As part of our centennial, we’re sharing stories of our last 100 years throughout 2024. To learn more about Kresge’s history, visit Kresge.org/100. 

How an early philanthropic funding model became the precursor to Kresge’s approach to grantmaking today

Most people remember it as the year an economic bubble burst. The 1929 Wall Street Crash ushered in the period of hardship, poverty and unemployment known as the Great Depression. But for The Kresge Foundation, 1929 was significant in another way. It was the year the five-year-old foundation made its first ever challenge grants.

At first glance, the two grants—$5,000 to the Clarke School for the Deaf in Northampton, Massachusetts, and $25,000 to build the S. S. Kresge Consolidated School in Kresgeville, Pennsylvania—might seem unremarkable. But by linking capital to internal fundraising capacity, they represented a radical new form of funding, one that for many decades would define the foundation’s giving.

What was different about Kresge’s approach was that while the grants were made to nonprofits as they embarked on projects for new or renovated facilities—from libraries and hospitals to schools, museums and community centers—the funding was about far more than bricks and mortar.

When well executed, challenge grants could help organizations encourage donors and board members to step up their volunteering and make larger gifts—not only to contribute to the campaign but also to support operating needs beyond the capital campaign.

Meanwhile, increased outreach would raise the organization’s profile, familiarize the community with its mission and programs and make it easier to approach new donors and even recruit new board members.

Having the Kresge stamp of approval also enhanced organizations’ credibility. “The idea was to help the nonprofit get endorsements for its work that it could use in the future,” says Bill Moses, who joined the foundation in 1997 and is now managing director for Kresge’s Education Program.

Sandra Ambrozy, who spent 36 years at the foundation, says the challenge grants strengthened volunteerism and support. “And it was an opportunity for staff and volunteers, and particularly trustees, to go out and talk to the community about why the organization needed to be around forever,” she says. “And the vehicle to do all that was a capital challenge grant.”

A Kresge guide introducing nonprofits to the concept says it all: “A capital campaign can do much more than build a building,” it begins. “It can strengthen your organization, fuel its growth, and extend and enrich the connections that make your organization effective and sustainable in your community.”

Refining the model

The challenge grant model was designed along relatively simple principles: Successful applicants were those who could demonstrate that they had raised sufficient funding from other sources to meet their campaign goals by the challenge deadline and according to the plan outlined in their proposal. Money pledged by Kresge was paid when these grant conditions had been met.

“You had to have raised about a half to two-thirds of your goal,” says David Fukuzawa, who joined Kresge in 2006 and spent two decades at the foundation. “And the capital grant would cap it off.”

As the foundation developed the model, it brought increasing sophistication to the way decisions on grants were made, along with innovative new ways of engaging with nonprofits—often by building relationships with community foundations.

Moses remembers the process. “I was one of six program officers when I arrived at Kresge,” he says. “And every quarter we were given 24 application files and we had to go through them and make grant recommendations.”

The process, explains Moses, combined thorough due diligence with hands-on engagement. “We had a pretty structured way of engaging with potential grantees,” he says. “We did workshops around the country at community foundations, and we would tell them what we were looking for.”

For organizations that successfully secured Kresge funding, that diligence and engagement continued after the challenge was met. What the foundation wanted to know was how its money was translating into the long-term stability of the organizations it funded, as well as their success in using the capital donation to expand their support base.

“That became a key piece of our review,” says Ambrozy, now a nonresident fellow for the Center on Nonprofits and Philanthropy at the Urban Institute. The review, she says, therefore included questions such as: How many new donors are you approaching? What increase in donations will you get from them? How will you transfer that into ongoing support?

“We reviewed that extensively. It wasn’t just the capital campaign component,” she explains. “In many ways it was like giving operational support, because we were giving to the totality of the institution, not to something very specific.”

For Ambrozy, clear articulation of the value of this approach came in the late 1990s, when a communications firm helped the foundation develop wording that could capture Kresge’s funding methodology.

“We wanted to distill what all the challenge grants were and create connective tissue to the other work we were doing,” she recalls. Three words were chosen to do this: connect, catalyze and challenge. “That underpinning was a muscle that we applied to everything,” says Ambrozy.

Adding to the toolbox

Over the years, the challenge grants helped thousands of organizations not only to complete critical building projects but also to acquire new competencies, expand their ambitions and build institutional strength and long-term stability.

Its 2007 annual report reveals the diversity of organizations that were challenge grant recipients. They ranged from a new children’s hospital in South Carolina and a theater company set up to create opportunities for minority playwrights and performers in Memphis, Tennessee, to an environmentally sustainable teaching and conference facility in a renovated cow barn in New York State serving adults and children with disabilities, frailties and autism.

That year, as the annual report was being written, economic turmoil was again spreading globally as a result of the 2008 financial crisis. Yet as it had done in 1929, the foundation used a challenging moment to take another bold step forward by executing on a new grantmaking plan that was to take Kresge’s almost $4 billion in assets “out for a ride,” as board chair Elaine Rosen put it, by expanding beyond capital challenge grants.

“We didn’t want to change what had worked so well at The Kresge Foundation,” wrote Rosen in the annual report, “but we wanted to do more, to do it better, and to have a more significant impact within the fields we have traditionally supported: health, the environment, arts and culture, education, human services and community development.”

The idea was to make grantmaking more flexible and strategic. This would enable the foundation not only to tackle everything from education and health disparities to poverty, income gaps and climate change but also to use a wide range of types of philanthropic funding to support nonprofits in their work to tackle tough environmental and social problems.

It was the beginning of a new era for Kresge. Yet it evolved from an approach that began with the challenge grants: a determination to use philanthropic capital in new and innovative ways. And it is very much alive in everything Kresge does today, from its early embrace of impact investing to its commitment to racial equity.

“The Kresge idea was that there are capital needs,” says Fukazawa, who was a strong supporter of the capital challenge funding model’s expansion. But while capital was for many years defined by bricks and mortar, the key questions the foundation has striven to answer remain the same: how to give organizations greater access to capital and how to help them use it to build strong, resilient enterprises. “That,” says Fukuzawa, “was the bridge to Kresge today.”