A restricted gift comes with conditions: it must pay for a named project, often within a set time and budget. An unrestricted gift, or general operating support, can be spent on whatever the organization judges most useful, including salaries, systems and evaluation. When unrestricted support is promised for several years at a time, it is called multiyear general operating support.
The case for each
Restriction feels like accountability. A funder can see exactly what its money bought, and it can be sure the gift serves the goal it cares about. That instinct is responsible.
The case for flexibility is that organizations learn. A charity halfway through a project may find a better approach, or discover that its accounting system is about to fail. A restriction may require the charity to seek the funder’s agreement before changing how the money is used. A grant that does not cover its share of running costs leaves those costs to be funded elsewhere. Ann Goggins Gregory and Don Howard found that foundation allowances for indirect costs averaged 10 to 15 percent of each grant. In four youth-serving nonprofits they studied, actual overhead ran from 17 to 35 percent. They called the result the nonprofit starvation cycle.
Attitudes and practice
In a 2020 report by the Center for Effective Philanthropy, 58 percent of foundation CEOs said their foundations gave some multiyear general operating support, usually to only a few grantees. Among the 58 percent that provided it, 11 percent gave it to more than half their grantees. The survey covered foundations giving at least $5 million a year, not all funders.
Then came a natural experiment. In March 2020, as the COVID-19 pandemic spread, a pledge led by the Ford Foundation with the Council on Foundations, and informed by the Trust-Based Philanthropy Project, asked funders to loosen or eliminate restrictions on current grants, make new grants as unrestricted as possible and cut reporting demands. The Council published the signatories to the pledge. The first of the Trust-Based Philanthropy Project’s six practices is to give multi-year, unrestricted funding.
What we don’t know
The case for unrestricted funding is strong, but most of it rests on what charities say they prefer, not on outcomes. Restriction may help in some situations, for example when a funder brings knowledge the grantee lacks. The sources here do not establish when each works better on final outcomes. The shift of 2020 makes comparison possible: what happened to grantees whose funding became flexible, compared with similar grantees whose funding did not? That is Open Problem 8, the Optimal Restriction.