“For years, nonprofits have campaigned for funders to end their widespread practice of providing full financial support for programs and services, but scrimping on overhead costs. This practice gives rise to the vexing “starvation cycle” that constrains nonprofits’ ability to invest in essential organizational infrastructure and creates tensions, and even dishonesty, between grantmakers and grantees.
Recently, a handful of major funders and important intermediaries have joined nonprofits in declaring that it’s time to develop a new approach to grantmaking. The model they collectively support centers on an idea that we call “pay-what-it-takes” philanthropy—a flexible approach grounded in real costs that would replace the rigid 15 percent cap on overhead reimbursement followed by most major foundations."