Full-Cost Funding
Many employers understand what it would cost to create sustainable organizer jobs, and regret not being able to do better. But their revenue comes from grant-makers and donors who expect large results for inadequate amounts.
Funding a movement for change
Some of our recommendations require bigger grant amounts, but where would the money come from?
Advocacy is needed, and fortunately there are campaigns in progress:
- The 5% payout law (requiring foundations to expend 5% of their assets to keep their tax-free status) hasn’t been updated in decades, and includes the foundation’s operating expenses. Why limit grant-making to only 5%? Lobby for 6% in grants alone.
- The ACE Act filed in the US Senate would change rules for donor-advised funds: There must be a deadline to disburse, or no tax break.
“Every [funder] wants to know the demographics of your staff and board… and your turnover rates, but nobody wants to fund the work that would allow for those things to be strong… There are expectations from funders… about what we should be able to achieve with the budget we have.”
– Case Study Interview
“… funders play a big role, but we are not the ones who are supposed to be in charge… the role that we play is not to micromanage how organizations do things, to tell them what are the best practices… Philanthropy should see itself as being an agent at the service of the organizations that are made up of people who are impacted by the issues, because they are the ones who should be and are leading the movement. And we play the role of transferring money that has been accumulated through exploitation and transferring it back for the work that they are doing for social justice.”
– Case Study Interview
These changes—giving bigger grant amounts to cover the real costs; giving multi-year grants; and making grants more flexible—require open and honest two-way communication between funders and their applicants and grantee organizations.
Questions to Consider
For funders to consider toward a thriving organizing sector
- How do the foundation’s grant-making practices support or impede grantee organizations in enabling their staff to thrive?
- Is the foundation living its values through its grantmaking? Looking at all the ways the foundation wants people in the world to be treated, are all grantee staff treated like that?
How to address full-cost funding
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Sustainable and aspirational solutions to problematic compensation practices
Nonprofits are evaluated too much by their ratings
(on Charity Navigator and Guidestar, etc) of how little they spend on administration and fundraising, which puts pressure to reduce non-program staff’s compensation.
Evaluate nonprofits by their success at their own goals and their impact, not their percent spent on overhead.
Regard efforts to foster worker satisfaction as a positive factor, instead of a strike against them. Aim for the same quality of life for grantee employees (and your own employees) as for beneficiaries of the grants.
Increase the requested or granted amounts and specify that the extra is for staff benefits and raises, and other overhead. For example, during inflationary times, give an adjustment to all grantees to keep up with inflation.
Low limits on overhead (10% to 15%) are well below the actual cost of running the grantee organizations.
Excessive restrictions on use of grants weakens nonprofits’ ability to respond to community needs.
Lift overhead limits and remove excess restrictions on what funds can be spent on.
Take the pledge to lift restrictions during crises organized by the Council on Foundations.
Offer grantee organizations flexibility to shift spending as needs change.
Give only “MYGOD” (coined by Vu Le): Multi-Year General Operating Dollars.
Some foundations treat the 5% minimum payout rule as a ceiling, not a floor.
Stretch to give a higher percentage of your assets each year, as your resources allow.
A few foundations are dispersing all their assets, gradually or abruptly.
Many foundations and donors are increasing the percent they give away each year.
The foundation’s excessive internal spending eats into the amount disbursed as grants.
Assess your budget for waste or redundancy; consider moving money from organizational expenses to more grants.
It’s rare to find funding sources for staff development, capacity building and retention.
Fund the People: Consider adding capacity building and leadership development to your foundation’s priorities.
Consider the racial equity impact of funding staff raises, HR improvements and professional development.
Offer funding to convert seasonal organizers to year-round positions so they can be fully trained and cultivated for leadership.
Support sectoral intermediaries who offer training and technical assistance: fund the ecosystem that supports organizers.