No More Free Rides: Foundations Need to Increase General Operating Support Now
November 02, 2012
(Niki Jagpal is research & policy director, and Kevin Laskowski is research & policy associate at the National Committee for Responsive Philanthropy. Niki and Kevin are authors of "The Philanthropic Landscape," a series of studies that analyzes the most recently available data on the latest giving trends.)
Whenever grantees are asked about the kind of foundation support that would be most helpful to them, general operating support usually tops the list. Unfortunately, the proportion of grant dollars made as general operating support has not moved substantially in a decade. For years, foundations have ignored this much expressed need of nonprofits while simultaneously claiming to be partners with them in change.
This breach of trust is unsustainable. It is time for grantmakers to increase the proportion of grants dollars given as general operating support.
A new analysis by the National Committee for Responsive Philanthropy (NCRP) finds that foundations collectively gave 16 percent of grant dollars as general operating support from 2008-10, the same percentage as from a previous sample of grants given in 2004-06.
Even during the economic crisis -- when foundations were encouraged to cut the strings on at least some of their restricted grants -- grantmakers as a group simply continued grantmaking as usual.
Despite the convincing case made by NCRP and other organizations such as the Center for Effective Philanthropy, CompassPoint, Grantmakers for Effective Organizations, and Independent Sector in favor of core support, data from the Foundation Center consistently demonstrate how foundations overwhelmingly prefer restricted over unrestricted support.
Indeed, the majority of foundations (54 percent) continue to provide less than 10 percent of their grant dollars as unrestricted core support. The median foundation gave only 8 percent without strings attached. Only 14 percent of our nation's grantmakers gave more than half their grant dollars as general support.
The dearth of core support signals a lack of trust among funders and willful ignorance at the cost of higher effectiveness. Foundations continue to hamstring their grantees by refusing to give up perceived control of restricted grants at the expense of their grantees' abilities to meet pressing community needs.
The "project vs. general operating support" debate is as old as modern grantmaking, and it's not going to be resolved here. Grantees and others who work with foundations have made their case for more unrestricted support repeatedly. Year after year, grantmakers have decided to ignore it. Perhaps, it is simply time to call this behavior what it is: free-riding.
We're not the first to make this argument, and we won't be the last: every restricted grant imposes some costs and neglects others.
First, working with foundations costs money. There is a sizable cost to grant recipients in terms of development, application, monitoring, and reporting costs. Grantmakers have been encouraged to consider what they actually give -- a "net grant," if you will (i.e., what is left over for the nonprofit's work after the costs associated with a grant are subtracted from the amount granted).
Second, restricted program support inevitably short-changes the salaries, rent, and other forms of "administrative overhead" that make grantees' work possible. The results are grant-rich but cash-poor grantees, nonprofits with everything they need for foundations' preferred programs but inadequate staff and resources to accomplish the grant's ultimate objectives.
The Nonprofit Finance Fund's 2012 State of the Sector Survey revealed that for the fourth consecutive year, at least half of nonprofits held less than 3 months of cash reserves.
Finally, program support ignores the larger dynamic nonprofit ecosystem in which grantees operate. Foundations and the nonprofits they fund frequently seek to tackle a number of complex and interconnected problems: education and healthcare reform, community and workforce development, global climate change, fundamental civil rights and other issues. Collective impact on this scale requires a community of well-resourced high-functioning nonprofit organizations -- large and small, service providers and advocates, associations and infrastructure -- working separately and sometimes together to effect large social and political change.
Unless more grants are provided as unrestricted funds, grantee sustainability will continue to be undermined, nonprofits will remain underresourced, and systemic problems in our communities will go unaddressed. As former Hewlett Foundation program officers Kristi Kimball and Malka Koppel contend in making their case for providing core support, grantmakers need to let go if they truly want to achieve their missions.
Over a decade of research by NCRP demonstrates how conservative philanthropists have used large general operating support grants over many years to build a web of policy think tanks and direct mail grassroots engagement that transformed local and national policy. That trend continues today with the American Legislative Exchange Council (ALEC) and the "Tea Party" movement.
Grantmakers who impose restrictions on their grants are effectively free-riding, counting on someone else -- the grantee, another donor, another nonprofit -- to make up the difference between their grants and the true costs of their charitable preferences.
To be sure, project support is valuable and has its place. We're just not sure it should comprise 84 percent of philanthropic dollars.
Grantmakers must increase the share of foundation dollars provided as general operating support. They should supplement program support with core support to cover actual costs. And they must cede control -- identifying nonprofits working in their issue ecosystem and trusting them to operationalize their vision and mission.
As grantmakers consider their strategy, it's time to ensure that their grantees have sufficient core support to achieve more impact, build capacity, and develop leadership.
It's time to end the days of free-riding masquerading as partnership. It's time to cut the strings.
-- Niki Jagpal and Kevin Laskowski