In the spring of 2020, funders pledged to loosen the reins and ramp up unrestricted support to beleaguered nonprofits. Funding leaders also presumably took notice when, in the aftermath of George Floyd’s murder, organizations serving communities of color reminded them that unrestricted support was the best way to advance racial equity.
As the spring turned into summer, the way forward was obvious. Funders owed it to their grantees — and, for that matter, society — to lean into unrestricted support in a big way.
It was a moment of clarity, but one that had been in the making for decades. As long as we can recall, if you were to ask just about any organizer, nonprofit ED, working artist, you name it, the top request for funders would be more general operating support. Just let them do their work. And we have seen some progress since 2020, with certain longstanding funders loosening their grip and big new players embracing gen-op.
As time went on, however, it became clear the tactic wasn’t catching fire in the way many of us had hoped. A report from the Center for Disaster Recovery and Candid found that the percentage of funding earmarked as unrestricted by public charities and independent foundations in 2021 was an underwhelming 23% and 11%, respectively. For those curious about the biggest private funder of them all, of the $5 billion the Gates Foundation awarded in multi-year grants in 2021, only $150 million of the total — or 3% — was earmarked for general operating support.
I know numbers in this sector can be tough to pin down, and I am marginally sympathetic to the whole “change takes time in philanthropy” defense, but those numbers should be higher. Nonprofits know it. Funders know it. We all know it.
So why is general support still the exception instead of the rule?
It’s critically important to revisit this question as we enter the new year. Nonprofit leaders are concerned that the field is inching back to the pre-2020 status quo, backtracking on what progress has been made. Meanwhile, a looming recession will likely force donors to dial back giving, further highlighting how unrestricted funds can help nonprofits roll with the punches. Meanwhile, the benefits of unrestricted support are becoming harder to ignore, with a recent Center for Effective Philanthropy (CEP) showing how MacKenzie Scott’s grantmaking dramatically transformed recipient organizations.
The reasons for funders’ resistance that I’ve assembled here won’t surprise readers attuned to the machinations of modern-day institutional philanthropy. But as the evidence into the impact of unrestricted funding continues to accumulate, the reasons are looking a lot more like excuses.
Reason #1: They want to fund impact, not overhead
Before the pandemic, CEP surveyed 168 foundation CEOs and 105 program officers of private and community foundations giving at least $5 million annually to determine why some leaders were skittish about providing unrestricted support, even though most of them believed it was an effective grantmaking tool.
“The explanation for why it’s not being done more widely seems to be that it doesn’t fit with the foundation’s approach, simply hasn’t been prioritized, or, for a subset of community foundations, isn’t seen as possible given constraints,” the authors concluded, not without some palpable exasperation.
For many leaders, their foundation’s “approach” doesn’t entail paying for nonprofit staff salaries, utilities, or the holiday Christmas party. They exist to address seemingly intractable problems and they have a roster of highly educated and well-paid program officers to bring this work to fruition.
It’s a longstanding defense. But setting aside the fact that programs are carried out by people who need to work in an office, pay their bills, feed their children, etc., this logic papers over the many ways that nonprofits advance a foundation’s mission. The CEP Zoom call walking through its report on Scott’s grantmaking featured Kyra Kyles, chief executive officer of YR Media, who said her organization used the funding to implement a 26% wage equity increase. “That was really important to us, because a lot of times we hear, ‘We don’t want to spend the money on overhead, that’s not what we do,’” she said.
Carrying out targeted, time-restricted projects is simply not the only way — it’s not even the main way — that nonprofits change the world. In the case of YR Media, paying its staff more can incentivize valuable personnel to stay on board or attract other highly qualified candidates, thereby enabling it to effectively advance its mission of amplifying the voices of communities of color. What equity-minded media funder could argue with that kind of impact?
Reason #2: A devotion to strategic philanthropy
Foundations’ project-based approach is in part an outgrowth of the “strategic philanthropy” mindset that has dominated the field for decades. Trustees act like CEOs and set priorities, devise and award project grants aligned to those priorities, and implement metrics to quantify impact. The fear is that providing unrestricted support could detach funding from the foundation’s priorities and weaken accountability to its goals.
Yet philanthropy experts I’ve spoken with point to growing unease about how strategic philanthropy hasn’t moved the needle on highly complex problems that can’t be neatly tracked in a spreadsheet. Strategic philanthropy also exacerbates funders’ inherent risk aversion by stipulating that every dollar must be allocated for maximal impact. Tread carefully and pore over every decimal, the thinking goes, or you’ll flush all that money down the drain. And yet, most nonprofit leaders will tell you that a metrics-laden project grant, overloaded with administrative requirements and limitations, can be more inefficient than using unrestricted support to pay the heating bill.
To be fair, nonprofit leaders have free will. They can pass on applying for a misaligned project grant, but these decisions don’t exist in a strategic vacuum. Leaders begrudgingly jump through funders’ hoops because they believe the grant could lead to follow-on support, satisfy their board, or help their organization attain the cachet that comes with getting the stamp of approval from a major funder. Often they’ll distort their mission to fit the grant’s requirements or shoehorn a grant into their budget to cover basic organizational expenses.
