Breaking the cycle of grant funding dependency in economic development

Economic development efforts that rely on grant funding to sustain their operations should proactively take steps to reduce their dependency through risk sharing.

Regrettably far too often I have watched a well-intentioned economic development effort fall by the wayside due to shortsightedness. Admittedly, these efforts needed seed money from grants to get off the ground, often for several years, but came crashing down when the grant funds ran dry or were not renewed. In many of these instances, there was too much reliance on grant funding without consideration of addressing long-term financial sustainability and independence. Without proper planning and implementation, these efforts quickly hit a critical crisis point in their operations requiring them to frantically chase down any and every potential grant dollar out there with little or no success. 

The reality of today’s economic climate is placing greater demands on grant funders. As requests for grants often outpace available funds, grants are becoming more competitive. To accommodate this trend, some funders are developing tighter guidelines for funding which include developing strategic plans with a narrower focus. Additionally, they often require greater collaboration to maximize their impact and avoid duplication of services. Also, those receiving funds are under greater scrutiny to align their efforts to funder’s strategic plans and demonstrate results-orientated, quantifiable impact to receive continued funding. 

Economic development efforts should take proactive steps to increase the likelihood of long-term success and sustainability by sharing the risk of their efforts. Risk sharing is the idea that you have “by-in” or “skin in the game” by sharing in the financial risk of your efforts that grant funds are supporting. This process can take time, which is the reason why those who don’t plan and execute ahead of time often fail the moment grant funding disappears. It is important to remember that most funders do not desire or expect to fund efforts into perpetuity. 

Grant funders excel at providing seed money to kick start economic development efforts, but they usually prefer to be the last dollars in. This reason is why economic development efforts should share responsibility across partnerships and, if possible, bring additional funding to the table. While the ability to do this is not always possible, there should be a plan in place that incorporates reinvestment into their efforts that allows for a step-down approach from funders that leads to financial sustainability and independence. 

For example: an economic development office initially started on 100 percent grant funds could step down off of those funds by 20 percent each year though fund development coming from local businesses and governments. By year five, the office’s operational costs could be fully funded; leaving grant funding for value-added programs, events and special projects they may want to conduct. 

A second example: a farming co-operative started with seed money from a grant with the intent on bringing locally grown produce to the market to meet consumer demand could require farmers to invest part of their profit back into the co-operative to assist with operational and expansion costs of the business. As this co-operative grows, it becomes self-sustaining. 

While both the above examples are simplistic, they each stress the ability to wean off of grant funds while encouraging risk sharing through investment by those who financially benefit from the economic development efforts. 

For additional resources, Michigan State University Extension has educators that may be able to provide assistance.

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