ARCHIVED - Evaluation of Foundations

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IV. Appropriateness As An Instrument Of Public Policy

This chapter examines the issue of whether foundations represent an appropriate means for achieving public policy goals. The starting point for this analysis is the basis on which decisions are made to use a foundation versus other instruments or approaches available to government. We then examine the extent to which the foundations listed in Exhibit III-1 fit with this rationale, including their dependence on multi-year funding, and whether there are potential other factors that should be considered when making such choices. Finally, we consider the question of whether foundations activities could be delivered just as readily using existing government program delivery structures.

A. Basis for using a foundation approach

Specific guidance as to when the use of a foundation approach is appropriate is provided by the principles announced in Budget Plan 2003. On closer examination, and drawing on comments by foundation and government representatives who participated in our interviews, it is apparent that the guiding principles are based on a set of underlying criteria that are used to determine if:

• Firstly, a specific and actionable need exists.
• Secondly, there is a capacity for independent, non-partisan decision making.
• Thirdly, multi-year funding is necessary for effective operation and attraction of leveraged funding.

This rationale is also consistent with comments made in various Budget Plans, for example, Budget Plan 2005 makes reference to their arm's length nature, financial stability and focused expertise allow them to address specific challenges in a highly effective, non-partisan manner.^[13] Beyond the guiding principles and statements in the Budget Plans the only guidance as to the definition of specific challenges or opportunities is that provided in the Finance Canada Backgrounder on the Accountability of Foundations, which states:

Foundations have become important vehicles for implementing policy particularly in areas such as research and development and education, where expert knowledge, third-party partnerships, stable funding and peer review are especially important.^[14]

Some additional insights into this rationale are found in comments to the Standing Senate Committee on National Finance by the then Secretary of State for International Financial Institutions, Maurizio Bevilacqua, in June 2002. Speaking in the context of research, development and innovation, Mr. Bevilacqua identified five reasons for using the foundation approach to achieve policy goals:

• To focus on very specific issues and challenges whereas the granting councils, which are the principal funders of public research and development, have much broader mandates.
• To draw on direct experience and technical knowledge of people working in the applicable fields to provide direction at the board level and input to the selection of projects by expert peer review panels.
• To use up-front funding that avoids the risk of on-again, off-again funding through the annual appropriations process.
• To recognize the long-term nature of scientific research and development and its dependence on guaranteed and stable financial resources.
• To use the availability of guaranteed long-term funding to generate additional funding from other levels of government and the private sector.^[15]

Our interpretation of the guiding principles is that they rest upon a set of underlying criteria for screening potential candidates for the foundation approach, and are summarized in Exhibit IV-1.

Exhibit IV-1

Criteria underpinning the guiding principles for using foundations

Guiding Principles	Underlying Criteria
1. Foundations should focus on a specific area of opportunity, in which policy direction is provided generally through legislation and/or a funding agreement.	Is there a specific national or regional need or opportunity that is not addressed by current government policy instruments or levers? Can the applicable policy direction and goals be defined in legislation and/or a funding agreement?
2. Foundations should harness the insight and decision-making ability of independent boards of directors with direct experience in and knowledge about the issues at stake.	Is there an appropriate capacity in place (or capable of development) to provide independent, non-partisan decision-making? Is there a willingness amongst the potential pool of directors to assume the anticipated role to be played by the board?
3. Decisions by foundations should be made using expert peer review.	Is peer review method and selection on the basis of merit accepted as the common basis for selecting projects for support? Is there an appropriate capacity in place (or capable of development) to enable the application of a peer review process?
4. Foundations should be provided with guaranteed funding that goes beyond the annual parliamentary appropriations to give the foundations the financial stability needed for the comprehensive medium- and long-term planning that is essential in their specific area of opportunity.	Does the specific need being addressed require projects that extend over multiple year periods? Is guaranteed funding over the life of the multi-year projects for multiple years necessary for efficient project and financial management?
5. Foundations should have the opportunity and hence the ability to lever additional funds from other levels of government and the private sector.	Are there potential funding partners for the envisaged projects and to what degree are they willing to provide matching funding?

Comments by interviewees regarding the rationale for foundations were generally consistent with the elements of the rationale for using the foundation approach. These comments and information contained in foundation's annual reports and other documentation provide insights into the range of specific opportunities addressed by foundations and suggested a number of possible additional criteria to be considered when assessing potential applications of the foundation approach.

