News and analysis
November 20, 2014

Grant Makers Channel More to Charities' Operating Costs

An increasing number of foundations are providing unrestricted funds and multiyear grants—two giving strategies that many nonprofit leaders and experts believe are key to helping nonprofits thrive, according to a study released today.

But the study also found little progress in some other areas that nonprofit advocates have been pressing for, like providing financial support for collaboration among charities and openly sharing foundation research.

The survey of 637 foundations by Grantmakers for Effective Organizations found that the median level of grants devoted to general operating support rose to 25 percent in 2014, up from 20 percent in 2008 and 2011, two years in which the organization conducted similar surveys. With total foundation grant making estimated at nearly $55-billion in 2013, the survey suggests that annual grants for operating support may have increased by as much as $2.7-billion since 2011.

"That’s really good news for the sector," says J. McCray, chief operating officer of Grantmakers for Effective Organizations, and the report’s author.

Mutliyear Grants Rebound

Titled "Is Grantmaking Getting Smarter?" the study also found that grant makers that shied away from multiyear commitments during the recession have resumed longer-term grants. Fifty-eight percent of foundations surveyed said they made multiyear grants, more than twice the percentage (28 percent) that said they were doing so in 2011.

Grant makers are increasingly seeking input from nonprofits, the survey found. For the first time, a majority of grant makers (53 percent) said they regularly solicit feedback from grantees on topics like foundation strategy and giving priorities.

"There’s been a lot of raised visibility around the need to engage your stakeholders in your decision making," Mr. McCray says.

However, nonprofits aren’t experiencing the same level of openness that foundations profess to embrace, especially when it comes to finances.

More than half of foundations said they would be willing to engage in open dialogue with charities about general operating support (70 percent), multiyear grants (65 percent), or buying or renovating a building (51 percent).

But a study published in April by the Nonprofit Finance Fund, based on survey responses from more than 5,000 nonprofit leaders, found that nonprofits were far less likely to perceive a willingness by their individual, corporate, and foundation donors to talk openly about such support. Thirty-two percent said their donors were willing to discuss operating support, and roughly 20 percent said donors were willing to talk about multiyear grants or support for a new or renovated building.

"What this disconnect highlights is the need for funders to be the ones driving that conversation," Mr. McCray says. "You need to say it more than once. Because of the power dynamic, grant makers really set the tone."

Paying for Collaboration

For all the talk in the nonprofit sector about the importance of collaboration, foundations appear far more keen on collaborating with their peers rather than supporting collaboration among nonprofits. Eighty percent of foundations told researchers it was important for foundations to coordinate resources and actions when working on the same issue. But a majority (53 percent) said they never or rarely support the cost of collaboration among grantees.

Foundations also remain reluctant to share their research and evaluations with outsiders. Three-quarters of foundations said they evaluate their work, but fewer than half shared their findings with grantees or other foundations.

"Foundations are gathering so much information and learning so much," Mr. McCray says. "In order for others to benefit from what they’re learning, there needs to be more effort to share that information in an accessible way."