Far too many donors and funders still use a short-term, go-it-alone, and program-specific approach to grantmaking. The good news is that changing grantmaking practices doesn’t require changing laws or government regulations. They won’t require statewide referendums. No law requires funders to limit overhead rates. No tax penalizes funders for providing general operating support. According to Is Grantmaking Getting Smarter? A National Study of Philanthropic Practice from the Grantmakers for Effective Organizations (GEO), only one-quarter of foundations have a written policy regarding support for indirect costs. This means that most grantmakers may have discretion when it comes to covering the true costs of a project.
However, this lack of a written policy also means that decisions about what is “indirect” and how much to fund are left to individual program officers without the necessary capacity, skills, or training to evaluate the full cost of program delivery. In fact, according to the GEO study, almost two-thirds of grantmakers reported that they make decisions about allowable overhead costs on a case-by-case basis. This inconsistent and confusing approach is not a path to sustainability or impact.
What it will take is for both grantmakers and grantees to change how they think. We need a mindset that focuses on long-term financial health and impact because the issues we are tackling will not be solved in the span of a one-year grant. We need to build a culture of sustainability because we will not achieve real impact by starving organizations, underpaying staff, overworking staff, and ignoring our infrastructure needs. Changing our beliefs and our culture is not easy; it will take time. But we can start with some simple steps to get us moving in the right direction:
Talk to Your Grantees
Engage in honest conversations about what it takes for them to create impact. Understand both their programmatic needs and business needs. Ask how you can best support them to drive social change.
Provide Flexible Full Cost Funding
Once you have identified the right nonprofit for the job, let them decide the best way to use your funding to achieve the end goal. Unrestricted does not mean unaccountable.
Right-size Your Expectations
If you are not in a position to provide unrestricted funding, then recognize what your grant is really paying for and right-size what outcomes you expect. You can’t expect $100K of outcomes for a $50K grant.
Build Cultures of Sustainability with Grantees
Encourage practices that support long-term financial sustainability, such as budgeting full-costs, maintaining proper liquidity, building reserves, and investing in staff and infrastructure.
A short-term, one-year grant is a very expensive and inefficient way to distribute resources. It doesn’t allow the nonprofit the time to plan for the long-term or implement real change. Long-term problems require a sustained effort to achieve success.