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Crowdfunding in the Public Sector

by Timothy Tiernan on September 13, 2012
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crowdfunding for public and civic projects and local government

Plato wouldn’t be pleased. These days, the masses rule—at least when it comes to the Internet and crowdsourcing. Wikipedia has proven to be on par with the gold standard of facts, Encyclopedia Britannica. And in the private sector, Kickstarter has become the forum for crowdfunding of entrepreneurial projects ranging from documentary films to fashion brands to album recordings. The “crowd-” model is the new paradigm, whether for a Wiki article on the 2012 U.S. presidential election or a crowdfunded initiative to help a band get on tour.

There’s something about crowdfunding that appeals to both grassroots community organizers and free market advocates alike: Individuals come together to network and pool their resources, usually online, to support efforts they believe in, such as start-up companies, artists, and research. Every contribution is a willful vote for a particular product or service; no contribution is compulsory, as with a tax. A successful launch depends in part on the investment of umpteen interested, average folks, not a couple of angel investors you were blessed to find. The little guy, whether funder or recipient, can participate like the big players.

Now suppose you could direct your dollars to select civic projects—those projects that typically rely on government funding—through a community-focused website. What would you say to that? Is that a mode of direct democracy that can help address issues neglected by federal bureaucrats? A nontraditional way to dodge the usual politics and get to the solutions? A way to direct funding without it being compulsory? Or does it venture into a role that only government can/should play? Could wealthy neighborhoods receive a disproportionate share of the crowdfunding to the detriment of poorer neighborhoods? These questions will be the focus of this article. But first a look at the “crowd trends.”

Crowdvoting with Corporate Money

Crowdsourcing has certainly gained prominence in corporate philanthropy. Various grant makers have used crowdsourcing in cause marketing to allow consumers to vote to direct corporate funding to causes they believe in. PepsiCo and Chase, for example, have opened up voting to customers to determine how grant money will be directed to charities. For the 2012 season, Chase voters will determine the allocation of $5 million in Chase grants to 196 charities selected by Facebook users and Chase online customers. (Chase donates about $100 million annually to charitable causes.) Or take, for example, Suburban Collection’s “Great Charity Giveaway.” They recently announced ten prizes to those charities receiving the highest number of votes during its philanthropic voting period. (You can check out the program and the winners here.) This seems to be a win-win situation for both sides: charities gain visibility and corporations build reputation. Still, some have pointed out that this structure could lend itself to unscrupulous players, and even voter exhaustion. Simply put, what’s popular is not always what’s best.

crowdfunding for civic projects and local governments

Voting with Your Money

As mentioned, crowdfunding has been extremely successful at the private level, particularly with Kickstarter bringing visibility to small-time entrepreneurs. In the realm of philanthropy, crowdfunders feel that they can effect change even if they don’t have to have the pocketbook of Bill and Melinda Gates. Crowdfunding “democratizes philanthropy,” to borrow the words from Ethan Zuckerman, a board member for the Awesome Foundation, a microgrant organization with chapters throughout North America.

Crowdfunding in the public arena is a niche that Kansas City-based Neighbor.ly has tried to secure, and this brings up some interesting questions about the role of crowdfunding in government. Neighbor.ly’s mission is to provide “a unique opportunity for local governments, civic organizations, and civic ventures to obtain funding for civic-natured projects.”  When I first read that, I thought, “Isn’t that like a tip jar for the IRS, or the local municipality?” But the retort to that is simple: In a recent article in Governing, Charles Chieppo generally lauds the idea of public-sector crowdfunding, stating that, “At a time when citizen trust in government is seemingly at a low ebb, crowdfunding reduces the chance that capital projects will be selected for purely political reasons. Those that attract public support go forward, while those that don't must rely on traditional government processes.” Sounds fair to me, and ideally a process that gets more people participating in their democracy.

In an email response to me, Chieppo posed this even-minded caution: “As its application to public projects grows, the challenge will be much like the one we face with campaign finance—how do we prevent individuals and groups who can pour massive amounts of money into the projects of their choice from taking over the process?” It’s fair to speculate that those “taking over the process” would more likely come from wealthier neighborhoods—a point made in a couple comments on his article.

This point is taken up by Zuckerman in his article on how to make crowdfunding awesome, in which he warns about wealthy neighborhoods tipping the crowdfunding scales to their side: “Unless done very carefully, crowdfunding a city’s projects is likely to favor wealthy neighborhoods over poor ones. People in poorer neighborhoods have less to spend on crowdfunding projects, and are less likely to have Internet access.”

It’s fair to speculate that those “taking over the process” would more likely come from wealthier neighborhoods...

Zuckerman also offers a balanced view of the potential positives and negatives of public-sector crowdfunding. On the one hand, he warns against an all-out attempt to let free market dollar-voting fill the place of government: For example, he cites one valiant project that ultimately failed (a couple weeks after Zuckerman published his article)—an attempt to fund a streetcar starter line for $10 million after Kansas City lost a federal DOT grant that would have paid for the project. The crowdfunded project earned only some $3,775 from 50 backers. On the other hand, he lauds an effort to use crowdfunding to leverage already-existing government structure to help a minority group in a San Francisco neighborhood utilize park space. The principle behind both these points is winnability, with the former case clearly biting off far more than it could accrue, and the latter case wisely leveraging government to attain its goals.

In one example that I really enjoyed reading about on Neighbor.ly’s site, Paint the Town Green, an initiative to “close the digital divide and provide broadband Internet access for neighborhoods who have been unable to connect” in Kansas City, the project had 111 backers for $11,136, more than doubling its goal and averaging just over $100 a donation—the amount that a funder provides at a monthly Awesome Foundation chapter meeting. The Paint the Town Green project had an attainable goal for funders and recipients alike. It’s a point that is reiterated all the time in grant writing advice: Be reasonable in your request. Everyone’s self-interest is at stake in philanthropy—ironic, maybe, but true. Of course, the proposed financial goal is just one factor, but the contrast of the projects is clear here.

Annotated Sources on Civic Crowdfunding

This article barely skims the surface on the topic of crowdsourcing, let alone crowdfunding for civic projects. Below are some other crowdfunding organizations and “further reading” on the burgeoning dynamic of crowdfunding and civic projects:


Your Thoughts

We would love to hear from you, especially local governments—jump into the discussion! This blog is a forum for readers not only to comment but also to contribute as guest bloggers, so feel free to email me at ttiernan@ecivis.com or leave a comment below. (Yes, I’m crowdsourcing here.) And if you liked this article, learn more about how eCivis can address your grant research and writing needs by downloading our article on the "Top 10 Reasons to Have a Grants Management System":

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Topics: Foundations, Grant Seeking, Nonprofits, Local Government, Partnerships, Urban Planning