Why Fund Real Costs
I recently had the opportunity to speak on two panels regarding trends in foundation funding. The first panel was part of the Center for Nonprofit Management‘s annual 501(c)onference. The theme of this year’s conference was “Roads to Greater Impact,” and the panel I was a part of focused on foundation funding, making the case for funding overhead and indirect costs, i.e. the full/true costs of a program. The panel was set up as a “Shark Tank” meets “Fast Pitch” presentation. I was one of three “pitchers” who represented local nonprofits and we pitched to a three person panel that included Regina Birdsell, President & CEO of the Center for Nonprofit Management, Fred Ali, President & CEO of the Weingart Foundation and David Greco, Partner of Social Sector Partners. While the format was a bit harrowing, the conversation raised important issues regarding the true costs of running a non-profit and how funders can better support the great work that is being done. The second panel was part of the Real Cost Regional Forum. Fred Ali moderated and the panel included Niki Irvin, Tara Roth, President of the Goldhirsh Foundation, and myself. Again, the conversation raised questions about current funding practices.
While the two panels had somewhat different formats, both panels addressed the need to refocus foundation funding to provide non-profits with maximum flexibility. The traditional approach that foundations have taken to funding non-profit organizations is to provide support for the direct costs of a program. Those costs include the salaries of the staff providing the program services, supplies and a portion of overhead expenses that can be allocated to the program. This type of funding, while vital, does not cover the full or “real” costs of operating a non-profit. Program support does not cover a large portion of an organization’s administrative, development and fixed costs. Further, every year organizations encounter unanticipated expenses or expenses that arise that are completely out of our control. Limiting grant funds to direct program costs requires a non-profit to divert funds away from essential operations and leaves the organization exposed. If HOLA relied solely on program support, we would have to slash our programs by nearly 20%, serving 450 fewer kids each year. That is not an acceptable result and we spend significant resources raising additional funds to cover the gap. I am encouraged to see the foundation world starting to address this issue and that many funders are now making a push to providing general operating support. Funding a designated board reserve fund or providing general operating support are tools that can effectively help offset unanticipated costs and give an organization the flexibility to direct dollars to where they are needed most.