Shifting Funding Criteria

Yesterday the Artful Manager entry referred to a statement by the board of directors of the Independent Sector calling for a change in the way non-profits were funded. In addition to calling for the support of indirect project costs as Mr. Taylor noted, it also allayed some concerns I have had.

In an earlier entry, I discussed my fears that foundation funding criteria might not recognize the evolving arts environment quickly enough to sustain the organizations they support. The Independent Sector statement urges foundations to move away from short term project support to long term core support of organizations. It also strives to make foundations aware that in many cases, though they may not be aware of it, their support is crucial to the survival of the organization.

“Funders should be responsive to the capitalization needs of organizations, and to the forms of funding necessary to sustain them. Funders should not assume that an organization will become self-sustaining or that others will fund it after they have ceased supporting it….Where possible, a funder planning to exit a high-performing organization should assist the organization in obtaining funding following its exit.”

This concept seems to reflect portions of the “Leverage Lost..” paper oft cited in my entries. Among the things the author wrote were:

“While these gifts were often significant in the life of a given institution, they were rarely associated with a formally constructed plan for that institution’s progression, and even less often with a grand scheme for systemic advancement of the entire arts field.”

“In addition to the already noted strategic goals of the Ford, it is highly significant that the Foundation viewed itself as a catalyst for these major developments, but not as the perpetual funder. ”

“The most obvious, though rarely acknowledged, reason that it could not last indefinitely was that the institutional money supply could not continue to grow. An early assumption of many arts funders, including Ford, was that high leverage funding would stimulate other sources of contributed income for the arts, most notably from government, that would provide a steady and expanding flow of revenues: the so-called “pump priming” or “seed funding” strategy. Meanwhile, government was using the same logic to justify its arts funding.”

In short, the problem seemed to be that everyone was following the Ford model. Everyone was giving short term money with the idea that it would lead to long term support. The problem was, no one was giving long term support.

The IS paper says that “Reliable, predictable, and flexible support is the lifeblood of nonprofit organizations. ” It goes on to suggest that long term support will enable more intelligent institutional growth that is not diverted by the need to constantly reinvent themselves to look appealing to grantors.

“Because project grants, which are often favored by funders, usually have a completion date, it is not surprising that there may not be many renewals. The focus on project grants encourages grantees to continually propose new ideas to funders that possibly might fit narrow grant guidelines instead of focusing on building institutional capacity.”

In another entry last October, Andrew Taylor also touched upon the destructive effects of this funding model:

‘Grow, Grow, Grow’ – The bulk of foundations, throughout history, have funded projects rather than operations, with an additional bias toward NEW projects. To get funding, arts organizations had to add new projects and increase the scope and size of their activities (and their staff, and their budget, etc.). As a result, many nonprofit arts organizations find themselves bigger and more complex than they need to be.

The IS article also suggests that funders of specific institutions cooperate with each other to develop an unified set of reporting criteria with which to evaluate and perform due diligence. The idea, of course, is to relieve organizations of the burden of producing myriad reports for all their funders so they can focus on institutional development.

The paper also mentions a number of barriers that might prevent foundations from shifting to this model. Among them are lack of confidence that their goals will be met via core support rather than project support, mistrust in an organization’s ability to wisely manage the money and lack of interest or approval of all institutional activities.

Naturally, in return, the non-profits are expected to exhibit excellence of product and strategic planning. Long term support does not imply eternal funding at a constant level.