set of established entities, such as states, local governments, or PHAs |
|
Competition |
Funder is looking for innovative or meritorious projects to advance practice or for capable organizations with purpose-aligned missions. Usually, funder retains some or all project selection decisions. When selecting capable organizations, a funder may defer all decisions to the fundee (ex: Ms. Scott) or retain a limited set (ex: State CDBG pass-through competitions) |
Grants (may include pass-through funding), tax credits |
Established criteria, or expert evaluations. For project funding, typically funds go to high scorers based on an application. For organization funding, a funder may also make decisions using publicly available information, based on best fit with its privately held criteria. |
Qualified applicants or organizations, such as nonprofits, private developers, CoCs |
|
On demand |
Provide accessible primary or gap funding for market- or subrecipient-driven projects |
Financing through financing mechanisms such as tax credits, loan guarantees (e.g., Section 108 or FHA), loans (including private and microloans), loan loss reserves |
Application to the funding entity (lender or agency) |
For-profit and nonprofit developers, or other project leaders who plan underwritable projects with capable implementors |
|
Technical assistance |
Increase grantee and subrecipient capacity to successfully and compliantly plan, secure funding for, and implement programs |
Technical expertise (hours, training events, plans, tools, and other products) |
On demand and/or targeted based on capacity |
Applicants, grantees, subrecipients |
Match compliance burden to goals
A good rule of thumb in designing a new program is to align the compliance burden with the funder’s purpose, by limiting documentation or data collection to the minimum necessary. This approach supports meeting appropriate internal controls and demonstrating progress toward achieving the mission, while rejecting all “nice to have” burdens (data or documentation) that would take resources away from achieving the mission. (A pro tip that can free up resources is to also review your existing programs for excessive compliance burden and to remove unnecessary policy pain points.)
Ultimately: There’s no one right answer
The best funding method for meeting a community’s goals depends on the specific needs, mission, and capacity of the organizations involved, as well as the type of resources available. This means the “best solution” will vary greatly; some cases will even call for a blend of funding models to most effectively deliver the funds.
Considering the factors outlined here, and aligning compliance requirements with the funder’s purpose, are the keys to maximizing impact while minimizing unnecessary burdens. Ultimately, thoughtful design and ongoing review of funding approaches will help ensure resources are used effectively to achieve meaningful outcomes.
Contact us to learn more or talk further through your program’s specific design needs.
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This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.