A study released yesterday by Grantmakers for Effective Organizations (GEO) contained some good news for nonprofits. Funders are increasing the amounts they allot to unrestricted grants, doing more multi-year funding and seeking more dialogue with nonprofits about their needs.
The study, “Is Grantmaking Getting Smarter?” surveyed 637 funders with assets ranging from under $10 million to more than $400 million. The largest group (36 percent) had assets between $10 million and $50 million. Of all the participants, 69 percent were independent foundations, 19 percent were community foundations, 5 percent were corporate foundations and 8 percent were other foundation types.
The study found that grants devoted to general operating support rose to 25 percent in 2014, up five percent in each earlier year that similar studies were conducted by GEO.
Fifty-eight percent of foundations surveyed said they made multiyear grants, doubling the number that reported giving operating support grants in 2011. With these figures, one can project that annual operating support grants have increased from 2011 by as much as $2.7 billion.
For decades nonprofits have tried to make the case to foundations that to succeed at their missions they need help with operating costs that underpin their programs. They got help making their case from several studies that examined the issue.
A 2008 Grantmakers for Effective Organizations study found grant makers and nonprofits actually in agreement that increased operating support is likely to improve an organization’s ability to achieve results.
An influential article in the Stanford Social Innovation Review (“The Nonprofit Starvation Cycle”, 2009) drew attention to the dynamics underlying the problem and quoted a wide ranging academic study out of Indiana University and the Urban Institute.
The Nonprofit Overhead Cost Study’s five year research project, through the Urban Institute’s National Center for Charitable Statistics and Indiana University’s Center on Philanthropy, was an extensive look at how nonprofits actually function from a financial perspective.
Researchers examined more than 220,000 IRS Form 990s and conducted 1,500 surveys of organizations with revenues of more than $100,000. They found a vicious cycle of nonprofits trying to meet funders’ unrealistic expectations of what constitutes reasonable operating costs.
This in turn perpetuates funders’ incorrect information about the true costs of running nonprofit programs. The end result, one with which the nonprofit sector is all too familiar, is that to stay competitive for grants, nonprofits often “settle into a low pay, make do, and do without” approach to their operations.
While the new GEO study does bring some good news about funding approaches to the nonprofit community, it also shows room for improvement.
Interestingly, while foundations in the newly-released GEO survey reported their interest and outreach to nonprofits to help shape their funding policies and practices (53 percent say they engage in this), nonprofits view their funder interactions as far less open.
This is in large part from fear of the results of such candor on potential funding. Grant makers must realize the inevitable underlying dynamics of these conversations and find ways to circumvent that problem if they want more candid feedback — such as anonymous surveys.
With 76 percent of funders saying they evaluate their work, if more of them understand the inherent weakness of chronically underfunded operating costs, there’s real promise for increased grants to help build capacity. With $55 billion awarded by foundations in 2013, the stakes are high.
More might arrive at the viewpoint of Belen Vargas, vice president of programs for the Weingart Foundation. Looking back to funding after the 2008 recession, Vargas says, “We decided right then and there that providing core support was the best way we could help build our grantees’ capacity and sustainability.”
Note the inherent assumptions about nonprofits’ abilities that underlie that statement.
Sarah Todd Clark is principal of Savannah-based Calhoun Enterprises, a resource for social change. She can be reached at calhounent@gmail.com or 912-224-2120.
By Sarah Todd Clark