A few weeks ago, I was researching a collaborative called Real Costs, Real Change, an effort by 12 of the country’s largest foundations to address their role in the nonprofit starvation cycle, as described by Bridgespan in the Stanford Social Innovation Review back in 2009. As an Inside Philanthropy staff writer dedicated to covering efforts to convince funders to support nonprofits’ full costs, particularly the costs involved in paying fair wages and benefits, I was interested in the impact of this recent initiative, which included OSF, Ford, MacArthur and W.K. Kellogg foundations.
But as I looked into it, I learned of a surprisingly long track record of funders seeking to address this issue, which has once again taken the spotlight amid a wave of COVID-era efforts to address burnout and exhausting nonprofit working conditions.
Real Costs was itself the eventual result of an initial convening of funders around the same problems back in 2016. Even Bridgespan’s 2009 SSIR piece calling out the nonprofit starvation cycle by name was just another in a series of reports, studies, collaboratives and convenings starting with a RAND Corporation report on the issue — in 1986. Funders haven’t been absent from these discussions. Before Ford’s Darren Walker pulled together the 2016 convening that eventually led to Real Costs, Real Change, there was Philanthropy California, an alliance of California funders that produced work on the topic from 2015 to 2018. The Donor’s Forum of Chicago, now called Forefront, also launched in 2015, though that effort seems also to have ended where pushing for full-cost funding is concerned. Such efforts have promoted giving strategies including indirect cost recovery, flexible support and a grantmaking pyramid in order to build organizational resilience; in other words, funders need to provide sufficient support not just to keep the lights on, but also enough to allow grantees to build up a healthy balance of unrestricted funds.
On one hand, it was wonderful to learn that this issue has been on funders’ radars for decades. On the other, it raises the question — why does this remain such an intractable problem? These initiatives have been and are critically needed, and any funder trying to turn the tide through these and other efforts such as trust-based philanthropy or multi-year general operating support should be applauded. But as I perused the several research projects and initiatives calling for proper funding of nonprofits, I couldn’t help but notice that one topic has been virtually absent from all of them: labor, the largest expense among most if not all nonprofits. While labor is an implied part of any discussion of nonprofit costs, none of the reports or calls to action that I have been able to access explicitly mentions issues like living wages, health insurance, and other essential benefits for nonprofit employees.
Granted, the 1980s and succeeding decades haven’t exactly been friendly to workers in any sector. If not for the pandemic coupled with the “Great Resignation,” the decade-plus old fight for a $15 minimum wage, and resurgent efforts to unionize, the trend of pretty much leaving workers to fend for themselves may well have continued unabated through today.
Seeing harmful private sector trends in philanthropy, though, should be shocking, whether they’re under the banner of overhead caps or cloaked in terms like “strategic philanthropy.” The whole point of foundation, and the social contract that allows such accumulations of wealth to exist is that in return for lax taxation and regulation, funders are supposed to focus entirely on the public welfare. Regardless of programmatic goals, how can the public at large be well when one of the country’s largest employment sectors is forced to cut overhead to the bone? All too often, a sector defined by its “love of humanity” has joined the for-profit world in a race to the bottom when it comes to its treatment of workers.
I’m not alone in thinking that the current iteration of the full cost movement is still falling short in this critical area. “How can you talk about full costs or real costs or true costs of nonprofits and not talk about the biggest line item in most nonprofit budgets, which is personnel?” said Fund the People President and CEO Rusty Stahl, during a recent conversation. While all of these initiatives talk about nonprofits’ financial health and overall capacity-building, the needs of nonprofit workers are seldom explicitly addressed.
“What I’ve been saying at Fund the People is that, yes, the staff are part of your capacity, but the staff create the other capacities. They shouldn’t just be buried in a bullet list as if they’re co-equal with chairs, computers or software,” Stahl said.
To be fair, it’s obvious that in the latest of these efforts, Real Cost, Real Change, the collaborative partners were coming from a legitimate place of wanting to reform their practices to more fully support grantees. Most of them reported making significant changes to their funding practices, such as raising or eliminating overhead caps and increasing their general operating support grants. During a recent conversation with Ford representatives, they made it clear that Ford’s program officers are empowered to support the full costs of the nonprofits that Ford funds, including workers’ wages and benefits. And, yes, it’s also true that gen-op support overall can be used for salaries and benefits, but not necessarily for good salaries or benefits.
To understand why labor costs need special attention, we have to look at the whole picture, which includes decades’ of pressure on nonprofits, both implicit and explicit, to keep their overhead low. This culture of deprivation was brought home to me again during a conversation with Jamie Allison, executive director of the Evelyn and Walter Haas Jr. Fund. When Haas provided extra funding to support the wellbeing of its grantees’ nonprofit leadership as part of its racial justice work in 2020, Allison said, the grantees were basically shocked. Allison’s team was told that no other funder had ever even asked about the leaders’ wellbeing, while grantees peppered them with questions about whether it was OK, for example, to use the money for a much-needed retreat.
In 2020, Allison said, “There was some sense of, ‘Can I believe you when you say that you’re interested in the wellbeing of the staff?’ because nonprofit leaders are so used to getting grants that are restricted or funders looking closely at line items and asking questions that lead the nonprofit to believe that the donor maybe isn’t supportive.”
The cultural expectation that nonprofit workers’ needs and nonprofits’ overall non-program needs are unimportant is so strong, in fact, that Haas has even offered to talk with other funders that support its current grantees to encourage them not to punish the grantees for having worker-friendly policies.
Haas grantees’ reaction to the 2020 wellbeing grants isn’t unusual. Time after time, when I’ve spoken to funders that have provided something extra to nonprofit leaders or staff, they have reported similarly shocked reactions from their grantees and repeated questions about whether or not it was truly OK to use the money for its intended purpose. Frankly, the trepidation that nonprofit staff and leaders feel when their needs are finally acknowledged doesn’t sound like the response of a happy partner, but more like the reaction of someone in an abusive relationship when treated with unexpected kindness.
All of which is to say that for many years, there has been an assumption in the world of philanthropy and nonprofit funding that employees’ needs fall far below program needs and outcomes, and below even brick-and-mortar or technology needs. Even if we saw a lasting increase in multi-year, general operating support — and recent developments suggest that is not happening — that wouldn’t necessarily solve the problem of poor nonprofit working conditions. Nonprofits need funders who are explicitly willing to pay the full costs of the programs and organizations they support, including living wages, benefits like health insurance, and paid time off for nonprofit employees. This isn’t just my message, or Inside Philanthropy’s message — it’s the clear message sent by a sector in the midst of a hiring crisis.
With these realities in mind, it’s past time for well-meaning funders to say the quiet part out loud: the only way to fully fund nonprofits is to fully fund their labor costs. There can be no equity if that equity doesn’t include the employees charged with delivering it, and you can’t combat poverty while expecting employees to work for poverty wages. Silence on these points is particularly frustrating in foundations whose missions explicitly include promoting equity and easing poverty. After 40+ years of hostility to workers’ welfare in every sector of our economy, we need them to start shouting.
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