Overhead tensions for foundations and non-profits

FWR Staff

16 May 2007

Foundations are more willing to pay for overhead than non-profits realize. Foundations and non-profits aren't seeing eye-to-eye on attitudes about supporting non-profits' overhead expenses, according to a new study out of the Center on Philanthropy at Indiana University. In turn, the study suggests that non-profits and foundations need to be more forthcoming with one another if they help hope to achieve their common goals.

Around 75% of non-profits say they don't use foundation funding for overhead at all, according to the research center's Paying for Overhead report. But a good 69% of foundations say they pony up for for expenses such as rent, administrative staff, accounting systems and strategic planning.

Different worlds

"The issue of how much support foundations should provide for non-profit overhead expenses is one of the most important in the non-profit field today," says Alan Abramson, director of the Aspen Institute's Nonprofit Sector and Philanthropy Program, which funded the study. "The debate over foundation funding policies is longstanding and heated, and this study sheds important new light on the subject."

Center on Philanthropy research director Patrick Rooney says the study sheds light on the "complex" relationship between foundations and non-profits. "When non-profits reported inadequate overhead funding, the most frequently cited reason, given by 53% of those surveyed, was that foundations pay for programs but not overhead expenses."

Yet, adds Rooney, foundations seem quite willing to pay for overhead. Nearly 50% of them agree with the idea that administrative funding builds capacity and helps fulfill a non-profit's goals.

The discrepancy seems to lie "in the short-term nature of much foundation funding and non-profits' resulting hesitancy to use foundation funding for recurring expenses such as overhead," says Rooney.

Failure to communicate

The Center on Philanthropy polled 3,500 foundations, 6,000 educational and human services organizations, and six case-study groups for.

Only 18% of foundations have written policies about funding overhead expenses, and 35% have similar policies about operating grants. Large foundations that make grants of over $6.5 million a year and those that support local non-profits were likelier to look favorably on overhead funding than smaller foundations.

Paying for Overhead points to a need for better communication between non-profits and foundations on overhead funding and related matters, according toEugene Tempel, executive director of the Center on Philanthropy.

"Nonprofits should more fully explore foundations' willingness to fund administrative costs," says Tempel. "And, given the short duration of much foundation funding, non-profits and foundations together should also consider ways that foundations may be able to help nonprofits identify and develop other sustainable sources of overhead support."

The Center on Philanthropy at Indiana University is part of Indiana University School of Liberal Arts at Indiana University-Purdue University in Indianapolis. -FWR

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