The Funder Paradox: Applications, Inflation, and the Cost of Doing Good

I

In philanthropy, we discuss costs frequently and examine organizational budgets intently. However, while working with funders on refining their grant programs, I was struck by the ways we intensify some of our grantees’ financial challenges.

We hate overhead. Applications create more overhead.

One of the most visible paradoxes in the funding community is this: funders say they dislike overhead, and worry about our grantees’ administrative costs, and yet we require grantees to reapply for funding year after year, a process that is time- and resource-intensive. There are plenty of good reasons to require annual applications or to provide single-year funding. But if we look at our grant portfolio and find ourselves funding the same grantees year after year should ask what questions, if any, are essential the second or third time an organization applies. Trimming that redundancy doesn't just ease the burden on grantees. It reduces the foundation’s internal costs and enables grantmaking staff to focus on exploring things they don’t know, rather than retreading ground.

Rather than asking a grantee to reapply; ask them in their report to highlight the items that are critical for you to understand to continue funding their work: their progress, what has changed, and what they are thinking about for the future.

We track the corpus growth. We don’t track grant value after inflation.

Another funder paradox: we are very concerned with keeping our corpus intact or growing, and track that growth in real, inflation-adjusted dollars. But we don't apply the same lens to our grants. Those $10,000 grants many of us have made year over year for a decade (or decades) haven't been adjusted for the significant inflation we've experienced over the past several years, even as we account for inflation when we look at how our own corpus has grown.

A $10,000 grant in 2006 would be worth $16,587 in 2026, adjusted for inflation. A 2016 grant of $10,000 would be $13,932 in 2026 dollars. And much of that inflation happened recently – a $10,000 grant in 2021 would need to be $12,340 today to have the same benefit to the nonprofit.

There are ways we can close the gap.  

The funding sector has gotten much better about not insisting nonprofits operate like businesses, recognizing the real differences between a nonprofit and a for-profit corporation while also acknowledging that each sector has plenty to learn from the other. But as funders, we need to apply some of that keen economic analysis we use to manage our endowments to our funding portfolio. We are essentially hiring nonprofits to do good work for the community, and the cost of that work is getting more expensive, even as it has probably always been under-resourced. Doing our best to remedy that imbalance is part of our job.

Indexing multi-year grants to inflation, regularly reviewing grant “levels” to make sure grant size is commensurate with the impact you and your grantees are working towards, and considering how to balance the preservation of corpus (for foundations in perpetuity) with rising costs of doing good in the world, are all ways funders can potentially shift these economic realities to increase the probability of grantee success.

These paradoxes share a common thread: we ask nonprofits to operate efficiently and sustainably, but we don't always hold our own practices – reapplication requirements, flat grant amounts, assumptions about cost – to that same standard. Closing that gap starts with funders looking honestly at where our habits no longer match what we're asking of the organizations we fund.