Nearly Half of Large Foundations Shun Unrestricted Grants, Study Finds

By Ian Wilhelm

Despite a growing call for foundations to pay for charities’ operating costs, most grant makers prefer to support specific charitable programs, says a new report.

Forty-nine percent of foundation leaders said they are more inclined to make grants solely to support programs, while 16 percent prefer not to restrict their contributions, allowing charities to allocate funds to overhead expenses, says the report, which surveyed 79 chief executives who run some of the wealthiest foundations in the country. The remaining respondents had no preference.

Of the total 163 foundations the report examines, the majority provide less than 20 percent of their grant recipients with operating support.

The report, from the Center for Effective Philanthropy, a research group in Cambridge, Mass., explores the diverging opinions on operating support between foundations and their beneficiaries.

In the last few years charities, a few grant makers, and foundation watchdogs, such as the National Committee for Responsive Philanthropy, have encouraged philanthropies to give more money in operating support. They argue such grants help the beneficiaries by allowing them to pay for salaries, equipment, and their day-to-day services.

Indeed, the report shows that many foundation officials acknowledge that operating grants have a greater “impact” on organizations.

But in a sense foundation executives are caught in a Catch-22, says Judy Huang, the center’s associate director and co-author of the report.

While they face demands to pay for grantees’ overhead expenses, she says, they feel a greater pressure from their trustees and others to measure the effectiveness of their grant making, which they argue is difficult to do with unrestricted giving.

“CEO’s are kind of pressed between both,” she says. “Even when foundation leaders are saying, Hey, we understand why grantees want operating support or we understand why conceptually we might want to give operating support, people were saying that, We are actually pressured to produce outcomes, to be accountable for the money we give out.”

Ms. Huang adds that more operating support is not a “silver bullet” for grant recipients.

After conducting surveys of almost 15,000 organizations that received grants from the 163 foundations, the center says that while operating support is valuable, it needs to be given in bigger dollar amounts and over longer periods of time to be truly helpful.

‘Debate Too Narrow’

The report says that the median operating-support grant was $50,000, meaning half were equal to or higher than the amount and half were of a smaller amount. In addition almost half of the grants provided by the foundations surveyed were a year in duration.

“What the report suggests is that the current debate has been too narrow,” says Ms. Huang. “It’s focused simply on types of support when our research shows that foundations ought to also think about the size of grants and duration of grants when they’re seeking to make these grants that are most impactful to nonprofits.”

The 30-page report, “In Search of Impact: Practices and Perceptions in Foundations’ Provision of Program and Operating Grants to Nonprofits,” is available free on the Center for Effective Philanthropy’s Web site.