The effects of the battered U.S. economy have been felt across all sectors, public and private. If you're a nonprofit organization, chances are that over the past couple years demand for your services has grown, while funding has not kept up pace. According to a new report by the Nonprofit Finance Fund (NFF), it is anticipated that 77% of nonprofits will have seen an increase in demand for services this year. However, between 2009 and 2011 the percentage of nonprofits that were able to meet demand decreased from 56% to 46%. Local communities depend on nonprofit services more than ever, but money is scarce as budgets are slashed.1
As reported in the The Porterville Recorder, human services organizations in Porterville, California, suffer from a lack of donations. And organizations that have relied on the Federal Emergency Management Agency (FEMA) funding for years have received significantly lower awards than in previous years, pushing them to rely on other sources of funding. Community Services and Employment Training, for example, received just over 70% of its usual funding from FEMA. LOVE, Inc., a network of churches and individuals that provide for the needs of families and individuals, was awarded only 60% of the funding amount it has received from FEMA over the past ten years.2
Such stories seem to be the norm as the federal government and states tighten their budget belts. Foundations have also been hard hit, and these grant makers have become more selective in the tough economy, holding charities to higher standards than in years past.
Meanwhile, nonprofits that depend on grant money seek financial flexibility in a time of economic inflexibility. Nonprofits have generally preferred operating support ("unrestricted" funding for the day-to-day operating costs of an existing program or organization) over program support ("restricted" funding for specific activities, with a beginning and an end, clear objectives, and predetermined costs), while funders have preferred to give program support in part due to the clearer accountability by the grantee.
Nonprofits Seek General Operating Support
Nonprofits generally prefer operating support over program support — that seems to be the consensus among nonprofits according to reports by the NFF and the Center for Effective Philanthropy. According to the NFF report, nonprofit leaders were asked to name one thing they would like to see funders do differently to better help nonprofit organizations. The most prevalent answer was the need for more general operating or capacity support, expressed by 50% of NFF survey respondents. It makes sense that in tough economic times, unrestricted funding would be highly valued as nonprofits struggle to accomplish daily operations. A strong program needs a strong organization.
This need has long been pointed out by nonprofit-sector experts. According to Paul Brest, president of the William and Flora Hewlett Foundation (citing Foundation Center data, 1996-2003), in 2001 15.9 percent "of the grants budgets of the thousand largest foundations provided general operating support. Many observers of the nonprofit sector argue that this relatively small proportion of core support seriously diminishes the efficacy and vitality of the organizations and the sector as a whole."3 In 2009, 21.7 percent of the grants budgets of the thousand largest foundations provided general operating support.4 Despite this percentage increase, nonprofits remain vocal that still more general operating funding is needed.
Funders Prefer to Give Program Support
According to a report by the Center for Effective Philanthropy (CEP)5, CEOs of foundations "see the challenge of assessment to be more difficult in the case of operating support." The report goes on to say that "other reasons cited by those who refer to provide program support [over operating support] include board pressure, fit with foundation mission, lack of familiarity with grantees, and concerns about grantee dependence." In fact, nearly half of the CEOs surveyed prefer to provide program support, believing that "it is easier to connect their grants to specific outcomes."
Some CEOs surveyed in the CEP report supported general operating support, stating that assessment of results were not necessarily more difficult with such grants. One CEO stated that foundations could even "'claim credit' for an organization's total program with general support."6
Solutions
There seems to be a fundamental tension between nonprofits' need for unrestricted operating support and funders' desire to support specific programs whose outcomes are ostensibly more easily measured. One effective plan of action for nonprofits seeking operating support is to clearly demonstrate how they fit with the foundation's mission, to communicate effectively and become familiar with the funding agency, and to demonstrate sustainability and eliminate worries about grantee dependence.
Sources:
1. Nonprofit Finance Fund. "2011 State of the Sector Survey." Accessed October 3, 2011. [back]
2. Madrid, Denise. "Local Nonprofits Short of Donations." The Porterville Recorder. September 27, 2011. [back]
3. Brest, Paul. "Smart Money: General Operating Grants Can Be Strategic — for Nonprofits and Foundations." Stanford Social Innovation Review (Winter 2003). [back]
4. Foundation Finder. "Types of Support Awarded by Foundations, circa 2009." Accessed October 3, 2011). [back]
5,6. The Center for Effective Philanthropy. "In Search of Impact: Practices and Perceptions in Foundations' Provision of Program and Operating Grants to Nonprofits" (2006). Accessed October 3, 2011. [back]
