Nonprofits: Be Wary of Restricted Gifts


Donor-imposed restrictions on gifts can handcuff a nonprofit, as many have learned during the COVID-19 pandemic. A new academic study of national arts and culture organizations, “Service Delivery Under Pressure: The Effect of Donor Imposed Financial Restrictions,” published in the journal Public Performance & Management Review in 2021, suggests how well-intended restrictions could backfire when it comes to service delivery.

Donors often believe restrictions help service delivery, while nonprofits generally assert they hinder it. According to the study, researchers found a negative relationship between financial restrictions and program outputs. The adverse effects are greater when financial restrictions are mostly derived from permanently restricted donations. According to the authors, this could be due to the relative size of permanently restricted donations and the fact that they’re restricted in perpetuity, leaving nonprofits with little flexibility.

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