Hi everyone, before we begin this week’s discussion, I just want to point out that this Thursday, 2/19, is the Lunar New Year, a very huge and important holiday in many Asian countries. There are some things you need to do—get a haircut, clean out your car—to ensure your year starts off right (See “Tet: What it is, and 10 things you need to do for it.”) I encourage you to take at least Thursday off if you can, since to work on that day is extremely culturally insensitive. Do you want to offend billions of people in the world? Of course not. Wear something red and take a day off.
Today, I want to talk about unrestricted funding. A couple of weeks ago, Paul Shoemaker published this piece speaking against what he calls “Quite Damaging Dollars” (QDD), funds that come with burdensome restrictions and are not just unhelpful, but actually detrimental to nonprofits’ work.
Paul and I once had a “Fireside chat” in front of an audience of 80 funders, and we drank and riffed on the merits of general operating funds and cultural competency. I don’t remember exactly what we said, because there was no vegan food there, but the wine was vegan, so that’s all I had for dinner. I think I said something along the lines of, “I love you funders—you’re so shiny!—but can you please stop restricting funds? Where am I? Shoemaker, ‘sat you?” (This may explain why I haven’t been invited to many of his org’s events lately).
It’s great that funders like Paul are talking about funding restrictions, because the power dynamics often prevent us nonprofits from making much traction. Not that we haven’t been trying. A while ago I was invited to a conference of funders to lead a workshop on the importance of unrestricted funding. It is incredible when any of us from this side of the table are invited to a funders’ conference, so I put on my best button-down shirt and tried very hard to blend in. “Yes,” I said, “the ROI on constituent engagement efforts are remarkable…I agree, we must shift the paradigm on, uh, synergistic collective actions, yes, absolutely.” Then I stuffed my conference tote bag with bagels and tiny jars of jam because who the heck knows when such an opportunity would come again.
About 40 funders came to my workshop. We began with a small-group exercise called “The 
Baker’s Dilemma,” a logic game I created based on the NWB post, “Nonprofit Funding: Ordering a cake and restricting it too.” Basically, a group of five siblings want to pool their money together to buy a cake for their parents’ anniversary party, but each has restrictions on what his or her money can be spent on. John will pay up to $7, but his money cannot be used for eggs or electricity, and it will pay for no more than 1 stick of butter. Steven will contribute up to $5, and will pay for anything except flour, but only if another person contributes an equal amount. Sue will pay up to $5, but her money can only be used to buy eggs, sugar, or butter, but not the full amount of either. Etc. Your group, the pastry shop, has to figure out how much each sibling is paying for which ingredient of the cake.
After twenty minutes, none of the six small groups of funders were able to solve the logic problem. This, despite the fact that the first group to do so would win a box of chocolate macadamia nut clusters that are like being slapped in the mouth by tropical flavors. People were pulling at their hair. Some started cussing. Some tried to sneak out of this workshop. Others were very thoughtful, elaborating on the metaphor as they worked. “Hm, so Steven won’t pay for anything unless one of his siblings contributes an equal amount. That’s kind of like our matching requirements, huh?”
They requested five additional minutes, but there was still no progress. I had to bring the groups back together to debrief. One funder said, “All the while we were trying to figure out who is paying for which part of the cake and getting frustrated, no group was doing any baking.” Hearing something like that from a funder was better than eating a dozen chocolate macadamia clusters.
The logic problem worksheet can be downloaded here. Print it out and have your foundation’s trustees try to solve it at the next board meeting if they are still not convinced of how frustrating and ineffective restricted funding is.
There are so many reasons for all funding to be unrestricted, as Paul points out in his op-ed. The flexibility to respond to changing needs, the time it would free up to focus on RESULTS, the trust it would build between funders and nonprofits, the uptick in nonprofit staff’s morale—all of these reasons and more would lead to increased effectiveness of our sector and better outcomes for the world.
