Opinion: Stop Starving the Nonprofit Sector

By Matthew Randazzo
President & CEO
The Dallas Foundation

For 20 years the philanthropic sector has increasingly focused its giving on big strategic initiatives – population level outcomes, systems change, influencing policy, etc.

The underlying thinking is valid: We have limited resources so let’s focus on the levers we want to pull and outcomes we want to enable. Foundation leadership, boards, associations, and philanthropy supported organizations all jumped on the bandwagon and our nonprofit partners came along, willingly or begrudgingly.

And, just like that, impact-oriented philanthropy was ubiquitous. 

Along the way, however, we began starving nonprofits of the flexible resources they need in favor of funding our outcomes. Milestones became millstones as nonprofits tried to meet our priorities and often-unfunded mandates.

All the while, foundations nickel-and-dimed our grantees on overhead expenses while insisting nonprofits have 90-days cash reserves. Most nonprofit leaders will tell you that the cognitive dissonance is exhausting. Yet, little has changed and the dynamic between grantor and grantee remains the same: The funders call all the shots.  

During these perilous times, our nonprofit partners don’t have the flexible resources they need to fulfill their daily mission let alone respond to a global pandemic that has left 1 out of every 7 American workers without a job.

At the same time, they are seeing much-needed operating dollars disappear alongside cancelled fundraisers and awareness events.

Those who rely on volunteers to keep expenses down must now grapple with adhering to social distancing guidelines, making the difficult decision to limit the number of individuals who can help or forego their assistance altogether.

Nonetheless, they are stepping up to serve our nation’s most vulnerable populations: The elderly, the undocumented, low-income children, and recently displaced workers to name a few. In recent conversations with two nonprofit CEO’s, both admitted their COVID response provides no working capital for them – it’s all passed through for programmatic use at the expense of longer-term sustainability. 

Foundation leaders and boards must remember that being a nonprofit is an IRS designation, not a business model. And, it’s a moral imperative to balance strategy with flexibility not only in times of crisis but as an operating norm. There are several actions that Foundations can take today to better support their grantees, both now and for the long-term: 

Make more unrestricted grants and give trusted partners the flexibility they need to fulfill their mission. Doing so doesn’t limit a foundation’s investment. Quite the opposite, in fact. It invites dialogue, unleashes creativity, opens the door for even greater impact and, ultimately, long-term sustainability. Foundations concerned that grant dollars won’t be spent responsibly, must ask themselves why they are funding that nonprofit in the first place. 

Invest in capacity building that gives grantees the tools they need by funding critical roles/operating initiatives or supporting innovative human capital strategies, such as those that virtually mobilize volunteers for nonprofit capacity needs. Organizations need support for their mission. Funding strategic planning, staffing or evaluation efforts rather than specific programs or narrow outcomes, meets that need and yields a greater return on that investment, positioning the nonprofit to move the needle on their area of focus. 

End the race to the bottom on non-programmatic expenses and understand that overhead – rent, salaries, IT infrastructure, etc. – is the backbone that fuels outcomes. We rightly support programs that equip individuals and families with what they need to thrive: Safe and stable environments, educational opportunities and workforce training programs. Why do we not similarly invest in the needs of our nonprofit partners, tasked with delivering those same services? 

I am in no way suggesting that foundations shouldn’t focus our grantmaking on strategic priorities like health, early learning, or racial equity.

But we must trust our grantees as responsible partners.

We must fund their full suite of needs including the professional development and self-care of their teams. We must give them the tools and resources that are at our fingertips.

It’s only then that we’ll unlock the full potential of the nonprofit sector and our respective communities.

Editor’s Note: This guest essay was published with the permission of Matthew Randazzo, president and CEO of The Dallas Foundation.