Grant Makers, Put Results First in Deciding How to Give

Antony Bugg-Levine

Originally published in The Chronicle of Philanthropy

In New York City, the social-service organization BRC saw its shelter clients rapidly returning to homelessness because they could not keep up with rising rental costs. So BRC decided to build its own affordable housing and is soon to open a mixed-use facility that will provide affordable permanent housing alongside a traditional homeless shelter.

In Chelsea, Mass. Roca realized that the at-risk young people who participated in the nonprofit’s well-regarded neighborhood program were still dying, getting arrested, and suffering from substance-abuse problems at alarming rates. So, the organization revamped its program, relentlessly focusing on identifying what approaches worked best to help keep young people healthy, employed, and out of jail.

In communities across the country, Nurse Family Partnership has refined its work to send nurses to the homes of pregnant women and young mothers, conducting extensive research to identify and expand the services that help women and children become — and stay — healthier, safer, and productive.

You may be wondering why this is remarkable. Isn’t our social system all about long-term results for people in need? Don’t we fund organizations like BRC to end homelessness, Roca to help teenagers stay safe and successful, and Nurse Family Partnership to ensure that mothers and children thrive for many years? Unfortunately, that is not always the case.

Even though leaders of those organizations want to make a long-term difference in their communities, that’s not what our system typically pays for. Instead, almost all social-service funding is allocated for activities rather than long-term results. Payment flows to the homeless shelter based on the number of beds occupied and to the youth program and visiting-nurse service based on the number of people they reach. Organizations like BRC must scramble financially to provide therapy and other services that will deal with the underlying reasons their clients are homeless.

Many organizations do amazing work and provide essential services that improve the lives of the people they serve. But the focus on activity-based funding has sapped the ability of too many nonprofits to do what matters most. Forced to follow government and donor direction on how to spend money in support of a cause, many social-service providers are unable to invest in areas such as program evaluation, innovation, or even professional development and training of their own people — investments that are critical to lasting social progress. This misalignment of funding and effort leaves people and communities hampered by persistent social challenges.

But this is not the only way. Innovative organizations, governments, and private donors are discovering they can fulfill their mission better by giving and dedicating funding based on program results, not on the number of people served.

This focus on long-term results puts the flow of money in line with the deepest motivations and moral commitments of the grant makers and nonprofits involved. Political support for social-service funding is firmly re-established as a worthy endeavor rather than a drain on government coffers. Most important, strong results help restore our faith that we can collectively make a difference and improve lives. Taxpayers and private donors stop wondering what they get for their money, nonprofits can shake off many burdensome rules that distract them from making a lasting difference, and vulnerable people are less likely to be left without jobs, health, or homes.

Changing the way governments, grant makers, and others pay for social services is complex and will take time, but the idea is gaining momentum. The focus on long-term results now has widespread support across the country and the political spectrum, including from the Republican former governor of South Carolina; Democratic counterparts in Colorado, Massachusetts, and New York; and mayors in New York City, Denver, and Salt Lake County. Bills to support work that is focused on results have bipartisan cosponsors in the House and Senate.

Making the shift from specific activities to overall results requires a new contract between those who deliver social services and those who pay for them, one in which taxpayers and philanthropists will know they can expect to see the results. For this to happen, they must free service providers from the red tape that makes programs and spending dependent on preset activities and agree to pay the full costs of the work they are hoping to accomplish.

Philanthropy has a special role to play in this transformation. Most donors primarily provide grants for projects, with reporting requirements to ensure an organization did what it said it would. When donors focus on results, though, they aren’t buying activities but building an organization’s ability to make a difference.

Foundation support has been a crucial component of this kind of approach because grant makers have more flexibility than government to try new things. They can support innovation among their grantees, help nonprofits develop new programs and ideas, and support nonprofit leaders and managers so they have resources to do their work — tools that are often politically challenging to defend.

Through our research and work with thousands of nonprofit clients and grantees across the United States, we’ve found these to be effective approaches:

Cover grantees’ full costs. Nonprofits barely getting by on contracts and grants that merely cover the marginal cost of delivering programs can’t afford to evaluate what’s really working and innovate accordingly. They need grant makers that will cover investments in data-tracking software, in staff members with the skills to measure effectiveness, and in longer-term relationships with their clients. And they need donors who will support them in generating budget surpluses to build operating reserves that can offset the risks of these efforts.

Provide flexible support. In an outcomes-oriented system, grant makers gain when their financial support more consistently generates lasting results for the communities they care about. Donors can make that a little easier by providing general-support grants that save nonprofits from dedicating resources to reporting on specific projects and frees them to change their programs when they identify new ways to get better results.

Invest in nonprofit leadership. Shifting to this kind of approach in a world where most donors are still largely organized around activities is a bold commitment that takes savvy leadership and courage. Grant makers can help their grantees build both by investing in training and nonprofit management development, and by giving their beneficiaries the opportunity to learn from and inspire like-minded leaders.

Forge and sustain diverse coalitions. Complex social and environmental problems cannot be solved in isolation — focusing on outcomes requires breaking down barriers. Effective solutions arise when nonprofits, government agencies, local institutions such as hospitals, and political leaders organize around common goals. In many communities, foundations have unique access and credibility to sponsor community discussions that identify goals and bring together the players necessary to achieve them.

A growing number of examples are demonstrating that we can put money and action behind outcomes. These include contracts that reward results and pay- for-success projects that allow investors to put up money for programs and then get it back if they perform well. But financial innovation alone will not drive this movement forward.

We must collectively make a commitment to being accountable for what happens to all people in all communities. That requires grant makers, nonprofits, and government agencies to act in ways that ensure our society will do better for the poorest and most vulnerable people among us and that we organize missions and funding to guarantee their success.

We must draw motivation from the opportunity to solve social problems in the long term rather than save money in the short term.

Just as important, we must also do all we can to build this vision for change with the people whose lives we seek to improve and the organizations that serve them. We must reject calls to strip money from programs before giving them the investment of trust, resources, and time they need to prove their results. Ultimately, we must recognize that achieving better results is our collective responsibility.

Antony Bugg-Levine is chief executive of the Nonprofit Finance Fund. Kerry Sullivan is president of the Bank of America Charitable Foundation. This piece is based on "What Matters: Investing in Results to Build Strong, Vibrant Communities," a book the Nonprofit Finance Fund published with the Federal Reserve Bank of San Francisco. Bank of America helped finance the Nonprofit Finance Fund's work to draw attention to results-focused financing.