The Baker’s Dilemma and the inequity of restricted funding


chefHi 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 bizcocho2Baker’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.

plungerFrankly, 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. saber

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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34 thoughts on “The Baker’s Dilemma and the inequity of restricted funding

  1. Regina Podhorin-Zilinski

    Perfect – have been saying this for many years and it is so nice to hear it stated so clearly from others in the field. Thank you. Sometimes nonprofits can be their own enemy – it is time for that to stop. The vast majority of the most ridiculous restrictions are from government sources – which also tend to be the largest grants. I’m watching too many small to mid sized nonprofits implode by not having the infrastrucuture to manage these grants. It’s a lose/lose proposition.

    1. Vu Le

      Thanks, Regina. Yeah, government grants can be ridiculous. Unfortunately, the culture they perpetuate has been affecting all funding sources. We need to advocate for some systems change

  2. Pat Ryan

    Vu, I do try to be culturally sensitive, but I’m not cleaning out my car by Thursday (it’s frickin’ 1 degree below zero here this morning)! Am I banned from celebrating Tet?

    Great article. After just spending an entire week (I was here until 11:00 p.m. the deadline day) filling out the reporting forms for some restricted money, I’m with you. And this was after another staff person spent more than a week’s time doing the outcomes part of the reporting! This has become ridiculous!

    That said, as soon as I get my numbers ready for finance committee later this week, I’m going to have a crack at your cake problem.

  3. Debbie Duncan

    People like to say “non-profits should be run like a business”. While non-profits should be managed efficiently with good business practices & controls, the governance and goals are not the same as for-profits, which will influence management style and results,. Your exercise in piecing together a quilt of restricted funds is excellent & would be considered absurd/incompetent in a corporate environment. HOWEVER, there are converse sides to the analogy of being “run like a business”, such as when non-profits spend resources on computer hardware & software, updating antiquated facilities, professional education, etc., it should be regarded as investment in effectiveness and capacity, not as unjustified, frivolous expenditure.

    One organization I know actually turned away most funding that excluded any allowance infrastructure. A tough stance, but in the long run, probably more effective use of resources!

  4. verucaamish

    Is there a nonprofit version of the welfare queen myth? I think about how public assistance was both dismantle and made onerous because the right wing effectively peddling a myth of a woman of color living high on the hog off of her welfare check. Did someone make up some nonprofit welfare queen to convince funders that they needed to micromanage their funding streams or some nonprofit would use it for diamond encrusted seat warmers?

    1. Chris Kleinjans

      I think it was an unexpected “benefit” of trying to jam corporate ideology into the NPO setting. With yuppie entrepreneurial NPO management came this idea that metrics, if properly applied could be used to steer the process in a manner the donor(s) wanted. It might have worked for a small number of donors in a large pool, but then everyone jumped on. Also, given the paltry outlays most foundations give, I’m partially convinced this developed as a mechanism for them to justify spending nothing greater than the % they’re required to for 501 status.

    2. Vu Le

      Lol, the nonprofit welfare queen myth is actually on my list of things to write about, after “10 lessons nonprofits can learn from The Golden Girls.” Seriously, though, it is an extremely dangerous myth.

  5. john gary messer

    I believe there is a body of well-documented research on how discretionary funding was used to redirect, emasculate and otherwise render much of the feminist movement to date.

      1. john gary messer

        Do a little research on the web, start with wikipedia. The sociology literature is likely to be abundant as is the feminist literature itself.

  6. Teju Adisa-Farrar

    I love the ordering a cake logic exercise, it’s a great way to express the difficulties and impossibilities that is restricted funding (while also trying to make an impact). Funding is already a big enough issues for non-profits, so restricting it is even more problematic. If a funder believes in the mission of an organization then they should fund it without restrictions so the organization can focus on the work and the impact that the funders believe in.

  7. Chris Kleinjans

    Just studied the Baker’s Dilemma Ex. and it is probably one of the most clear and sublime exercises of this type I’ve ever come a cross, really outstanding encapsulation of the concept with no extra filler.

    1. Vu Le

      Thanks, Chris! It’s actually more fun to CREATE the puzzle than to actually try to solve it, which is symbolic of the problems we have with funding dynamics.

  8. Pia Infante

    Agreed. Talking about unrestricted funding is so 2005 (we have been since then, literally quoted in the GEO report you note), yet providing it sector wide still like pulling teeth. The question is – how do we get philanthropy to release its cherished habits? Clearly, data is not doing it. We believe that there is a small but mighty cohort in philanthropy that is trying move the dial by example and story, and are curious about what you all are seeing out there, too. Thanks for bringing this familiar but as yet unrealized request to the surface yet again: multi-year, unrestricted funding. Just do it.

    Pia Infante, Co-Executive Director, The Whitman Institute

    p.s. = Any chance you’d consider adding a feminist twist to your blog title – “Nonprofit with Balls and Ovaries”? Feeling a bit odd that the implication is you have to have balls to be courageous and fresh.

