Leaders of the Ford, Open Society, MacArthur, Hewlett, and Packard Foundations Pledge to Do More to Help Charities Pay Overhead

Wednesday, September 4, 2019

Leaders of the Ford, Open Society, MacArthur, Hewlett, and Packard Foundations Pledge to Do More to Help Charities Pay Overhead

In an unusual move, five of America’s wealthiest foundations have joined forces to do more to help grantees pay for rent, decent wages, technology, and other overhead.

In making their announcement today, the foundation leaders said they were embarking on a major campaign to encourage all other grant makers to join them to help cover essential operating costs.

The heads of Ford, Hewlett, MacArthur, Open Society, and Packard said they had spent two years studying the challenges faced by nonprofits and learned that many of the organizations they supported — including large, prominent, household-name organizations — face major deficits because of stingy policies that provide just a sliver of the money they need to operate and run projects.

Julia Stasch, who last week stepped down as head of the John D. and Catherine T. MacArthur Foundation, said the presidents hoped that by setting an example — and getting others to join — they would "destigmatize" overhead expenses "and make sure everybody understands that they are an essential cost not only of doing business but of growing a business and making investments in infrastructure and increasing impact."

Most important, she said, "the more that foundations pay constructive attention to this issue, the stronger the social sector as a whole will be."

Changing the way foundation money is distributed to focus on overhead will be a long and uphill battle.

Among the foundations making the announcement, grants cover just half of a typical grantee’s overhead costs, on average. In addition, a 2017 Bridgespan analysis of 274 nonprofits that received grants from two or more of the 15 largest U.S. foundations revealed that 42 percent had less than three months’ worth of cash on hand.

Doing more to cover overhead could lead to significant new spending by the foundations or fewer but bigger grants. The presidents said they don’t yet know how much it will cost to carry out their efforts so they haven’t yet decided how they will fit them into their annual grant-making budgets.

The five foundations involved in today’s announcement hold combined assets of $45.8 billion, or 5.3 percent of the assets held by all of the more than 86,200 foundations in the United States.

The effort is fundamentally good news that some of America’s most powerful grant makers are focusing on fixing the problem of underfunding nonprofit overhead, said Jacob Harold, the executive vice president of Candid, a group recently formed by the merger of GuideStar and the Foundation Center...

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