Shared reserves and emergency funds: a new way of thinking about core funding

6 April 2012

All think tanks want core funding -they need endowment, really. And all funders want to avoid making their grantees dependent on them and them only. In the meantime, think tanks struggle to create, by the most imaginative means possible, a cushion for hard times (and this is particularly relevant in middle income countries); while donors, even the most progressive ones, introduce layers and layers of reporting conditions to ensure that their funds are never misused (and as demand from their ‘taxpayers’ increases their value for money concerns will also be on the rise).

The consequence is that many think tanks are simply unable to build their reserves. And reserves are important because, among other things, they allow think tanks to:

  • Take risks and be innovative;
  • Make long term commitments to their staff and their ideas; and
  • Sustain their focus on specific issues or research over prolonged periods of time which is a necessary condition to make a difference.

Without reserves, think tanks may find themselves lacking funds to cover the salaries of their staff, running to their most trusted donors asking for last minute emergency funds (that are handed out with little or no transparency), and making safe but uninteresting strategic choices.

Without reserves, too, think tanks are unable to bid for large programmes that may demand initial investments (either during the development of the proposal or during the first weeks or months of the implementation) and are therefore left at the mercy of northern or bigger think tanks or consultancy firms who can and then relegate think tanks to working on case studies or text-boxes.

Think tanks without endowments need to think about building up their reserves. How much is enough? This is difficult to tell but ODI, for example, had a policy to build up its reserves to a level that would allow it to operate as it is for 6 months. I think this is probably too long for a think tank as if the no funding scenario ever came up, the centre should consider serious changes and downgrading -and it should consider that maybe the scenario was the consequence of serious mismanagement and so business as usual should not be the only option. I would argue than something along the lines of 3 months or 6 months with significant changes is a good estimate. But the importance of having reserves is still unquestionable.

Reserves are difficult to accumulate because of at least two main reasons:

  • Sometimes NGO legislation does not make it possible for think tanks to report any profits at the end of the year -all must be used; but
  • Most of the time funders are the ones to blame. They demand that their grantees (or subcontracted think tanks) document every expense they have made -e.g. showing the payslips for their staff and receipts for their share of the electricity bill.This means that think tanks can only claim money they spend -even if they made savings by being more efficient or by piggybacking on other initiatives.

This last demand is rather ironic because contract-think tanks in developed countries (certainly in the UK) from where most of the funds to think tanks in developing countries originate are not expected to do the same: like consultancies, they charge a daily fee that includes an overhead that donors pay without question and so are able to double and triple charge for a number of activities or make a margin on staff and consultants.

Now, asking donors to cough up the reserves that think tank need is a tall ask. For programmes like the Think Tank Initiative or the Think Tank Fund this would mean a significant expense and it would imply that they would be giving organisations money that will not be used to produce any research or pay for any activity and so they will have nothing to show for it. It is politically impossible.

Assuming that donors will not change their policies (and that funding will continue to be based on projects or programmes rather than long term core and untied funds) and that think tanks still need reserves, here are two proposals for donors to consider:

A Shared Reserves Fund

In some circumstances, a think tank may need to make use of its reserves if for example it has won a large programme that will not pay the first instalment until well into its first few months of implementation. The first few months may need to be covered by the think tank itself: salaries, travel, events, electricity, rent, etc. still need to be paid.Without reserves cash-flow can become a serious problem.

Reserves may also be needed if a think tank decides that it has to develop a new body of work in preparation for bidding for or working in a new programme. Investing in an organisation’s capacity without reserves is impossible. In fact, what tends to happen is that think tanks request fund for capacity building from donors but these funds, because of the way in which they are disbursed, are spent rather than invested.

These two scenarios involve different degrees of risk. In the first case, the think tank has the contract but won’t be paid for a few months. In the second there is a chance the think tank will not get the funding it seeks but the chances of getting it are significantly higher if they invest in new research and developing their capacities (e.g. hiring new staff with the right expertise, training, undertaking some exploratory research, etc.).

