The Nonprofit Explosion   

Foundation-funded investigative journalism plays an increasingly important role. The big question for the future: "Sustainability."

This article was funded by a grant from the Open Society Institute.

The panel was titled "Who's Going to Foot the Bill?" And Slate's media critic had a question for both Lisa Frazier, CEO of the Bay Area Citizen, a newly minted nonprofit newsroom covering the San Francisco Bay Area, and Robert J. Rosenthal, executive director of the Center for Investigative Reporting. Why, Shafer asked, should either of them get his $3 million? "The opera wants it, the ballet wants it, the museum wants it, the YMCA, poor kids in Africa want it."

Shafer was joking, of course. But for his targets, it would prove the chance to illuminate a dark reality they face every day.

Whether carried out by a CEO or a development pro, fundraising is a consuming and never-ending quest at journalism nonprofits, as much a part of their business as advertising sales are to a publisher in the traditional media world. With the task come issues that are foreign to newsgatherers. Precisely what money to take under what conditions requires often thorny ethical decisions. Just because money comes from civic-minded foundations or deep-pocketed do-gooders does not mean it is free of strings or baggage.

As at newspapers and broadcast news operations, a barrier is supposed to separate the business side, where revenue flows in, and the editorial side, where stories fly out. But in practice that barrier can be porous. At the Center for Investigative Reporting, Rosenthal is a mixture of editor, publisher and salesman. He says he spends half his time raising money and the other half nursemaiding stories and marketing them to news outlets. (Unlike other nonprofit news outlets like ProPublica and the Center for Public Integrity, CIR and its spinoff, California Watch, charge for-profit organizations for publishing their material.)

In some shops, the people who write the stories may be recruited to bring home grants. As a reporter at a nonprofit, CPI's Kristen Lombardi says, "You have to know you have to help raise money." When she proposed an exposé on campus assaults to her bosses, she agreed to help with a pitch to the NoVo Foundation, whose stated mission is the empowerment of women and girls. NoVo came through with $100,000, against a total cost of $250,000. Lombardi doesn't object to the fundraising duties. "I was the passionate one. I was the one who knew about the story. I didn't have to spend more than an hour talking to NoVo, and I got to work on the story for a year."

Says CPI Executive Director Bill Buzenberg, "Funders have great expertise in the areas in which they are working. We need to show we have expertise, too." The conversations end when the money begins to flow, he says. "They can't talk to reporters, they can't call reporters. Once CPI gets funding, there's clearly a firewall that the reporters are on the other side of."

Foundations by their very nature have agendas. Shafer wrote in Slate last September that "no matter how good the nonprofit operation is, it always ends up sustaining itself with handouts, and handouts come with conditions."

Says Laura Frank, who is navigating the new channels as head of a startup, the Rocky Mountain Investigative News Network, "People think, 'Oh, wow. You don't have to deal with advertisers,' but it's kind of the same thing. Foundations are used to funding something and having control over it. You have to explain to them that there is a firewall: 'What you're funding is the act of journalism for the benefit of society.' "

A major Colorado foundation interested in underwriting coverage of health care invited Frank to come to a meeting. Health care fits her organization's mission. "We don't want to be seen as producing for the money," she says. "But I'm definitely going to apply for it."

Last January, during a discussion at the University of Wisconsin titled "Ethics for the New Investigative Newsroom," CPI founder Charles Lewis related an anecdote about his initial naiveté. At his first board meeting 20 years ago, he says, he presented a 25-page memo listing whom he would not take money from. "When we looked at the list, we realized we could not really take money from anyone. We had basically become so pure that we would die as an organization."

(Disclosure: This article was funded by a grant from the Open Society Institute. And AJR has previously received grants from the Ford Foundation, the John S. and James L. Knight Foundation and the Pew Charitable Trusts.)

Foundations are notoriously fickle; their priorities change, and they don't want to shell out money forever to the same causes. Says a friend at a major foundation who didn't want to be quoted by name, "No one in the foundation world wants to think these nonprofits are going to be dependent on foundations for a long time. Journalism startups have got to figure out some way to get people to pay for them." At the same time, he says, because foundations recognize the daunting task for investigative nonprofits in raising revenue, a countervailing force is at work: a big debate in his world about "whether there has to be sustaining support, a model more reminiscent of cultural institutions – universities, orchestras and museums."

"Sustainability" is the new mantra. When the New England Center for Investigative Reporting was founded in January 2009, the Knight Foundation provided $250,000 in startup funds. This year Knight came through with $400,000 to "create a sustainability model."