These outcomes are hardly in service of strategic philanthropy’s goals, and they speak to a stark power imbalance that many foundation leaders have vowed to recalibrate post-2020. Unrestricted support allows them to do just that, and leaders with one foot still in the strategic philanthropy world can draw comfort knowing that there are ways to implement metrics that will assess the impact of an unrestricted grant — so long as funders are willing to think flexibly and creatively.
Reason #3: Lack of trust
You knew this one was coming.
Program managers and trustees act as stewards of the foundation’s assets, tasked with ensuring that funding isn’t used to rent out the Museum of Modern Art for an organization’s fundraising gala or pay for a staff member to attend a conference in Milan. Restrictions keep everyone honest, and ensure that donated funds are being used for their intended purpose.
Trust-based philanthropy advocates don’t find the argument all that convincing. Remember, program officers have extensive relationships with nonprofit leaders, some dating back decades. The trust is often already there, and if it isn’t, it can be cultivated. Funders can tie unrestricted support to metrics and mission in ways that are not onerous. (I never thought I’d name-drop Ronald Reagan, but his classic “trust but verify” adage applies here.)
Is there a risk that the unrestricted support will not generate the desired outcomes? Of course. But that same idea holds true for project-based funding. As John Rendel, director of grants for the UK’s Peter Cundill Foundation observed, “If you don’t trust the organization you’re funding, why trust a project they’re running?”
Nor should we forget that at the end of the day, we’re dealing with people who typically have high standards for their own work, and are determined to keep it going. Nonprofit leaders have been clamoring for unrestricted funding for years. When they finally receive it, nothing suggests they won’t do everything possible to ensure that the funders’ leap of faith wasn’t in vain. As the CEP’s report on Scott’s giving noted, many of her recipients placed “self-imposed pressure” on themselves to ensure that they spent her multi-year unrestricted funding as effectively as possible. This is the kind of “soft” impact that strategic philanthropy tends to gloss over when determining how funding decisions can influence outcomes.
Reason #4: Self-preservation
Nonprofit leaders aren’t the only ones concerned with self-preservation. Put yourself in the shoes of a program director or trustee who signs off on doubling the amount of unrestricted support the foundation allocates. Are you tacitly calling into question a career’s worth of accumulated strategic acumen?
Last December, I spoke with First Nations Development Institute President and CEO Michael Roberts, and when the conversation inevitably turned to Scott, he said, “It’s been interesting to watch philanthropy criticize her way of giving, because I think it threatens their way of doing business.” Philanthropy, Roberts told me, “has built an industry, and to have her make life-changing grants to organizations in her own unique way threatens the narrative that philanthropy knows what it’s doing.” No one wants to admit, however implicitly, that they don’t know what they’re doing.
Similarly, there’s concern that unrestricted support will transform program officers’ job descriptions. “What are funders here for if they aren’t here to make decisions about funding or strategy?” says Hannah Patterson, who oversees a participatory grantmaking practice on behalf of the U.K.’s National Lottery Community Fund. “Is our role null and void? This self-preservation is an obvious and fair enough reaction — we want to cling on to our jobs.”
Patterson was addressing concerns that participatory grantmaking would turn program managers into glorified check-writers, but the sentiment also applies to the issue of unrestricted support. Rather than write and review requests for proposals and evaluate a recipient’s performance, program managers may find themselves glumly dishing out unrestricted funding without tapping into their deep subject-matter or project-based grantmaking expertise.
But we know that foundations that embrace unrestricted support won’t innovate themselves out of existence. In practice, reducing restrictions makes the job of grantmaking less about obsessing over dollars and cents and quarterly deliverables, and more about collaboration, support, and big-picture thinking. In 2015, the Ford Foundation classified 36% of its grants as “general/core support.” By April 2018, it was up to 88%, with the foundation’s 50-or-so program officers spending a majority of their time serving as partners and advisors to grantees, instead of looming over their shoulders with a figurative clipboard.
It should be noted that Ford has emerged as institutional philanthropy’s biggest cheerleader for unrestricted funding. Beyond walking the walk, it bankrolled the CEP’s look into why foundations are reluctant to award unrestricted support, as well as its December 2022 report on the impact of Scott’s giving.
The Conrad H. Hilton Foundation, Barr Foundation, Houston Endowment, Raikes Foundation, Rita Allen Foundation and the Skoll Foundation also funded the latter deliverable, and therein lies a faint cause for optimism, as it suggests that a set of major grantmakers were interested in seeing if Scott’s unrestricted multi-year approach delivered quantifiable results. I was particularly struck by the Rita Allen Foundation’s involvement since it typically does not provide general operating support except in limited cases for smaller start-up organizations. It will be interesting to see if that changes.
The bottom line here is that years of pleading from nonprofit staff, a global pandemic and once-in-generation racial justice awakening didn’t meaningfully change funding leaders’ minds about the utility of unrestricted support. But who knows? Maybe a growing body of data and some good old-fashioned collegial peer pressure will do the trick.