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Wednesday, July 26, 2017

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Nonprofits Need Operating Grants
Foundations Award Project Grants
What’s the Deal?

Denise Wissing

December, 2006

It seems that there is a dichotomy between what nonprofits want and what they get when it comes to fundraising and foundation grant-making. Undeniably, nonprofit organizations want to raise enough money to keep their doors open day in and day out as well as develop and implement innovative programming that meets the needs of their communities. However, in order to become financially stable and maintain it, many nonprofits look to operating support- something that most foundations are reluctant to give.

One of TXNP’s nonprofit members recently wrote us about this issue saying,

“It is unfortunate for us in the non-profit community that nearly all philanthropic foundations and businesses with community outreach programs do not support operating expenses, and more specifically, salaries. The only chance an executive director has of getting funding through the majority of philanthropies is to devise a totally new, innovative program which will require more hours of work, more speeches, more research, more training, and no increase in salary.”

This frustration resonates throughout the nonprofit community. Why don’t more foundations choose to fund operating expenses or make unrestricted grants?

A recent report released by The Center for Effective Philanthropy, In Search of Impact: Practices and Perceptions in Foundations’ Provision of Program and Operating Grants to Nonprofits explores this question, bringing new data to the debate about current foundation practices, attitudes underlying those practices, and the impact on grantees of foundation choices. The study surveyed 163 foundations that were programmatically diverse and whose assets ranged from less than $20 million to greater than $20 billion.

Foundation CEO Perspective
It may surprise you that in spite of nonprofits’ increasing need for operational support, the study found that half of the foundation CEO’s that responded to the survey preferred to provide program support over operating, while one third didn’t have a preference. When making grant awards, foundations want to be able to see quantifiable impact- you know the hard numbers, outcomes, and performance measures. Project grants are simply easier to monitor and to see quantifiable results. They also usually fit within the foundation’s mission better than operating proposals and do not carry as much risk for foundations, especially when they are donating to a new grantee that they are not as familiar with.

However, the survey revealed something even more interesting and unexpected. As a whole, Foundation CEO’s agreed that operating support is viewed as being most effective- and more effective than program support- in creating impact on and encouraging sustainability of grantee organizations. Despite this fact, many CEO’s still steer away from operating support, choosing to fund programs instead due to intense pressure placed on them by their trustees. The last thing foundation trustees want is for nonprofits to become dependent on general operating funds. Plus, as previously noted, program support although less effective in reaching nonprofits’ goals is more effective for foundations in reaching their own grant-making objectives.

There are foundations that realize the importance of providing at least some operational support. Sharon King, President of the F.B. Heron Foundation suggested that, “In the long run, you can’t have strong programs in weak organizations .”

Although this may be true, the study also reveals that there is more to making an impact within an organization than just donating program and operating funds.

Grantees- What Do They Have to Say?
To get the other side of the story, CEP surveyed more than 31,000 grantees of the 163 foundations, receiving nearly 20,000 responses. This is what they found.

  • Recipients of operating support spend less time fulfilling foundation administrative requirements- 40 hours vs. 63 hours.
  • Recipients of operating funds report receiving slightly less nonmonetary assistance from foundations (44 percent vs. 48 percent).
  • Program support recipients tend to have a shorter history of support with foundations and report slightly more pressure from funders to modify their goals.
  • Although operating support was included in grantees’descriptions of an impactful grant, other characteristics included grant duration, size of grants, time-intensity of grants, and additional nonmonetary support.

This last point is an important one to note. It takes more than just an unrestricted grant to make a significant impact in a nonprofit organization. Because the majority of grants from foundations are small and only for a short term- usually a year- it is difficult for them to make a huge impact. The report states that, “it is not operating support alone that generates higher ratings of impact in the grantee organization, but rather operating support of sufficient size and duration.” It is suggested that many nonprofits would benefit just as much if not more if foundations’ awarded larger or multi-year grants compared to operating support. Obviously this makes sense. An organization can develop more programs and cover more expenses with a multi-year $100,000 + operational or program grant, than with an unrestricted $5,000 or $10,000 gift when it comes to paying the day to day bills.

Another aspect of grant making that is less about the money and more about character is the foundation-nonprofit relationship. In CEP’s 2004 report Listening to Grantees: What Nonprofits Value In Their Foundation Funders, they found that nonprofits look for and value high quality interactions with foundation personnel. They also appreciate it when foundations clearly communicate and articulate their goals and strategies, as well as have an understanding of the fields and communities of funding and possess the ability to advance knowledge and affect public policy. Nonprofits look to foundations to be true leaders in their communities- to work to make a real difference and positive impact.

The Report’s Key Findings:

  • Most of the grants made by even the large foundations whose grant making is analyzed in the study are program restricted, small, and short term. The proportion of small grants made by these foundations is often overlooked because of how data on foundation grant making has been historically reported.
  • CEO’s see operating support as more likely to make a positive impact on grantee organizations, but most place other priorities higher in their decision-making. Just 16 percent of CEO’s surveyed indicate that they favor providing operating support, and a third have no preference. Nearly half prefer to provide program support to grantees- often because they feel it is easier to connect their grants to specific outcomes.
  • To grantees, type of support is important- and operating support is preferred- but only when grants are larger and longer term than what is typically provided today, even by the country’s larger foundations. Those foundations seeking to maximize their impact on grantee organizations should make larger, longer term operating grants- and do so while exemplifying three additional characteristics that grantees most value in their foundation funders.

For the complete report and additional findings and information, please visit http://www.effectivephilanthropy.com/research/support.html. Login to www.txnp.org for the latest information on Texas foundations and their giving.

The Center for Effective Philanthropy, In Search of Impact: Practices and Perceptions in Foundations’ Provision of Program and Operating Grants to Nonprofits, P. 10. Quote included in the study taken from The F.B. Heron Foundation’s 2005 essay, “Core Support.”

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