How Restricted Project Grants Distort the Missions of Nonprofits

Nonprofit leaders have been calling on foundations to offer more general operating support for decades. Such unrestricted funding, they say, makes it easier for organizations to advance their goals and reduces time spent on fundraising and paperwork. In recent years, more funders have heeded these calls — including the Ford Foundation and, most famously, the mega-donor MacKenzie Scott, who’s given away billions with no strings attached.

But data shows that the majority of foundation grants still take the form of project support. Beyond the well-known hassles of piecing together such funding, nonprofit leaders point to a deeper problem with project grants: the distorting effect they can have on a group’s mission. To secure foundation money, nonprofits can find themselves undertaking work they’d never intended to do or, more commonly, putting up with micromanaging by funders with their own agendas.

The former executive director of a progressive startup recalled that his new organization was offered hundreds of thousands of dollars, but with the stipulation that the money be spent on efforts to promote implementation of a specific federal law. “So we ended up starting a whole program,” he said, “which we absolutely would not have done.”

He doesn’t regret launching the program, which was a positive for the organization. But he wondered what the nonprofit could have done with the funds if the grant had come without strings.

At another nonprofit, a generous grant had serious limitations. The money could be used for only one purpose — an annual conference to be held for 10 consecutive years. “It wasn’t an organizational choice,” the former executive director said.

Sometimes, foundations don’t make special requests, but may quibble about the cost of a proposal.

“We were offered a grant that was very large but not large enough for the proposed project,” said one leader of a public health group. “They told us they wouldn’t fund a ‘Cadillac’ version of our study, and I told them we were hoping for a ‘Honda’ version but wouldn’t do a ‘Kia’ version — at the time, Kia was the lowest-rated car being sold in the U.S.” The nonprofit ended up turning down the grant.

Hobbling nonprofits’ work

One staffer for a nonprofit working on environmental regulatory issues found the “micromanaging” by many progressive foundations frustrating. “This only happens on the left,” he grumbled. “It’s very constraining. Often, they don’t give you funding for programs. It’s ‘do this report, do this project.’ It is very specific.”

Failing to understand that civic engagement should also include citizen participation in the environmental rulemaking process has been particularly shortsighted, he added.

The way foundations treat their grantees — and the length of their commitment — is crucial, because in the policy realm, “change doesn’t happen in a day, or a month, or even a year. … It’s usually a decades-long process,” he said. The way progressive foundations give, too often focused on short-term results, has hobbled reform efforts.

As a result, the staffer said, while progressive foundations were dithering, “conservatives completely changed the conversation on regulatory policy.”

Robbing Peter to pay Paul

Miles Rapoport has been an organizer, advocate, elected official and nonprofit leader. When foundations fail to give general operating support to their grantees, three problems arise, he said.

While nonprofits may rarely “get thrown 90 degrees off track” by a foundation grant, “there are many situations in which an organization’s clear throughline is muddled by too many project-specific foundation grants.”

When nonprofits end up doing what foundations want, he adds, there are “opportunity costs where organizations cannot do what they really want to do on a specific issue.” Instead, they find themselves “tied up” in the foundation’s agenda, not their own.

Rapoport added that he’s also seen “cash-strapped organizations” forced to apply for program-specific grants that they may not be able to deliver on because they are forced to use the money to cover their overall organizational expenses.

Too much power?

Funders “have a unique ability to shape what happens,” agreed Gary Bass, executive director emeritus of the Bauman Foundation and an adjunct professor at Georgetown University’s McCourt School of Public Policy.

He recalled his long tenure as founder and executive director of the nonprofit OMB Watch. His group was “deeply involved in environmental right-to-know around toxic chemicals,” Bass said. For a while, there were enough funders to support several nonprofits working on the issue, Bass said. But then the foundations “shifted gears to something else.” As a consequence, “virtually every group except OMB Watch bowed out. … They had no money to keep the staff support for doing that work.”

That problem would not have occurred if foundations gave general support grants, Bass added. “Their strategic planning and… the vagaries of jumping from one topic to another… to the flavor of the month, or a flavor of the decade” would not affect nonprofits as drastically.

A source of both cash and clout

Bass acknowledged that as the head of a nonprofit, he had a “love-hate” relationship with foundations. He did not want them involved in his nonprofit’s work, “because that’s my job. Their job is to give me the money.” On the other hand, “I wanted them engaged because they have great clout” in the policy world.

“In some cases, you really do want philanthropy as a partner in the work you’re doing,” Bass added, citing his experience as co-chair of the Census Equity Initiative, which brought together scores of funders and nonprofits. There were “a lot of tensions at the beginning, because foundations were both funders and players,” Bass said. “But by the end, I think everyone would agree. It helped a lot.” The initiative’s work helped reduce undercounts of marginalized communities in 2020, and funders remain committed to advocating for a better count in 2030.

Addressing whether foundations should get more engaged with their grantees, Bass said, “So many groups say to me, ‘Why aren’t the foundations helping us at the state level? They have the clout to influence local community leaders, to speak about the needs of kids or whatever the issue may be.”

How long is long-term support?

Bass is skeptical of the common assumption that conservative foundations are necessarily more loyal to the groups they fund. Based on conversations he’s had with conservatives, they do, indeed, give consistent general support, but it’s in the form of one- or two-year grants. And that support is contingent on the group “living up to what they want.” If a group doesn’t meet their expectations, they will shift the money to another group, he said.

Bass praised Ford’s Building Institutions and Networks Initiative (BUILD). The program, launched in 2016, gives nonprofits flexible grants over a period of five years. Ford launched BUILD in 2016, offering this type of support to 300 social justice nonprofits in the U.S. and the Global South. The foundation commissioned an evaluation of the program in 2018.

Ford learned that BUILD works well, regardless of the size or mission of the nonprofit or its location. Seven out of 10 nonprofit leaders, when surveyed, said that BUILD helped them fulfill their mission “to a large extent.” And it also enhanced nonprofits’ abilities to strengthen their respective organizations. Even during a pandemic, at the same time that calls for social justice intensified, BUILD grants helped groups to “continue strengthening their institutions and deepening organizational resilience.”

Many foundations remain reluctant

To be sure, Ford is not the only major foundation now offering general operating support to more nonprofits. Nevertheless, BUILD’s example has not spread like wildfire. Even after the election of President Donald Trump, when nonprofits were scrambling to preserve important programs and protect consumer, environmental and health regulations, less than a third of foundation leaders said that they gave general operating support to most of their grantees.

According to a 2018 study by the Center for Effective Philanthropy, more than 40% of foundation leaders said they were considering changes like giving more organizational support. But the study noted, “Very few [foundation leaders] mention making changes related to the recent political environment.”

In 2021, another CEP report found that in the 10 years preceding the pandemic, only about 12% of foundations gave grants that were both multiyear and for general operating support.

Long-term, consistent general support is the “gold standard” for foundation grants, Bass said. Under that system of giving, “the pressure is on the nonprofit,” not the funders, to choose the nonprofit’s priorities.

Giving long-term general support won’t completely change the unequal relationship between grantors and grantees, but it will help, Bass added. “Let’s face it,” he concluded, “philanthropy has the power. It has the money. And we’re looking for ways within that reality to address how to make grantmaking fairer and better.”

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