This post originally appeared on the INNO blog.

In a recent post, I highlighted a gap between foundations’ narratives about making general operating support accessible to grantees and their actual practices. Here, in the hopes that more people in philanthropy join the conversation, I go over feedback received from colleagues, friends, and practitioners working on both sides of the grantmaking equation. I fully believe that everyone is committed to making philanthropy’s practices more responsive to civil society organizations working on the ground. But I began to worry that the opportunity that opened in 2020 with funders reacting remarkably to the COVID health emergency will soon wane. Through these posts, I want to communicate the sense of urgency to make flexible funding more available while at the same time explore whether presenting various points of view helps to test and push the boundaries of grantmaking.

Project-specific grants are not happenstance but rather part of the system’s design

I was having an interesting conversation with Sylvia Aguilera, Executive Director of Acento, Acción Local, when she raised an important layer in this discussion that was missing in the first post: power. The power differential in a donor-grantee relationship often defines grantmaking, as the decision to award project-specific over general support grants is not dictated by external factors. In other words, the fact that most grants private foundations award are project-specific is not a result of legal or administrative considerations, but rather a direct result of the power structure that characterizes philanthropic giving.

Understanding project-specific grants as part of broader power dynamics helps one see that the choice of project-specific support is part of a transactional relationship where donors expect specific deliverables in exchange for funds. Different players in philanthropy are recognizing that it is necessary to change these dynamics to allow organizations doing the work to take center stage and have their expertise and needs become a more prominent, if not the main, element in determining how donor support is allocated.

This growing awareness is cause for excitement and it comes from  different corners of the philanthropy field in the U.S.: the Trust-Based Philanthropy Project, the movement spearheaded by the Decolonizing Wealth Project, and several foundations that long ago started increasing grantee-centered practices, including raising the share of flexible funding without too much fanfare.

Foundations are generally bound by strategy and explicit outcomes

In foundation work, strategies are the blueprint that staff use to define the scope and breadth of grantmaking and to enunciate the expected outcomes of working on a given issue area and/or region. ‘Who’ sets the outcomes and ‘why’ are two relevant questions, but strategy development does not happen in a vacuum and foundation staff regularly seeks input from organizations and individuals working on the issues at stake. Strategies often contain highly specific outcomes in order to stave away lofty goals and to have concrete signals that can show whether the strategy succeeded. I would argue that strategies need not be abandoned. Project-support is one of the tools available to pursue strategy outcomes, but ‘impact’ can also be had by providing general operating support to organizations working towards defined goals. Programmatic strategies should first guide foundations on the types of organizations to support based on the work they are doing, then ask organizations to explain what specific outcomes they are striving for and incorporate those outcomes into donors’ strategies. I’m not suggesting anything groundbreaking. Several examples of this approach come to mind: Fund for Global Human Rights, and Ford and MacArthur Foundations, to name a few, with varying ratios of general grants over project support. These donors are still bound by strategies, and they do combine general operating support with project grants. 

More flexibility in foundations’ support primes organizations for new funding sources

In addition to making it possible for organizations to adapt more nimbly to changes in the political, economic and social environment, flexible funding fulfills functions that are integral to organizations’ vitality: institutional development, resource administration, leadership, etc. Another benefit of flexible funding is income diversification – organizations can use general operating support to fundraise. Gretchen Kuhner, Director of the Mexico City-based Institute for Women in Migration explains in a straightforward way how “foundations’ general operating grants help us obtain funds from bilateral agencies, governmental donors, whose funding has more restrictions”. Compared to government agencies and bilateral or multilateral assistance agencies, foundations have lower constraints to provide core support. Organizations receiving private foundations’ multi-year general operating support grants are better positioned to apply for and execute project grants offered by government and international agencies.

Foundations may not see how they might be contributing to organizations’ unsustainability

A recurrent concern for any given foundation is the degree to which grantees become dependent on their funding. An important source of sustainability from a foundation standpoint is whether organizations have several different income sources. However, if most support comes in the form of single-year, project-specific grants, organizations have a harder time fundraising because they can’t demonstrate long term stability, and because they lack a strong fundraising or development team. In a study conducted by the Center for Effective Philanthropy, only 41 percent of surveyed organizations reported having received general operating grants that were also multi-year. And multi-year general operating support grants were only 25 percent of most organizations’ budgets¹. Organizations surveyed in the CEP study are U.S.-based organizations and, while there isn’t comparable aggregated data available, this percentage is likely much lower in Latin America and the rest of the global South. General support grants also allow organizations to hire staff on longer term contracts rather than on a per project basis. Staffing decisions are instrumental to good institutional planning, and greater access to unrestricted support allow for better planning decisions. An important aspect of civil society organizations’ sustainability and efficacy is their ability to retain talent. But temporary project grants are hurting the organizations’ chances of providing professional development opportunities. By offering temporary contracts, organizations are contributing to the sector’s job insecurity and limiting employees’ access to job benefits.

New forms of collective organizing: fiscally sponsored projects

Foundations often use intermediaries in their grantmaking. In recent years, fiscal sponsorships have become more common as groups and individuals choose to organize for collective action less as formally-constituted or charity organizations and more frequently as projects².  This aspect of recent trends in grantmaking in the U.S. was brought up by MacArthur Foundation’s Jorge Lopez. He explained that in order to fund these initiatives and stay within IRS and institutional due diligence requirements, foundations need such projects to have a ‘home’ (or sponsor, in legal parlance) in an organization that has tax-exemption, which is typically granted by a regulator (the IRS in the U.S.). The grant is then awarded to the organization fiscally sponsoring the specific project. In this scenario, it is clearly in the interest of both parties – the collective entity seeking support and the donor – that the project, and not the institution or charity organization, receives the funds, making a project-specific grant the vehicle of choice. Non-profit leaders’ overwhelming preference for flexible funding should not be interpreted as equivalent to “flexible funding must be given in all situations across the board.” Project-specific grants still have important functions to fulfill, and the scenario of going through an intermediary to support a project is but one example. As new funders approach the organization, project-specific grants are useful getting-to-know-each-other vehicles and are helpful in trust-building between grantees and donors. The others I can think of include using project-specific grants to support usually larger organizations with already a good portion of general operating support grants; and to fund think tanks and university departments whose work is multifaceted to conduct product-specific advocacy and research.

The point that many practitioners are trying to make, myself included, is that flexible funding should stop being the exception in foundation’s grantmaking and become the norm. I recently listened in on the Shifting the Power Balance to the Global South webinar organized by University of Cambridge’s Centre for Strategic Philanthropy as part of #ShiftThePower, and throughout the panelists’ interventions, a consensus on the urgency of adopting practices that increase flexible funding for nonprofits and movements in the global South unsurprisingly began to emerge. In countries where government actors are seeking to limit civic space and repress civil society organizations, flexible funding is not only a good practice but vital for civil society’s survival.