Jeremiah Hall's writings on nonprofits, lifestyles and travel

SAN FRANCISCO - If you donate money to save rain forests or support the arts in your community, experts at leading nonprofit watchdogs have a dire prediction for you. If 2010 seemed like a bad year for your favorite charity, just wait for 2011.

Already struggling this year, cash-strapped nonprofits face the prospect of continued high demand with even more cuts next year, especially for those organizations heavily reliant on state and local government funding. And those signs of a slow recovery for the rest of the economy probably won’t come in time to buoy the charitable sector in 2011.

“Nonprofits are the caboose of the train,” says Ken Berger, chief executive officer of Charity Navigator, a nonprofit ranking service based in Glen Rock, N.J. “We’re the last to fall and the last to reemerge.”

In fiscal 2009, giving fell 11 percent at the nation’s top 400 charities – the worst drop since The Chronicle of Philanthropy started tracking nonprofit flows two decades ago. Small and midsized nonprofits are on even shakier ground. Nearly 80 percent had less than six months’ worth of cash on hand and 61 percent struggled with only three months’ cash in reserves, according to a survey by the Nonprofit Finance Fund. The result has been that many nonprofits have scaled back projects, laid off staff, reduced service, and even filed for bankruptcy protection.

And needs continue to grow. Demand for services at food banks and homeless programs are at peak levels, according to Mr. Berger. Take Feeding America, a Chicago-based charity, which claims to feed 37 million people each year. While the organization’s demand for services grew by 46 percent, its donations dropped by nearly 9 percent in 2009. According to the group’s spokeswoman, donations look to be no better in 2010.

Donations aren’t the only worry. Cash-strapped states and counties – desperate for more revenue – are eyeing nonprofits and their cherished tax-exempt status. Numerous state governments, including Hawaii, Georgia, and Kansas have proposals to limit property-tax exemptions or otherwise tax nonprofits. Others are getting tough on charities. The state of Illinois sued a Champaign, Ill., hospital, claiming that it did little charity work, and the state’s Supreme Court agreed. The hospital now owes millions of dollars in property taxes. “With ballooning deficits, everything is on the table and those nonprofits whose charitable value is low are prime targets,” says Daniel Borochoff, president of the American Institute of Philanthropy, based in Chicago. Many states will look to tiered systems where taxes are ranked based on the service provided, he predicts. “Homeless organizations might be taxed far lower than, say, a polo club.”

Scrutiny at the federal level isn’t looking much better. Mr. Borochoff predicts heightened inquiries from Washington stemming from the role of nonprofits in the recent election.

One such nonprofit, the Commission on Hope, Growth & Opportunity in Washington was heavily scrutinized by media outlets for supporting largely Republican issues without disclosing its donor base as traditional political action groups do.

“Nonprofits are intended to be social welfare organizations, not ones that simply allow you to hide your identity,” says Borochoff. He hopes the Federal Trade Commission will take a greater role in policing nonprofits, which has traditionally been left to the Internal Revenue Service. “There needs to be greater disclosure of where your money is going and how much is being spent to get your donation.”

In the face of all this adversity, nonprofits are getting creative. The American Cancer Society’s division that represents most of Northern California undertook an aggressive restructuring that left the group more nimble, more reliant on volunteers, and still able to support a 20 percent increase in demand for services, according to Michael Chae, the group’s regional vice president. “We’ve found that volunteers actually provide better service and are far less costly providing vouchers” for paid transportation in the group’s Road to Recovery program, he says.

Still Charity Navigator’s Berger worries nonprofits aren’t prepared for the year ahead, especially those that rely heavily on state and local government funding.

“States were buoyed by the stimulus bill, but as that dries up, state governments will need to find ways to shore up their balance sheets and charitable programs will be prime targets,” he says. “The disaster delayed by the stimulus will be the disaster that is. Charities just aren’t ready for what’s to come.”

Posted by Jeremiah Hall at 05:15 PM | Permalink | Comments (0)

San Francisco - America's charities have faced a tough 2009. By most accounts, 2010 will be worse. Donations are down and other sources of funding are drying up. Cultural institutions are among the hardest hit.

New York City's Metropolitan Museum of Art, whose fundraising efforts once focused on major gifts for new exhibitions and additional space, now appeals to donors merely to support operations. As donations fall, the load on service charities is rising. Despite a 6 percent decline in contributions this year, the Salvation Army is juggling a fivefold increase in demand for services.

Out of all this trouble, one positive trend has emerged: Charities are focused as never before on efficiency, cutting costs while maintaining services and finding new ways to survive.

"Nonprofits are certainly adapting and getting creative," says Kim Klein, author of the book "Reliable Fundraising in Unreliable Times." "I really defy any for-profit corporation to be as efficient and creative as a nonprofit."

Nonprofits have no choice. Donations are down 9 percent this year at the nation's top charities, according to The Chronicle of Philanthropy, an industry publication. Some 77 percent of charities let fundraisers go or cut fundraising spending.

