Grants: Blessing or Curse?

By Bruce Anderson

Over the past several years, state and federal government agencies have been under pressure to shrink in size while growing in effectiveness. This has led to an increasing reliance on private or faith-based organizations to do the legwork associated with community development. This trend has yielded a measurable increase in the availability of grant dollars.

Before you decide to pursue or accept a grant, it is important to know the key pitfalls.

Know what a grant really is. To most people, the word "grant" implies free money. Although you're not normally required to pay back a grant (as you would a loan), it isn't exactly free. Just as there is no free lunch, there is no such thing as free money. With very rare exceptions, grants come with rather exacting guidelines for their use. Grant recipients who get caught up in the free money mindset and begin misusing dollars may find themselves getting free orange jumpsuits and three meals a day as a guest of the government.

The application process can be challenging. Grants come in all shapes and sizes, with varying degrees of availability. Applications can range from one page to 700-page behemoths requiring professional legal and technical assistance to complete. By the same token, executing the terms of a grant may require similar assistance to keep your church on the straight and narrow.

Understand the limitations. Grants are typically designed for specific tasks like constructing a facility, purchasing special equipment and other hard costs. Very rarely can grants be used for soft costs such as salaries and operating/overhead expenses. Your organization must be prepared to show that the grant money was used expressly for the cause for which it was awarded. You may have thought it was appropriate to purchase work boots and a van for your building committee's trips to the construction site, but if that wasn't delineated in the original wording of the grant, you are about to have a problem.

Be sure you know the real cost. You may get stars in your eyes when you see just how many zeroes sit to the left of the decimal point, but you might also discover that other fees are hidden in the application paperwork. It is possible to accept a grant that ends up costing you more than you get out of it, so seek wise counsel to help you read between the lines.

Beware of temptations. An organization that has struggled to make ends meet in pursuing a worthy cause may get off-track when the bank account is suddenly filled. Good, godly people who have toiled for the betterment of their neighbors might suddenly feel entitled to a little payback. Be sure to have appropriate accountability and financial controls in place for everyone involved, including yourself. The people in your organization must understand what a grant will--and won't--give them.

Guard against unscrupulous operators. There are certain individuals in the community development world, often operating under the guise of consultants, who make a living defrauding charitable organizations and the agencies from which they seek grants. Their approach is to assist in the grant writing process, then disappear with the grant dollars. Be sure to personally check any consultant's references and keep tabs on them as they work.

Develop a proper perspective. Along with the "free money" mindset comes the notion that grants are all you'll need to make your project work. In reality, grants are merely a catalyst for a program--seed money. Rarely is the project funded from optimistic beginning to productive end by grants alone. As start-up capital for your project, the grant dollars in your account give you a higher degree of credibility and leverage with lenders, investors and other benefactors. Properly applied, grants have the potential to substantially reduce start-up and construction costs while drawing additional investment dollars into a project or service.

Most government grants have significant legal regulations wrapped around them. You can be arrested for misappropriation of funds. If you're breaking regulations, you're breaking the law.

On the positive side, grants can lower your costs significantly on a construction project. Your only route to pulling off such a project successfully might be through a grant applied to the right portion of your project at the right time.

Define your purpose. The best community development projects are those that maintain a consistent focus over the course of time. It is quite possible to become embroiled in the development and funding process and get off-track. I've seen churches that set out to provide low-cost housing for their disadvantaged neighbors end up chasing the almighty dollar with plans for high-end, for-profit senior housing. There is nothing wrong with churches participating in for-profit ventures, as long as they are done in sync with the stated vision and mission for the church.

Once you've established your church as a prime mover in the community, you will attract a vast array of people who want to do business with you. If you have a clear-cut purpose for your community development efforts, you are better able to resist the temptation to overextend your ministry.

Another problem can arise when the driving force of your efforts lacks a clear purpose; some call it the "grant hopper" syndrome. A civic-minded church might hear about a grant available for a faith-based organization to provide affordable housing for drug-dependent individuals. In its desire to do good work for the community, perhaps the church pursues and receives the grant and spends it all. Then another agency, perhaps one with a responsibility for job training for the homeless, offers another grant for a job skills program, so the church takes it. Then that grant dries up and the church pursues another, and so on.

When your vision changes just to fit the parameters of the latest grant, your church can become addicted to the government's "free money" structure, making it a virtual prisoner to various random programs.

Execute your plan. When worlds collide and the secular mixes with the spiritual--that is, when government mixes with private enterprise--chaos can reign. When your church decides to venture into community development, it is essential to do so with a strong plan incorporating the following elements:

• A properly structured not-for-profit corporation. If you pursue development as a church, you are liable to lose church assets in the event of project failure, lawsuits or other landmines. Your community development corporation (CDC) should have explicit bylaws, standardized reporting procedures and clearly defined objectives. It is also important to conduct regularly scheduled audits and a system of checks and balances to ensure the appropriate use of funds.
• A strong staff. Although ultimate accountability should rest with the senior pastor, it is important to hire a skilled and experienced leader for your CDC. The ideal candidate has fully embraced the vision and has experience managing projects of your particular magnitude. Other staff positions might include a skilled grant writer and contracted legal counsel.
• Appropriate oversight. We typically recommend that a CDC board of directors be composed of the board of the parent church. Such an arrangement will keep the CDC on track with the foundational vision and priorities.

Perpetuate your project. Once your vision has taken hold--but before your facility has been built or classrooms are renovated--figure out how you will replace your grant dollars. To pay operating costs, compensate employees and fund expansion, you must establish other sources of income.

The average community development project will need to replace grant money over time. This money can come from a combination of sources (other than the vision-switching syndrome). These include:

• The offering plate. If the project is a legitimate outgrowth of your church's core ministries, this arrangement is justifiable.
• Private donations. Having used your grant(s) to establish a legitimate operation with proven results, you can solicit funds from private sources. This might necessitate adding a full-time development director to your CDC staff.
• Matching funds. The receipt of grant dollars might enable you to seek matching funds from community-minded corporations, local agencies, endowments or other philanthropic causes.
• Other grants. There may be programs that provide for the ongoing support of projects like yours.

Grant dollars will not flow indefinitely from the government spigot. If you have not adequately prepared to replace your grant, your project could fail. Not only will your "clients" be disappointed by loss of a crucial service, the reputation of your individual church and the church as a whole can be irreparably damaged.

Do not be deterred in making your church's vision a reality, but don't develop an unhealthy reliance on a single source of funding either. We'd all much rather smile for the TV cameras as we cut the ribbon on a new building than try to hide our face with our raincoat as we're carted away.

Bruce Anderson is the president of DONNÉ Corporation, a full-service church consulting and development firm in Napa, Calif.