Nonprofit leaders are accustomed to justifying their need for operating support in appeals to potential donors. In a “proposal letter” written in June 1788, Wolfgang Amadeus Mozart makes his case to benefactor Johann Michael VonPuchberg:
“If you will do me this kindness, I shall primo (being thus provided) be able to make necessary payments when they are due and therefore more easily, whereas I now continually delay and must then often pay out at once all I have received, and that at the most inconvenient moment. Secondo, I shall be able to work with an easier mind and a lighter heart, and thus earn more.”
While Mozart may not be a model of good nonprofit management, his second point still resonates: Funders do tend to favor financially secure organizations whose leaders are able to lead with “easy minds” and “light hearts.”
However, requests for unrestricted support have long made foundations uneasy. In the first place, private foundation resources are no match for the nonprofit sector’s operating needs, which are vast and growing. Secondly, by giving up control over exactly how a grant is spent, the connection between the investment and its results can be obscured. How should today’s funders think about the potential impact of grants for operations?
Unrestricted funding for operations
At GMA Foundations’ quarterly NPO Conversation, we explored this topic with the leaders of nonprofit organizations that draw on foundation support for programs, but have learned to build a solid base of unrestricted funding from non-foundation sources. Our guests included a theater company, a national service organization, a youth mentoring agency, a youth arts organization, and an independent school serving disadvantaged inner-city children.
They shared their perspectives on three questions. (1) Has it become easier to secure general operating grants? (2) How do you fund general operations? (3) What advice would you give to donors? Here is a summary of what we heard.
Is it easier?
No! The dearth of funders that provide unrestricted support continues to challenge nonprofit leaders to be more creative in generating income for operations.
Other sources of support?
These savvy leaders rely on special events, subscription sales, large-scale government contracts, earned revenues (including a portion earned by youth participants), and individual contributions.
One organization runs six events each year to raise over $1.5 million, while engaging with different constituents at different price points and to different degrees. For example, the event organizing committees have become a training ground for future board members. And the organization’s event management expertise keeps its production costs well below the national average, spending only 25 cents to raise each dollar.
Advice for foundations?
As the conversation continued, GMA staff shared examples of grantmakers who regard operating grants as part of their effort to (a) fund good organizational leadership over the long-term and (b) support the strategic goals of strong organizations with proven records of success.
While no two funders are alike, our clients have demonstrated real willingness to provide unrestricted funding, with trustees blending operating and program support for outcomes-oriented grants programs. In fact, unrestricted grant dollars constituted 22 percent of all the grants made by GMA clients in 2012.
It may be time to retire the project vs. operating debate. Most funders recognize that nonprofits need fuel to operate, organizational strength to innovate, and flexibility to manage to their core mission. Some have even gone so far as to change the vocabulary, replacing the term operating with core mission support.
Phil Hall is director of grantmaking services at GMA Foundations. Contact him at email@example.com or 617-391-3097.