Foundations provide funding support for a range of specific issues and challenges:

• Establishment of specialised world class infrastructure, for research in universities and health institutions, environmental management in the municipal sector, and pan-Canadian electronic health information systems:
  • Canada Foundation for Innovation
  • Green Municipal Fund
  • Canada Health Infoway.
• Conduct of targeted research and development focused on specific vertical (e.g., health services research) or horizontal (e.g., genomics research pertaining to multiple sectors of the economy) needs:
  • Canadian Health Services Research Foundation
  • Genome Canada
  • Canadian Foundation for Climate and Atmospheric Science
  • Sustainable Development Technology Canada
  • Canadian Institute for Research on Linguistic Minorities.
• Support for education, e.g., provision of bursaries to students in financial need, funding to increase literacy levels:
  • Canada Millennium Scholarship Foundation
  • Frontier College Foundation
  • Pierre Elliott Trudeau Foundation.
• Community-based initiatives to improve community and environmental health, such as the legacy of residential schools in Aboriginal communities and restoration of salmon habitat in B.C.:
  • Aboriginal Healing Foundation
  • Clayoquot Biosphere Trust Society
  • Pacific Salmon Endowment Fund Society.
• International knowledge brokering and supporting research, for example, relating to the application of federal systems of government, promoting Canada's involvement in the Asia Pacific region:
  • Forum of Federations
  • Asia-Pacific Foundation.

The additional criteria suggested by, or apparent from, the comments of interviewees are:

• Is this an appropriate area for intervention or support by the federal government?
• Clearly, any foundation that is proposed should be in an area of legitimate federal government intervention or support, and the proposed role is consistent with established policy goals and priorities.
• Are there mechanisms in place, or will mechanisms be required, to ensure coordination or integration with complementary or related programs and avoid overlap or duplication? Can this coordination be accomplished efficiently?

Foundations' activities, particularly those involved in supporting research, often take place in areas characterized by the presence of a wide range of different government programs and players that result, in the words of one interviewee, in a variety of "intersections" between foundation activities and these other programs. In these situations, the extent to which coordination will be necessary and means by which it can be done should clearly be considered from the outset.

For example, research infrastructure enables, or becomes a condition for the conduct of, research projects funded by granting councils as well as requiring operating and maintenance funds. In this example, coordination is achieved at two levels. At the project level institutions applying for infrastructure funding are required to have integrated research strategies that demonstrate how the proposed infrastructure will be used as part of the applicant's overall research programs. Above this, there is a need for broader coordination and information sharing among the granting councils and other players, such as Industry Canada, to ensure that funded research can be performed and infrastructure operations funded.

Coordination with other programs and foundations: "Polar research is a major initiative. CFI has supported the infrastructure with matching funding from provincial government and others. NSERC is supporting the operation of the facility and we are supporting the science that is being done. The facility couldn't run without all of us but we aren't overlapping anywhere." (Foundation Representative)

• What time period will be necessary to achieve the desired immediate and/or final outcome(s)? What is the exit strategy?
  
  Approximately 93% of the funds transferred to foundations have been via fixed term funding agreements. The expectation with these foundations is that once the mandate and objectives are realized the foundation is no longer needed. The time frames required are expected to be long and likely, in many instances, to extend beyond the term of the foundations' funding agreements. If so, then it is logical to establish, at the outset, a basis for determining if the desired outcomes have been achieved or if an extension or renewal is necessary. If this question is left unanswered there is a risk that the question of whether "success" has been achieved may be re-defined in terms of demonstrating the need to continue using the foundations.
  
  The remaining 7% of funding for foundations has been in the form of perpetual endowment funding. According to representatives of these foundations, the use of a perpetual endowment was justified by needs for sustained long-term action to bring about substantive changes. However, in reviewing the annual reports and corporate plans of both types of foundations it was not apparent that foundations with perpetual endowments were necessarily addressing needs that required longer time periods for results to be achieved than those addressed by fixed term foundations. Representatives of these foundations also descried the rationales for their foundations in terms similar to those advanced by representatives of perpetual foundations.
  
  
• Are there potential issues or concerns from other levels of government concerning the federal role or jurisdiction? If so, will the use of a foundation approach be acceptable to and supported by these other levels of government?
  
  A number of foundations operate in areas that, if they were within the federal government, would be subject to federal/provincial/territorial jurisdictional factors. These foundations are able to focus directly on the establishment of arrangements to select and support intended beneficiaries independently of these jurisdictional factors. However, in determining if a foundation approach is appropriate it is important to determine if other levels of government are likely to support the proposed approach and be willing and able to provide any expected partnership funding or support. In some instances, according to interviewees, funding for some new foundations announced in the late-1990s came after periods in which federal transfers to the provinces were reduced and foundations encountered initial difficulties in establishing operating arrangements. In other cases, they found that, while provinces/territories welcomed the commitment of federal funding to a foundation, the requirements for matching funding posed significant challenges for provinces that wished to support proposed projects.