"There's an enormous amount of attention being placed on efficiencies and measurement," says Ken Berger, president of Charity Navigator. "Most nonprofits are focusing on that right now."

Next year will be worse, predicts Robert Ottenhoff, chief executive officer of GuideStar, a firm that provides financial data on nonprofits. "Foundations, who contribute significantly to nonprofit efforts, were willing to go deeper [into endowments to keep up giving] in 2008. But with endowments down, foundations aren't likely to repeat [that]." Add to that a dramatic decline in state government grants and corporate giving, and it becomes clear that nonprofits' streams of funding are drying up. Particularly worrisome for nonprofits and their clients are states like Florida and California, where unemployment is high and state budgets are especially tight.

To keep operating, many nonprofits are starting with the basics – better targeting of donors and cleaning up accounting programs to pinpoint savings, says Ms. Klein. She points to Amnesty International, which uses advanced technology to analyze giving patterns in order to maximize donations while reducing the overall frequency of fundraising campaigns throughout the year.

Some charities are aggressively deploying new technologies' social networking to extend their fundraising efforts. Doctors Without Borders, which typically relies on direct appeals, recently launched a tool modeled after a sports event where donors are asked to raise money from their friends and family. The hoped-for result: an army of donors.

"There's a lot experimenting going on right now with social media," says Stacy Palmer, editor of The Chronicle of Philanthropy. "But it's way too early to say whether it's working or not."

Another survival tactic: cooperating with rivals. "We're starting to see a number of nonprofits with similar missions sharing administrative functions," says Daniel Borochoff, president of the American Institute of Philanthropy, a charity watchdog. "That's something most thought would never have occurred."

The Center for Nonprofit Advancement, a Washington-based group that helps local nonprofits, created a program called "Back Office in a Box," which pools nonprofits, enabling them to share financial management and accounting resources. In San Francisco, meal providers Project Open Hand, St. Anthony's, Glide Memorial, and the San Francisco Food Bank have joined forces to share kitchen space. Some donors are pushing for those consolidations. The San Francisco Foundation recently recommended that the city reduce the nearly $500-million a year it spends on outside social-service organizations by helping some of the 7,000 local nonprofits cut costs, merge, or close.

To make up for the cuts in staff, some charities are also using more volunteers. "With unemployment high, many nonprofits are relying on volunteers to stay afloat," says Klein. According to the Corporation for National & Community Service, more than 61.8 million Americans volunteered this year – an increase of about 1 million from last year (see chart). Ironically, the increase has many potential volunteers struggling to get called back, or being placed in jobs that don't match their skills.

But the strategic use of volunteers remains a boon for many organizations. One San Francisco nonprofit, the Jewish Voice for Peace, enlisted 14 volunteers to help with fundraising. "The team … ended up raising $40,000 more than last year," says Klein, who advises the organization. "That's more than what the existing staff would have been able to do."

Even with the greater attention on efficiencies, many nonprofits won't survive, watchdogs say. There are simply too many, says Mr. Ottenhoff. "This is the time that we'll see a lot of consolidation."

But Klein hopes that nonprofits will remain optimistic. "With so much attention focused on deliverables and outcomes, I just hope that [nonprofits] will continue to experiment. It's crucial for everyone."

---

Posted by Jeremiah Hall at 12:01 PM | Permalink | Comments (0)

San Francisco - In June 2006, when Wendy Maholic learned that her husband, a master sergeant, had been killed in Afghanistan, her thoughts turned to her 10-year-old son. As she struggled with her grief, she wondered how to help fill the hole left by the loss of his father.

As months passed, Mrs. Maholic learned of a small, up-and-coming charity in Colorado called Knights of Heroes, which provides free, all-inclusive summer camps and long-term mentoring programs for sons of fallen soldiers.

A week of fishing, canoeing, and horseback riding with other children and adult male role models – especially ones who ostensibly knew what Andrew was going through – seemed perfect, but Maholic was apprehensive. The camp was located in Colorado Springs, Colo. She and Andrew were in Fort Bragg, N.C. No one in her immediate circle of friends and family had heard of the organization.

It seemed promising. The camp even offered to arrange for mothers and sisters to be lodged nearby during the session. But she needed more. Like many parents in search of advice, she went online and discovered what she needed – and a new way to evaluate charities.

With the explosion of social networking and user-generated online content, a new crop of websites promises to use similar techniques to help donors, volunteers, and clients assess nonprofits. In some, reviewers are asked to provide commentary on their personal experiences; others poll constituents. It's not fail-safe. But the approach arms donors with information that goes beyond the financial information provided by traditional charity-rating services. It also exposes charities to far greater scrutiny, which some nonprofits have struggled to warm up to.

"It gives you a great feel for what [the experience] is really like," says Maholic, who used a service called GreatNonprofits to check out the charity. "I really got the sense that [Knights of Heroes] would treat them like their own [children]."

