We were heartened this spring when nearly 800 grant makers signed a pledge to, among other things, “loosen or eliminate the restrictions on current grants” and “make new grants as unrestricted as possible.” The pledge was a reassuring philanthropic response to the challenges facing nonprofits, many of which are navigating increased demand and decreased revenue in the face of a global pandemic, racial-justice uprisings, and threats to our democracy.
But signing the pledge was only the first step. Will grant makers follow through and make meaningful and lasting changes? While we aren’t likely to know the answer anytime soon, many in the nonprofit world are especially interested in whether foundations will loosen the reins on unrestricted support. This form of giving, particularly when it occurs over several years — what nonprofit advocate Vu Le has dubbed MYGOD (multiyear general operating dollars) — is critical to the financial health of nonprofits. But before the pandemic, it represented just 12 percent of donor dollars.
Theories abound as to why grant makers are reluctant to provide unrestricted support. Some hypothesize that foundation program officers don’t want to limit their flexibility or relinquish the control that program support offers. Others point to foundation boards as the barrier. They suggest board members have overly narrow views of accountability, don’t understand what nonprofits need, or don’t trust them sufficiently.
A report released last week by the Center for Effective Philanthropy, which one of us leads and the other supports with grants, challenges these theories. The study, titled “New Attitudes, Old Practices,” finds no “common barriers” to unrestricted or multiyear support. “The explanation for why it’s not being done more widely seems to be that it doesn’t fit with the foundation’s approach, simply hasn’t been prioritized, or, for a subset of community foundations, isn’t seen as possible given constraints,” the report authors conclude, basing their findings on in-depth interviews and surveys conducted just before the pandemic.
This is especially maddening since the report also finds that foundation CEOs have grown more positive in their attitudes about the effectiveness of general support since 2006, when the Center for Effective Philanthropy last did a comprehensive study on this issue. Most, however, have not meaningfully changed their practices.
At least for the private foundations that clearly have the ability to do this, we see just one explanation for the failure to change funding practices: a lack of leadership. It’s time for foundation CEOs to take the lead and send a clear message that their organization’s default practices for supporting nonprofits are no longer acceptable.
The case for supporting nonprofits differently could not be clearer.
Nonprofits need unrestricted support because many are on the financial precipice. That was true even before the pandemic when a majority of nonprofits said they were “unable” or “at significant risk of being unable” to cover essential operating costs at some point in the previous three years. The situation is much more dire today. A survey conducted in May by the Center for Effective Philanthropy found 80 percent of nonprofits had tapped their reserves, or were planning to, in the wake of the Covid-19 crisis.
Organizations desperately need flexibility right now to respond effectively to the multiple national crises. One frustrated nonprofit leader in the May survey said what nonprofits need most is a “commitment of unrestricted dollars over a longer timeframe so that we can focus on our mission and not fundraising. It was stunning to me how much effort nonprofits had to spend early in the crisis doing fundraising to stay afloat rather than focusing on serving communities.”
Multiyear general support is especially important for racial equity and social-justice work focused on long-term structural change. We found a flicker of good news in this area amid an otherwise depressing set of findings. Nine out of a group of 24 CEOs whose foundations provide more multiyear general support than is typical said issues related to racial equity, such as whether the organization serves or is led by people of color, specifically influences decisions about which organizations receive unrestricted support.
In a companion piece to the report, Justin Maxson, CEO of the Mary Reynolds Babcock Foundation, said providing general operating support was vital to tackling economic and racial injustice in the Southern states where the grant maker operates. Such support, he said, is particularly critical for organizations led by people of color “because the groups we support are generally under-resourced and need access to flexible dollars to grow their capacity.”
The benefits of providing more multiyear general support are clear for foundations that take that leap. Several said it allows grantees to increase their impact toward achieving goals the foundation shares, minimizes power dynamics, results in more candor between the grant maker and grantee, and makes the funding process easier and more efficient for both parties.
Not surprisingly, nonprofit leaders couldn’t be happier with such arrangements. In fact, most were hard pressed to think of any downside to multiyear general support. “Tempering the joy and relief that comes with multiyear (general operating support) is probably the biggest challenge,” joked one. “But, please, let that be a challenge we experience more often. It’s a much better challenge to have than the sleepless nights that we’d otherwise experience.”
We’re not suggesting that every grant provide multiyear general support. Project funding and one-year grants make sense in some cases. But surely grant makers can do better than the current level of barely more than one in 10 such grants. After all, foundations pursue their goals through the nonprofits they support. If those nonprofits lack organizational strength, they are far less likely to meet those goals.
At the Mary Reynolds Babcock Foundation, multiyear general support is now “our default position,” says Maxson. The picture is exactly the opposite, of course, at most foundations. Now is the time for foundation CEOs to step up and change that scenario once and for all.