In an ongoing salvo in the decades-long debate surrounding program and general operating support, a 2007 report from the National Committee for Responsive Philanthropy charges:
The grantmaking practices of a significant part of the foundation sector may be crippling small community-based and other nonprofit organizations because of one significant factor—the unwillingness of most foundations to provide general operating support to most nonprofit grant applicants.
General operating support refers to grant dollars directed to an organization’s operations as a whole rather than a particular project or initiative, known as program support. The case for general operating support is simple: nonprofits will need general purpose funds as long as there are costs not necessarily associated with any specific initiative.
General operating support grants are favored by grantmakers who wish to help organizations doing good work achieve financial stability, allowing grantseekers to concentrate on the daily business of their organization. At the same time, though, institutional philanthropy has long and overwhelmingly favored program support that allows philanthropies to track the use of funds and achieve specific goals that capture their interest. Seeing how limited their resources are, most grantmakers don’t want nonprofits to come to rely on them for the funding of day-to-day operations.
Philanthropic families, whether they favor program support or general purpose grants, routinely travel in the inspirational, if sometimes murky, space between private values and public virtues. Giving families are thus uniquely positioned to provide example and leadership in this eternal debate, which centers on whether and how nonprofit need and philanthropic favor can be effectively and accountably reconciled. The month’s Family Giving News offers a review of the program vs. general support controversy as well as suggestions for navigating these often contentious waters.
The Program vs. General Operating Support Debate
While the difference between program and general operating support is very real (just ask any nonprofit executive concerned about paying the electric bill and staff salaries even as a successful program is fully funded), there is an important sense in which the decision is a false choice.
Clearly, program grants and general purpose grants are not the only tools in the philanthropic toolbox. A Council on Foundations Board Briefing on the subject lists five different types of support, adding endowments, seed money, and capacity building to program and general operating support. The Foundation Center’s Foundation Directory lists forty-three different types of support available to nonprofits from the nation’s grantmakers. As grantmaking becomes more sophisticated and creative, as more and more foundations are exploring options like mission-related investing, grantmakers can do more—program-related investments, designated funds at community foundations, endowment gifts, awards, challenge grants, and matching gifts. Nonprofits are making shrewd real estate investments and developing earned income strategies. It’s simply not a question of program or general operations support if it ever was. This isn’t to say that the tension doesn’t exist. It’s merely to point out that framing the debate in terms of either program or general support grants can obscure the advantages and shortcomings of each of the approaches.
General purpose grants are highly desirable to nonprofits, but as the Center for Effective Philanthropy has found, it’s not general support per se that matters as much as the conditions under which such support is given: the amount of the grant, the length of the grant period, and the quality of grantor-grantee interactions. According to In Search of Impact: Practices and Perceptions in Foundations’ Provision of Program and Operating Grants to Nonprofits published in December of last year, “type of support is important – and operating support is preferred – but only when grants are larger and longer term than what is typically provided today, even by the country’s larger foundations.” The researchers discovered, “Even when we ask grantees to suggest improvement to their funders, only three percent of all grantee suggestions are about the type of support.” Grantees in the survey were as likely to recommend larger or multi-year grants as they were to recommend operating support. The report concluded, “Most grants are simply too small and short term for it to matter much to grantees whether they are for program or operating support…In other words, it is not operating support alone that generates higher ratings of impact on the grantee organization, but rather operating support of sufficient size and duration.”
Meanwhile, program support certainly has its advantages. It’s an excellent way to provide start-up capital for a new initiative and programs have proved easier to evaluate than organizations. However, general operating support can also capture these advantages through something Paul Brest, President of the William and Flora Hewlett Foundation, has called “negotiated general operating support.” In his article “Smart Money” for Stanford Social Innovation Review, Brest contends:
[N]egotiated general operating support is based on an agreed-upon strategic plan with outcome objectives. Here, the funder engages in a due diligence process, which culminates in an agreement about what outcomes the organization plans to achieve, how it plans to achieve them, and how progress will be assessed and reported. With these understandings in place, the funder’s support goes to the organization’s operations as a whole rather than to particular projects, and the organization has considerable autonomy in implementing the plan.
In essence, negotiated general operating support looks to combine the focus, strategy, and accountability of the best of program grants with stability, autonomy, and flexibility conferred by the best operating support grants.
NCFP President Ginny Esposito suggests that “the question is not whether to provide general support or project funding, but how to ensure the [grantor-grantee] relationship stays fresh and effective and that communications and accountability are appropriate.” What type of support a grantor offers is not a function of whether or not program grants or operations grants are intrinsically better but a function of, in Brest’s words, “how best to accommodate the legitimate interests of funders and nonprofits, achieve the funder’s philanthropic objectives and the grantee’s mission, and maintain a vibrant nonprofit sector.”
