Posted on May 10, 2007

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Most Foundations Fund Nonprofits' Overhead Costs, Study Finds

Foundations are more likely to support nonprofits' overhead costs than is commonly believed, a new study of foundations and educational and human services nonprofits by the Center on Philanthropy at Indiana University finds.

According to Paying for Overhead (36 pages, PDF), 69 percent of foundations support nonprofits' overhead expenses, such as rent, administrative staff, accounting systems, or strategic planning. In addition, nearly half make grants for general operating support, and almost a third award unrestricted grants. The study, which was funded by the Aspen Institute's Nonprofit Sector and Philanthropy Program, also found that nearly half the foundations surveyed reported that administrative funding builds nonprofits' capacity and helps to meet the needs of constituents, and that large foundations — those granting more than $6.5 million annually — and those that fund nonprofits locally were statistically more likely than smaller foundations or those that grant nationwide to fund nonprofits' overhead expenses.

However, two-thirds of the nonprofits surveyed said they lack adequate funding for their overhead, and 75 percent reported they do not rely on foundation funding to pay for core operations. Case studies of human services and educational nonprofits indicate that instead of foundation funding, nonprofits tend to pursue diversified funding streams to cover overhead and they perceive foundation funding to be temporary. Nonprofit executives claim most foundations want to support start-up costs for innovative programs but not long-term funding, so these leaders tend to use foundation funding to enhance programs or cover periodic expenses such as capacity building or board training.

"The issue of how much support foundations should provide for nonprofit overhead expenses is one of the most important in the nonprofit field today," said Alan Abramson, director of the Aspen Institute's Nonprofit Sector and Philanthropy Program. "The debate over foundation funding policies is longstanding and heated, and this study sheds important new light on the subject."

“New Study Highlights Tensions Between Foundations and Nonprofits Over Funding Policies.” Center on Philanthropy at Indiana University Press Release 5/08/07.

Primary Subject: Philanthropy and Voluntarism
Location(s): Indiana, Indianapolis, National, Washington, DC

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