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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.)

PhilanthropicLandscape-StateofGeneralOperatingSupport-MediumWhenever 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

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Posted by Ben Cameron  |   November 06, 2012 at 09:15 AM

Perhaps we can shift the discussion from "either/or" to "both/and." At the Arts Program at the Doris Duke Charitable Foundation, we have awarded additional operating support grants to project grants in most of our initiatives since 2008. While conscious that traditional general operating support grants might signal a long term partnership that may not be appropriate for us as a national foundation, we nonetheless have asked, "If we believe you are the best company to commission a new dance work (for example), why wouldn't we give you flexible support as well to strengthen your organization?" We clearly signal that the gen op comes as a complement to the project support and will not be renewed (unless the organization receives a subsequent project grant.) The response has been overwhelmingly positive--almost embarrassingly so--from organizations who suddenly have flexible funds with which to work.

Posted by Anonymous   |   November 06, 2012 at 10:09 AM

As a nonprofit administrator, I couldn't agree more with this piece.

In my experience, it tends to be the most famous, well-capitalized foundations that most tightly restrict their grants. These are supposed to be the most sophisticated in the sector. They often are very competitive in their hiring and compensate well. I can't help but wonder if these program officers simply assume they know what's best. The most sophisticated foundations seem to be the most paternalistic, which is the last thing we need.

Posted by Paul Botts  |   November 06, 2012 at 10:20 AM

Having been mostly a grantseeker (including now) except for one 5-year stretch on the foundation side, I gotta say: this tired old argument doesn't improve with repetition. It rests squarely on a basic assumption that a foundation's mission is to make its grantees happy. From there flows the inexorable logic that whatever is best and easiest for those of us seeking grants is what the foundation should do.

Sorry, but no. A foundation is a type of civic enterprise pursuing a mission (whatever social change it has declared itself to be seeking, just like a public charity). When those of us working for the other kind of non-profit are an effective tool for the foundation to pursue its mission then they will make a grant to us; if we're not then they won't. The foundation's moral and legal responsibility includes being accountable for the results of its tax-free status and its efforts; that may or may not call for issuing gen ops grants.

I worked for a foundation which in one subject area issued _only_ gen ops grants because that was the approach which best supported the specific mission goal which we were pursuing and holding ourselves responsible for results in. In our other big subject area we issued mostly project grants, for the same reason. That -- whether/how different types of grants are the best way to achieve the foundation's particular mission goals -- is the one and only valid reason for deciding on which type of grant to offer. When that's less convenient for me as a grantseeker (and it often is, I'm living that right now in my current shop), well that's a drag...but it's not ever actually going to be a basis for telling foundations how they should pursue their missions.

Or put another way: when a foundation makes us a gen ops grant we are absolutely delighted -- our grants manager literally does a little happy dance while our field staff cheer. Which is lovely and we try not to be embarrassing in our gratitude...none of which makes the issuing of such grants something that Duke or any other foundation _owes_ to us simply for existing and trying hard. If Duke's mission logic, e.g. as Ben describes above, leads to gen op grants then great, do that. If it doesn't then don't. Achieving a mission is after all why we all do this sort of work, yes? I hope so anyway.

Posted by Kevin Laskowski  |   November 06, 2012 at 01:27 PM

Thanks all for your comments.

Ben, you're absolutely right. This isn't an issue of either/or. Foundations have different missions and different strategies, and that's going to mean that some funders will see a need for project-specific grants. Each funder decides for itself what makes sense, given the causes and communities it serves. When funders do choose to fund favored projects, I hope more of them see the wisdom funders like Duke show in adding general operating support on top of it.

The question for us isn't, as Paul would have it, "how do we make grantees happy?" but "how might our grant dollars have the most impact possible?" As we say above, from our perspective, change requires a robust ecosystem of "well-resourced high-functioning nonprofit organizations," and you don't get that kind of ecosystem without some level of general operating support. Achieving something is indeed why we all do this work, and our point is this: your mission, whatever it might be, has a better chance of being achieved if general operating support comprises a greater proportion of philanthropic dollars.

As we say, "To be sure, project support is valuable and has its place. We're just not sure it should comprise 84 percent of philanthropic dollars."

There's a presumption in favor of project-specific support that has come to mark the sophisticated grantmaker. Anonymous alludes to this above. It's time the pendulum swung in the other direction in favor of what grantees and philanthropic associations have been recommending for more than a decade.

Posted by Dan  |   November 06, 2012 at 01:44 PM

No, it doesn't rest squarely on the assumption that the mission of foundations is to make grantees happy. It rests on the assumption that all grants impose costs, and project grants impose greater costs that are not covered by the grant than gen ops grants. It rests on the assumption that those costs must then be borne by others, which has consequences as well.

It also rests on the possible assumption that gen ops grants are in fact a better way of achieving the mission of both the foundation and the grant recipient, something that many foundations may consider but others may not. Simply because a more effective tool exists does not mean it will automatically be adopted by foundations, and perhaps NCRP views part of its mission as educational in that respect. Of course the foundation has the choice regarding whether to make gen ops grants. NCRP has, and given their mission, should exercise, their freedom to criticize or praise foundations for their practices.

I would be very interested in hearing about your particular experiences and why gen ops grants are particularly suited for one subject vs. another. That could be a great blog post all by itself, and could be really valuable information for other funders.

Posted by Brendan McCall  |   November 06, 2012 at 06:57 PM

Thank you for this piece, Niki & Kevin. Unfortunately, the same problem faces arts institutions here in Australia. I run a small regional theatre here in Western Australia, and like many of our peers in the state, we are under-resourced, under-staffed, and over-worked. We need general operating costs for Business #1, instead of taking on grants that will fund a new project or festival that will in essence become Business #2, which will just stretch us even thinner. If these granting organizations are our "partners", why are they ignoring their not-for-profit siblings?

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