"We are not counting on long-term foundations and donors to fund our center forever," says Joe Bergantino, the center's cofounder and, until 2008, an investigative reporter at Boston's WBZ-TV. Housed at Boston University, the center not only charges upward from $500 for its stories, he says, but has raised almost $1 million from foundations, fundraising campaigns, training and research. This summer, 41 high school students paid $900 apiece for one-week workshops in investigative reporting. Plans are also underway to do watchdog training in partnership with Investigative Reporters and Editors. And the center has plans in place to use journalists to do "research for hire" for private clients. In its first such venture, the center was retained by a client that wanted information on a company's suspected discriminatory practices to pressure that company to change its behavior.

As nonprofit outlets proliferate, Bergantino says, "We're all competing for the big pool of dollars that come from foundations." The solution is "to think about these centers as small businesses. We have to think of many different ways to bring in dollars."

Many of the nonprofits are situated at universities, where they receive space and back office help at little or no cost. In the case of the New England center, BU provides office space, utilities, computers, an advanced LexisNexis search service, printing, postage and supplies, along with fundraising and marketing help. BU's College of Communication also pays for the center's travel, libel insurance and a portion of the salary and benefits of two full-time staffers.

But just as when a corporation with diverse interests owns a newspaper or TV outlet, the potential exists for conflicts. That's the case even in an arrangement with a nonprofit university. In a 2009 post on the Poynter Institute Web site, Robert Gutsche, a reporter at the Wisconsin Center for Investigative Journalism, based at the University of Wisconsin (see Drop Cap), questioned the implications.

"Forced by money to look for these efficiencies, we're left to decide how close our connections should be. Does it matter if we use a university's Internet connection, media equipment, voice mail and faculty advice? Are we prepared for any fallout if we report on a school's athletic department, research, lobbying efforts and the politics involved in them?"

Foundations are governed by officers and board members with connections that may raise conflict of interest flags. Wondered Andy Hall, director of the Wisconsin center, should organizations like his ask a local foundation for money if the foundation's board of directors includes local newsmakers?

The Washington Post recently took a blog beating for what its ombudsman, Andrew Alexander, described as a "glaring lack of transparency." On December 31, the Post published a story on growing congressional support for a proposed deficit-reduction commission. The article was the first offering by an online journalism startup called the Fiscal Times (thefiscaltimes.com), financed by Peter G. Peterson, a fiscally conservative billionaire investment banker. It quoted the executive director of the Concord Coalition, an advocacy organization that opposes deficits and entitlement programs. Peterson was a founder and supporter of that organization as well. But the Post mentioned neither connection.

Five days later, the paper published a correction acknowledging Peterson's role. The next day the New York Times jumped on the story, quoting sources who suggested there had been an ethical failure on the part of the newspaper.

Imagine dealing with 86 foundations. That's the number that CPI has on its active list of actual and potential benefactors, Buzenberg says. To keep up with them all, four of its 47 employees work full or part time on development, as does Buzenberg himself.

Life is simpler at ProPublica, the wealthiest of the journalism nonprofits, where three-quarters of the budget is covered by a single source, a foundation established by former banker Herbert Sandler and his wife, Marion. "That's a model we can only dream about," says Bergantino of the New England center.

The Sandlers are classic liberals who have given generously in the past to progressive causes, including Human Rights Watch and the American Civil Liberties Union. In 2006, after they reaped $2.4 billion from the sale of their bank, Golden West, to Wachovia, they decided to launch a new venture. Paul Steiger, who was nearing retirement from his post as managing editor of the Wall Street Journal, was contacted by Herb and Marion Sandler. Steiger says they were interested in committing up to $10 million annually to support investigative journalism and were asking lots of people they knew for ideas. They liked Steiger's concept and asked if he would be interested in running such an outlet. "Outrage" was Herb Sandler's one-word characterization of the stories he hoped to see. Was Steiger interested?

Yes.

Since ProPublica began publishing in June 2008, it has produced 17 major investigations. Abrahm Lustgarten has hammered away at the natural gas industry's use of a drilling technique called hydraulic fracturing that jeopardizes water supplies. As a result, says the organization's Web site, New York state has taken steps to slow if not ban the practice near reservoirs.

After Charles Ornstein and Tracy Weber wrote that California nurses convicted of major felonies were still licensed to practice, Gov. Arnold Schwarzenegger replaced most members of the state Board of Registered Nursing, and its chief executive resigned. The reporters followed their initial revelation with other reports of slapdash monitoring of health professionals, including doctors.

