This post is the second in “Social Justice and a Relevant Philanthropic Sector,” a five-part series by Miles Wilson about where philanthropy is stuck in old paradigms — and where there lie opportunities to advance social justice both within the sector and across American society.
In philanthropy, there’s an ongoing debate about the use and value of project support grants versus general operating support grants. I’ve heard and participated in this debate for as long as I have worked in philanthropy.
Project support grants are for a specific effort or project of a nonprofit organization. Often times, project support grants do not include the costs of the overhead and infrastructure necessary to conduct the project (grantmakers will sometimes include an allocation for “reasonable overhead costs,” defined by the foundation rather than the actual costs calculated by the grantee). Conversely, general operating support grants are unrestricted and support the entire organization, allowing leadership to allocate the funds in whatever manner it sees fit to further the organization’s overall mission and performance.
In practice, project support grants far exceed the number of general operating support grants provided by grantmakers — and the percentage of funding given as general operating support has not been increasing. As a result, many nonprofit organizations find themselves fundamentally weakened in their ability to sustain themselves and the infrastructure necessary to fulfill their mission and serve their constituencies.
Over the years, many field researchers and practitioners have thoroughly documented the negative impact of not funding or only partially funding overhead costs. In a Stanford Social Innovation Review article called “The Nonprofit Starvation cycle,” authors Ann Goggins Gregory and Don Howard explain:
A vicious cycle fuels the persistent underfunding of overhead. The first step in the cycle is funders’ unrealistic expectations about how much it costs to run a nonprofit. At the second step, nonprofits feel pressure to conform to funders’ unrealistic expectations. At the third step, nonprofits respond to this pressure in two ways: They spend too little on overhead, and they underreport their expenditures on tax forms and in fundraising materials. This underspending and underreporting in turn perpetuates funders’ unrealistic expectations. Over time, funders expect grantees to do more and more with less and less — a cycle that slowly starves nonprofits.
Though this piece was published in 2009, little has happened in the decade since to reduce the relevance of its message. More recently, the three leading national organizations monitoring charity accountability and transparency — Give.org, Candid, and Charity Navigator — have issued joint letters reasserting the challenges created by funders’ lack of support for overhead costs.
Further, project support grants are a level of unnecessary control and micro-management that demonstrates a lack of trust in an organization’s leadership to do their jobs properly. If this is the case, and it is demonstrated through solid due diligence, then the organization should not be funded. But to penalize both the good and the bad while weakening the entire field in the process makes no sense at all.
During my career in philanthropy, I have worked for foundations whose grantmaking was almost entirely project support grants. What I recall from those experiences was a high degree of distrust of grantees and unreasonable line-by-line reviews of budgets to determine if costs are appropriate. As a result, nonprofits inevitably felt forced to pad their budgets in places where it would be least noticed, knowing that the foundation would provide the least amount of grant dollars. However, the foundation would hold them to a level of performance that did not match the level of funding. I watched this scenario happen even when the foundations only partially funded a project.
I have also worked for foundations providing almost entirely general operating support grants. These foundations tended to put greater focus on initially determining alignment of missions between themselves and potential grantees. In this case, there was a much clearer sense of partnership and trust between the foundation and nonprofit organizations. I also saw these foundations engage with existing grantees to ensure that they had sufficient resources, both financial and non-financial, to succeed in achieving their missions.
There is no doubt in my mind that the provision of general operating support grants produces the greatest benefit to foundations, grantees, and the common issues and constituencies they seek to impact together.
General operating support is the ultimate vote of confidence in a nonprofit, as it allows them to act flexibly when changing circumstances require it. It is used most effectively when a nonprofit has clear alignment with a funder — and when the funder makes long-term, multiyear grants. This form of funding is by its very nature strategic and works to advance both the funder’s and the grantee’s success.
Another great benefit of general support funding is that, when there are long-term, multiyear grants, both funder and grantee need not spend lots of time and resources trying to determine impact in the short term. Rather, they can create a more thoughtful and meaningful process of developing reasonable reporting parameters and an evaluation approach that is efficient, effective, and right sized. In these instances, instead of an evaluation that responds largely to the foundation’s needs, the resulting impact data is more likely to also truly matter to the nonprofit and its constituents.
When I conducted a not terribly scientific but nonetheless compelling experiment Googling a number of variations of “benefits of project support grants” and “benefits of general operating support grants,” I could not find one report or article professing the great value of project support grants. However, I found countless resources about the great value of general operating support grants, many of them from the leading voices and institutions in the philanthropic sector.
Project support is largely outdated, generally ineffective, and above all a dangerous approach that threatens a nonprofit organization’s sustainability and its ability to achieve its mission. It’s time for organized philanthropy to make the shift to general operating support, which will intentionally strengthen nonprofits and create the conditions for relationships that demonstrate trust, partnership, and the necessary humility that every good grantmaker should have.
Miles Wilson is a philanthropic professional with nearly 30 years of experience supporting the U.S. social sector as well as past efforts in Northern Ireland, the Netherlands, and South Africa. He currently serves as deputy director of education grantmaking at Ascendium Education Group and wrote this piece while serving as a senior fellow during 2019 with the Aspen Institute Forum for Community Solutions.