To anyone at a nonprofit youth agency trying to live in part on foundation grants, a statement endorsed by Independent Sector last month sounds as if it was designed to set his heart aflutter:
“Funders can often achieve their strategic goals through core support for organizations whose goals are substantially aligned with their own,” the statement declares. “Where appropriate and feasible, funders should prefer multi-year, reliable core support to project support.”
The statement was crafted primarily by foundation leaders in an effort to get their colleagues to shift more of their grants to “core” or “general operating” support, which nonprofits say they need to survive and thrive, and which most foundations have been reluctant to give.
About 19 percent of foundation grant dollars in 2002 went to general support, according to the New York-based Foundation Center, after being stuck at about 13 percent for much of the previous seven years.
Core support advocates hope the initiative, spearheaded by Hewlett Foundation President Paul Brest, will spark momentum for the concept among foundations. But they realize that a statement alone isn’t enough.
“Foundations frequently hear best from other foundation leaders in terms of wanting to change their practices,” says Rick Cohen, president of the National Committee for Responsive Philanthropy. “To have real foundation leadership” on the issue of core support is “an important step.”
“But it’s just a step,” he added. “What’s missing here is a campaign.”
Grantees have long complained that the dominance of project support grants forces them to perpetually reshape their programs to what various funders want, with their survival resting on their ability to cater to the causes of the moment, such as substance abuse, pregnancy or violence. This leaves agencies fragmenting themselves by continually creating new projects just to get money to make it through another year, rather than focusing on what they do best.
Foundation leaders know this, but few have felt it strongly enough to significantly alter their organizations’ behavior. That happened to Gary L. Yates, CEO of the California Wellness Foundation, about five years ago. After repeatedly hearing from grantees about the hardships of living on project grants and the need for more core support, Yates led his foundation to shift more money toward core support. (See “General Support? Sounds Nice, But…,” April 2002.) Today, Yates says, about 60 percent of the foundation’s grant dollars go to general support.
Something similar has been happening with Brest, who says about half of Hewlett’s annual grants ($176 million awarded in 2003) are for core support. Believing that “there were a lot of people of good will in foundations who had really just not thought of the issue” fully, Brest set out last year to convene foundation and nonprofit leaders to do just that.
More than 50 top executives from organizations with a stake in the matter – mostly foundations, along with some nonprofits – met last June in New York. The meeting was sponsored by Hewlett, the Rockefeller Brothers Fund, the Edna McConnell Clark Foundation, the Surdna Foundation and the Open Society Institute, which played host.
As for the co-sponsors, Rockefeller Brothers says 28 percent of the grant dollars it approved last year were for general operating support; Open Society estimates its figure at 20 percent, although it also includes general support funds within its project grants; and Clark and Surdna don’t label grants that way, but Clark’s grants are for capacity building within youth-serving organizations, which includes key elements of general operating support.
Some of the major points of discussion, according to several participants, were: how to define general operating support; why nonprofits need such support; how too much project-directed support weakens nonprofits; and how foundations can evaluate the performance of grantees who get general operating support.
Brest wanted to draft a statement advocating general operating support. There was “a bit of a concern on the part of the funders as to how much they could commit their institutions to how broad of a statement,” recalls Open Society Vice President Gara LaMarche. “A number of the more independent critics of philanthropy and some of the nonprofits in the room pushed it more in that direction.”
Brest crafted his statement over the following months in consultation with many of those who attended the New York meeting. Among the points in the 2 1/2-page document, called “Guidelines for the Funding of Nonprofit Organizations”:
• Core or general operating support is defined as “funding directed to an organization’s operations as a whole rather than to particular projects. … Core support may be used not only for the delivery of services or other activities directly in pursuit of the organization’s mission, but also for administrative and fund-raising expenses (overhead).”
• “Reliable, predictable, and flexible support is the lifeblood of nonprofit organizations. … Core support is essential for the individual organization’s sustainability and for a vibrant, and pluralist ‘independent sector.’
• “Funders should not assume that an organization will become self-sustaining or that others will fund it after they have ceased supporting it.”
• When funding specific projects, funders should “pay the full, actual costs incurred by the organization, including the fair proportion of administrative and fund-raising costs” the organization needs to manage and sustain itself to carry out the project. That means covering a share of the agency’s overhead.
The statement discusses the reasons for grant-makers’ reluctance to supply more general support, including not approving of all that an organization does and wanting to fund new projects that seem innovative, rather than supporting a group for doing the same old thing. Perhaps most important is a sense that it is difficult to evaluate the impact of grants for general operations rather than for specific projects.
Key to resolving that last dilemma, Brest says, is recognizing that general support is not a “blank check. … What makes it general support is that you’re saying, ‘Use it as you will,’ but that’s completely consistent with holding them accountable to describe intended outcomes and how they plan to get there.”
The statement says that “in return for long-term, multi-year support, funders can appropriately expect top-notch performance from nonprofit organizations in strategic planning, financial management, evaluation, development and ultimate impact.”
The Independent Sector board approved the statement unanimously and, apparently, without reservation. “It sailed right through,” says Yates, who sits on the board.
Independent Sector reported on the endorsement in its newsletter, which goes to the approximately 600 nonprofits, foundations and corporate philanthropy programs that belong to the coalition.
Brest has asked the Council on Foundations to endorse it as well.
While endorsements will help, the statement’s impact will rest on how strongly it is pushed by those who say they back it. For instance, while Independent Sector posted the statement on its website (www.independentsector.org), Cohen and Independent Sector Vice President Peter Shiras noted that visitors had to really hunt for it. “We need to put it more prominently on our website,” Shiras says.
Shiras says Independent Sector wants to provide “additional tools to nonprofits and foundations to help in the implementation” of the statement, such as something that would help grantees calculate “administrative and overhead costs associated with project funding.”
For longtime general support advocates such as Yates, the statement is another step toward a gradual evolution in foundation thinking. It will be effective, says LaMarche of Open Society, “if it’s seen as having endorsement from significant foundations who begin to change their own practices and to work with their colleagues” to do the same, and if nonprofits “hold the foundations” to their professed support for the concept.
Otherwise, he notes, “It could be a very nice statement and not really change anything.”