Her son, Andrew, has attended two camps with the charity and now receives weekly calls from his mentor. "Andrew's mentor can really relate to him," she adds. "He's been there and knows that sometimes you don't have to say anything."

Previously, donors have relied heavily on GuideStar and other firms that decipher financial data required by the Internal Revenue Service. "While financial data certainly has its place, donors and volunteers should use their heart and their head in making decisions," says Perla Ni, chief executive officer of GreatNonprofits, based in Palo Alto, Calif. "No one has a better perspective on a charity than those who experience it."

GreatNonprofits was conceived in the aftermath of hurricane Katrina. "We were looking for local nonprofits that were helping local residents of Biloxi, Miss., but found that information was hard to come by," recalls Ms. Ni, who was the publisher of Stanford Social Innovation Review at the time. "So we sent someone to walk the streets and ask residents which nonprofits were doing the best work." That basic idea of gathering opinions from those served became the basis of GreatNonprofits. Since then, the service has grown to rate some 2,000 charities. Some 50,000 visitors view the site each month, according to the group.

Some users are enthusiastic. "It's not just about ratio and numbers; it's whether a charity is vibrant and useful to the community," says Sean Stannard-Stockton, CEO of Tactical Philanthropy Advisors, which assists foundations and wealthy donors. He regularly consults websites like Yelp! and GreatNonprofits before making recommendations.

At least one established ratings group is jumping on the bandwagon. Charity Navigator, which has evaluated charities since 2001 based primarily on financial data, is planning to revamp its ratings system. Soon the service will incorporate the human perspective on a nonprofit's effectiveness by surveying its constituents and presenting those findings along with the financial performance.

"There's a new movement within nonprofits to focus on results," says Ken Berger, president of Charity Navigator. "How do we know that you're not doing more harm than good?"

The change is provoking criticism from some charities, Mr. Berger concedes. They ask: " 'Are you mad? We are just so unique,' " he recalls. But he argues that such sentiments are inexcusable and that measuring results might actually help nonprofits with foundations and donors. "Being able to demonstrate how you've helped will become increasingly important," Berger says. "Many foundations are requiring that nonprofits measure their results to qualify for grants." Some nonprofits are apprehensive, Ni agrees. "They're afraid of airing their dirty laundry in public. But if people are going to say something negative, you can always take that feedback and make changes."

But how reliable are those user reviews, especially when a charity is dealing with difficult clients? For example: Delancey Street Foundation in San Francisco provides job training for substance abusers, ex-convicts, and the homeless. When one Delancey Street client posted a negative review on GreatNonprofits, calling into question the group's long-term results, spokeswoman Carol Kizziah was incensed. "I personally found the reviews to be slanderous," she says. "I just don't know how they could give a voice to a drug addict."

Those are exactly the people who need to be heard, Ni counters. "We're giving a voice to the people that the charity serves. We always give nonprofits the opportunity to counter reviews."

"There's no question that donors want reliable information," says Berger of Charity Navigator. "Getting that information is certainly going to be complex and difficult, but it will happen."

In the end, these new ratings tools will prove to be a net positive for charities and those they serve, says Brian Hill, executive director of The Oral Cancer Foundation in Newport Beach, Calif. "Either you produce or you don't. It's easy to lose sight of the people you serve, but seeing people's comments really helps you stay focused and efficient."

Mr. Hill adds that being highly rated on GreatNonprofits has helped by significantly increasing his base of donors. "Money really does flow from the message boards. If it wasn't for the Internet, The Oral Cancer Foundation wouldn't be anywhere," he says.

Trusting the charity was everything to Maholic, who pondered letting her only child travel more than 1,000 miles to the Knights of Heroes program – even though she'd be in the state while he was. "I had a gut feeling that they'd be good, but hearing from others made it a lot easier to be away from Andrew," she says.

--

Posted by Jeremiah Hall at 02:06 PM | Permalink | Comments (0)

As appeared in the CS Monitor

SAN FRANCISCO –Panhandlers have a new tool: clipboards and binders filled with jarring photos, heart-wrenching statistics, and donation forms.

A nonprofit fundraising trend at play for years in Britain has come to the streets of major US cities. Face-to-face fundraising employs teams of young adults donning official-looking uniforms to solicit donations from individuals. Numerous nonprofits are just beginning to use this method, including CARE USA, Children's International, Amnesty International, and Greenpeace.

 

Fundraisers view this technique as a way to appeal to young donors who have eluded more traditional efforts. Targeting passersby on densely populated streets with images of extreme poverty, for example, gets many to stop and listen.

 

But the face-to-face method is receiving a mixed reaction. What most donors don't know and most fundraisers won't say is that the vast majority of these street teams are not employed by the charity they hawk, but by for-profit corporations which take a sizeable bite out of these gifts.

 

These fundraisers typically ask donors for commitments of $10 to $20 a month, providing a seemingly reliable stream of revenue. But most donors don't stick with it. In fact, half stop giving within the first year, according to the Institute of Fundraising in London.

