One-time large contributions to nonprofits, no matter the amount, can be perceived as risky because they’re not recurring and might leave a gap once the funds are spent. The likelihood of a financial cliff may prompt some organizations to prioritize a diverse base of backers over one-time contributions.
However, a recent Center for Effective Philanthropy (CEP) study, titled Breaking the Mold: The Transformative Effect of MacKenzie Scott’s Big Gifts, which surveyed nonprofits that received grants from MacKenzie Scott, pushes back against this narrative, concluding that recipients of Scott’s gifts—with a median grant amount of $5 million—strengthened their long-term sustainability after funds were spent.
“We heard in the last two years concerns about organizations hitting a financial cliff,” said Elisha Smith Arrillaga, vice president of research at CEP and one of the authors of the report, in a March webinar to discuss the findings. This financial cliff, in theory, makes it difficult to raise funds or maintain a budget. But according to Arrillaga, “What we see in the data here is that less than 10 percent of nonprofit leaders expect a lot of difficulty covering ongoing expenses once their grant funds are spent.”
“In the current political and funding landscape, reserves will help us shore up our organization as resources for social justice work continue to diminish.”
Over five years, beginning in 2020, Scott contributed $19 billion in unrestricted grants to more than 2,000 nonprofits (CEP, 4). The three-year CEP study is the result of survey responses from more than 1,000 grantees—including 813 nonprofit leaders and 243 foundation leaders—along with financial data from tax filings from more than 1,000 organizations, including Scott grant recipients and comparable nonprofits that did not receive a grant.
The report offered four main takeaways.
1. The Scott grants strengthened recipients’ long-term financial health.
The CEP study reported that 90 percent of grant recipients said the grants have “moderately or significantly strengthened” their organization’s financial health (14). More than half of nonprofit leaders surveyed said they used the funds to strengthen their organization’s reserves or grow its investment assets.
Strengthening funding reserves—an opportunity many nonprofits don’t usually have—allows these organizations navigate future uncertainty by allocating a portion of the Scott grants to longer-term needs, including strategic growth in a constrained funding environment. Investing in financial reserves also placed recipients in a significantly more favorable financial position compared to counterparts that did not receive such a grant. Developing a clear reserve policy—including how much to hold and which investment vehicles to use—is key, industry observers say.
CEP analysis of nonprofits’ Form 990 tax filings found that two years after receiving the grant, Scott grantees had a median of twice as many months of operating expenses in cash reserves as comparable nonprofits that didn’t receive these grants.
“In the current political and funding landscape, reserves will help us shore up our organization as resources for social justice work continue to diminish,” one leader quoted in the report said (15). Another leader noted that the funding offered financial stability that would have otherwise taken years to build.
Recipients were also cautious in their hiring and program expenses, mindful of value-for-money and sustainability tests.
“We did not believe it was the right move to use MacKenzie Scott grant dollars to start new programs or hire people in a way that would be unsustainable,” one leader quoted in the study said (16). Reportedly, 23 percent of the organizations either created or contributed to existing endowments, while 56 percent contributed funds toward financial reserves (48).
Ann Stern, president and CEO of Houston Endowment, offering a funder perspective, said during the CEP webinar that she did not find the conclusions surprising, noting that “[grantees] know what they need to be financially sustainable.”
Grant recipients aren’t spending funds quickly: Even those who got grants five years ago have only spent 60 percent of the funds so far, at the median (14).
2. Grants established credibility with new funders and diversified recipients’ funding sources.
Around half of the leaders said their grant improved fundraising prospects and helped them gain new funders. Meanwhile, 7 percent of leaders reported that they were told by a funder that they would no longer receive contributions because of the Scott grant. More broadly, more than two-thirds of nonprofit leaders said so far they have not lost any funders (18). Instead of viewing it as a liability, 61 percent of surveyed leaders said they had used Scott’s support to build credibility with other funders. Meanwhile, 39 percent said they had diversified funding sources after receiving the grant, and around the same proportion said they now ask for larger grants (19).
Diversifying funding sources is becoming increasingly common as funding programs come under pressure. Facing federal funding pullbacks, the San Francisco-based Center for Gender and Refugee Studies (CGRS), for example, is working to ensure its funding base is as broad as possible to provide a strong buffer against uncertainty.
“[It’s about] really trying to diversify our funding stream so that we’re not entirely reliant on one funder that if it were to be pulled, that it would mean our whole operations have to close,” Blaine Bookey, legal director at CGRS told NPQ.
