Capital Projects
/A capital project is a long-term, capital-intensive investment to build or improve a nonprofit’s infrastructure, presumably to increase its ability to serve more people or significantly improve the services it delivers. The classic capital project is a new building or renovation of an existing facility. A campaign to raise funds for new equipment would also be a capital project.
Funders like capital projects because they are tangible and highly visible. A donor can literally see the new building their gift helped create. Mega capital projects, like nine- or 10-figure campaigns to build new wings of famed institutions (think the Metropolitan Museum of Art or LACMA) tend to be very high-profile. Naming opportunities are a hallmark of capital projects. A lead donor might have the entire building named for them.
Many nonprofits create a menu of naming opportunities, showing which parts of the building (one brick to a desk to a lab) can be named for donors at different gift levels.
Pros and Cons of Capital Projects
Funding a capital project makes intuitive sense to help a nonprofit do more of its good work, but some considerations are in order.
Is it the right priority? Fundraisers know that many donors are readily attracted to capital projects because they are highly visible and tangible. But the flipside is that sometimes a huge amount of the organization’s energy and resources pours into prioritizing flashy capital projects over what the nonprofit and those they serve really need. What’s new isn’t necessarily what’s most needed, and bigger isn’t always better.
In the worst cases, a glimmering capital project can take resources away from where they’d be better used by the organization. As some MoMA workers put it while the museum simultaneously engaged in employee contract negotiations and a $450 million renovation and expansion project a few years ago, “shiny new building, shabby old wages.”
Even in less fraught circumstances, there are worthwhile questions about whether a capital project is the right choice for a given organization at a given moment. A donor may love the idea of a shiny new building, but is the organization funded sufficiently to take on the ongoing costs of maintaining the building and running the expanded programming it is intended to house? A new building might require additional staff, new furnishings, increased utilities costs and more. In the case of a domestic violence service provider, perhaps the organization would have better long-term flexibility to provide services in the right geographic locations with unassuming rented space in different locations as needs evolve.
Capital campaigns can fail. Capital projects are inherently risky. Raising a large sum of money is difficult and not at all guaranteed. A lead donor may give a substantial kickoff gift for a capital campaign, and then the nonprofit doesn’t quite reach the goals to finish the campaign. Even in the best-case scenario, when a capital campaign is fully funded, a big, expensive construction project is full of variables that can increase the budget or extend the project’s timeline. There are also human-capital risks, as when the New York Philharmonic’s president stepped down in the middle of a capital campaign to renovate the orchestra’s David Geffen Hall at Lincoln Center.
These days, construction costs are high and there is uncertainty on many fronts. A capital project is not every organization’s best next move. This helps explain why in recent years some big capital projects have been shelved or reduced in scope, and some donors are signaling a preference for programmatic or general operating support. But to be sure, capital projects are still happening, and sometimes, they are the right choice for donors and the nonprofits they fund.
Best for already solid, established nonprofits. Capital campaigns are typically organized by nonprofits that are already established. They’ve got a solid foundation and a track record. Now, a strategic capital project can help them increase capacity and impact. But the donor may be more interested in helping an organization that is doing important new things and needs different kinds of resources to meet its mission.
A capital gift is a restricted gift. If you designate the donation for a capital project, the nonprofit can only use your contribution for that purpose for all time. There is an important discussion in the sector around trust-based philanthropy that encourages donors to give for general operating support and let the organization decide how to spend the funds with full flexibility as conditions evolve. If you want to support the organization more broadly and allow them to decide where to spend the dollars you give, consider a general operating gift instead.
Taking Action
If there is a nonprofit organization whose work aligns with your vision for the future and you are considering supporting a capital project, here are some tips:
Help kick it off or get it over the finish line. Any capital campaign has a need for different types of donors at different times. Sometimes, a campaign is kicked off by a major gift from a lead funder and then other funders come in at various levels. Think about your capacity and also your risk tolerance as you consider when and for how much you want to contribute to a capital project, and at what time.
Get clarity on naming rights. Giving to a capital project often means you’ll be offered a naming opportunity. It is nice to be thanked, but you may not want your name on a wall for the next 100 years. There are other considerations to explore in IP’s Donor Advisor piece on naming rights. Thoughtfully consider the available naming opportunities and make a choice that feels right for you.
You can ask probing questions. Before you contribute sizable funds to a nonprofit’s major investment of time and money in infrastructure, it is perfectly appropriate to ask questions about whether it has considered other options. The organization should be able to show how it determined a new building or other infrastructure is smarter than renovating, leasing or other ways of improving service delivery, and how it plans to endow operations for the new infrastructure or otherwise sustain its operations. Look for realistic assumptions regarding the long-term operating costs, staffing needs and revenue potential associated with the new facility.
Review the fundraising plan. If you are a major donor, and especially if you are invited to be a lead donor for a capital campaign, the nonprofit should share with you a fundraising campaign plan. The organization will most likely already have engaged with a fundraising consultant who has conducted a feasibility study and assessed its current fundraising capacity and the environmental terrain. The plan will probably note lead donor prospects, campaign messaging, leadership team for the campaign, fundraising goals and categories of fundraising targets. Get a better understanding of where you fit into that plan.
If you’re in, have trust. If you’re considering giving to an established nonprofit that has successfully executed capital projects before, you as an individual donor probably don’t need to second guess their plans. If you’re considering making a significant gift to a smaller or newer nonprofit that hasn’t done a capital project before, it would be reasonable to ask for information about its plans — such as whether the budget includes a contingency (something that any construction project needs), or its plan to pay for ongoing maintenance of the new facility. As with any gift, you don’t want to ask busy nonprofit staff to do a bunch of extra work just for you, but they have probably created capital project materials to share with you and other supporters, such as a project timeline, plan and/or budget. If they haven’t already offered to share this with you, feel free to ask.
Be prepared for plans to evolve. Understand that nonprofit capital projects are subject to the same vagaries and setbacks that all construction projects encounter. Delays and budget increases are common. If anything, nonprofit employees — most of whom are not, after all, construction experts — might have a harder time than, say, a commercial developer, and might have less leverage with contractors and vendors if they have negotiated pro bono or discounted work or in-kind contributions of supplies. As a funder, you can be understanding about changes.
Seek tailored advice. As with all of your giving, consult with your tax, legal and other financial advisors about the best way to make this contribution that makes sense for your specific giving interests.