B. Extent to which existing foundations are aligned with the guiding principles

Our review of foundation documents and interviews with foundation representatives found some variability in the degree to which the characteristics of some foundations are aligned with the guiding principles established in Budget Plan 2003. In summary, the foundations studied were consistently aligned with the principles relating to having a specific focus, using of independent boards with experience in relevant fields, and requirements for multi-year funding. Alignment with the other two principles – relating to the use of peer review processes and leveraging of additional funding from third party sources – was less consistent. The activities of some foundations are such that disbursement decisions are made on the basis of meeting or exceeding pre-determined criteria or the activities funded are performed by the foundation themselves rather than third parties. Specific requirements for leverage vary between foundations and some operate in fields where it is not feasible to generate financial leverage.

1. Focus on a specific area of opportunity

Mandates of the foundations reviewed all required a focus on a specific field of activity. At the same time, their funding agreements provided latitude for funds to be allocated in accord with priorities set by their boards. More recently, however, new grants from the government to some foundations have directed that the funding be used to support specific sub-areas within the scope of their mandates. While this approach may ensure a close alignment of foundations' activities with government policies and priorities it also has the effect of reducing the flexibility of their boards to set priorities in accord with foundations' own assessments of needs and opportunities. The foundation representatives interviewed did not report that these more directed grants had diminished the effectiveness of their resource allocation and project selection processes, although some noted that this approach poses potential risks of imbalances between needs and availability of project funding. We also expect that decisions to provide more directed funding during the government's budget planning processes would have drawn on input from stakeholders in the particular fields and the foundations themselves.

Examples of more directed grants include:

• A requirement for the Green Municipal Fund to allocate half of a $300 million addition announced in Budget 2005 to brownfield redevelopment projects.
• New funding of $500 million provided to the Canada Foundation for Innovation in 2002-03 was directed to support for the establishment of state-of-the-art health research facilities.
• New funding of $75 million granted to Genome Canada in 2002-03 was directed to support of large-scale projects for applied health genomics, to develop instruments and techniques to improve the prediction and prevention of disease.

2. Harness the insight and decision-making ability of independent boards of directors

Funding departments and foundations all reported that the boards of foundations bring together appropriate mixes of expertise and experience needed for informed decision-making and oversight of their organizations. They also noted that foundations typically have very active and engaged board members who take their responsibilities very seriously, and exhibit high degrees of transparency. This is supported, in the case of the Canada Foundation for Innovation, by a National Award in Governance in the Public Sector from the Conference Board of Canada and Spencer Stuart, which noted that: the CFI demonstrates that a board of a public institution, working within the bounds of its mandated reporting and accountability relationship, can be creative and innovative in its approach to governance.

3. Make project selection decisions using expert peer review

Most, but not all, foundations use peer review processes to select projects for funding. Funding departments and foundation representatives reported that these foundations have typically invested a significant amount of time and effort in developing their project selection processes.  Their decisions are based on comprehensive screening processes for proposals and reviews by expert peer panels that recommend projects for funding on the basis of fit with transparent criteria regarding the merit and excellence of proposals.

A minority of the foundations studied have modes of operation that do not involve the use of peer reviews to select projects for funding. In the case of the Canada Millennium Scholarship Foundation agreements have been established with Provincial/Territorial ministries wherein recipients of student bursaries are selected using the same criteria used to select recipients of provincial financial aid. Frontier College Foundation funds the recruiting and training of volunteer teachers who provide literacy tutoring across Canada for Frontier College, and the Asia-Pacific Foundation funds in-house research and the costs of information brokering and international networking activities.

4. Provide guaranteed funding that goes beyond the annual parliamentary appropriations

As we noted in Exhibit IV-1, this guiding principle concerns the extent to which the activities undertaken by foundations involve multi-year projects and funding commitments. Our review of comments made by interviewees and foundation documents suggests:

• The majority of foundations, particularly those with significant levels of funding and supporting projects in the following areas all reported that these projects required multi-year timeframes to engage with prospective partners and secure matching funding (cash commitments or combinations of cash and in-kind support):
  
  
  • Establishment of world class infrastructure.
  • Conduct of targeted research and development.
  • (Some foundations providing) support for education.
  • Community-based initiatives to improve community and environmental health.
  