The Shared Reserves Fund that I am proposing would be a fund initially set up by a donor or a group of donors from which think tanks that are part of the scheme can draw limited funds when needed. To be a member of the scheme, think tanks may have to fulfil certain conditions (e.g. being audited, submit frequent updates, or simply belong to a funding initiative such as the Think Tank Initiative or the Think Tank Fund) and requesting the funds would involve a transparent and accountable process.Possibly, too, think tanks could be encouraged to make small but symbolic contributions to the fund.

The funds could be seen as a source of interest free loans (although a risk premium could be included depending on the circumstances of the centres and the level of risk of the situation) that the think tanks would repay as soon as the first payment was made (as in the first case) or after an agreed period of time (as in the second).

The beauty of this is that the funds are not tied to a single think tanks and can therefore be used by several think tanks at the same time. And any capacity development funds would be provided in the form of an investment rather than an expense: long gone would be the says of useless workshops!

As a shared fund, all members would be interested in making sure that others respect the conditions of the scheme. They would be responsible for each other and one could even envisage a situation where they may even help each other meet their commitments.

An Emergency Bridging Fund

In other cases think tanks face difficult situations that may challenge their very survival. They may have, for example, lost an important contract, failed to raise sufficient funds, lost staff, etc. They may need funds to get them through hard times but these funds are unlikely to be repaid. Sometimes the funding gap threatens the jobs of important staff members or of strategic research efforts which may even have effects across the think tank and policy community. In these cases the think tank may need funds to keep it from having to make people redundant or closing key projects; or even going under.

When this happens, think tanks often go to their preferred funders (many times to the local offices of their donors) and ask for emergency funds; and if they happen to go right at the end of the year they are likely to find some unspent funds ready to be disbursed. This, however, is an opaque and unaccountable way of doing things. And it does nothing to ensure that the think tank is never  again in that situation.

The solution I suggest is an Emergency Bridging Fund that is designed to prevent things like the loss of important staff and the closure of key research initiatives while ensuring that the think tank takes the necessary steps to strengthen its future position.

Unlike the Shared Reserves Fund, think tanks would not be expected to return the funds but instead a number of conditions would need to be met. First of all, the application ought to be made well in advance of the need and should be accompanied with an independent assessment of the causes of the situation (this could be paid for by the Fund). Some mea culpa has to be accepted by the think tank and its leaders.

Second, funding would only be provided for bridging purposes (getting it to more stable situation) and to ensure that valuable organisations, staff, and work are not lost. The funding request would need to be clear about this and include references from relevant stakeholders relating to their importance.

Third, funding would be conditional to reforms designed to avoid future emergency requests. Depending on the assessment, the Fund could suggest changes in the business model, the staffing structure and composition, research focus, the choice of venue, salaries, general costs, etc.

Fourth, the funds would have to include resources to implement these changes.

Because of these conditions, think tanks are unlikely to want to make use of this Fund unless it was absolutely necessary, and so donors should not worry about being inundated with requests. In essence it is the equivalent of filing for bankruptcy or asking for a bailout.

Like the reserves fund it could be initially funded by donors but one could envisage think tanks contributing to it, too.

Peace of mind, accountability, and value for money

Together, these funds would provide think tanks with the peace of mind that they need to make long term commitments and donors with an opportunity to influence several centres with limited funds. The funds offer think tanks a line of credit and a funder of last resort to ensure that their long term efforts are not lost due to unforeseen short term circumstances. The Reserves fund is there to reward well-performing think tanks that are victims of their context; while the Emergency fund can trigger the necessary reforms in an organisation whose critical situation may be the consequence of poor management or unfortunate strategic choices but which still has significant potential to make a difference.

Initially, it is easier to consider this a donor driven initiative. But nothing prevents it from being co-funded by contributions from the think tanks themselves -is this the beginning of think tank insurance? Although, this will be difficult if the think tanks are unable to make profits and reallocate funds internally. Still, some think tanks do get small amounts of core funding from which a small portion could be destined towards this.

The funds could be set up at the national, regional or global levels. They could be stand-alone initiatives or components of other funding mechanisms. Both options could, and should, include resources dedicated to the monitoring of the members of the scheme as a way of preventing emergencies of any kind and encouraging learning and collaboration across think tanks.

Both funds offer a more accountable and value for money alternative than simply providing emergency or bridging funds to think tanks based on donors’ own inertia or their staff personal links to think tank directors and the researchers.