Good to the Core

Foundation News & Commentary

July/August 2001
Section: Commentary

One funder has decided that beginning this July at least half of its annual grantmaking will be for core-operating support, and no more than half will go to new initiatives. Here’s why. 

By Gary L. Yates

During the last decade, foundations have heartily embraced funding new initiatives. This involves concentrating significant grant dollars over an extended period to address clearly defined problems. The key argument is that funding initiatives permits foundations to work proactively and strategically to shape solutions, and allows them to work intensively on problems long enough to have a measurable impact.  

But this increase in support for initiatives has come at the expense of grantmaking dollars formerly earmarked for core-operating support, otherwise known as “unrestricted funding” for nonprofits to use as they see fit to strengthen their organizations. In an era when we have more foundations and philanthropic dollars, less than 15 percent of philanthropic grants nationwide are for core-operating support. 

Since its founding in 1992, The California Wellness Foundation (TCWF) has been among those funders making most of its grants for new initiatives. Our mission is to improve the health of Californians by making grants for health promotion, wellness education and disease prevention. Our guidelines have encouraged applicants “to apply for funds to pursue innovative programs that break new ground in the field of health promotion/disease prevention or that improve or expand existing strategies.” We have also stated prominently on our guidelines that we did not fund core-operating support.

By 1995, the foundation had launched five strategic initiatives, ranging from $20 million over five years to $60 million over ten years. TCWF funded independent evaluators to assess the impact of each program, and asked Grantees to develop strategies that would sustain programs once foundation funding ended. A small portion of TCWF’s funds remained available for responsive grantmaking with an emphasis on “innovative, cutting-edge projects.” 

Sparked by one of our core values—learning—we sought lessons learned from our grantees. As a result, we’ve changed our thinking about our grantmaking. We heard a recurring message from California nonprofits that provide health services to an increasing number of uninsured, underserved and—despite the strong economy—low-income residents. Their voices told us about the daunting challenges these nonprofits face in post-devolution California, as reduced government funding and changes in the healthcare system have strained nonprofits’ abilities to serve their clients.  

Some Grantees described the stress they regularly experience as they try to mold their institutions to secure initiative or project funding: They sculpt themselves into what they perceive the funder wants them to be at that moment.

This experience made us recognize that our foundation—with its focus on innovative projects funded through strategic initiatives—has inadvertently been part of this dynamic, which may actually weaken the very organizations we hope to support. Our intent is not to convey that all initiative grantmaking is negative. To the contrary, we remain committed to our initiatives and the positive long-term benefits we believe they can provide.  

However, we now want to achieve a better balance between funding innovative new projects and providing core-operating support. As such, our board decided that beginning in July 2001, at least half of our annual grantmaking will be for core-operating support and no more than half will be initiatives. Words that will be prominent in our new guidelines include strengthen, support and unrestricted funding for existing programs, as contrasted with our previous language: increase, expand, innovative and cutting-edge projects.

What Adds Value?

We gradually began a shift to this new balance a few years ago, and the response from nonprofits to submitting more proposals for core-operating support has been overwhelmingly positive—sometimes even met with disbelief.

And we have learned much about strengthening the institutional capacity of organizations, thanks to the effective ways in which Grantees have used their core-operating funds. For example, a small clinic in rural Watsonville, California, has used such a grant to pay for a physician to increase patient visits. Revenue from these services was sufficient to keep the position funded after the grant ended—a win for the clinic, its patients and the foundation.

The response to our new approach from our philanthropic colleagues, however, has been mixed. While some concur with the need for more core-operating support, others believe TCWF is headed in a direction that isn’t strategic and is unlikely to result in the “value-added” outcomes many believe strategic philanthropy should produce.

We understand the ambivalence of many of our colleagues, yet we assert that core-operating support may be one of the most strategic approaches we can use. Strong nonprofits that provide preventive health services to under-served populations or that advocate for effective health policies are essential, if progress is to be made toward our foundation’s mission to improve the health of Californians. While project funding tends to stretch and even weaken nonprofits, core-operating dollars can have the opposite effect: strengthening organizations and helping them stay focused on their mission. Now that’s adding value! 

We also believe that by increasing core-operating funds, we free nonprofits to become more strategic about how they tackle the challenges they face — free to craft their own solutions that enhance their effectiveness, strengthen their staff and continue to build their infrastructure. 

About Sustainability

Perhaps one of the best arguments for foundations to consider providing more funds for core-operating support is that of sustainability. Most foundation-initiated programs ask Grantees to continue their projects after the funding ends. The concept behind this request is that government funding or other revenue sources will pick up a successful project. In reality, such funding proves more and more difficult to find. After all, most foundations, ours included, want to fund new, innovative projects, not something another funder created. And, despite the recent surge in government revenues, thanks to the strong economy of the 1990s, little interest is shown at the federal, state or local level in picking up foundation-initiated projects. In fact, further federal cutbacks for funding of rural health clinics have recently been proposed.

One of the best-kept secrets in our field is that the majority of foundation-funded innovative projects are, in fact, not sustained. I know there are exceptions, but I believe the exceptions prove the rule. On occasion, sustainability is possible.

Before joining TCWF, I managed an initiative grant from a major national foundation for Childrens Hospital Los Angeles. Funded five years, the grant called for continuation of the program at its end. Approaching the final year, we had been unable to obtain continuation funding from other foundations or government sources. In the short run, persistence paid off, and at least ten sites were funded nationwide within this initiative. In the long run, however, 15 years after the funding ended, as far as I can determine, only two sites continue today.

We must ask ourselves two questions: Is “two out of ten” a success when it comes to sustainability? and When we say we want a project sustained, do we mean for a few years or in perpetuity? Each funder has to answer these questions for themselves. With our initiatives, our intention was for the vast majority of sites to continue for a significant period of time or as long they were needed. Unfortunately, my guess is TCWF’s results will be no better than the example given above.

Individual foundations have different missions and needs, so they must choose funding approaches. One approach certainly will not fit all. However, if philanthropy wants to sustain innovative projects and strengthen the nonprofit sector, it must increase its funding of core-operating support. 

Gary L. Yates is president and chief executive officer of The California Wellness Foundation. More information on this topic can be found in the 1999 edition of the foundation’s annual report.

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