Winning the Grant War But Losing the Budget Battles?

If you were a widget-maker introducing your newest widget, would you set the widget’s price by consciously excluding a portion of the costs of your accounting, HR, or legal fees? No? Well, that’s good news for your widget business!

Include indirect costs to your grant budgets

Price sustainability into your widgets

But if you’re in the grant-winning business, as most nonprofits are, you are often asked to do this. Grantmakers set-up their applications to allow nonprofits to outline the costs of their projects and exclude indirect costs like accounting, HR, and legal fees. And when you get the good news that you’ve been awarded the grant? O boy - you set about delivering on the promises you made in the grant AND securing the funding – from other sources – for normal cost-of-doing-business expenses.

Some grantmakers see the difficulties posed in this model – especially for smaller nonprofits – and they’re making changes. This month, the Annie E. Casey Foundation introduced a tiered approach to granting indirect costs in any award. Welcome news indeed, especially in light of the data-based approach AECF’s work group took in reaching that new policy:

The work group learned that the median reported indirect cost rate of Casey grantees was 19%. Smaller grantees with budgets under $1 million had a median rate of 22% and the largest grantees — those with budgets exceeding $100 million — had a median rate of 14%.

The Casey Foundation's Journey Toward Equitable Grant Making, Feb 3 2022

Casey’s research team, bless them, dug deeper to ask whether there is any additional impact on grantees of color. Few grantees of color are shocked to learn there IS additional negative impact from this policy approach:

Casey learned that grantees of color had median budgets that were just 59% the size of its other grantees and carried a median cost rate of 21% — more than 2% higher than organizations that were not grantees of color.

The Casey Foundation's Journey Toward Equitable Grant Making, Feb 3 2022

Kudos to the Annie E. Casey Foundation, the MacArthur Foundation, and others for working to assure their grantees’ highest, best, most sustainable community impact. And if you run a nonprofit, make sure each of your grant budgets outlines direct and indirect costs. You'll be better armed to win the Grant War AND the Budget Battles. Not sure how to determine direct and indirect costs in your grant budgets? Call or email me – I can help!