 

To make matters worse, the cost for this type of outreach ranges from $75 to $100 per donor, say experts, so it would take at least five months of regular donations to make up the fundraising cost.

 

Some people are irritated by these face-to-face encounters. Amanda Roberts, a 30-something retail salesperson, says she runs into fundraisers on the streets of San Francisco at least twice a day. "I'll cross the street to avoid them. They're annoying, and they'll follow you until you firmly tell them 'no,' " she says.

 

Watchdog groups have other reasons for concern - in a particular, the lack of disclosure. "This is a really bad way to give," says Daniel Borochoff, president of the American Institute for Philanthropy. "Spend the time to get to know a nonprofit. Make sure their mission matches your goals. This just isn't something that you can get from someone that is rewarded for getting your money on the street."

 

Nonprofits rarely disclose rates of return on individual fundraising campaigns, instead they typically provide their overall annual fundraising expenses. This has Mr. Borochoff concerned that donors don't understand the real cost associated with street fundraisers. "Donors will have much more impact if they give directly to the nonprofit," he says.

 

CARE USA said they weren't able to disclose the costs associated with its street fundraisers. "We don't break down our numbers in this way," says Erich Fasnacht, a fundraising manager for the charity. "This program is being tested, but we are pleased with the results."

 

Little is known about the success of these programs and the largest professional street fundraiser - DialogueDirect - would not respond to repeated requests for an interview. Their website, however, claims that face-to-face fundraising is "extremely cost-effective" and can "achieve a 400 percent return on [a charity's] investment over five years." The firm adds that in 2003, it signed up 230,000 donors worldwide.

 

Mr. Fasnacht views the program as a success because it brings in new donors: "We're seeing a large number of younger donors who are much harder to reach than with other fundraising techniques."

 

According to the Institute of Fundraising, 80 percent of street donors are under 40 years old. The Monitor spoke with eight street fundraisers about their job. Six said they were directly employed by CARE USA. One fundraiser with DialogueDirect, who spoke on condition of anonymity, says that his firm instructs him to avoid discussing his employment status. "I'm not supposed to talk about it unless [a donor] really wants to know." He added that he typically signs up about two donors a day - not enough to earn "sign-up incentives" offered by his employer. Instead he relies on what he called a "modest hourly wage."

 

While CARE USA provides training for the fundraisers, Fasnacht says they don't work for the organization. "The fundraisers are employed by [DialogueDirect], but we do jointly share costs."

 

This new trend comes at a time of fierce competition among nonprofits. Some 1.5 million nonprofits are registered with the IRS, and about 3,000 are added every day, says Paul Light, professor of nonprofit studies at New York University. "There are a lot of nonprofits out there struggling, and they're being very creative with how they raise money," he says. "You can no longer rely on any one source of revenue."

 

Face-to-face fundraising isn't for every nonprofit. "Grassroots and local organization will be the most likely to adopt this approach," says Borochoff. "I also suspect you'll see a lot of people watching what happens with public opinion and how successful these campaigns are."

Posted by Jeremiah Hall at 10:53 AM | Permalink | Comments (0)

Perspective: Time for Some New Thinking at KQED

So how many pledge drives are there exactly?  Winter, Spring, Summer, Fall.  The occasional Earth Day drive. They do seem to sprout up all over the place. 

You add that to Joe McConnell’s traffic sponsorships, Lieff Cabraser sponsoring segments and the seemingly countless foundations, corporations and individuals sponsoring just about everything on KQED, I’m led to wonder:  so really, if you add up all the sponsorship plugs, pledge drives and otherwise is KQED any different than a for profit radio station?  Sure, I enjoy my Morning Edition, but now really how is much of what I hear any different than advertisement?

Toyota commercials – I mean sponsorships – all but tell me to run out to buy a new Prius.  Just about every law firm is at my immediate disposal and countless firms are ready to hire me; yet I’m still subjected to a seemingly never-ending barrage of day-after-day pledge drives.

And really, does all of this amount to one percent of airtime as this station proclaims?  Have we really calculated all the pledge drives, sponsorship plugs and “made possible bys?”  Can’t we find a better way?  It seems that countless other nonprofits survive without such an – can I say – obnoxious assault. 

While I certainly don’t have the answers, isn’t there a technology that might let me – as a member – stream an uninterrupted and pledge-free version on my computer?  Has KQED ever thought about alternatives?  Have they ever tried finding a fundraising mechanism that was only modestly less obnoxious?

We live in an era where technology and other advances have cleared the way for many so many advances.  Isn’t time for KQED to look inward and rethink the pledge?

Posted by Jeremiah Hall at 05:07 PM | Permalink | Comments (2)

As appeared in the Christian Science Monitor

Charity watchdogs have a new warning for donors: Your favorite philanthropy may be loaning your money to its own executives.

It happens at thousands of charities, big and small. And it poses a dilemma for the philanthropic community. Do these perks, used to attract top leaders, ultimately make the charity stronger, better-run, and thus more effective? Or do they drain away money that would be better used on the charity's core mission?

