Fundraising Q/A: Are restricted gifts an effective philanthropic vehicle, or an unnecessary drain on organizational resources?

The CFO of a social service nonprofit wrote to make the point that restricted gifts are not an effective vehicle. “My rule of thumb,” she said, “is that adding restrictions to gifts is like adding a 7% tax since we have to spend a significant amount of time managing those restrictions.”

“What do you think?” she asked. My short answer: Restricted gifts clearly are a two-edged sword.

From the donor’s perspective, the bigger the gift, the more you want to make sure that your money is used for purposes that you deem important. Restricted gifts are a vehicle for specifying your wishes, and can make it easier for the organization to track and report how the money actually is being used and the difference it is making.

On the other hand, a restricted gift – by definition – does place some constraints on the organization, and does involve some extra record-keeping.  The 7% figure seems high to me, but may reflect the average size of gift. The extra work may not be worth it for a donation of, say, $100 but represent an insignificant investment in, say, a million dollar gift; you have to draw the line somewhere.

I am less concerned about the control issue, so long as the proposed gift fits your mission. Money is fungible and you should be able to make it all work out. A land conservation group may receive money for land acquisition or for stewardship; both should be welcome as key to the organization’s purpose

One way to solve the restricted gift problem is to think creatively about categories of giving opportunities.

For example, one university offered scholarship, research and several other set categories as class gift opportunities. That approach facilitated solicitation discussions by guiding the development person to the right type of opportunity, and still provided considerable freedom in targeting the resources.

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