    1. Michael C Crosby

      All Women are courageous and fresh. Men are the stinky ones. So I just saw it as implied that Women knew what to do .

      1. Pia Infante

        Thanks for the clarification! My colleague also reminded me that the metaphor also refers to the # of balls in the air, but clearly you see where my brain went directly.

        1. Vu Le

          Pia, originally, the banner is supposed to rotate to different shows that I love. This current one is of Breaking Bad. The next one would be Game of Thrones, then House of Cards. But I kind of, uh, dropped the balls on that.

          1. Pia Infante

            Sounds fun! Would love to see some dragons and such for a Game of Thrones banner; and the character in one of those amazing power suits that Robin Wright sports on House of Cards.

    2. Vu Le

      Pia, the title comes from an experience I had, described at I’ve pasted an excerpt here:

      Luke looked perplexed and started talking about the importance of the
      effort he is trying to advance. I told him that if he wants effective
      collaborations, he should go to his funders and advocate for a more
      equitable financial support of organizations that are out there on the
      ground doing direct work so that we can have more capacity for advocacy.
      He became irritated and extremely defensive.

      “Well,” he said, “I can’t go back to my funders and say ‘Vu won’t play ball unless we give him money.’ I can’t do that.”

      Luke must be new to Seattle. In a city known for process and indirectness, it was rather refreshing to hear him talk.

      “Play ball? Listen, Luke, we small ethnic nonprofits are knee-deep in balls!
      We have balls flying at us from every corner, from the City, from the
      County, from the School District, from organizations like yours. Usually
      without any funding to support our operations. We can’t juggle your
      balls for you!”

      1. Pia Infante

        Yup, got it. Without the back story, and because the character is pant-less, there’s still some room for interpreting it in the less favorable non-feminist way. But I’m glad I asked.

  9. Michael C Crosby

    So John’s money goes to 2 sugar, 1 butter, and 2 chocolate
    Bill’s gets us 1 vanilla and 1 chocolate
    Sue’s buys 2 eggs and 1 butter
    Anna provides for 3 flour and half of the electricity
    Steven matches Sue on eggs (2), either Hohn or Sue on butter (1) and Anna on half the electricity

    In the Plumber analogy I do care that the plumber does not use lead pipes.

    While I will admit that some restricted funding is onerous and even frivolous, not all is. We restrict funds to two areas that are historical for us and that have high populations of disadvantaged residents. While this might present a problem for non profits I see many writing grants that target these populations in the areas we wish to fund. Quality of grant writing can be a problem but we try to solve that by doing 100% site visits. Well written (corporate or professional grant writers) might represent a program that is not top notch even though the grant is flawless. Grant writers from smaller (maybe even english as a second language) groups might look very lackluster but when the program is visited the energy and participation make it stand out. If we were to throw our limited funds out unrestricted our family grant reviewers would quickly burn out with the volume of incoming grant requests.

    Maybe there is a difference between restricted and targeted grants. I like to think of our system as one of asking for targeted grant requests rather then restricting what the money we choose to grant is used for.

    We do grant general operating expenses but we tend to favor targeted programs by a slight margin.

    Our guidelines were created (and they are living guidelines that we continually review) to first target grants in areas we see a need (Middle school as opposed to elementary, secondary or post secondary since there are other grantors that target those areas) or to create models that can be utilized throughout the country (our focus on climate change in the Midwest as this is an area that has similarities to many other areas around the country, so if a program works here it can be used as a model in other areas with similar end results).

    1. Vu Le

      Thanks, Michael. I think there are reasonable and unreasonable restrictions. Reasonable: Don’t use child labor, don’t harm the environment, don’t do anything illegal, etc. Unreasonable: I won’t pay for food for your community meetings.

      And yes, there’s a difference between restriction and just targeted grants. I am fine with targeted grants. But once you give them, and everyone agrees on outcomes and reasonable parameters, we should trust everyone to do their job.

  10. Patricia Garza

    The cake exercise is simply brilliant! I always have this conversation with colleagues about how smaller companies want to get that “big grant” but honestly-it is a full-time job to just write the grant let alone figure out all the restrictions! or how to report or dice up your numbers correctly! Capacity is a huge issue and more folks need to be aware that until the tides change there is so much energy and brainpower being spent on this exact conversation internally at most nonprofits.

  11. Christy Qualle

    Kudos! So few people post great advice on nonprofit accounting that is entertaining to read, but I couldn’t agree more. A coworker that helps nonprofits set up their fund accounting software often uses the analogy of cargo pants with money spread out in various pockets, but only $5 in your wallet, but I love your cake analogy. It really highlights the complexity and headache that comes with tracking and complying with the restrictions. I found your blog through @gtak and glad I did. Great stuff!

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