 

The debate over nonprofit benefits is heating up, as some donors and even members of Congress express outrage that charitable funds are being siphoned off.

 

"It's appalling that nonprofits are using tax incentives and donor dollars as a personal piggy bank." says Rick Cowen, executive director of the National Committee for Responsive Philanthropy in Washington. In recent years, more than 10,700 nonprofits have given zero- or low-interest loans to their executives, according to a recent report, commissioned by the Chronicle of Philanthropy, a trade publication.

 

The loans are perfectly legal in most states and the federal government only outlaws foundations - not charities - from making them. According to the Chronicle, 19 states and the District of Columbia prohibit loans to executives at nonprofits, yet the publication found 221 charities within those jurisdictions loaned $10,000 or more to officials.

 

State attorneys general are generally responsible for overseeing nonprofits but often say they lack the resources to investigate. Some charity watchdogs are now calling for greater disclosure or an outright ban on the practice.

 

Charities of all sizes are making such loans. In 2001, Catholic Healthcare West (CHW), a California nonprofit that operates 43 hospitals in three states, paid its chief executive $1.2 million and gave him a $2 million no-interest home loan. If he stays five years, all but $250,000 of that loan will be forgiven.

 

The much smaller Jewish Community Center of San Francisco (JCCSF) , which pays its executive director Nate Levine $215,000 a year, financed his $670,000 home in August 2000.

 

Some nonprofits say loans are beneficial. CHW, with annual revenues of $4.9 billion, says it was losing $300 million a year and needed to attract the best CEO to turn the situation around. So far the gamble has paid off. The nonprofit is now turning a surplus that has helped fund charitable programs that would otherwise not have been possible, says Mark Klein, a CHW spokesman in San Francisco. "It's important to note that no donor dollar was used to finance the loan - it all came from operating revenues," he adds.

 

Other nonprofits won't discuss executive compensation. The JCCSF wouldn't answer questions related to the loan and calls to several of the group's board members responsible for authorizing the loan weren't returned.

 

Such loans should only be made in extreme cases argues Peter Manzo, executive director of the Center for Nonprofit Management in Los Angeles. "It's the rare exception that a nonprofit should make a loan to an executive and [it] should feel comfortable explaining or justifying its decision to anyone," he says.

 

Still certain nonprofits, especially universities, have given low interest home loans to executives for decades. "Loans are very common at universities because they help attract top talent to the campus," says Mr. Manzo.

 

Executive loans are also most likely to occur at healthcare and some arts organizations, experts say. Social-service charities rarely have the assets to loan or offer large compensation packages.

 

The idea of using loans to lure executives was imported from the business world as a way to stay competitive without high salaries, says Arthur Brooks, professor of public administration at Syracuse University. But now is not the time for nonprofits to be doling out costly executive compensation packages, he warns. Giving loans "is the kiss of death for nonprofits. Nobody gets away with it forever."

 

Nonprofits should be subject to a higher degree of accountability, especially those that enjoy huge public support, professor Brooks adds. "The public has a right to be uneasy when nonprofits are largely unregulated and they sense that nonprofits are compensating [executives] too highly or are giving hidden perks like these loans."

 

Charities are required to make their tax returns public, but filings are notoriously late and often difficult to read. Of the 10,700 loans examined by the Chronicle, nearly half failed to accurately report the information on their tax returns. That's where regulators and Congress should step in, says Brooks. "Regulators need to focus on making the information transparent and easily available to donors." he says. "Transparency will have a chilling effect on how frequently loans are given."

 

IRS officials say the agency lacks the staff to keep up with the estimated 850,000 charities nationwide. Each week, 59 staff members review an average of 6,000 nonprofit tax returns, making oversight difficult. Charles Grassley, (R) of Iowa and chair of the Senate Finance Committee, which has been investigating nonprofit finances, wants to ban nonprofit loans altogether. Congress is also debating whether the recently enacted Sarbanes-Oxley Act, which added new disclosure requirements for corporations, should be expanded to cover nonprofits.

 

Experts say the industry is trying to regulate itself and Brooks expresses concern about possible overregulation. "If nonprofits are burdened with excessive reporting some charities might never get started and that has significant implications for society," he says.

 

In the meantime, experts warn donors to pay close attention to federal filings about loans to officers and directors. But finding loans within tax documents isn't easy. Online databases such as Guidestar (www.guidestar.org) help, but require skillful examination, they say.

Posted by Jeremiah Hall at 10:48 AM | Permalink | Comments (0)

As appeared in the Christian Science Monitor

When it comes to charity, are more nonprofits necessarily better?

America has always been known for its entrepreneurial spirit. Mixed with an increasing desire to help the disadvantaged, that spirit has created a dramatic increase in the number of nonprofits. In fact nearly 500,000 have been created in the past 10 years, bringing the total to 1.5 million organizations. But some nonprofit experts are beginning to wonder if that number does more harm than good.