  
  A number of these foundations reported that the availability of multi-year funding was critical to the efforts of proponents to secure third party funds once they had agreement in principle with a foundation. The fact that the foundation's funding is committed beyond the immediate fiscal year means that the partners, such as, other levels of government, can then factor these project commitments into their own budgetary planning.
  
  
• Among the foundations involved in knowledge brokering, and some of the foundations providing support for education, the activities undertaken may not be directly dependent on multi-year funding (or not in the same way as the foundations covered under the previous point). Multi-year funding does, however, enable them to take a long-term approach to the planning and selection of activities and to then manage these activities more efficiently.

Need for multi-year planning and associated funding: The cost sharing investment model is considered by the majority of stakeholders to work well and support the achievement of outcomes. The three-year jurisdictional plans are seen to be an important contributor to making the model work. (2006 Mid-Term Performance Evaluation, Canada Health Infoway)

Impact of multi-year funding: You absolutely need multi-year funding. It takes a few years to get a scientific program up and running. This (foundation approach) is a big attraction for the research community. It allows both the donor and the recipient to plan properly. It gives you time to properly evaluate it. It gives you time to build capacity; graduate students need 3-4 years (of research) to graduate. (Department representative)

5. Lever additional funds from other levels of government and the private sector

Requirements for foundations to lever additional funding for their projects from third party organizations vary considerably. Funding agreements for some foundations include very specific targets or caps on the percentage of project costs that can be funded by foundations. Foundations in this group account for almost two-thirds of the funding provided to foundations. These foundations have been able to meet, and in many instances, exceed their leverage targets, according to their annual reports.

Others contain very general parameters that expect the foundation to seek leverage without setting any targets, for example, (foundation) has the ability to lever additional funds from other levels of government and the private sector and at least some of these organizations do require or seek leveraging on their project funding. These foundations account for approximately 2% percent of the total foundation funding. These foundations have also generated substantial leverage on their funding, in both in-kind and financial support, according to their performance reports. For example, the Canada Foundation for Climate and Atmospheric Science (CFCAS) reported in its 2004-05 annual report: Support levered from other sources is mainly ‘in kind'. The value of additional support to new initiatives, in cash or in kind, is estimated at $12 million (approximately equal to CFCAS' 2004-05 disbursements).

A third group do not have leverage requirements in their funding agreements. For two foundations, this is a recognition that it would not be realistic to expect proponents to secure additional funding, as is the case with the Aboriginal Healing Foundation, or they are operating in fields where there is already a high level of linked funding provided by the provinces and territories, as happens with the Canada Millennium Scholarship Foundation. These two foundations account for 29% of the total federal funds transferred. The remaining foundations in this group account for only 3% of the funds transferred by the federal government. In the case of these latter foundations, it is not apparent why there are no specific leveraging requirements, although it may be that at the time of their creation, neither the foundation nor the funding department could confidently predict the likelihood of securing leverage or if such requirements would impose a significant barrier to success.

Amongst the foundations with perpetual endowments two community-based foundations have non-specific requirements to attract additional funding and another four do not have any leverage requirements. Two of these provide educational support, one funds research, and the fourth supports international knowledge brokering and supporting research.^[16]

Interviewees from foundations with specific leverage requirements all indicated that they felt their ability to attract leverage was enhanced by their ability to support multi-year projects. This benefit was attributed to the ability of project co-funders to do their planning and budgeting for the project without the risk that the foundation's funding commitment could lapse if agreements are not reached within the applicable fiscal year, and that drawdowns could be closely, and flexibly, matched to project progress. Many of the departmental representatives we interviewed felt that departmental programs operating in similar areas to the foundations were also effective in generating leverage. It was also suggested to us that at least some foundations may have attracted different types of partners compared to the sources of leverage for departmental programs, particularly private sector partners. Further research would be necessary to verify this suggestion and the degree of leveraging success of similar departmental programs.

