Foundation Operations: Board Issues-> Board Policies-> Discretionary Grants
How do board discretionary grants work?
Board discretionary grants are made from a pool of funds set aside for board members to donate to the charitable organization of their choice. The purpose of permitting discretionary grants varies by foundation. For some, discretionary grantmaking is a way to attract and reward board members. Other foundations view the practice as offering board members a way to fund causes that may not exactly fit the foundation's mission. Some foundations permit board members to make grants at their own discretion, rather than through a formal selection process guided by the foundation's predetermined guidelines.
Foundations may choose a discretionary grant program which matches their mission and makes sense for the organization. Following are several examples.
A foundation with an annual grantmaking budget of approximately $20 million provides $25,000 in discretionary grant money per year to each board member. Each grant must be a minimum of $5,000. The recipient organization must have a 501(c)3 designation. Board members may not make discretionary grants to religious organizations for unrestricted or doctrinal purposes.
Each board member can request grants to be directed to qualified nonprofit organizations within the state served by the foundation. Discretionary grants are subject to staff review and must be ratified by the full board. The annual total for discretionary grants is limited to 1 percent of the foundation's total grantmaking budget for that year, with a cap of $50,000 per board member.
A foundation allows board members, after completing a six-year term, to award $25,000 in discretionary grants on a one-time basis. The grants must fall within the foundation's grantmaking areas and be provided to a nonprofit organization in the foundation's service area.
Board members are allowed to designate $5,000 to a nonprofit organization of their choice. The foundation also matches contributions made to charities by board and staff members, up to a maximum of $5,000 per person per year.
Each board member has $10,000 in discretionary grantmaking each year. Funds must be allocated to a qualified nonprofit organization anywhere in the U.S. Discretionary grants do not have to fall within the foundation's grantmaking priorities but are subject to full board approval.
A Center for Effective Philanthropy survey of CEOs of the 250 largest foundations in the U.S. revealed that one-third of foundations provided discretionary grants. The median grantmaking budget was $43,000 and the average budget was $321,133.
According to GIH's report, The Business of Giving, about one in eight health care conversion foundations allow board members to make discretionary grants. Many foundations that allow board members to make discretionary grants also have conflict of interest policies.