 

"The real question is how long will this growth be sustainable? At some point, we'll simply have too many and the funding won't be able to support the numbers," says Paul Light, professor of nonprofit studies at New York University.

 

For donors, the growth certainly gives them options, but also dilemmas when faced with the decision of who to support. For example, people looking to support education in Des Moines, Iowa, have 330 nonprofits to choose from, according to a search of nonprofit databases. San Francisco givers who want to help the city's homeless have more than 125 possibilities. Portland, Maine, has more than 450 charities that help children.

 

"It's the No. 1 complaint I hear from donors and there is general consensus within the industry that there are too many nonprofits," says Professor Light. "It has already caused enormous competition for funding and has tightened the workforce so significantly that it's nearly a crisis at most human-services organizations."

 

Many nonprofits have administrative operations that need support and with so many focused on similar activities, experts are beginning to call for changes. "It just doesn't make sense to have so many organizations doing the same thing within the same community. What needs to happen is for nonprofits to start thinking about merging or consolidating their operations, but no one is willing to say which one's should do it," says Light.

 

While overall giving has increased, it's primarily going to the major organizations like the United Way, American Red Cross, and church groups. In fact, donors gave $248.5 billion last year, a 5 percent jump from 2003, according to the Giving USA Foundation. When accounting for inflation, it's the first increase since 2000. But giving in some key charitable areas like human services and international affairs actually decreased in inflation-adjusted dollars.

 

The overall increase is robust, says Hank Goldstein, Giving USA's chief executive, but he warns donors that the proliferation of nonprofits has created inefficiencies and duplication. "This really is a cottage industry and not all nonprofits are well-run. For every one nonprofit [that is], you have 10 that aren't."

 

Mr. Goldstein advises donors to look for nonprofits that follow their mission, operate efficiently, and have a board of directors that you can trust. "Donors should spend some time to get to know their nonprofit and make sure you trust that the organization is going to do what it says," he says.

 

Contrarian view Not everyone agrees that there are too many charities, however. "Who's to say when we have too many?" asks Robert Ottenhoff, chief executive of GuideStar, an organization that tracks nonprofits. "The number is a sign of vitality and creativity and that people want to do something about a problem."

 

But Mr. Ottenhoff warns that for charities, "the era of assumed virtue is over. Donors have many choices and they're conducting greater due diligence on nonprofits."

 

To reduce the number of nonprofits, some communities including Pittsburgh, have offered financial incentives encourage charities to merge.

 

"Unfortunately, nonprofits don't like to be told what to do and usually it's only the wrong organizations that take advantage of these efforts," Light says.

 

Even Light suggests that there is room for more charities in certain sectors, especially in areas that care for the poor. "Human-service nonprofits are still needed in some areas, but the new ones really need to shake up the norm or challenge the industry."

 

Currently, barriers to enter the nonprofit industry are relatively easy to overcome, experts say. "The IRS rarely does more than rubber stamp a nonprofit application," says Ottenhoff.

 

That lack of oversight by the Internal Revenue Service has alarmed some federal lawmakers, who fear that some groups are gaining nonprofit status to manipulate the tax code or misuse donor dollars. With few regulating this growing group, some wonder if new laws should make earning nonprofit status more difficult. The Senate Finance Committee is now considering whether to make nonprofits re-register every five years. Reaction is decidedly mixed, but supporters say the process would help weed out charities that haven't been effective.

 

Restoring trust "Donors need to be able to trust that a nonprofit is going to do good with their money. That just isn't the case right now," says a senior staff member with the Senate Finance Committee, who spoke on condition of anonymity.

 

For now, the principal driver for change is likely to be donors, Light says.

 

But ultimately, the economy may decide a nonprofit's fate, according to Goldstein. "The country is living on credit and that's not sustainable. There may come a time that giving actually decreases and that would have a significant impact on the nonprofit sector."

Posted by Jeremiah Hall at 10:52 AM | Permalink | Comments (0)

As appeared in the Christian Science Monitor

Dinners free from telemarketers might seem nostalgic this holiday season. Although more than 58 million households have joined the federal "Do Not Call Registry," watchdog groups predict that the volume of telemarketer solicitations will increase during the next six weeks, the traditional giving season.

That's partly because the registry allows some groups, including charities, to keep dialing to ask for donations. It's also partly because some nonprofits have surreptitiously hired for-profit telemarketers to raise funds on their behalf. That practice is controversial because telemarketers often keep the lion's share of the money they raise in the name of the charity.

 

To keep from falling for such telephone appeals, don't make decisions on the spot, consumer advocates say.

 

"The [charity's] need will still exist after you've done your homework," says consumer writer Elisabeth Leamy in her book, "The Savvy Consumer."

 

Charities have long supplemented their coffers by selling donor lists to other nonprofits. But what is surprising experts is the growing movement of selling donor lists to for-profit telemarketing firms.

 

Lure of 'free money'

 

Some charities consider it "free money" and say that receiving 15 percent of these contributions is better than nothing.