Frankly, we are sick of restricted funding. It is ridiculous and ineffective. And it is downright insulting. The cake is one analogy of how silly it is. Here’s another analogy: When you hire a plumber to fix your broken pipes or something, and you pay him $250 for the job, do you care how much of your money goes into insurance for his van, or his lunch, or his wrench? No, you only care whether he does a good job or not at fixing the pipes. We nonprofits are like the plumbers fixing the broken pipes of society. While some funders force us to waste time figuring out how much we spent on duct tape and who is paying what percentage for Drano or insurance, doing their “due diligence” to make sure they’re not partially paying for a golden plunger encrusted with diamonds or whatever, the pipes remain busted and spraying cold water on our communities. Let us do our jobs!
There are so many good reasons for all funders to give 100% unrestricted funding. But there is one more reason that we haven’t really paid much attention to, that I want to bring to light here: Restricted funding disproportionately screws over communities of color and other marginalized communities. Tackling what one of my readers calls the “Restricted Funding Sodoku” requires a lot of time and resources, and nonprofits led by communities of color and other marginalized communities just do not have the same level of capacity to handle the burden. Larger organizations may have a full-time bookkeeper or CFO who can spend considerable time figuring out which funder is paying for how much of each line item based on the position of which planet. For smaller organizations running on a small staff, this is not true, and EDs and program staff have to carve out time away from fundraising and programming to figure this stuff out.
I know that right now the sexy thing on the horizon is equity and diversity and cultural competency and inclusion. But in order to achieve these things, we must be willing to shift the systems that are inequitable, that are disproportionately affecting communities that are already most affected by the injustice in the world. And boring, entrenched restricted funding, a misguided red herring for nonprofit “accountability,” is among the top of that list of crappy systems that we need to change if we want to achieve equity. Restricted funding is ineffective, distracting, morale-destroying, burnout-inducing, and a huge burden on community-of-color-led organizations. We need to put a stop to it:
Funders who are still skeptical: Download the Baker’s Dilemma and try to solve it. That’s what we nonprofits face every single day. And please read this report by Grantmakers for Effective Organizations. It provides a convincing argument for general operating funds. Let your grantees focus on outcomes, trust us to do our work, and you’ll be amazed at what we can do.
Funders who are fully bought in: Thank you. Besides helping us to focus on our outcomes, you’re also preventing burnout in the sector. You have way more sway with your peers than us lowly nonprofits, and more opportunities to try, so please speak up more assertively, more publicly, and more often. We depend on you.
Donors: You guys are pretty awesome. I’ve never met a donor who is like, “Here’s $500, but I don’t want more than 10% of that going to your rent.” Just keep being awesome; we need you to be the bastions of sanity in the chaos of the nonprofit funding and financial reporting system.
Nonprofits: We need to speak up in support of unrestricted funds as well as publicly support foundations that provide unrestricted funding. And we need to break some stupid habits that we have, such as saying things at our fundraising events and in our mailings like “100% of your donations go to programming.” (See “General operation funds, admin expenses, and why we nonprofits are our own worst enemies.”)
Restricting funds wastes our time and energy that should be used to focus on achieving outcomes, and the lack of trust and constant financial micromanagement by funders has been disproportionately affecting communities of color, who are not as equipped to shoulder the damaging and unnecessary burdens. 
Honestly, I wish we didn’t have to talk about restricted funds anymore. No one wants to talk about something as boring and as old as restricted funding. I’m tired of talking about it, and so are most of my colleagues. I don’t want to have to come up with any more analogies (“When you get a tattoo, do you care how much of your payment goes to the tattoo artist’s health insurance? No, you just want that sweet Chinese character that means Strength or Love or something!”) And yet we still face it daily and collectively waste thousands of hours each year dealing with it. I’m looking forward to the day when we can all look back at restricted funds and wonder “what the hell were people thinking?”—the way we now look at lobotomies, leech therapy, and that ridiculous light saber design from the upcoming Star Wars movie.
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