T. Christian Miller exposed the government's failure to ensure that U.S. contractors who suffered serious injuries in war zones receive legally mandated health care. He won the Selden Ring Award. Sheri Fink claimed a Pulitzer for a story published in the New York Times Magazine on questionable deaths at a New Orleans hospital in the wake of Katrina.

Hard-hitting stories such as these quickly thrust ProPublica into the national limelight. And so it is not surprising that the revelation that Editor-in-Chief Steiger was paid $570,000 in 2008 and Managing Editor Steve Engelberg received $450,000―including $120,000 in relocation expenses―caused an online stir. The salaries turned up on the IRS Form 990s that nonprofits have to file. By comparison, that year Buzenberg's total compensation was $210,000 and Rosenthal's $175,000. Some people thought journalism would be better served by directing a big chunk of Steiger's salary toward stories.

"The salaries aren't in the ballpark of what some of the biggest nonprofits pay," wrote Dan Gillmor, director of the Knight Center for Digital Media Entrepreneurship at Arizona State University. "But for the size of the operation, the ProPublica top-gun salaries are mind-boggling."

In 2008, the Sandlers themselves were the focus of investigations by the New York Times and CBS' "60 Minutes." Working independently, both organizations examined the ethics of Golden West in aggressively marketing risky loans at the height of the housing bubble to people who couldn't afford them. Both highlighted Golden West's adjustable rate mortgage option, called "Pic-a-Pay," that allowed borrowers to short their monthly payments. The amount of the underpayment was added to the principal, which consequently grew rather than shrank over time. Numerous borrowers, said the Times, filed lawsuits claiming they were misled into taking out loans they couldn't afford. Herb Sandler defended Pic-a-Pay to the Times, asserting, "If home prices hadn't declined by 50 percent nobody would be raising these questions."

After the stories ran, Sandler badgered both the Times and "60 Minutes" for retractions and corrections, and both made several, although they did not affect the main thrust of the stories. Other than linking to the Times story, ProPublica stayed out of the fray, although at one point before the story was published, according to the Times, when a "Saturday Night Live" skit suggested that the Sandlers "should be shot," Steiger protested to the show's producer that his benefactors had been unfairly maligned.

While he does not explicitly defend the Sandlers – "They're very capable defenders of themselves" – Steiger did say in an interview that he thought the subhead on an article in Columbia Journalism Review got it about right: "When two patrons of aggressive journalism became its targets, they cried foul. They have a point."

Steiger stresses that Sandlers have no input into ProPublica stories, nor even advance knowledge of their content. When ProPublica reporter Miller introduced himself to Herb Sandler at this year's Logan conference, he started to tell Sandler that he was working on a great story. Sandler's hand shot up, Miller says, and Sandler said, "Stop! I don't want to know about it. Your independence is very important to me." Says Miller, "It was an indication that he got it."

Seeking to both increase and diversify its income, ProPublica last year hired consultants to help draft a fundraising plan and has

$5.5 million committed into 2011 from donors other than the Sandler Foundation. A development professional has just been added to the staff. High net worth individuals are a target, Steiger says, and here again Sandler is proving helpful. "Herb knows every other English speaking billionaire in the world."

So what happened to that imaginary $3 million in Jack Shafer's pocket? What did the heads of the two nonprofits say to get his money?

Pity Bay Area Citizen's Lisa Frazier, formerly of McKinsey & Co., who answered in the lingo of the corporate marketplace. She talked about "the corruption that goes unnoticed these days." We need, she said, "a new model for news product, a new model for technology to support it."

"That's worth a dollar," Shafer said.

Rosenthal took a different tack. "The best way to raise money is to talk about stories," Rosenthal began. "I'll tell you about a story that we want to do that really has to be told."

Rosenthal proceeded to describe the editor of a Louisiana weekly, Stanley Nelson, who had been writing about the unsolved firebombing death of a black man during the civil rights era. The white community protested to Nelson that it was best to leave the past alone. But a black man came into the newspaper one day and thanked him for the coverage. Then he told Nelson about three more unsolved murders. His sisters died, the man said, in what was recorded as drowning accident while they were fishing on a cold November day in 1968. Their bodies were returned, two naked and one in undergarments. His sisters didn't swim or fish. Said the man, "The killers are still walking among us."

"That's the kind of stories we want to do that make a difference," Rosenthal said.

Declared Shafer, still holding the imaginary $2,999,999, "I'm prepared to write the check for the remainder."