The Power of Open Funding

Unrestricted grants sustain nonprofit health

November 25, 2019

By Kerry Wood, CFRE
Chief Marketing & Donor Engagement Officer

At a recent Foundation-sponsored convening of local nonprofit professionals held to discuss annual giving trends, the conversation turned to a topic that is too often taboo in fundraising circles: Restricted gifts. Attendees agreed it is a mixed blessing when funders restrict donations to support a specific program, consequently prohibiting those funds from covering the critical operational expenses that make those programs possible and sustain the nonprofit into the future.

One fundraiser asked, “Is there anything a nonprofit can message to donors about supporting organizational stability that they would find inspiring, or is the whole notion of operational costs somehow offensive?”

I understood her concern. As a nonprofit professional for the past 22 years and a Certified Fundraising Executive, I have confronted the same paradox in my career. It’s a circular sort of thinking. If we don’t fund administrative work, then organizations won’t have the tools to measure, improve, or communicate their impact, which means they won’t be able to secure funding to sustain their programs, which means their programs will suffer.

This cycle is the result of a view among some funders that allocating expenses toward nonprofit administration is wasteful. Donors are encouraged to support organizations that have low operational costs, despite the fact that those low costs do not meaningfully demonstrate how well an organization serves the community. This view is so pervasive that only a decade ago, a Foundation-funded study of local giving reported that 76% of households said high administrative costs were a reason not to donate to an organization.

To ensure nonprofits can continue doing good in our community, we must act to keep them functioning. One of the first steps to addressing the problem is straightforward: Funders should be encouraged to make more of their gifts unrestricted to allow nonprofit professionals the ability to put donations to work where they believe the need is greatest, whether it be direct program costs or operational needs.

At the Foundation, we continue to shift our grantmaking toward unrestricted awards; just last year, 70% of the 2,200 grants the Foundation and our donors made were unrestricted.

This is not a new focus for our team. Other learnings from the study of local giving found three-fourths f respondents were concerned about the need for nonprofit administrative costs. This was the genesis of our Big Day of Giving program, which has raised nearly $40 million in unrestricted gifts from area donors since 2013. A program of our initiative to Expand Philanthropy and the Social Economy, Big Day of Giving is part of a sustained investment to equip nonprofit professionals with the resources they need to fulfill their organizations’ missions effectively.

As we work to foster philanthropy in the Sacramento region, we must continue educating donors about the realistic costs—programmatic and administrative—of running a healthy, effective nonprofit and the benefits of making unrestricted grants to support the causes they love.