Shifting the Paradigm Around Funding Nonprofit Organizations
It seems obvious that the effectiveness of a foundation’s grantmaking or a government agency’s contracting is tied to the nonprofit agency ultimately delivering the desired program or services. But we also know that nonprofit performance is often held back by the rules and practices of funders. This includes restrictions on supporting multi-year unrestricted funding, and limitations on supporting necessary administrative costs.
In its recently released State of the Sector report, the Nonprofit Finance Fund reported that the top challenges listed by nonprofits were: achieving long-term sustainability, offering competitive pay to retain staff, and raising funds that cover full costs. These are all issues that could effectively be addressed by enlightened private and public funder practice.
In FY 2016, Weingart Foundation will continue to support two important initiatives that have the potential to significantly impact the way in which government agencies and private philanthropy support nonprofit organizations. I am happy to also report that a number of other foundations are joining us in this effort.
The Nonprofit Overhead Project, led by CalNonprofits, will work to ensure that the new Office of Management and Budget (OMB) guidance is fully implemented at state and local levels. The OMB guidance streamlines the rules governing administrative cost and audit requirements. Most importantly, the guidance requires that government pay nonprofit contractors and grantees reasonable indirect costs, sometimes called “overhead.”
The Nonprofit Overhead Project will also provide nonprofits with resources and training about how to calculate, negotiate, and advocate for reasonable indirect costs. CalNonprofits will bring organizations across the state together in convenings, in-person trainings, and webinars, as well as create an online toolkit with resources on how to account for overhead, manage indirect cost rates, and conduct business model analyses.
The Real Cost Project, a collaboration between the Northern California, Southern California, and San Diego associations of grantmakers, will combine education, advocacy, and skills-building to engage private funders in conversations about the importance of funding the real and full costs of the outcomes we desire. Like any enterprise, nonprofits must be able to cover the full and real costs of their programs and operations – including infrastructure, capacity building, and capital needs – if they are to deliver excellent outcomes over the long term. The Real Cost Project will explore how foundations can examine and strengthen our funding strategies and practices to better meet the needs of nonprofits and to realize greater impact.
Combined, these two initiatives present a timely and strategic opportunity to move the needle on an issue that has for too long undermined nonprofit effectiveness and sustainability, at the expense of underserved individuals and communities. The momentum for change appears to be picking up nationally, most noticeably with the Ford Foundation’s recent decision to double general operating support funding to make up 40% of its grantmaking.
Weingart Foundation is proud to support this work. I encourage our nonprofit partners to get involved with the Nonprofit Overhead Project by contacting Nancy Berlin, Policy Director at CalNonprofits, at firstname.lastname@example.org. Foundations interested in learning more about The Real Cost Project can contact the project manager, David Greco, at email@example.com.
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