The Quest for General Operating Support: How Much Progress Have We Made?

In 2004, I worked with Independent Sector to draft a statement, unanimously endorsed by its Board of Directors, that called on funders (1) to opt for general operating support when the goals of the two organizations are “substantially aligned,” and (2) to pay their fair share of administrative and fundraising costs for projects.

The statement observed:

• Reliable, predictable, and flexible support is the lifeblood of nonprofit organizations. It provides the working capital that every organization needs to carry out its mission and respond to new challenges and opportunities.
• A funder can often achieve its strategic goals by providing core support to nonprofit organizations.
• A funder can evaluate an organization much as the organization evaluates its own success.
• The focus on project grants encourages grantees to continually propose new ideas possibly might fit funders’ narrow grant guidelines rather than focusing on building institutional capacity.
• Overhead costs, including the costs of fundraising, are as real to an organization as the costs of activities directly associated with a project, and must come from somewhere. Thus, project support that does not pay its full proportion of overhead takes a “free ride” on other funders’ support, and ultimately decreases the overall effectiveness of an organization.

Since then, Independent Sector’s statement has been echoed by other organizations, including Grantmakers for Effective Organizations, the National Committee on Responsive Philanthropy and, most recently, GIA’s research on capitalization. I have not come across anything opposing the presumption in favor of general operating support, or opposing the proposition that funders should pay the actual overhead incurred by project grants.

The trend is ambiguous. Data from the Foundation Center from 2004 to 2009 (the most recent year reported), shows only a slight increase in the percentage of GOS grants to arts organizations, but a nontrivial 8 percent increase in the percentage of grant dollars. Yet during this period the number and dollar percentage of program support grants also increased somewhat. Where have the funds come from? Perhaps from capital grants—from campaigns and buildings—which decreased about the same percentages that GOS increased If so, I wonder how great an improvement this is for arts organizations.

In any event, I would welcome your analysis of the data, and your views of the extent of the problem. If organizations remain starved for GOS, what are the barriers to funders’ making unrestricted grants or at least paying adequate overhead? How can we make the case and communicate it better?

I look forward to your thoughts.

Paul