Although there has much discussion about nonprofit sustainability, the “overhead myth,” and unrestricted funding (see TCC Group’s “The Sustainability Formula,” GEO’s “On the Money” and NFF’s “2013 State of the Nonprofit sector” as just a few examples), nonprofits still do not feel that foundations get it.
When CEP invited a new set of nonprofit leaders to join The Grantee Voice panel last year, we asked them about what topic they thought the panel should provide feedback to foundations. The majority of nonprofits – 62 percent – selected the topic of nonprofit sustainability.
To give nonprofits the opportunity to express what was on their mind about this issue, we sent the panel a survey in August of 2013 asking them: “What do foundations most need to hear from you, as a grantee, on the issue of nonprofit sustainability?” Of the 514 nonprofits on the panel, 101 provided responses. There was no apparent bias in the type of nonprofits represented by the leaders that responded to this survey by the size of the organization, percent of revenue coming from foundations, or number of foundations funding the organization.
The comments from nonprofit leaders touched upon a variety of things they believe foundations should focus on or do differently about this issue. The most frequent themes are:
- Support nonprofits’ indirect costs
- Unrestricted funding
- Multi-year grants
- Consistent funding
While these ideas have long been discussed in philanthropy, the responses we received from many nonprofit leaders included the very real consequences to their organizations, and to their beneficiaries, of not being able to maintain the sustainability of their programs, services or organizations.
Support nonprofits’ indirect costs
Just over a third of nonprofit leaders (35 percent) highlight the need for foundations to provide greater support for the nonprofits’ indirect costs of carrying out the work being funded.
Some of these nonprofit leaders criticize foundations’ limits on overhead expenses, saying that this practice inhibits their organization’s ability to plan for the long-term. “The current focus on keeping overhead expenses below 12-15 percent is impacting nonprofits’ ability to build infrastructure such as technology and data assessment which will be critical to long term success,” says one respondent.
Other nonprofit leaders ask foundations to support nonprofits’ indirect costs by funding their capacity or infrastructure. “The current paradigm has foundations looking to get ‘credit’ for good deeds, rather than building and growing the infrastructure of nonprofits for those good works to happen,” says one nonprofit leader. Another argues, “Foundations need to invest in the internal systems (finance, board, HR, technology, fundraising, evaluation, etc.) that make it possible for an organization to be effective and sustainable.”
Additionally, one nonprofit leader points out that funding these types of costs is in foundations’ best interests. “Non-profits have to invest in staff training and fiscal management capacity building to be good stewards of foundation resources. Funding for staff and board administrative training is helpful,” says one respondent.
Another makes the connection between this type of support and outcomes. “Nonprofits must be held accountable to being more outcomes focused. With this call for increased accountability will also come the need for increased capacity to develop evaluation systems to measure program outcomes in a given community. Foundations need to be prepared to provide resources to ensure the necessary data collection and analysis are performed in an accurate and timely fashion.”
Provide more unrestricted, multi-year or consistent funding
The next most frequent themes in nonprofit leaders’ responses include comments about the patterns of funding that nonprofits receive, with 27 percent of nonprofit leaders mentioning the need for greater provision of unrestricted funding, 15 percent of nonprofits bringing up the importance of multi-year support, and 13 percent of nonprofits calling for more support for existing programs. Nonprofit leaders who mention unrestricted support in their comments tend to be leading organizations with smaller staff sizes and lower annual expenses.
Perhaps it’s not surprising that nonprofits say they want more unrestricted and multi-year funding. CEP’s research has established that grantees find most value in large, multi-year general operating supporting grants. However, the nonprofit leaders responding to this survey make a case for why this pattern of funding is specifically relevant for sustainability.
One nonprofit leader says, “General operating support allows organizations to focus on the mission. Project based funding creates an unsustainable cycle of need.” Another criticizes program support saying, “Funding specific projects with narrow outcomes may fulfill a foundation’s yearly objectives, but without more support for general operating to keep the lights on…many nonprofits will go out of business.”
In calling for more multi-year funding, one respondent connects this type of support to their organization’s ability to serve their beneficiaries, saying, “Funding for one year at a time makes it challenging for non-profits to plan effectively – multi-year funding with a planned exit strategy would allow us to better focus on providing the best quality services and products to our clients.”
The nonprofit leaders who bring up a need for more consistent support from foundations wish foundations would provide more support for existing programs instead of focusing on funding new programs. One nonprofit leader criticizes the practice of “support[ing]…special projects that then become unsustainable” and another asks foundations to recognize that “starting new initiatives is not necessarily as impactful as sustaining efforts that have good outcomes.” Data from CEP’s Grantee Perception Report (GPR) shows that consistency of funding matters – grantees that say they have received consistent funding from their foundation funder rate the foundation’s impact on their organization significantly higher than nonprofits that have received inconsistent funding.
The data and comments from Grantee Voice nonprofit leaders suggest that they do not feel heard by foundations when it comes to this issue of sustainability.
Here’s one final reflection from a nonprofit leader: “I think that we as not-for-profits must make clear that it is critical that our organizations continue to meet our missions without significant disruptions…The impact of service reductions on the people we serve is tremendous and can even be life threatening. It is important for foundations as well as other grantors to recognize the impact this has on communities of need and on those dedicated staff who have made life altering commitments to work with us.”
To learn more about what foundations are doing to support nonprofit sustainability, you can read the blog post “Sustainability is a Shared Responsibility” by Andrea Cohen Barrack, CEO of the Ontario Trillium Foundation and CEP’s research publication “Nonprofit Challenges: What Foundations Can Do.”
Ramya Gopal is a Senior Research Analyst at the Center for Effective Philanthropy. You can find her on Twitter @RGopal_CEP.