Foundations Must Get Serious About Multi-Year Grantmaking

A previous version of this article misstated levels of multi-year grantmaking because of a significant programming error at the Foundation Center. The article has been revised based on the corrected data. It notes a more modest decline in multi-year giving and the lack of reporting revealed by the new analysis. (See Niki Jagpal and Kevin Laskowski, “Errors in ‘The Philanthropic Landscape.’”)

Multi-year funding has declined significantly in the wake of the recession. Unless executives and trustees of our nation’s grantmaking foundations take steps to re-establish multi-year giving, nonprofit organizations and the communities they serve are in for years of increasing uncertainty and diminished impact.

Distinct from continuous funding—a series of grants provided to the same recipient on an annual basis—multi-year funding is a firm commitment to at least two years of funding, ideally more. A new analysis by the National Committee for Responsive Philanthropy (NCRP) of Foundation Center data reveals that, in 2009, multi-year grantmaking declined 21 percent to $5.5 billion from its $6.9-billion peak in the previous year. Overall grantmaking declined 13 percent in 2009 relative to 2008. If the nation’s largest grantmaker, the Bill and Melinda Gates Foundation, were excluded from our analysis, reported multi-year grantmaking would have decreased by more than a third. To date, grantmakers have noted authorizing $4.7 billion in multi-year grants in 2010, an additional decline from 2009 and well below even 2006 levels of $5.3 billion.

These findings confirm only what our members have told us for decades and what nonprofit executives have stated throughout the recent recession: Multi-year grants continue to be extremely difficult to secure.

A recent member survey by Grantmakers for Effective Organizations (GEO) found much the same, even among those funders concerned primarily with building effective nonprofits. More than one quarter (28 percent) of respondents stated that they had decreased multi-year grants because of the economy.

Although the uncertainty facing foundation leaders during the recession is an understandable rationale for scaling back this type of grantmaking, reported multi-year funding lagged as a share of overall foundation dollars even before the economic crisis. Only 10 percent of foundations recount such authorizations annually. Nine in ten sampled foundations either do not make multi-year commitments or do not report making them, making it difficult for US nonprofits to find and obtain this vital type of support.

Without intentional action on the part of foundation trustees and staff, multi-year funding will likely not increase significantly as foundation assets rebound. This raises serious concerns about grantmakers’ understanding of the needs of their nonprofit partners.

The benefits of multi-year funding and their connection to nonprofit effectiveness, capacity, and impact have been recognized for years. Multi-year funding allows nonprofits to respond to crises and opportunities, and to build internal and external capacity. It contributes to sustainability and greater staff retention, allows grantees to respond to new community problems, and improves planning and leadership development.

In 2009, NCRP’s “Criteria for Philanthropy at Its Best” report called upon grantmakers to serve “the public good by investing in the health, growth, and effectiveness of [their] nonprofit partners” by, among other actions, providing at least 50 percent of their grant dollars in the form of multi-year grants. This call was supported by the research of numerous groups, including GEO, Bridgespan Group, Center for Effective Philanthropy, TCC Group, and many of their funders and members.

Our latest analysis shows that overall reported multi-year giving remains comparatively low and that it declined amid the recession. It is worth noting, however, that among those that do report such commitments, multi-year grants are consistently higher as a share of total giving. For example, in 2009, the average share of grant dollars provided as multi-year grants by the full sample was 4 percent. In contrast, the average among multi-year funders was 38 percent.

Many grantmakers, however, either do not recognize the benefits of providing multi-year funding or simply choose to ignore the evidence. The Center for Effective Philanthropy’s report “In Search of Impact” noted back in 2006, “Most grants are simply too small and short-term for it to matter much to grantees whether they are for program or operating support … It is not operating support alone that generates higher ratings of impact on the grantee organization, but rather operating support of sufficient size and duration.”

It is time for a reckoning. A study from CompassPoint and the Meyer Foundation, “Daring to Lead 2011,” calls for “recognition among funders of the ways in which they contribute to the chronic undercapitalization of nonprofit organizations.” Despite the evidence and the stated needs of grantees, foundations have abandoned multi-year funding at a time when their nonprofit partners needed it the most. In a GEO field study, Chief Operating Officer J McCray writes, “[T]hese reductions came at a time of volatility in investments and unreliable donor commitments, shifting the burden to grantees at a time when their funders could have been a stabilizing force for the nonprofit sector.” (Read his analysis of the study: “Nonprofit Resilience Relies on Smarter Grantmaking.”)

The majority of grantmakers appear to have marginalized the very strategies that would have helped grantees weather the crisis and continue to serve pressing social and community needs. Foundations’ choices might seem reasonable at a time when the markets are in flux and the future of the economy uncertain, but they seem short-sighted in light of the costs.

Whatever the loss to foundation assets, the shortfall can be measured and recouped with the market’s rebound. The attendant but avoidable losses to nonprofits and the communities they serve, however, are incalculable and unlikely to be recovered.

As the market recovers, many grantmakers are debating what their new payout policies should be. There is an urgent need for them to also include a discussion of increasing multi-year grants.

Read more stories by Niki Jagpal & Kevin Laskowski.