For years, funders have been trying to come to terms with the unintended harm their restricted grantmaking has caused to nonprofit organizations and the communities they serve. Restricted grants are like the cigarettes of the nonprofit world. They hurt the smoker and everyone around them. They permeate the air we breathe and have shaped our systems and culture. And as things change, we’re faced with the collective damage of this longstanding habit.
My funder friends, it’s time to quit. Nonprofits are sick of being harmed by fear-fueled restricted grants. Muddling around the edges of an unhealthy system by temporarily lifting restrictions, expanding some of the costs covered in a restricted grant, or increasing indirect rates is like introducing filtered cigarettes—the addiction continues, and the damaging effects remain. Funders who have established healthy practices of giving with openness and trust offer hope that others can kick the restricted-grant habit, but they are still the outliers.
Sometimes, a crisis spurs overdue change. Recently, hundreds of grantmakers signed a pledge to lift restrictions to allow nonprofits to better navigate the COVID-19 health and economic crisis. This swift, bold action will give nonprofits the freedom to focus on the things most critical to their communities and to shift resources as needed. If the benefits of operating with full support and trust are so compelling now, it begs the question: Why were the restrictions there in the first place?
While some foundations have already embraced unrestricted grantmaking, restrictions are still the default. Many fail to realize the ways in which restricted grants have shaped, and continue to shape, our sector for the worse. If we are eager to speed progress on shared goals, we need to challenge a status quo that isn’t serving our highest ambitions. Like ashtrays bolted to the walls of hospital hallways and built into airplane seats, our past societal acceptance of smoking ensured that smokers’ comforts were always accommodated, even when those comforts put newborn babies or fellow passengers at risk.
To accommodate the comfort of grantmakers, nonprofits have shaped how they seek and use funds and how they have structured their organizations, often to the detriment of their missions. This has caused nonprofits to spend countless hours on administrative work that creates no value but satisfies funders. Their finance and administrative teams are larger than they should ever need to be so they can manage the complex accounting requirements funders force them to follow. Nonprofits squeezing budgets to make programs seem cheaper than they are, or dedicating all their operational and administrative staff to filling out custom grant applications and financial reports, aren’t as effective as they could be in advancing their missions. They make this sacrifice for the comfort of funders addicted to restricted grantmaking, and because our sector has accepted it as the norm.
Because we have been trained to follow this norm, nonprofit professionals don’t need a funder to foist restrictions upon them; they do it to themselves. They structure budgets and grant requests in such a way as to maximize their attractiveness to funders, even though they may be harmful to the organization. Just as children are more likely to smoke if their parents have, young professionals in the field are taught how to apply for, manage, and fund through a restricted-grant lens.
These are “best practices”—the idea of doing otherwise is baffling. Suddenly, we can’t imagine taking a break without a smoke, drinking coffee without a smoke, or figuring out what to do with our hands. So, too, we can’t imagine a fundraising ask without restrictions, a grant contract without restrictions. It’s familiar and comfortable.
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As a former executive director, I too have built countless grant requests with unrealistic budgets to accommodate what I thought the funder wanted. When I received our first unrestricted grant, I was so conditioned by our experiences with restricted funds that I allocated our spending against line items I thought the funder would most like to see. I am grateful to this day that my program officer read my report and called me up to emphasize that the grant truly was unrestricted, that she knew how hard it was to raise money to pay for my salary, and that I could resubmit my grant report to pay for myself. I did.
Restricted grants hurt funders, too. They create unnecessary monitoring, compliance checks, and reporting that mean nothing and clutter your inbox and your filing cabinets. Restricted grants inhibit meaningful relationships and honest, collaborative problem-solving between funder and nonprofit partners. Restricted grants have robbed funders of real intelligence about how the field is doing and what it needs. And ultimately, nonprofits could have done more with the money funders granted to them. Our system is plagued by missed opportunities, like the lives that have been sickened and shortened from smoking. I do not make that analogy lightly. Lives are literally lost when nonprofits do not have the freedom to do their best.
If we are honest with ourselves and really drill down to why restricted grants exist, it is almost always about fear: Fear that money will go to waste, that funds won’t be spent optimally, that money will be stolen, that nonprofit leaders won’t make the right choices. And in response to fear, funders have sought control. Control the spending line items, limit the overhead, make the choices for the nonprofit. Current practices are especially troubling if you consider many foundations’ public commitments to advancing racial equity and social justice. Nonprofits led by and serving people of color often face the steepest grantmaking barriers and restrictions.
The addiction to control, when challenged, raises an exceptional level of rigor that hasn’t been raised before. “If grants are unrestricted, how can we prevent fraud?” Great question. But first, when has a restricted grant ever prevented fraud? “Prove to me that unrestricted grants are effective.” Excellent demand. But first, prove to me that restricted grants are effective.
Restricted grants imply that funders can see more than the nonprofit about the need, the situation on the ground, the best way to respond. The funders who actually think this way are few and far between. More common are the funders who believe what I believe—that those closest to the problem are closest to the solution; that nonprofit leaders have better, real-time information to make smarter choices than I ever could; and that nearly all nonprofit leaders are creative, smart, and honest.
My grandfather didn’t give up smoking until it caused a stroke that nearly took his life. The coronavirus crisis has thrown into sharp relief the hazards of restricted funding. In a very painful way, it has laid bare all the reasons our sector needs flexible funding. It is time for smart, well-intentioned funders to act on what they know and join those who are changing the way they give—permanently. This moment should serve as a wake-up call for us all and catalyze a new way forward. We can act on what we know and embrace the principles of Trust-Based Philanthropy. Cede control to the organizations who know how to create the just, safe, joyful world we all want. Make unrestricted, multi-year grants to support the many worthy causes you care about.