In January, my colleague Mike Scutari reported concern among nonprofit leaders that unrestricted grant support may be inching its way back to the pre-pandemic status quo — in other words, backwards. As it turns out, the Technology Association of Grantmakers has uncovered numbers that support those worries. According to TAG’s “2022 State of Philanthropy Tech” report, just 34% of all responding grantmakers continued to remove funding restrictions in 2022, down from a high of 41% in 2020.
Two types of funders are comparatively positive exceptions. Fifty percent of mid-sized private foundations, holding assets from $500 million to $1 billion, and 46% of all family foundations, continued to eliminate funding restrictions in 2022.
Of the foundations at the largest end of the spectrum, with $1 billion or more in assets, roughly 32% reported that they continued to remove restrictions in 2022. That’s perhaps not surprising, considering large foundations tend to be more staffed up and set in their ways. Funders with assets up to to $500 million varied, but interestingly, all of those funders were also less likely to have removed funding restrictions than the mid-sized foundations.
The report’s results are pretty disappointing, given that many nonprofits are still dealing with the fallout from the pandemic that prompted the relaxed restrictions in the first place. But also, many of us had hoped that COVID-19 would be a come-to-Jesus moment resulting in the kind of flexible funding that nonprofits have been calling on for decades.
TAG’s numbers describe how foundations responded specifically to the crises of 2020, but there’s plenty of data demonstrating how hard it was to come by flexible support in the years before. A 2020 Center for Effective Philanthropy report found that in the decade prior, just 21% of all grants were general operating support, and only 12.4% were multiyear, general operating grants.
It seems likely that in future years, flexible funding will have indeed seen a decent bump from where it was before 2020, and the fact that around half of family foundations and mid-sized foundations were still dropping restrictions in 2022 is encouraging. But bottom-line, the TAG report suggests some set of funders viewed withdrawing restrictions as a temporary move.
All of which prompts the question: Given the ways that funding restrictions have contributed to the nonprofit starvation cycle, including the current employment crisis in the sector, is it even worthwhile for most nonprofits to apply for grants from the majority of grantmakers? Frustrating power imbalances aside, the obvious answer for most executive directors and fundraisers hustling to cover their budgets will be “yes.” But as Celia Wexler reported last year for IP, restrictive grants can distort nonprofits’ missions and even hobble their work.
Meanwhile, MacKenzie Scott has demonstrated that a large funder can easily cut no-strings-attached checks without ending the world as we know it. Even large foundations like Ford have made big strides in moving away from short-term project grants. Most funders of any size style themselves as being in partnership with the nonprofits they support. Foundations that continue to practice restrictive grantmaking, though, risk seeming more interested in protecting their own power than in the work they claim to champion. In the post-2020 era, you have to wonder if nonprofits are getting fed up with philanthropy.
TAG Executive Director Chantal Forster didn’t go that far, but did note that they may be trying to hedge their bets these days. “I think most nonprofits in my circle are seeking a more balanced portfolio of revenue, whether that is earned revenue, maybe through services that they offer to the community, whether that is new forms of membership that they might offer. And then of course, grants and donations for specific program areas. But every nonprofit I know is seeking a more balanced portfolio.”
Forster also offered a thought that, while specifically referring to tech expenditures, could easily be extrapolated to cover grantmakers’ practices as a whole. “One of the things I think about as the executive director of TAG is whether we as grantmakers are offering the same level of support for operations, including for our nonprofits, as we offer ourselves.”
As she pointed out, the State of Philanthropy Tech survey found that the largest foundations spend an average of 7% of their overall operating budget on technology, including staff to service the technology. Some funders, she said, spend up to 20% of their internal budgets on tech.
“Most nonprofits spend far less than this,” Forster said. “So are we as funders privileging our own operations? Are we providing that same level of support for the healthy and sustainable operation of nonprofits?”
Forster’s is a good question. It also leads to another: U.S. funders operate with relatively few restrictions outside of a minimum payout requirement and some limitations on what they can fund depending on their IRS nonprofit designation. The social contract for funders rests on the assumption that they’ll do the right things with the wealth they’ve been allowed to accumulate.
Why, then, do such funders, which so obviously benefit from the trust and goodwill bestowed on them by law, hesitate to extend that same level of flexibility to nonprofits that are actually doing the work?