 

"It's money we wouldn't get otherwise," says one fundraising executive, who spoke on condition of anonymity. "Sure, we'd like donors to give us the money directly, but many won't unless they're harassed."

 

The practice is perfectly legal, says Daniel Borochoff, president of the American Institute of Philanthropy based in Chicago.

 

"According to a recent Supreme Court case [Madigan v. Telemarketing Associates], it is OK if fundraisers keep nearly all the money raised as long as they don't falsely claim that a larger portion of contributions is going to the charity," he says. "So fundraisers can avoid getting into trouble with the law by not stating what portion of a donor's money goes to the charity."

 

No one knows how many nonprofits use for-profit telemarketers. But the trend has many watchdogs calling for legislation to curb telemarketers or to demand that they disclose how much is actually going to the charity.

 

Government officials have been trying to crack down.

 

Minnesota's attorney general recently challenged Minnesota Public Radio, saying it misrepresented how donor lists were being used. They eventually settled out of court, but the squabble put other charities on notice.

 

The settlement requires that the organization clearly disclose its fundraising practices and allow donors to opt out of solicitations. Many Minnesota charities are following that guidance.

 

State efforts blocked Several states that operate similar "Do Not Call" lists have tried to expand the ban to include nonprofits, but telemarketers and nonprofits have largely succeeded in blocking the expansion. Congress is considering changing the Federal Registry to include nonprofits, but insiders doubt it will happen soon.

 

The nonprofit world is taking such action seriously. In hopes of slowing the trend, watchdog groups are publicly censuring charities that sell donor names.

 

Beginning Dec. 1, Charity Navigator (www.charitynavigator.com), an online charity monitoring group in Mahwah, N.J., will include a charity's privacy policy in its ratings. To get a favorable score, the charity must not sell or trade a donor's information without written permission.

 

How to skip the calls Donors can avoid becoming victims of telemarketing appeals by making substantial gifts to a few organizations rather than sending smaller gifts to many nonprofits, says Trent Stamp, executive director of Charity Navigator. Such concentrated giving, he says, helps nonprofits cut fundraising expenses while minimizing the number of charities with a donor's information.

 

"A charity's privacy policy is a critical piece in the giving equation," says Mr. Stamp. "Charities implementing and promoting a privacy policy are not merely looking to use their donor list for short-term gain, they're trying to build long-term, mutually beneficial relationships with their donors of all levels."

 

So while regulators and nonprofits sort through the issue, donors need to be cautious with aggressive phone appeals, says Ms. Leamy, the consumer writer. If the telemarketer can't answer basic questions about the organization, including what share of the donation will fund the charity's programs, be wary.

 

When it comes to sending money, watchdog groups add, you're probably better off mailing a check directly to the nonprofit, especially to a well-run charity that can put 90 percent of a donation toward its mission.

 

How to avoid those unwanted phone pitches The American Institute of Philanthropy offers the following tips to slow the number of phone calls from nonprofits:

 

• Be selective in your giving. Give more to fewer organizations.

 

• Tell your charity not to sell your information. Consider including a note with your donation with this instruction.

 

• Write individual charities and instruct them not to call.

 

• Write to Mail Preference Service, Direct Marketing Association, PO Box 9008, Farmingdale, NY 11735-9008. Say that you wish to have your name removed from both commercial and nonprofit organizations' lists.

 

• When a charity calls, ask them to put your name on their "Do Not Call" list.

 

• Check with the consumer-protection agencies in your state and county concerning laws or regulations affecting solicitations.

Posted by Jeremiah Hall at 10:50 AM | Permalink | Comments (0)

As appeared in the Christian Science Monitor

SAN FRANCISCO - Every December, Ross Gillfillan gets dozens of offers from charities that woo him with free greeting cards, address labels, T-shirts, tote bags, and magazine subscriptions. But Mr. Gillfillan, a marketing director in San Francisco, is unmoved.

These days, he turns to several charitable rating services to figure out where he'll donate.

 

"I can't spend hours being a detective," he says. "I need to know and I need to trust that [they] are using my money to fulfill [their] promise to me and to society."

 

Such charity rating and ranking services are mushrooming as a number of recent scandals plague the philanthropic sector. These have hurt donor confidence and are one reason the number of rating services is on the rise. Less than a handful existed a decade ago, experts say. Today, there are more than 50.

 

"Donors can't tell what's good and bad, and need an intermediary to help guide their giving," says Art Taylor, president and chief executive officer of the Better Business Bureau's Wise Giving Alliance in Arlington, Va. The group has examined 450 of the nation's largest charities; 70 percent measure up.

 

If Wise Giving's website is any indication, donors are flocking to the service. More than 1.6 million visitors have viewed its charity reports this year.

 

Rating services differ widely. Some, such as the Wise Giving Alliance, conduct full audits of a charity's fundraising, expenses, and governance, and even investigate donor complaints. Others, such as Charity Navigator, rely on raw financial data and compare performance against industry norms.

