The term “nonprofit starvation cycle” describes the experience of many nonprofit organizations that struggle financially because most of their funding comes from project grants with strict limits on paying for indirect costs (or overhead). The cycle has plagued the sector for decades. It is a challenge entrenched enough to require more than one solution.
Many intelligent people have made strong arguments for decades about why funders should provide more multiyear general operating support (MYGOS) versus restricted project support. Regular CEP readers know that their work in recent months makes the case that MYGOS provides the greatest flexibility for nonprofits to meet their respective missions in an ever-changing world.
It vexes many in the philanthropic sector — including my friends here at CEP — as to why funders haven’t moved toward providing more MYGOS funding. CEP’s recent study identified no significant common barriers to foundations’ provision of this type of support.
In respectful response, I will offer this: Institutional funders do not have to defend or explain why multiyear general operating support is not their primary form of funding.
That may be heresy, but I think it needs to be said. Let me say more.
Many funders do not, and may never, see their role as supporting entire nonprofit organizations. They will continue to believe that they will best achieve impact by funding specific projects, programs, or activities. But here’s the disconnect, one which I am hardly the first person to point out: It is simply not possible for any enterprise to create, deliver, and refine goods and services that meet needs without spending on functions such as planning, leadership development, finance, human resources, IT, facilities, equipment, and even fundraising and marketing. These infrastructure necessities require dollars to support them. They are critical for nonprofits to deliver successfully on anything funded by project grants.
The question I pose to funders who limit the spending of their dollars on overhead is this: How can you expect to fulfill your own missions when your grants weaken the organizations they are meant to support?
I believe that, when structured differently, project grants can offer at least one additional path to addressing the nonprofit starvation cycle. With some meaningful changes from the current norm, project grantmaking can be consistent with supporting nonprofit financial health. Indeed, project grants do not have to be the four-letter word of philanthropy.
Read the full article about project grants by Rodney Christopher at The Center for Effective Philanthropy.