Rethinking our Systems of Public Funding for Non-Profits

Government grants are traditionally seen as vital instruments for implementing public policy, aimed at addressing various community needs through financial support. However, the path from policy formulation to tangible community impact is fraught with inefficiencies and inequities. In essence, while designed to foster societal betterment, the current grantmaking system often pits community organizations against each other in a counterproductive competition for funds. In this blog post, I delve into the systemic issues inherent in government grantmaking and share some viable alternatives that encourage collaboration and inclusivity.

The Inefficiencies of Traditional Grantmaking

At its core, government grantmaking intends to disburse public funds to address societal issues —from health, education and economic empowerment to environmental conservation. However, the translation of funds into tangible community benefits is not as straightforward as it might seem. The system is often encumbered by high transaction costs, including extensive administrative burdens, rigid compliance requirements, and the competitive nature of fund allocation.

The process of applying for grants is notoriously time-consuming and resource-intensive. Nonprofits, particularly smaller ones, find themselves dedicating substantial amounts of time to navigate through the complexities of grant applications, often having to divert resources from their core mission activities. Staff of non-profit organizations end up mired in exhaustive application processes, detailed and often duplicative reporting requirements, and the constant uncertainty of funding continuity. According to the National Council of Nonprofits, “nearly three-quarters (71%) of nonprofits on the front lines regularly report encountering the needless waste of taxpayer and donor dollars when government red-tape, duplicative submission requirements, and costly protocols waste time and resources that could be used more effectively.”  

In the Council summary of common problems in government-nonprofit grants and contracts,  the majority of nonprofits report problems with governments not paying the full cost of services they provide under grants, with unrealistic limits on reimbursement of legitimate costs that undermine their efficiency and ability to perform vital services on behalf of the government. This environment fosters an industry struggling to survive, where the ability to secure funding can sometimes outweigh the effectiveness of the program itself.

Looking system-wide, the resource inefficiencies of grantmaking are significant. For each highly competitive grant that is awarded, hundreds of hours of non-profit staff time will likely have been devoted to winning applications, and thousands of hours will likely have been devoted to losing ones — time that could otherwise have been used to deliver services or community benefits.   The collective effort spent on unsuccessful grant applications is a sunk cost with no return, sacrificing valuable community resources in favor of a system that values competition over collaboration.

The competitive framework set up by grant systems pits community organizations against each other in a race for funds. This is counterintuitive in a sector where cooperation could yield far greater benefits than competition. For example, two organizations working to alleviate homelessness in the same city might find themselves competing for the same pot of grant money, duplicating efforts and perhaps even undermining each other’s impact.

It is Time to Simplify the Process

Streamlining and simplifying the existing grantmaking process is crucial for making these systems more accessible and less burdensome for nonprofits, particularly for smaller organizations that may lack the resources to navigate complex application procedures. To achieve this, a concerted effort to standardize and simplify application formats across different grants can be implemented, reducing the learning curve and the administrative overhead associated with tailoring responses to the diverse requirements of each grant. This standardization should extend to reporting processes as well, where a unified framework for reporting outcomes that minimizes the need for repetitive data submission could replace the myriad of individual reporting guidelines currently in place.

Furthermore, leveraging technology can play a pivotal role in changing grant systems to be more efficient and accessible. Developing centralized digital portals that serve as one-stop-shops for both applications and reporting can drastically cut down on redundant paperwork and streamline the communication channels between grantors and grantees. These platforms can offer tools for automatic filling of recurrent data, reminders for report submissions, and templates for financial and activity reports, which help in maintaining consistency and accuracy. These improvements can enable organizations of all sizes to participate more fully and fairly in the grantmaking ecosystem.

Such changes not only make the process less daunting but also open the door to a more diverse range of applicants, ensuring that innovative ideas and community solutions are not sidelined by procedural hurdles. Everyone benefits when our dedicated community organizations are allowed to focus more on their core mission than on bureaucratic compliance.

Alternatives to Traditional Grantmaking

The inefficiencies and limitations of traditional grantmaking beg for alternatives that prioritize long-term partnerships over competition. There is a need to develop strategic partnerships where government investments are directed into sustainable initiatives that involve multiple stakeholders, including small non-profits. These partnerships can focus on collective impact rather than isolated successes, encouraging a collaborative approach that goes beyond mere funding to build capacities, share risks, and most importantly, aim for sustained impacts.

For example, the Social Innovation Fund, a program of AmeriCorps, has provided funding that encourages public and private sectors to collaborate on innovative solutions to critical social challenges.  Such models encourage innovation and ensure that small nonprofits are not left to fend for themselves in a competitive grant landscape but are instead part of a larger, cooperative strategy that amplifies their impact. Adopting a participatory grantmaking approach, where community members are involved in decision-making processes, can ensure that funding aligns more closely with the needs and priorities of the communities served. This shift can democratize funding, reduce overhead costs, and enhance the impact of the funds distributed.

One such example can be found at the Brooklyn Community Foundation, where community members have an active voice in the allocation of resources. The model empowers local residents and gives them a direct role in grantmaking processes, leading to more targeted and effective use of funds. They first implemented participatory grantmaking in 2015, and fully transitioned to having community advisory councils for all of their strategic grantmaking in 2021. They are now establishing an expanded, intergenerational grantmaking advisory council.

Organizations are increasingly rethinking the fundamental ways in which grants are structured, distributed, and monitored. Some alternative models to the more traditional grantmaking systems include:

1. Collaborative Funding Models: Shift from competitive grants to models that emphasize collaboration among organizations. This could involve pooling resources from multiple grantors to fund collective impact initiatives where groups of nonprofits work together towards a common goal.

2. Outcome-Based Funding: Restructure grantmaking criteria to focus on outcomes rather than outputs. This involves setting clear, measurable goals at the outset and tying funding to the achievement of these goals, which encourages innovation and efficiency among nonprofits.

3. Capacity Building Investments: Instead of just funding specific projects, invest in building the organizational capacities of nonprofits. This could include funding for improving internal systems, training staff, and other resources that help build more robust organizations capable of delivering better outcomes.

4. Dynamic Feedback Systems: Implement advanced data collection and analysis systems that provide real-time feedback to both grantmakers and grantees about the effectiveness of funded programs. This feedback loop would allow for continuous improvement and adaptation of strategies to meet community needs more effectively.
   

While these models show promise, it is important to acknowledge that alternatives are not automatically better than traditional methods. The success of any grantmaking model, whether traditional or alternative, hinges significantly on the careful design and execution of its processes. Effective change management involves identifying the right model for specific community needs, carefully planning its implementation, and continually assessing its impact to make necessary adjustments. This thoughtful approach ensures that the chosen model not only fits the unique context of the community or sector it serves but also contributes meaningfully to its development.

Conclusion – Moving Towards a Collaborative Future

The systems for government grantmaking exhibit a clear misalignment between the intention to foster community growth and the mechanisms in place to achieve it. Its emphasis on competition and compliance over collaboration is ripe for reform. The alternatives discussed in this blog propose a shift towards a more collaborative and strategic approach to public funding. By fostering multi-stakeholder partnerships and inclusive initiatives, we can create a more effective ecosystem that not only meets community needs but also catalyzes real and lasting change.

Trying to reform government grantmaking systems is not just about improving efficiency but about reimagining how public funds can more effectively support the common good. It’s time to shift towards a system where collaboration and strategic partnerships pave the way for greater benefits to communities. Let's champion a new approach to public funding—one that reduces bureaucratic overhead, fosters innovation, and strengthens our communities in an inclusive and sustainable manner.