For decades, nonprofits have been constrained by grants with strings attached. Donors often earmark funding for specific programs, leaving organizations scrambling to cover core needs. Nonprofits have long argued for unrestricted funding, but such funding remained scarce. Even during COVID-19 – when many funders pledged flexibility – only 18% of 2021 philanthropic dollars came as unrestricted support.
Now, a shift is underway. Trust-based philanthropy is gaining traction, urging grantmakers to give up some control and provide multi-year general operating support. The premise: those on the front lines know best how to use resources. By cutting red tape and focusing on partnership, trust-based funders aim to unlock innovation that rigid grants have long stifled.
Why are more foundations championing unrestricted funding as a best practice? Flexible funds offer stability and agility that restricted grants can’t match. General operating support ensures that essential expenses are covered, while letting nonprofits direct money to where it’s needed most.
Unrestricted funding also helps break the cycle of under-investment in organizational capacity. By trusting nonprofits with general support, donors enable them to build strength. Research shows that flexible funding leaves nonprofits better able to innovate and adapt, and it strengthens financial sustainability by focusing on long-term outcomes over short-term targets. Some grantmakers are responding: the share of foundation grant dollars going to unrestricted support grew from about 5% in 2000 to roughly 20% in 2021.
Does unrestricted funding actually lead to better results? A growing body of data says yes. Nonprofit leaders describe large no-strings grants as “transformational” for their organizations, strengthening their ability to fulfill their missions. Without those restrictions, organizations can put resources wherever they will drive the greatest impact – whether that means expanding a program, upgrading infrastructure, or investing in talent.
Recent studies of MacKenzie Scott’s unprecedented unrestricted philanthropy (and similar big-gift initiatives) reveal dramatically positive effects on nonprofit grantees:
Program Expansion: A majority of recipients used the funds to grow their programs. Over half of Scott’s grantees launched new programmatic initiatives (56%) and expanded existing programs to reach new populations (61%) after receiving her no-strings-attached gifts. This flexible capital enabled nonprofits to scale services and pursue new efforts that were previously out of reach.
Staff Well-Being & Morale: Grantee organizations reported notable boosts to internal morale and capacity. In a CEP survey, 42% of nonprofit leaders said Scott’s unrestricted grant had a positive effect on staff morale, and one-third reported reduced burnout as a result of the gift. Many leaders described the large, trust-based funding as a “vote of confidence” that improved team outlook and problem-solving capacity.
Financial Resilience: Nearly all nonprofits strengthened their financial footing thanks to these big unrestricted infusions. Almost 90% of Scott’s grant recipients indicated that the gift moderately or significantly improved their organization’s long-term financial sustainability. By using the funds to build reserves or invest in assets, grantees doubled their cash on hand (median months of operating reserves) compared to peers, greatly increasing their resilience against future uncertainties.
These benefits contrast with the common struggles of restricted funding, where nonprofits can’t invest in infrastructure or save for a rainy day. By comparison, a major general operating grant can be a game-changer. One community foundation found none of its grantees’ unrestricted spending was frivolous – instead, nonprofits used the flexible dollars to expand programs, improve evaluation, and invest in staff as needed.
Importantly, funders’ fears that nonprofits might misuse no-strings support have not been borne out. Studies show grantees did not “rest on their laurels” with large unrestricted gifts; instead, they used the money to accelerate impact on long-term priorities that had been neglected under piecemeal funding. When funders trust nonprofits with greater freedom, nonprofits reward that trust with results.
Trust-Based Mega-Giving (MacKenzie Scott): Scott’s approach to charitable giving has upended traditional grantmaking. Her no-strings gifts – often surprise lump sums – have gone to organizations of all sizes. Many recipients have leveraged these trust-based donations. For example, one Southern California nonprofit invested part of a $3 million Scott grant to generate a new income stream (about $15,000 per month) that now permanently funds previously under-resourced programs. Across the board, these flexible gifts have allowed nonprofits to build reserves and scale in ways that would have been impossible under restricted funding.
Arts Lifeline (Oregon Shakespeare Festival): In late 2022, the renowned Oregon Shakespeare Festival (OSF) received a lifeline: a $10 million unrestricted grant from the Hitz Foundation to help the theatre recover from a financial crisis. This flexible infusion jump-started a multi-year recovery plan. OSF has been able to retain staff, invest in new programming, and rebuild its audience without the constant fear of running out of operating funds. As the festival’s leadership noted, it “laid the foundation for [OSF’s] long-term stability”.
Grantmakers have historically favored restricted grants to maintain control. As of 2022, only 17% of foundation boards were fully committed to trust-based funding practices.
Yet evidence suggests funders can ensure impact without micromanaging. Early adopters report that nonprofits remain accountable stewards of large gifts – and often achieve greater impact when freed from onerous restrictions.
A growing chorus in philanthropy argues that to tackle complex social challenges, funders must invest in the overall strength of nonprofits, not just projects. The evidence backs this up: when organizations have the flexibility to use funds where they’re needed most, they achieve more sustainable results.
Embracing a trust-based philanthropy model requires a culture shift – treating grantmaking as a partnership and accepting that giving up some control can yield greater impact. Early adopters show that when funders trust strong nonprofits with general operating support, those organizations respond with innovation and growth.
Ultimately, the question for grantmakers is evolving from “Why fund overhead?” to “What impact might we unlock if we do?” By thoughtfully providing unrestricted support – and pairing trust with accountability – funders can strengthen organizations and amplify their impact.