Link between multi-year funding and leverage: Availability of multi-year funding means that (foundation) becomes the "lead funder" for projects. Once proponents have (foundation's) conditional acceptance they can then seek out and secure funding from other partners. The knowledge that the funding support will still be "there" (i.e., doesn't lapse at the end of the current fiscal year) when proponents have secured all the necessary partners and third party funding makes a crucial difference. (Foundation representative)

Leverage: We want to know how we are leveraging; we keep track of our partners, we track students who are being trained. We have determined that our leverage is at least dollar for dollar. We have also determined that 50 cents on the dollar goes to training personnel. (Foundation Representative)

Ministère du Développement économique, de l'Innovation et de l'Exportation, An Innovative, Prosperous Québec: Québec Research and Innovation Strategy, Quebec, 2006. Génome Québec ... With the participation of Genome Canada and other partners, investment since 2000 has totalled $340 million. These investments have launched genomics in Québec, allowing for the establishment of infrastructure of international calibre and the realization of major projects, as well as spurring unprecedented acceleration of research. This research field is expanding rapidly and initial spinoff is convincing: 459 researchers are now employed, 256 scientific publications have been produced, 726 papers have been given, and 28 inventions and patents have been divulged. (p.29)

6. Proposals for foundations that were not accepted

In addition to assessing the degree to which existing foundations are aligned with the government's guiding principles for using foundations there may also be lessons for the future selection and use of foundations to be gained from explanations as to why foundations are not used to address certain public policy goals and issues. Only a limited amount of such information is available even though we were informed by Finance Canada representatives that many more proposals to the government to create foundations have been turned down than have been created. We were told that these decisions were typically based on the extent to which the proposed organizations aligned with policy goals and satisfied the guiding principles.^[17]

However, some insights are suggested by the experience with a commitment in Budget 2001 to create the Strategic Infrastructure Foundation but subsequently implemented using a departmental program the Strategic Infrastructure Fund. Subsequent to the Budget commitment, the Minister of Finance reported to the House that the complexity of issues involving provincial and municipal roles in infrastructure provision meant that there had to be government to government negotiations and therefore, an independent foundation could not function.^[18] Another reason, suggested by Aucoin, was that: a number of federal ministers, and backbench MPs in the government caucus were aghast at the idea of an independent foundation beyond their control and perhaps even influence dispersing a $2 billion fund on projects with huge political implications given their distributional effects on regional and electoral constituencies.^[19]

Both of these statements demonstrate the importance of contextual factors in foundation selection as well as demonstrating that ministers can be held accountable for the design and organization of foundations. The areas in which the original foundations, and majority of funding transferred, operate are areas in which decision making and project selection processes typically involve expert peer review panels and advice from independent experts. Furthermore, they are fields in which similar approaches are often employed by the federal government, and stakeholders, including Ministers and departments, are accustomed to relying on arms length advice and decision making. This was apparently not the case with regard to the specific opportunity to be targeted by the Strategic Infrastructure Foundation/Fund.

C. Could foundation objectives be achieved as readily through "normal government delivery"?

A final consideration regarding the appropriateness of using the foundation approach for public policy purposes is whether foundation activities could have been delivered just as effectively using "normal government delivery" approaches. Participants in our program of key informant interviews provided opinions based on their own experiences and observations. The majority of these interviewees, including representatives of funding departments and managers of related programs, were generally of the view that the programs and activities of the existing foundations probably could not be delivered as effectively or efficiently within the departmental delivery structure. The main reasons suggested related to:

• The nature of the specific areas addressed by many foundations, which, if they were delivered through departmental programs, would limit the timeliness or effectiveness of delivery. For example:
  • Aboriginal Healing Foundation. Interviewees were of the view that a program delivered by the same government responsible for the residential schools program in the past would not engender a high degree of trust among Aboriginal groups and nor would it have provided the same opportunities to involve these same groups in the design and delivery of the program.
  • Canada Millennium Scholarship Foundation, Green Municipal Fund and Canada Health Infoway. The activities of these three foundations depend on agreements and cooperation with provincial and territorial governments to reach targeted beneficiaries. As independent organisations, these foundations can enter into such agreements without being subject to broader federal/provincial/territorial jurisdictional factors.
• Departmental programs would not have the same speed of response and flexibility that foundations have by virtue of their focused mandates, small sizes and flat management structures.
• Departmental programs operate within the annual appropriation cycle which involves a different pattern and level of administrative effort compared to the ability of foundations to commit to multi-year projects and administer them on a project life cycle basis. While foundations may point to the uncertainty of funding for multi-year projects within departmental programs as being a drawback of "normal government delivery" the bigger issue is probably the effect of the annual funding cycle on the timing of advances and ability to match drawdowns to the achievement of project milestones.
  
  

Foundation delivery versus departmental program delivery: It's clear that there is no way the bureaucracy could have delivered what (foundation) has delivered over the past few years, ... If we had gone to the provinces to do that we would have done so in a bureaucratic fashion and with a lot of baggage, and provinces would not have cooperated with us to the extent they have with the foundations. (Department representative)

 

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