Missing In Action v. Windfall

This is another blog about general funding. Stay with me.

Earlier this year, MacKenzie Scott made a bold step and invited nonprofit organizations to apply for funding, intentionally directed at smaller nonprofits.

Smaller comes with a caveat: the stipulations required that applicants have an annual operating budget of at least $1 million and no more than $5 million for at least 2 of the last 4 fiscal years. The initiative would award unrestricted gifts of $1 million each to 250 organizations.*

 In the nonprofit world, operating budgets of this size are not considered small.

The total projected giving by Scott, $250 million, dwarfs her giving of $14 billion, to date. But is that a fair comparison? Is an open application process as opposed to secretive selections, which has been her MO to grant funding, a winning formula?

This year’s offering is a stark departure from Scott’s previous way of giving out money. Up until now, organizations could wake up one morning having been awarded funding, without warning, not based on an application or other communication. Suddenly, an organization could receive a windfall out of nowhere. This might not be a singularly positive situation for a nonprofit to find themselves in. But make no mistake – money is always good!

For a moment, let’s consider that 88% of nonprofits in the US have revenue of less than $500,000; 92% have below $1 million. This minimizes the pool that Scott outlines significantly. As the deadline came and went on June 12, Scott reported that 4% of the total number applicants would receive funding.

It is a fair estimate that the 6,000+ organization had put in significant time completing the applications. Time that is rarely counted in any grant funding, meaning the time staff spent on preparing the specific documents that this funder needed in order to review the submissions.

In an open letter to MacKenzie Scott, written by Seth Lepore, Tina Duong, Muna Ikedionwu, and myself, we argued that philanthropy would be better served by inviting grantees to participate in the actual process of awarding funding; but more importantly, for philanthropy to institute a process where funders trust grantees to know what they need, and how to distribute the funding once they receive it. Hence, the reference to MIA – general funding in, particular.

The open letter to Scott specifically pointed to benefits of prioritizing general funding, which is severely limited for all categories of nonprofits. To fund something as boring as keeping an organization afloat has always been at the bottom of funders’ priorities.

There are funder who understands that if you don’t have people, you don’t have a program, but more often than not, grant requirements stipulate “we don’t support staff”. Examples abound where organizations are hobbling along, skimming off the top of other grants to keep the metaphorical, and literal, doors open. This kind of pressure, struggling to fund staff who are managing operations and programs, is not only hindering a healthy, honest and transparent management of the programming, it is fostering a clandestine environment where nonprofits cannot be honest about the cost of their operations, and instead resort to creative accounting to stay operational.

So called old school fundraisers, who subscribe to a more colonial way of catering to donors, might disagree that it is sometimes not advisable to have donors come any closer than pushing the button on the electronic transfer to an organization’s internal funding allocations. The longstanding attitude of control by funders is juxtaposed with the fact that only a minority of people who are prolific donors have actually engaged in any serious way in the day-to-day running of a nonprofit. Likely they have been on a board, attended fundraising events, or participated in meet-and-greets and mingling ice-breaker gatherings with staff. My point is that people with money don’t not necessarily, or rather not likely, know what it means to run a nonprofit organizations as far as creating and executing programs, carry out the work, and then report back on results and findings. And manage all that other intangible stuff that happens in a nonprofit.

The big questions then is, how is that program going to run? Who will manage it? Who will provide the services? And who will report back the funding agency about progress, and other outcomes?

The lack of general funding also increases the chances of a nonprofit losing its 501c3 status. If there are larger grants, and scant public donations to balance the larger ones out, a nonprofit will be punished for carrying out services, do advocacy, or research under dire financial circumstances, and instead of being able to manage these tasks with an in-house staff, will fall into the IRS bucket called private foundation due to not receiving enough support from the general public.

Many nonprofit leaders wear all the hats of an organization simultaneously, a recipe for disaster at some point or other. Among these duties we find director, manager, administrator, bookkeeper, fundraiser, communicator, IT expert, and even board chair, not to mention actually fundraising for and running programs. On top of that, planning and execution of a myriad of things that is involved with running an organization.

To have money does not equal knowledge of nonprofits or their everyday struggles. Scott showed that she is interested in learning what goes on, while increasing support. The open application initiative furthers that promise.

So here’s a suggestions for another bold step: a mandatory, unpaid internship by donors to go along with a donation? A hands-on experience could facilitate a necessary conversation about the conditions, status and standards in the sector, as well as foster respect and understanding for all involved parties.

*At the time of publishing this blog, Scott had given out $146 million to 24 nonprofits, one receiving $15M, departing from the earlier pledge of $1 million each to 250 organizations. It is also not clear what qualified these organizations fulfilled to receive the amounts.

Photo by ivolga27 at freepik.com