The case against more gen-ops grants

NOTE: my first attempt at describing the CEP report was more truthy than accurate (see reader comments), and is now revised and hopefully better.

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There are a couple of "inside baseball" type subjects which keep coming up anyplace non-profit and foundation staffs gather, regardless of what the specific conference/workshop/briefing/luncheon is actually about. One of them is evaluation (of non-profits, of projects, etc.); the other is that foundations should make more general-operating grants rather than project grants. Say the words "program grant" at any such gathering and you'll quickly be surrounded by knowing sighs and frowning head-shakes.

However the Center for Effective Philanthropy recently assembled a bunch of data suggesting that grantees are not nearly so worked up about that issue as are the foundation staffs who fret about it at conferences. The CEP also reports that a lot of foundation CEOs think that more general-operating grants would be better, although they mostly actually issue restricted grants: funding which can be used only a specific project or program.

As the CEP reports, the top reason that foundation boards prefer restricted grants is one that I find perfectly respectable: to be able to track specific outcomes of grant investments. (Foundations no less than operating non-profits are tying themselves into knots these days trying to figure out how to track and document the results of their work and not simply the amount of work they perform.) And while the CEP notes the obvious fact that grantees prefer to get unrestricted grants and hate the paperwork related to restricted grants, their main point is that non-profit directors are actually far more concerned about the length and amount of a grant than about its strings.

My own beef with this whole debate is that the relevant context is often overlooked. Foundation grants altogether are no more than one-sixth of all philanthropy in the U.S. (according to Giving USA); it would take a dozen new Gates Foundations to change that ratio significantly. The vast majority of philanthropic support for non-profits (mostly from individuals) is unrestricted. So is the large fraction of non-profit revenues (anywhere from a quarter to two-thirds depending on specific sector) that comes from earned income. Hence no more than one-tenth of non-profit revenues is actually arriving with specific strings attached. That hardly seems like a crushing burden of red tape for the hardworking executive director; and wishing that the foundations' reasons for those strings weren't necessary doesn't render them invalid.

On a side note, the CEP report includes a sidebar quoting Elizabeth Keating on the "overhead game", whose interesting proposals on that subject were described previously here.

Overhead: let's make it plain

One of the interesting sessions at the recent Grantmakers in the Arts conference, of direct relevance to folks working in all non-profits, was led by Elizabeth Keating of the Kennedy School at Harvard. She argues persuasively that the ways funders and grantees interact regarding overhead expenses is irrational for all concerned, and that more transparency would enable mutual improvement.

[All which follows is my version of Keating's ideas, any transmission errors are mine.]

If you're a program manager or artistic director who's ever had to debate with your own finance staffer about which grant can pay for which costs, she means you. Or perhaps, as in my case, you've been that grants administrator! For several years at a large complex organization in the 90s I was that spreadsheet geek trying to rationalize a dozen grants with differing rules and reporting requirements, and I'm sure our hard-working program staff didn't enjoy the process any more than I did. (If Laurel, Dave, Steve, Michael or Diane read this they will right now be either laughing or wincing.) Of course now I'm on the funder side of the conversation, to which role I bring direct knowledge of how the bodies get buried so to speak...

Which is not to say that I think the process was entirely time wasted -- actually it forced us as a staff team to deal with important decisions including programmatic choices. But it sure was awkward and messy and arbitrary, and some of the incentives were perverse: the honest answer to a funder's question "What are the overhead costs?" would be "It depends, what are your overhead rules?" Yecch. Many perfectly well-intentioned staff teams have had that experience, and many funders have felt misled.

That last is actually what Keating means by her slightly-unfortunate presentation title "Is There Enough Overhead in This Grant?" She's not particularly arguing that funders should be magically made to only issue unrestricted grants. (Which is good cause they ain't about to, and there are good reasons why not.) Rather she argues that the core of the problem is that there is no consistent definition of "overhead" in detail or even in principle, and that the two parties in the funder-fundee relationship aren't honest enough with each other about the subject.

Keating proposes that non-profits adopt the sort of transparency that is standard for corporations about their finances, and she's working on some promising tools (software, and report formats) for that. She proposes mandatory non-profit openness on this subject once they get big enough to accept project grants: "Once a non-profit has to figure out an overhead allocation for any one grant, they must make that data public as part of financial reporting or annual audits." In return, foundations would agree (locally or nationally) to standard definitions of what is overhead and how much of it is reasonable. We could as a sector have sensible conversation about how much is or is not too much, and have no more jerry-rigged 90-page spreadsheets which arbitrarily assign the copier lease to this grant and the office assistant's salary to that one. Works for me, and the sooner the better.