Choices for Giving Families
Giving families are known for their generosity both as general operating funders and program funders. In the very critical National Committee for Responsive Philanthropy report mentioned earlier, family foundations were among those praised for their efforts, foundations like the Sobrato Family Foundation and the F. B. Heron Foundation. An urban homeless services provider contended, “Family foundations through relationships are (the best providers of general support). That’s what pays the bills. They trust our organization to do the best thing with the money.” An urban advocacy-oriented group reported, “Family foundations seem to be the most supportive. We have received repeated general support grants from them. It’s our track record that speaks to them. They see that and want it to continue.”
Former NCFP Vice President Dianna Smiley notes that family foundations aren’t the only prominent donors of general operating support. Smiley affirms, “Fund advisors to donor-advised funds frequently recommend grants for general operating support, in part due to the relative small size of these grants and often due to the long-term, supportive relationship between the fund advisor and the non-profit. Although exact figures are not available, the explosion of donor advised funds in community foundations over the last ten years means that community foundations as funders are making general operating grants as an increasing percentage of their total grants.”
Given family philanthropists’ ability to respond to community needs as philanthropists and to donor interests as family members or close friend or colleague, family philanthropies are well-suited to the task of crafting meaningful, effective, and accountable grants.
As your philanthropy reflects on what kind of support it will to give to grantees, consider the following suggestions:
- Consider a presumption in favor of general operating support. Several groups have suggested that funders should give general operating support unless there is a compelling reason to fund a specific program. For example, a foundation or donor-advised fund might be limited to funding only certain types of programs, provoking a choice between funding a program or not funding at all. Perhaps, your fund has become aware of an exciting new initiative that needs seed capital, funds that a local nonprofit can point to as allocated specifically for this new purpose to other funders. Maybe the foundation is experimenting in a new program area and wishes to make a few, small, closely observed grants before funding more broadly. Any of these might be good reasons to fund programs. However, as the need is great and program funding can impose certain indirect costs not covered by the program funds, consider a presumption in favor of general support that forces your fund to articulate its goals and expectations behind the grant.
- Remember the concept of negotiated general operating support. Note that there are some cases where negotiated general operating support can fulfill the goals of program funding while still being flexible. Discuss with your grantee what they hope to accomplish with grant funds and what you hope to achieve by providing them. Agree on a set of benchmarks, and make a general operations grant with the expectation of progress toward those benchmarks. At the end of the grant period, assess what progress has been made.
- Communicate. The above certainly cannot be done without clearly communicating your goals and expectations and listening to grantees. As the Center for Effective Philanthropy discovered, the quality of grantmaking interactions often matters more than the type of support provided. What do your grantees need? What problems do they face? What kinds of support would be most helpful? What kinds of support could you provide? Consider asking these questions directly in private conversation or through surveys.
- Be willing to pay your way. When you do give program grants, keep in mind the indirect costs of the program being funded, e.g., staff salaries, travel, rent, and utilities. Every initiative has costs not necessarily covered by the funding provided for it. Grantmakers looking to make effective, accountable grants want their dollars going directly to the program itself rather than overhead. Programs, however, aren’t carried out in a vacuum. As Brest maintains, this approach “free-rides” on others’ general operating support, saying “project support should presumptively include the organization’s indirect costs. A funder should get a realistic sense of an organization’s financial situation, and should stand ready to pay its full way.” Keep in mind also any costs imposed by the application process and reporting. As an exercise, think about how much it would cost (all the costs—direct and indirect from the initial proposal to final report) to obtain a grant of a certain amount from your fund. Is it greater or less than the amount received? What’s left for the actual program? Is it enough to accomplish the goals of the grant? Consider expanding the grant amount and the grant period to reduce the cost per grant dollar.
- Remember the Golden Rule. Too often, nonprofits feel they must obscure the actual indirect costs of a program to avoid raising funders’ ire at having to pay too much in overhead. After all, whoever has the gold makes the rules, and nonprofits would rather accept funds with strings than see no funds at all. Giving families so attuned to the dynamics between parent and child, between siblings, relatives, and generations, should pay serious attention to the dynamic between donor and donee and approach it with much of the same care. A 2004 report Attitudes and Practices Concerning Effective Philanthropy from the Urban Institute found that “substantial numbers of foundations are not engaging in practices that, according to their own standards, are important to effectiveness.” Treat your grantees and look at their finances in the same way that you approach your own fund and finances, and much of the contentiousness that characterizes this debate could be alleviated.
Program grants will always be an option. Unless donors can fund and engage in activities and programs in some way meaningful to them, unless they are reasonably assured that their donations are spent in the spirit in which they were given, they will not be encouraged to continue giving. General operating grants are simply the life’s blood of the nonprofit world as long as there are costs not associated with any particular initiative. Thus, there are significant choices to be made about how to support nonprofits and the communities they represent.
Like any significant choice faced by giving families, it should be a choice made in tune with the family’s desire to make a difference and the needs of nonprofits and the communities they serve and represent. This may sometimes mean a general operations grant made to an organization you trust. This might mean a carefully proscribed program grant in other instances. Consider, however, the creativity and dynamism of your giving family and remember that it need not be one or the other to make a real difference in the lives of others.