A number of major foundations have recently announced plans to increase spending this year in response to drastic decreases in federal funding for nonprofits. This is a laudable move and one I hope many others will follow.

But here’s the hard truth: part of the reason this sudden drop in federal funds is having such a devastating impact is because too few nonprofits have access to enough unrestricted resources to weather even a light rain shower, let alone the hurricane of problems they’re facing now.

A more lasting way to help the nonprofit sector is to fully fund ALL the costs of doing this work.

The Problem with Chronic Underfunding

For too long, both institutional and individual donors have consistently underfunded the core functions that keep nonprofit organizations afloat. Even worse, many continue to restrict the recovery of indirect costs—those necessary but hard-to-assign expenses, such as IT systems, HR, accounting, and rent.

This kind of restricted funding has made the sector more fragile and less resilient, and it’s left nonprofits exposed to collapse during moments of crisis like the one we’re in now. So while we respond to the immediate needs of this moment, let’s also use it to confront a deeper, systemic problem that has been quietly eroding the sector’s capacity to serve.

Here's How We Can Do Better

What Nonprofits Can Do

Stop calling it “overhead.”
This word has a serious PR problem. It obscures the fact that these costs support essential people, systems, and infrastructure that make every mission possible.

Start being specific and transparent about your indirect cost rate.
Your rate should reflect real expenses that support the work, things like finance teams, IT support, and shared office space. It’s not a made-up percentage. It’s a real cost that deserves real funding.

Stop using the same rate year after year without evaluation.
Conditions change. Needs shift. Review your rate regularly to make sure it reflects current, necessary spending, and be ready to explain how and why it was calculated.

Explaining your indirect cost rate clearly—why it exists, how it’s calculated, and how it supports your programs—builds trust with both staff and funders.

What Funders Can Do

Stop placing arbitrary caps on indirect cost recovery.
These caps are not based on reality, and they destabilize the organizations you want to support. If you want impact, fund the infrastructure behind it.

Start offering core support grants.
Make direct investments in the non-glamorous but absolutely essential functions like IT systems, HR, and operations. These are not “extra” costs, they’re what make every program possible.

Stop applying overly narrow restrictions on how funds can be spent.
Be flexible. Nonprofits need the ability to pivot as circumstances change. Building in that flexibility shows trust and promotes real resilience.

This moment is hard. But it's also an opportunity to correct long-standing practices that have weakened the very organizations we rely on to serve our communities. Let’s seize it.

Let’s start funding nonprofits the way we expect them to perform: with strength, stability, and the full capacity to do their work well.

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