General Oper. vs Project
/If you write a check to a nonprofit with no specific designation regarding what it should be used for, that is “general operating support,” also commonly referred to as unrestricted funds. If the nonprofit solicits for a specific purpose or the donor indicates a donation should be used for a specific purpose like a capital campaign or a named initiative, the dollars become, in accounting terms, “designated” funds, commonly referred to as “project support,” and often must be spent within a specific period of time. Once an organization accepts a donation earmarked for a specific purpose, it is legally obligated to use it for that purpose unless the donor acknowledges and accepts a change in the use.
Most donations nonprofits receive from individual donors come in the form of general operating support, which is highly prized because it allows the nonprofit the greatest amount of flexibility in allocating the funds and the least amount of individualized documentation to report on how it was spent. Unfortunately, the vast majority of grants from foundations, corporations and government come in the form of project support, which often requires the nonprofit to provide each funder extensive documentation about how the funds will be spent beforehand, additional reporting after the funds are spent, and often, a repeat of the entire process to receive additional support, regardless of whether the grant is for $5,000 or $5 million.
There is a growing movement in the philanthropic sector called “Trust-Based Philanthropy,” which encourages donors to give multi-year general operating support instead of project support, and to develop trusting relationships with grantees over the long term that rely less on extensive mandated reporting that consumes huge amounts of nonprofit time and resources, to focus more on meaningful learning opportunities from both giver and receiver.
Why Donors Provide GOS or Project Funding
Some donors believe that nonprofits, generally, have considerable waste and bloat in their administration, and that if they designate their donation only for the part of the operations they care deeply about, they are doing a good job of holding the the nonprofit accountable and lean by not supporting unnecessary or inflated “indirect” or “operating” expenses.
Other donors designating their support have specific topical interests, and perhaps because the nonprofit operates a wide variety of programs, they designate their funds to a specific program to fulfill their own programmatic mandates. For example, a funder dedicated to neurological research might want to designate their donation for a specific center for the study of Alzheimer’s disease at a major university instead of giving a donation directly to the university. Similarly, a donor concerned about homelessness might want to give to a specific supportive housing operation instead of the entire general-purpose social service agency operating it.
Nonprofits need to pay for all of their programs and all of their operating costs somehow, and general operating support provides the most flexibility. Some operating costs are tied to specific programs, and some relate to all of their programs or don’t exactly tie to one specific program. An example might be the salary of the staff member who tracks all donations to the organization and sends out donor thank-you letters.
It is common for program grants to cover a small portion of operating expenses (“indirect costs”) that relate to the funded program, or even a percentage of the nonprofit’s general operating expenses, so there are ways nonprofits can account for some operational funding within program budgets.
Some funders like program or project support because it lets them see exactly where their money is going and to track results. It can be easier to measure your specific impact when you are funding a specific project. And if you are the lead or only funder of a given program, you can clearly take pride in a successful outcome — and possibly attribute the program’s outcomes to your own support.
Some funders give program or project support to “try out” a grantee that is new to them. They commit to one project for a limited period of time and see how it goes. Did the nonprofit do what they said they would do? Did the gift have the impact the funder expected? Giving program support can be one way to start building trust and a closer relationship with a nonprofit that is new to you.
Pros and Cons
A donor may start with the perspective that it’s their money and if they want to give for a specific purpose, designating funding is a legitimate way to ensure their charity is used properly. But a more holistic approach considers not just the donor’s desire to ensure accountability, but also takes into account the effects of large numbers of donors insisting on the same level of influence on the ability of the nonprofit to advance its mission.
Project support increases staff time on fundraising and reporting. Think about it: If every funder only supported the things that most interested them, there might be a whole lot of funding for one popular program and no funds available for the boring but essential things like utilities bills. Even if every program grant included a percentage to cover the nonprofit’s overhead, that’s not an easy way for nonprofits to do their good work. The more donor specifications there are, the more nonprofit staff must document how it uses every restricted dollar exactly as agreed, often spending a lot of time and energy creating detailed expense reports for each restricted grant.
Project support prioritizes the “feel good” over the necessary. Some programs may be more exciting to donors than others, putting a burden on the nonprofit to raise funds for programs that may be effective and important, but for whatever reason, are simply not donor darlings. This can result in a situation in which nonprofits tailor programming to donors’ preferences rather than to the needs of the communities they serve.
Project funding forces programs to compete for funder attention. Say a funder makes a grant to support a particular program for a year with the possibility of a renewal grant. If they don’t renew their funding — and the nonprofit doesn’t find other funders to support that program — what happens to the staff members whose salaries were funded by that program grant? To the community members who came to rely on that program? Funders who do their due diligence will try to make sure a program is sustainable beyond the scope or duration of their own commitment, but there’s nothing like general operating support to allow nonprofit leaders — who know their communities better than most donors — plan for the long term and keep all their programs going as long as they are needed.
GOS is good, multi-year GOS is better. Multi-year general operating support is especially helpful for nonprofits to plan and have consistency in their operations. Without multi-year commitments, it is hard for nonprofits to plan beyond a year, and they’re forced to spend more time on the hamster wheel of constant fundraising. Multiyear general operating support is considered a best practice in philanthropy today. It allows organizations that are doing good work to go ahead and do that work, knowing they have funding they can count on over a period of years and can spend as needed. It also helps nonprofits make the case to other funders that the programs it is conducting will continue operating and making progress over longer periods of time, allowing them to better document their impact. Multi-year general operating support gives nonprofits both stability and flexibility.
Nonprofits say general support is a sign of trust. Giving multi-year general operating support is a way to build trust with the organization to which you’re giving and to fund their good work holistically and sustainably. Nonprofits treasure GOS donations because so many government and foundation grants come with considerable strings attached that must be documented and which limit the organization’s flexibility and community responsiveness.
Taking Action
Increasingly, funders say they understand the value of giving operational support, but too few are actually doing it. In a 2020 report titled “New Attitudes, Old Practices: The Provision of Multiyear General Operating Support,” the Center for Effective Philanthropy reported that in the 10 years leading up to the COVID-19 pandemic, only 12.4% of grants from the institutional funders it studied were both multi-year and general operating support.
Here are some suggestions for ways of thinking about when to give for general operating support and when for project support:
Let the default be general operating support. It is a philanthropic best practice and allows the nonprofit to direct the funds where they are needed.
If you’re giving to a nonprofit with which you have a direct relationship, talk to them about what they need.
To find vetted organizations you can trust to make the best use of general operating support, check out the organizations highlighted on Inside Philanthropy’s Grant Giver issue pages as well as organizations that community foundations, philanthropy-serving organizations and intermediaries in your area of interest have already researched and built relationships with.
Check out IP’s explainer “Key Debate: Multi-year General Operating Support vs. Project Support”
Check out our How Donors Decide article on “Capacity Building”
