The newly released William & Flora Hewlett Foundation’s annual report includes an essay about forms of philanthropic support from the foundation’s president Paul Brest. In the essay, Paul pushes back against groups such as Independent Sector, Grantmakers for Effective Organizations, and the Nonprofit Finance Fund, who have advocated strongly for funders to provide nonprofits with general operating support rather than offering them restricted grants that can only be used for certain programs. On this blog, I’ve frequently argued in favor of general operating support as the default grant type that funders should use.
For all of the value of general support, however, there are often good reasons to fund specific projects. Proponents of unrestricted support tend to be so single-mindedly focused on its benefits that they forget that it is not an end in itself but rather one of a number of tools of philanthropy, useful for some purposes but not others.
This essay is premised on the belief-or at least the hope-that if funders better understood the rationales for different forms of philanthropic support, they would behave in a more nuanced way. It argues that the appropriate form of funding depends mainly on the alignment of a funder’s goals and strategies with the grantee’s mission and activities. Alignment is a function of the breadth of a funder’s goals and is also affected by the substance of its goals and the time horizons in which it pursues them…
Alignment Between Funders and Grantees
There are two essentially different forms of philanthropic funding. When a foundation provides general support-also known as unrestricted or core support-its funds back the grantee’s entire mission. Alternatively, a foundation may support specific programs or projects carried out by the organization. Here is a simple example:
- A funder interested in promoting medical education and research in general might give general operating support to a free-standing research institute or medical school. (A grant to a medical school within a university would not constitute general support, because it would not provide unrestricted support for the institution as a whole-though most universities would be quite pleased to have an unrestricted grant to one of their major schools.)
- A funder interested in cancer research might provide project support to a cancer center within a medical school or a medical institute, or provide general support to an institution whose sole mission is cancer research.
- A funder interested in supporting research on a particular form of cancer might provide project support for the work of an identified researcher or her research group in one of these institutions.
General support is the most effective grantmaking tool when an organization’s mission is essentially identical with, or contained within, the funder’s goals in a field. Clearly, a funder interested in cancer research would greatly dilute its grant by providing general support to a university, which devotes only a tiny fraction of its work to this research. But the funder could achieve its goal through either a project grant or through general support to an institution exclusively devoted to such research.
You can read the full essay here.
Sean, do you know if anyone is advocating that funders interested in just one specific project provide an appropriate percentage of their gift to cover the administrative overhead for that work?
Yes, I think it is a pretty common idea that funders should pay the overhead when they make a project grant. I can’t tell you how often that actually happens.
DonorsChoose does exactly that. When you make a donation to a school project, you are asked to tack on an additional grant to cover DonorsChoose’s overhead. My understanding is that many donors make the extra donation.
The overhead / administration cost issues is an interesting facet of the GOS discussion. In many cases, the funders will provide funds under an internally established indirect rate policy. The challenge in some cases is reconcilling that rate (say 8%) with some grant recipients’ federally negotiated indirect rates that can dramatically exceed that level. In my own work that has included education institutions that had indirect rates in excess of 40%. In other examples, the lack of a consistent definition of what constitutes indirect / overhead / administrative expenses — rent, for instance — causes more confusion in negotiating the grant award.