In the nonprofit business, not all money is created equal
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Of course, HANO is uniquely qualified to face this challenge. For example, as a membership organization, it has a built-in revenue stream, all of which is unrestricted. HANO may also be able to offer fee-for-service programs, charging for consulting and management services. In addition, as it downsizes, HANO may be able to sublease part of its office space. In the end, though, HANO may have to rely on foundation grants to carry it through these hard times, and foundations are notoriously averse to providing operational support.
Photo: Rae Huo
Hawaii’s certainly not unique is this regard. Last year, Grantmakers for Effective Organizations (GEO), a national research group, conducted a survey of 800 foundations and other private funders around the country. Its report notes that only 22 percent of foundations nationally reported increasing the amounts they gave for general operating expenses, and the majority provided fewer than 20 percent of their grantees with operating support. Curiously, this trend continues despite considerable theoretical support for operational grants among foundation leaders and professional philanthropic organizations like GEO. As Sharon King, president of the H.B. Heron Foundation, puts it, “In the long run, you can’t have strong programs in weak organizations.”
Yet, few Hawaii foundations support general operating expenses. It’s true that many program grants include overhead costs, such as salaries and benefits. But here’s the irony: Even the most generous program grant may have a negative impact on the overall health of the agency.
In the GEO report, Clara Miller, president and CEO of the Nonprofit Alliance Fund, puts it bluntly: “Anything but unrestricted grants generally increases the costs in the grantee’s operation.” Nevertheless, foundations usually balk at this type of funding.
One problem is that the work-a-day costs of doing business simply don’t appeal to funders. Schatz gives an example from Helping Hands: “Our sewer runs slightly uphill,” he says. “But we’re just not confident that a private foundation will find it in their hearts to pay to fix a sewer.” Instead, sewer repairs likely will absorb some of the organization’s precious unrestricted funds. Yet, as Schatz notes, “Without a functional building, none of these programs work.”
One reason foundations are more comfortable funding programs or projects than operations, quite simply, is that with programs, it is easier to measure success.
Many also worry that funding basic operations may make the nonprofit too dependent. Others are wary of handing out money with no strings attached. Alfred Castle, treasurer and executive director of the Samuel N. and Mary Castle Foundation, takes a slightly different view. “To me, the lack of operating funds is more a symptom of something else that’s going on. I think there’s a lack of trust.”
The Samuel N. and Mary Castle Foundation is one of a handful of local foundations that do provide unrestricted funds — albeit with a very narrow focus. “We actually do more today than ever before,” says Castle. “In particular, we put a lot of operating support into the Good Beginnings Alliance (GBA).” GBA, like HANO, is an intermediary organization. It provides no direct services, acting instead as a statewide coordinator and advocate for early childhood education. In short, its mission is nearly identical to that of the foundation, which has a long history promoting preschools and kindergartens in Hawaii. To Castle, finding that synergy is the key to overcoming a foundation’s reticence about unrestricted funds.
The shortage of unrestricted funds is a chronic one, long predating the problems associated with the current economic crisis. While the evolving views of people like Castle may offer a glimmer of hope, nonprofit professionals tend to be pragmatists. They scrounge and hustle and make-do.
The problem of organizational support, after all, is as old as charity. The only answer is just to keep trying. As Jan Harada puts it, "Be sad. Lose some sleep. And then figure out how we're going to solve it."
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