Now is the Time to Push for Changes to Non-Full Cost Funding Practices
Our recent article on the Challenges of Accepting Non-Full Cost Funding prompted compelling and thoughtful comments on the universal problem of non-full cost funding in the nonprofit sector. Many commented that non-full cost funding is a systemic problem that fuels marginalization of the communities, causes, and peoples we serve. To right this wrong, we must draw attention to these problems and advocate for change. Indeed, real sustained effectiveness cannot be achieved if this harmful funding culture continues.
One very compelling and thought-provoking comment came from Alan Thornton, the President & CEO of St. John’s Community Services. Alan highlighted how, in contrast with nonprofits, the for-profit world is not required to accept funding of this nature:
“Nobody questions the need for for-profits to produce healthy margins, because in addition to shareholder value, it also creates capital for the sake of re-investing significant dollars back in the business in order to further build capacity and opportunity, but that perspective is still far from accepted in the nonprofit funding world. Hence the stringent expectations on limitations on Fundraising and Overhead costs, and the continued pervasiveness of the “do more with less” mentality. If the same mentality were applied, and the goal was to both increase shareholder value (aka clients being served) as well as invest for capacity, in the end, good nonprofits might be able to actually afford decreases in contracts, or provide more mission return overall.”
Non-full cost grants and contracts have so many negative consequences for nonprofits that directly affect their sustainability and capacity to deliver on mission. This form of funding also quickly depletes operating reserves while shifting focus away from future capacity building. George Liacopoulos, the Deputy CEO of St. John’s Community Services, had a follow-up eye-catching comment:
“Ultimately, how we’ve managed non-full cost funding is by not providing raises for staff, paying wages for direct support professionals that are lower than staff could get [elsewhere], building IT and other systems as cheaply as possible, and, as Alan cites, basically not investing back into the organization as much as we should or would like.”
These comments are just two of many received. They paint a very convincing picture for needed change. The list of reasons for change is long. Advocacy for change is needed now more than ever, as the economic effects from COVID-19 continue to batter and stress nonprofit organizations to their breaking point. Continued non-full cost funding practices will put recovery in jeopardy if nonprofits cannot get sustainable funding to rebuild depleted operating reserves and return to full operating capacity.
Planning Tip – First, assemble a compelling story of successes your organization has achieved. Describe your successes in great detail but also explain the associated challenges and stresses on financial resources, operating reserves, staff, and capacity that non-full cost funding inflicts on your organization daily. Do not just ask for more funds. Instead, request additional “close-the-gap” sustainable investment that will support and promote capacity and growth, enhance continuity, and provide for opportunities to be even more effective for a long-term stable future.
As we look to the future when nonprofits enter the stage of recovery and eventually the new-normal, we need to advocate now for better comprehensive funding practices that will greatly enhance nonprofit sustainability. These reforms would help stabilize and position nonprofits to meet the long-term needs of the communities and causes they serve.
