Making Sense of Cost Share
January 02, 2017
If you're evaluating a new funding opportunity, particularly from the US government (USG), one of the things to consider is whether there is a cost-share requirement. Cost share requires the applicant to contribute a certain dollar amount (or dollar equivalent) to support the budget and thus "share" the costs of the proposed project. This post is going to cover some of the basics around cost share including why it is required, why it matters when evaluating opportunities, and how you can come up with it.
COST SHARE REQUIRES DIFFERENT FUNDING SOURCES
Cost share can be a little tricky in that it requires an organization to have a diverse funding base. If a funder requires cost share, you cannot use another grant from that same funder as your cost share. Let's take US government grants as an example. You can't use another USG grant—even if it is from a different federal agency—to be your source of cost share when you are preparing an application for a US government grant opportunity. The cost share has to be from a complementary source such as the private sector (e.g., a corporation or business) or another type of donor (e.g., a private foundation or individual donor).
While the amount of cost share you may have to produce varies by opportunity, it could be equivalent to 20% or more of the total project budget. If your organization receives most of its funding from a single source such as the US government, a cost-share requirement can be difficult to meet. If you have a limited pool of funders, it's possible that you may not have enough funding from other sources to meet a cost-share requirement.
COST SHARE INVOLVES RISK
Committing to cost share is not risk-free. If cost share is required for a grant application, and your organization commits to providing a certain percentage of cost share, your organization has to produce the money. If it turns out that you miscalculated how much cost share your organization can provide, you're still responsible for producing the funds.
For example, a funding opportunity might require 15% of the total budget in cost share over the life of the grant. If your total budget is $1 million, this means you'll need to produce $150,000 in other support to meet the cost share requirement. When you submit the application, let's say you tell the funder that you have $100,000 in grant funding lined up from current grants from other donors, with the remainder of the cost share coming from other grant applications that are pending or anticipated. If you receive the grant, but you don't win the other grants you counted on to provide your cost share, your organization has to come up with the remaining $50,000 or risk violating the terms of your grant agreement. Because of the risk involved if cost share requirements can't be met, organizations need to evaluate carefully how many sources of cost share they can tap into as well as how confident they are that these sources will generate the amount of cost share needed.
SOURCES OF COST SHARE
There are lots of different ways to meet a cost share requirement. One way, alluded to above, is to secure grants from other funding sources. Other possibilities include:
Fundraising: Money raised through fundraisers such as auctions, raffles, and concerts can serve as cost share.
Individual Donations: Donations from individuals can be a source of cost share. If your organization has a website (which it should!), you should consider setting up a secure system to collect individual donations. While you may not collect a lot of money this way, the money you do collect will be unrestricted funding for your organization.
Volunteers: If your organization uses volunteers, those volunteer hours can count as cost share. To make this work, you need to have a reliable system for tracking volunteer hours; and second, you need to research what it would cost if you had to pay someone to do the work of the volunteer. If you have different types of volunteer positions, you'll have to calculate a rate specific to each role. For example, the volunteer who answers the phones as a volunteer administrative assistant will have a lower hourly rate than a volunteer who provides crisis counseling. For many community service organizations, volunteer hours will be the single largest and most reliable source of cost share. Your staff can also donate time to help with cost share. In fact, asking the most senior (and thus, the highest paid) staff in your organization to donate time to a project will have a twofold benefit. Not only will it lower your budget since you won't have to budget their full salaries, but also the hours they volunteer will be valued at their current rate of pay, which should generate a nice sum for cost share.
Donated Equipment: Has your organization received equipment (new or used) from individuals, corporations, or local businesses? If so, the dollar value of the equipment could be a source of cost share. To qualify, the equipment needs to be something that is relevant to, and will be used for, the project that is the subject of the grant proposal.
Shared Office Space: If your organization is fortunate enough to get free office space through a partner organization or other arrangement, the value of the space can be a source of cost share. It's important to note that the value for cost share purposes is only the amount of space your organization uses. If a partner organization gives your organization one room in a building, the amount you could use as cost share would not be the value of the entire building but the value of that room only.
