Beyond COVID-19: The Funding Trend to Keep
Updated: Mar 9, 2021
It's no secret that the pandemic has required everyone with a stake in the nonprofit sector to make adjustments. From the way nonprofits carry out services, to the way funds are raised, to the way impact is evaluated, circumstances have necessitated change in nearly every aspect of nonprofits' daily operations. While a return to normal will certainly be met with open arms, one funding trend has emerged that I'd like to see outlast COVID-19: the shift to providing more general operating support.
Prior to COVID-19, it was typical to see many corporations and foundations focus their giving on specific program, project, or capital needs. The idea was to ensure that every dollar invested was going towards program services for the population served and to avoid the possibility that too much funding would be diverted toward operating costs. It makes sense in theory; an investment that directly supports a nonprofit's mission is much more compelling than an investment that supports administrative and operational needs. The challenge for nonprofits, of course, became piecing together the right mix of funding and finding those rare funders who would support keeping the lights on, the doors open, and administration in order, all unglamorous but critical needs. As is the case in for-profit organizations; programs and projects simply cannot exist without a proper operational foundation.
Since the onset of COVID-19, more and more funders have recognized grantees' need for flexibility, agility, and ultimately, trust. Nonprofits simply weren't going to survive the pandemic without support to keep employees on the payroll and daily operations running, and it became clear that the programs and projects funders typically supported would cease to exist without operating dollars to keep nonprofits open. Thus began the shift towards general operating support, with funders either outright changing grants from restricted to unrestricted, or offering new opportunities to apply for unrestricted support.
It's possible this is a temporary shift based on the current conditions, but I hope this is something that will live beyond COVID-19. Here's why.
General operating allows nonprofits the ability to move funding where it is needed most. No one knows what the needs are better than the actual nonprofit, and in particular, those working in the field to deliver services. COVID-19 pushed many funders to test this theory, and the best nonprofits have kept in communication with their funders to articulate what is being done and how investments are being used. Inherent in this concept is a level of trust between funder and grantee that some funders have been hesitant to take, but that is critically important in allowing nonprofits to operate efficiently and maximize impact. But for those uncomfortable taking that leap...
Ample evidence is available for funders to ensure their investment is being used wisely. From audits to form 990's to balance sheets, from outputs and outcomes to strategic plans and testimonials, well-run nonprofits will offer an abundance of evidence that they are meeting a critical need and doing good work. A simple review of documentation and a conversation with nonprofit leadership can nearly always answer any lingering questions about the way investments are being spent and the percentage of expenditures going towards programs vs. administration.
Programs and projects cannot exist without operating support. As tempting as it is to insist that every single dollar brought into a nonprofit goes to support programming, it's simply not possible, and I would argue, it's irresponsible. Programming requires time, talent, and resources to administer, to report, to fundraise and to ensure effective execution. Those providing administrative support deserve to be compensated fairly for their efforts. Nonprofits should certainly be held to a high standard in terms of the percentage of expenditures diverted to administration vs. programming, but administrative costs are just as real and urgent as programming costs. One cannot exist without the other.
Ample operating support allows for innovation and growth that can ultimately lead to increased programmatic funding. If an organization is given the opportunity to invest in things like marketing, fundraising, and innovation, there is a real possibility the organization will find new ways to serve the intended population more effectively. With operational support, the size of the organization's overall revenue 'pie' can grow, thus increasing the total dollars allocated to services and programming. Lack of operating support stifles innovation and perpetuates a scarcity mindset within the nonprofit sector that is counterproductive to the ultimate goal of serving the greater good. By contrast, investment in operational support gives nonprofits a real chance of making a considerable dent in the complex systemic problems they aim to address.
Beyond these reasons, general operating support signifies a belief in a nonprofit's inherent value that is not only needed, but is also deeply appreciated. We could certainly all use more of that. Time will tell if the trend endures.
For more information on this topic, consider watching this TED talk, which makes the argument that the way we think about charity, and in particular, the desire to avoid overhead costs within nonprofits, is dead wrong.