Commentary: Get rid of red tape and restrictions

Some 13,000 nonprofits employ nearly 120,000 workers and represent 26 percent of jobs in the District. Day in and day out, these organizations provide a vital safety net for our communities and contribute to the local economy.

As nonprofits cope with increases in demand and decreases in funding, the strain has left many hurting. For the third year in a row, a study by the Nonprofit Finance Fund has found that 60 percent of nonprofits have less than 90 days of cash on hand. The challenges that nonprofits face threaten the stability of services on which so many rely.

Although there is a growing number of grantmakers committed to more efficient and effective practices, the philanthropic field as a whole has been slow to adopt the changes that grantees say contribute most to their success.

The only way nonprofits, like private-sector businesses, can adapt and respond to changes in the economy is if they have flexible and sustainable funding that allows them to invest in personnel and maintain an adequate cash flow and reserves. However, complex funding streams and donor-imposed restrictions make it challenging for nonprofits to survive, let alone thrive.

A few foundations offer examples of what we can do to nurture resilience in the nonprofit sector.

According to a new survey from Grantmakers for Effective Organizations, a growing number of grantmakers found that they can better support nonprofits by making changes to a few key practices to boost effectiveness and help to minimize cash flow issues.

Since we last surveyed the field in 2008, funders have reduced the turnaround time between receiving an application and approving a grant from 90 to 60 days; and they reduced the time from approval to initial payment from 21 to 15 days. Streamlining requirements help nonprofits be more responsive to community needs.

Many funders also chose to preserve some of the kinds of funding that grantmakers and grantees agree are connected with long-term nonprofit success, including funding without restrictions and support for capacity building, like leadership development. A significant number of funders even increased these types of support. Fewer restrictions on grant dollars means more working capital to innovate and cope with the unexpected.

For example, the Eugene and Agnes E. Meyer Foundation’s Management Assistance Program provides funding that grantees use to hire consultants to strengthen and support board and staff leadership, conduct organizational planning and improve their financial management systems. (The foundation’s late co-founder, Eugene Meyer, was publisher of The Washington Post.)

There was an increase in funders that actively solicit feedback, both anonymously and on the record. And funders that reported having strategies in place for listening to and learning with grantees were more likely to increase the types of support — such as multi-year grants, flexible funding and capacity-building support — that contribute to building strong, effective and sustainable nonprofit organizations.

The Morris and Gwendolyn Cafritz Foundation sought feedback from grantees to assess and strengthen its performance through a Grantee Perception Report. The report helped the foundation recognize that grantees appreciate the level of unrestricted funding the Foundation provides, but grantees said they would prefer to receive larger and more multi-year grants.

While GEO’s survey focused on foundations, there are lessons that anyone who supports nonprofits can apply: Streamline requirements and remove restrictions on funding to give nonprofits the flexible capital they need to innovate and thrive, and listen to what they say would make the biggest difference to their success.

J. McCray is chief operating officer at Grantmakers for Effective Organizations.