Q&A #4 – What options does my organization have related to restricted funds for a project that we’ve had to put on hold due to the pandemic?

Question:  My nonprofit recently finished a capital campaign for expansion and restoration of our facilities. Because of the coronavirus pandemic, we’ve had to put this project on hold, and we are now also reconsidering our need for expanded facilities after the crisis abates and recovery begins. Meanwhile, our cash flow is running extremely low and we may soon need to lay off additional employees if this situation does not improve soon. What are our options related to the funds we have received from the capital campaign?

Answer:  You raise a question that is particularly crucial right now, given the funding disruptions most nonprofits are experiencing during this crisis. Based on your description of the situation, it appears your organization has a large amount of “restricted funds” for a project that is at best delayed or maybe later determined not to be needed anymore.

Restricted funds, of course, cannot be used for purposes outside of the restrictions agreed to unless the donors/grantors consent to modify the restrictions (or, alternatively, the modifications are approved by a court).

However, there are several steps you can take to get a better sense of how narrow or flexible the restrictions actually are, and to work with your donors and grantors to seek the appropriate modifications that will benefit your organization. For organizations in a situation like the one you describe, I recommend a proactive three-step proactive approach that includes revisiting documents and background related to the restrictions, aligning and re-aligning capacity and programs with restricted funds, and contacting funders and donors to explore modifications and other options. Each of these steps along with other tactics and strategies are explored in more depth in this article.

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