The Sobrato Family Foundation, an early champion of grants to support nonprofits’ operating costs, recently shared its takeaways from 10 years of that type of grantmaking. Though such grants are becoming more popular, they account for a small share of total philanthropy. Operating support grants are valuable to nonprofits because unlike grants for specific programs, the funds can go to anything in the organization, including administrative salaries and rent.
There's wide agreement that nonprofits need this kind of core, unrestricted support. A Bridgespan survey last year of 300 grantees of top U.S. foundations—groups that are better off than many nonprofits—revealed that "more than half suffer from frequent or chronic budget deficits; 40 percent have fewer than three months of operating reserves; and 10 percent showed no reserves—making that group technically insolvent." That's a pretty grim picture, and suggests that the way foundations support nonprofits is deeply flawed.
General operating grants can help stabilize nonprofits, but most foundations prefer to provide program-specific funding instead. About a fifth to a quarter of philanthropic giving comes in the form of unrestricted funding that nonprofits can put toward day-to-day operations, according to the National Center for Family Philanthropy. There are signs that this type of giving is becoming more common, though. In 2015, the Ford Foundation pledged 40 percent of its grantmaking budget to general operating support. We've also seen other funders move in this direction, like the Chicago Community Trust. Quite a few of the major new funders we track, like the Ballmer Group, favor general support grants.
Philanthropists from business often intuitively grasp the value of unrestricted funding because that's how investments flow in their world; no venture capital firm, for example, would invest in a startup with the stipulation that their funding could only bankroll the engineering team. Recently, we wrote that the Cummings Foundation—piloted by the Boston real estate mogul Bill Cummings—has long given general support grants and has now gone a step further by promising to support some nonprofits over a 10-year period.
The Sobrato Family Foundation is also anchored by a large real estate fortune, one built over decades by John Sobrato, who Forbes says is now worth $6.4 billion. He and his wife Sue, along with their son John, signed the Giving Pledge in 2012. The family's foundation keeps a low profile, focusing its giving on supporting work in California’s Santa Clara, San Mateo and Alameda counties.
Like Cummings, the Sobrato family has seen great value in offering unrestricted support. As an early adopter of this type of grant work, Sobrato has a bigger evidence base to draw from than some of the more recent converts like Ford. Over the last 10 years, the foundation put $55 million into supporting the operating costs of 187 nonprofits. Much of the foundation’s work focuses on anti-poverty efforts.
The foundation’s support of the region comes at a time when state and federal government funds for nonprofits providing direct services are waning or proving too administratively taxing to pursue, according to the report Sobrato published. Additionally, while there are more funders popping up in Silicon Valley, they often focus their attention on national or international nonprofits, as opposed to backing local organizations. Meanwhile, many residents of the region are struggling to get by. For example, one in four people in Silicon Valley is at risk of hunger, researchers at the Second Harvest food bank report.
For all these reasons, the Sobrato Family Foundation is a critical ally for nonprofits in the region, prioritizing groups that work to create a more equitable society. Its willingness to provide general support makes it an espeically valuable funder.
From 2004 to 2016, Sobrato gave $17.7 million in support grants for human services, $8 million for education, $7 million for housing, and gave the remaining $15.5 million to youth development, healthcare, food and nutrition, and employment. The report draws on dozens of interviews with grantees to assess how this unrestricted funding has played out for nonprofits, looking at the choices they made and what the impact has been.
Grantees used Sobrato grants to cover both programmatic expenses, like paying for staff delivering direct services, and non-programmatic expenses, like the cost of development, finance or administrative personnel.
Nonprofits that received grants from Sobrato to support operating costs said that the grants left them free to focus on providing services instead of fundraising, or able to hire staff to do the time-consuming work of getting and managing program grants.
“All of the funders and local stakeholders we spoke with believed that nonprofit leaders are best positioned to determine how to allocate GOS funds and invest in the development of their organizations,” the report said. “Many believe that GOS grants, especially multi-year grants, have the potential to help organizations further build their capacity.”
“In instances where investing in growth and development is not possible, they hope that providing GOS grants over time can sustain organizations and help them focus on service delivery, rather than fundraising.”
Many grantees noted what a boon it was to be able to use grants to pay staff. General operating support grants were crucial when it came to recruiting and retaining staff at all levels, including managers, service providers, and development and administrative staff, the report found. One grantee that talked about paying staff “livable wages” said, “I don't think we would be able to do that without the GOS that we get.”
At their core, general operating support grants are about acknowledging that an organization’s leaders and staff know best where the nonprofit needs to invest resources. There’s been more movement within philanthropy lately to take the lead from stakeholders on the ground, and allow work to become more bottom-up. Letting nonprofits decide where best to spend funds is one way to move in this direction. It requires foundations to give up some control, but that's partly the point.
As grantmakers explore this type of shift, they would do well to study Sobrato’s example.