The bulk of CGRS’s funding doesn’t come from federal government sources, giving it sufficient flexibility to adapt its approach as needed.
Despite the apparent positive impact of Scott’s contributions, foundation leaders still hold some concern over their long-term effects.
3. Nonprofits used grants strategically to improve programs and community impact.
An overwhelming majority of leaders at nonprofit grantee organizations (70 percent) said the grants have “significantly” strengthened the ability of the organization to achieve its mission (25). In particular, 56 percent said Scott’s funds helped support new programmatic initiatives, while 61 percent said the funds enabled their nonprofits to expand the scope of existing programs to new populations (26).
Grantees also said the contributions improved leaders’ perceptions of their own capacities, with 78 percent of leaders saying the grants somewhat or significantly increased their own confidence in their leadership (33).
Funding from such grants “gives you a stamp of approval,” said Kimberly Lewis, president and CEO of Goodwill Industries of East Texas. “The work that we do can be draining.…It gives you breath to keep going another day to push a little bit harder.”
4. Foundation leaders remain concerned about a financial “cliff” after funds are spent.
Despite the apparent positive impact of Scott’s contributions, foundation leaders still hold some concern over their long-term effects. While most leaders surveyed by CEP recognized the benefits of the unrestricted nature of Scott’s gifts—some 93 percent of foundation leaders expressed this sentiment—more than 60 percent also acknowledged the risk of a financial cliff as a drawback of Scott’s approach (39). The next most common drawback—cited by 53 percent of foundation leaders—was the view that other funders may feel the recipient organizations no longer need more funding. Additionally, 46 percent identified a lack of transparency with the selection method as a pitfall of the Scott grant process (40).
Foundation leaders also appeared somewhat divided on the ability of nonprofits to effectively manage large grants with no restrictions: 51 percent claimed they were “very able” or “completely able” to handle such gifts; while 41 percent said they were “somewhat able,” and 8 percent said they were “slightly able” to handle these contributions (41).
“There are some organizations that simply can’t metabolize large gifts because of inadequate internal infrastructure and the inability to envision uses that can take their operations to the next level,” one foundation leader was quoted in the report as saying. Another highlighted the need for “greater business acumen” among nonprofit leaders (41).
Nonprofit leaders participating in the CEP webinar highlighted the value of unrestricted funding as a tool to advance change.
“We need a diverse set of funding practices and a diverse set of ways in which capital gets distributed,” said webinar panelist Cecilia Conrad, CEO of Lever for Change. “If you want to create some space for organizations to have the freedom to be stronger advocates or to hold government or political institutions accountable, then this kind of [unrestricted] funding could be an important way to do that.”
“If you don’t have unrestricted dollars, it’s very difficult to innovate.”
CEP acknowledged that the impacts of the Scott grants merit continued study.
“It remains too early to draw definitive conclusions about Scott’s giving and its long-term effects. It could take decades to truly understand the effects these gifts have had on nonprofits and the sector at large,” the report reads. “At this time, however, after five years of giving, the reported effects of her gifts on recipient organizations selected through her quiet-research process remain overwhelmingly positive” (47).
The Need for Ongoing Unrestricted Support for Nonprofits
Participants in the webinar noted that the research highlights an ongoing need for a variety of funding vehicles to proliferate, including grants or contributions that have varying degrees of restrictions or earmarking.
“There’s plenty of times that a restricted grant makes sense, but then also if you want organizations to be strong and flexible, they need unrestricted support,” said CEP President Phil Buchanan.
Grants for certain discrete projects and collaborative initiatives might be instances where more restrictive funding vehicles are appropriate, echoed Conrad. At the same time, the positive sustainability outcomes from Scott’s contributions highlight the transformative impact of unrestricted grants, which should continue to be encouraged, panelists agreed.
“If you don’t have unrestricted dollars, it’s very difficult to innovate,” said Lewis during the webinar. “In our particular case, not only did MacKenzie Scott give us some dollars to provide some underpinning for our organization and expand the services to the people that we serve, also, because of that stamp of approval, other dollars came in, including a leadership program for underrepresented entrepreneurs.”
Panelists also highlighted the importance of a strict vetting program for unrestricted funding program recipients, leading to a high level of trust in the grantees.
“These McKenzie Scott grants were vetted.…These are grants that had a lot of thought behind them,” said Stern. “Flexible, unrestricted grants should be made in a very thoughtful, intentional, strategic way.”
