A Social Sector Game Changer

February 17, 2015

Pink Piggy Bank On Top Of A Pile Of One Dollar Bills


Those of us tuned into the national trends and policies affecting the social sector learned last month of a small but seismic change coming out of the federal Office of Management and Budget.

In the closing days of 2014, the Office released new rules related to when governments contract with nonprofits to provide services (the rules are captured in the Uniform Guidance). You see, the Office of Management and Budget oversees how federal funds are spent — at all levels of government (local, state and federal).

Here is the game changer: the new rules require that federal grants and contracts — including those that pass through state and local governments — include a “reasonable amount” for indirect costs. According to the guidance, a “reasonable amount” is at least 10 percent direct costs, and in some cases, nonprofits can negotiate a higher amount.

Nonprofits that are hired by the government to perform a service and paid through federal dollars are to use at least 10 percent of the direct costs of their grant or contract to pay indirect costs.

BOOM! Just as John Madden would say. A mandate for funding that can be used for core operations. Never before has there been such a clear directive and recognition from the federal government.

So just why is this a game changer? There is a great piece from Tim Delaney, president of the National Council of Nonprofits, that I encourage you to read.

But nonprofit CEOs know exactly why. It reinforces the message that supporting the indirect, administrative costs of an organization implementing a project is an absolute necessity. It provides a “floor” for all funders to consider as the minimum for indirect allocation. And of course, it means more money for an organization’s infrastructure, helping to slow or even reverse the “nonprofit starvation cycle.”

Here at the Council of New Jersey Grantmakers we are working to share this exciting and important news with our members. While many funders choose to provide project support more and more they are recognizing the need to allow an allocation for indirect costs.

My friend and colleague Henry Berman, the CEO of Exponent Philanthropy, has called on his fellow grantmakers to see “the new rules as a catalyst for embracing overhead funding,” “incorporate overhead funding into our grantmaking,” and accept the “reality of overhead: Recognize it. Understand it. Fund it.”

The truth is, though, if this is truly to be a game changer, all of us who care about the long-term health and sustainability of our nonprofit sector need to ensure these new rules are implemented. It will be up to the State and Local government offices that are distributing federal funds to implement these guidelines so there is significant education needed to help them understand.

As Rick Cohen of the Nonprofit Quarterly wrote in an excellent essay, the governments are likely to avoid following the new requirement. He has stated that “Industry-wide advocacy is going to be needed.”

In New Jersey, the Center for Non-Profits will be teeing up advocacy, information sessions, and other assistance to help non-profits take advantage of the new rules. And there is no reason that our own State, County and Municipal governments — which also contract with nonprofits using their own funds — shouldn’t adopt similar guidelines themselves.

Now let’s suit up and take the field!

Nina Stack is President of the Council of New Jersey Grantmakers, the statewide association of more than 120 funding organizations working in New Jersey. She also serves as a Board Member of the Forum of Regional Associations of Grantmakers, a 34-member network serving more than 4,000 foundations, corporations and other donors across the country. Nina is a regular contributor to the Dodge Blog. 

Photo at top via Creative Commons