Professional Services: If your organization receives professional services for free, the value of those services can be used as cost share. For example, if your organization receives free services from accountants, lawyers, or business advisors, their time (multiplied by their going rate) can be used as cost share.
DON'T FORGET YOUR PARTNERS
If you are writing a proposal that involves multiple partners and your organization is the lead organization, you'll want to consider asking your partners to contribute cost share. Sometimes the grant application will specifically state that the partner organizations must provide the same amount of cost share as the lead organization. In other cases, the funder will state that there is a cost share requirement, but will not require the partner organizations (or "subs") to provide cost share. Although it's not a popular decision with partners, if there is a cost share requirement for the lead organization, usually the lead organization will flow down that requirement to the subs. For example, if a funder requires a 15% cost share of the lead organization, the lead will in turn ask each of the subs to come up with 15% cost share.
COST SHARE CAN TIP THE BALANCE
In some funding announcements, a funder may say that cost share is not required but will be considered as a tie-breaker when the more than one application receives the top score. When wording appears in a funding announcement about cost share being encouraged (but not required) and that it will serve as a tie-breaker, it's difficult not to feel pressure to provide cost share. After all, if it means the difference between winning and losing, it's a "must do,” right? Not always. It may be unlikely that there will be two or more grant applications so close in quality that a tie-breaker is needed. That said, it still may be worth coming up with at least some cost share if it will give your application more points during the review process. However, be cautious what you promise. You don't want to overwhelm your team by setting impossible cost-share goals in the belief that it is a winning strategy. As mentioned above, it's a risk to commit more cost share than you think you can provide. Further, if you pressure your partners to provide more cost share than they are confident they can provide, you could put your organization at risk. If your organization is the lead organization, and a partner fails to meet its cost share requirement, your organization will be on the hook for any gap.
...AND THEN THERE'S MATCH
"Match" is a term you'll see more often on funding opportunities released by foundations. Match, like cost share, requires the applicant to contribute to the proposed project's budget either through in-kind contributions like goods or services or a cash match; a cash match can be reached through fundraising or by securing grants from other funders.
With match requirements, sometimes you'll need to provide a funder with evidence that you have other grants lined up for the same project you're asking them to fund. In other words, it may not be enough to say that your organization will seek other grants, or that your organization has several grants funding its programs. You may need to show that you already have existing (or pending) grant money for the specific project described in your proposal. If your organization relies primarily on foundation support, you'll probably need grants from several donors to support a large project. Funders know this—that you can't run your project off of their grant alone—and ask about other grant money you have received as a way of evaluating a project's viability.
As with cost share, in-kind support for the project also needs to be documented. If you have a volunteer program, the funder may want to see how many volunteer hours will be supporting the project you're asking them to fund, not the total number of volunteer hours your organization receives across all of its programs.
ONE FINAL (IMPORTANT!) POINT ABOUT COST SHARE
A final thing to keep in mind with cost share and match is that you should track which opportunities you've used cost share for (and what the cost share was) so you know how much you've committed. Doing so will help you avoid over-committing your cost share resources.
For example, if you use volunteer hours for cost share, you'll want some way of tracking volunteer hours and the grant applications that include volunteer hours as cost share. As a general rule, cost share dollars (or equivalent) can only be committed once. For example, in a given fiscal year, you could commit 100 volunteer hours as cost share to a project for Funder A. Donated volunteer time above those 100 hours can be used as cost share for another funder, but if you only have 100 hours of volunteer time in a given fiscal year, you can't use the same 100 hours as cost share on multiple applications. It's similar to budgeting for personnel time. You can't budget someone at 100% effort on every proposal. On some proposals, a staff person will be half time, on others 20%, etc., for a total of 100% effort. In using volunteers for cost share, you have a finite pool of volunteer hours to be spread across opportunities.
Cost share can be difficult to navigate and can incur costs for the organization. Before deciding to apply for a grant that requires cost share, you'll want to talk to your organization's finance staff to get an idea of your organization's sources of cost share and how much you can reasonably commit.