 

"No one sees us as the be all and end all of giving," says Trent Stamp, executive director of Charity Navigator. But "before you buy a car, you check Consumer Reports. Now, donors have that same type of service available on charities."

 

Rating services aren't the only ones trying to revamp the nonprofit world. Congress has held hearings, amended tax laws, and beefed up enforcement by the Internal Revenue Service. So far, the IRS hasn't had the staff or the tools to rein in charities, experts say. What most concerns legislators and regulators are poor record-keeping, mismanaged finances, illegal dealings among board members, and excessive executive compensation.

 

For example, two congressmen have called for the resignation of the head of the Statue of Liberty-Ellis Island Foundation after an investigation turned up questionable spending (including $45,000 a year for a border collie to chase geese off the island). Catholic Healthcare West, one of the largest nonprofit hospital systems, has come under fire for loaning its chief executive $1.7 million in mortgage money that he might not have to pay back.

 

If charities don't become accountable on their own, nonprofits and donors can expect more legislation next year aimed at bolstering their accountability, say Senate Finance Committee staffers.

 

Although many charities acknowledge donors' rising use of rating services, not all are thrilled.

 

"The system [Wise Giving] uses to rate charities is flawed and arbitrary," says Robert Freeman, spokesman for Children's Network International.

 

The Wise Giving Alliance admonished the Los Angeles group for not accurately reporting expenses and four other disclosure-related criteria. Yet Charity Navigator gave the charity its highest rating, Mr. Freeman points out. "We've made several attempts to clarify and explain, but nothing [in the report] has changed."

 

Freeman also fears that the negative marks will have a profound impact on his ability to raise funds. "The potential donor really does use rating services and this could impact our ability to help children if donors are scared off," he says.

 

Messrs. Stamp and Taylor both agree that many charities have been reluctant to embrace rating services, grumbling that no one size fits all. But Taylor insists that without some form of independent performance evaluation, "nonprofits will flounder from scandal to scandal. You have to be accountable and if you're not, you ought to be able to explain why."

 

Some experts say it's an alarming trend that promises to undermine fundraising by presenting donors with misleading information that doesn't take into account a charity's mission and uniqueness.

 

"The vast majority of nonprofits are doing a fine job and charities that are transparent and accountable are rewarded by donors," says Bob Ottenhoff, president and CEO of Guidestar, a Williamsburg, Va., nonprofit website that lists tax returns of more than 1 million nonprofits. Rankings "can sometimes be useful, but the core data is too limited to make significant decisions based on one line on one [tax return]," he says.

 

Although regulators need to improve tax returns to strengthen transparency, he adds, the nonprofit industry should take it upon itself to be accountable to donors.

 

Proponents of charity ranking and rating services say they give donors objective information and comparisons against industry norms.

 

"Nonprofits have always been the keepers of the information the donor gets and [rating services] scare them because they want to control the information flow," says Stamp. "This is certainly one of the last industries to embrace accountability, but it [will] only strengthen the entire industry by making donors more comfortable with giving."

Posted by Jeremiah Hall at 10:49 AM | Permalink | Comments (0)

Appeared in the Christian Science Monitor

A dime here and there makes a big difference to charities.

Employers have long offered charitable donation programs that funneled money from an employee’s paycheck to a nonprofit. Along the way, middlemen who helped facilitate the transaction pocketed a small – but significant – portion. Those dimes add up to big money and big business. Some of the largest charities are, in essence, middlemen. Take the United Way. It funds countless nonprofits through these employer programs. Charities have long grumbled, but felt middlemen were a necessary part of fundraising. But that’s changing.

 

High profile scandals are causing many employers to rethink how the distribute donations. Some are demanding greater accountability while others are funding nonprofits directly. Union Bank and MGM Mirage are two firms that hope to shield themselves from problems by distributing donations directly to thousands of nonprofits. Technology has made the program management possible and many other firms are taking note.

 

Some experts say cutting out the middlemen is good news for donors who hope their dollar has the most impact. But others say nonprofit intermediaries offer reassurance and oversight that’s not possible with a self funded program. Click for more

Posted by Jeremiah Hall at 10:47 AM | Permalink | Comments (0)

Appeared in the Christian Science Monitor

Diversity, Accountability Brings Change to Nonprofit Boards By Jeremiah A Hall Special to the Christian Science Monitor

 

SAN FRANCISCO

 

It used to be a seat on a charity’s board was given only to an elite few. But with corporate scandals and tight donations, getting involved is getting easier - especially at the top.

 

Charity watchers say more than 3 million board seats are unfilled. That’s good news if you’re interested in becoming a board member especially if you’re young, have a special expertise or represent a minority.

 

Charities are anxious to fill those seats and in the process revamp their leadership and their boards of directors. Two major reasons: donors are demanding that charities be more reflective of the communities they serve and demonstrate a new and increased commitment to board accountability.

 

That signifies a striking change for charities. Experts say board membership was typically dolled out to individuals who contributed vast sums of money or community celebrities who indirectly brought funds to the charity. Boards were more a fraternity for networking and personal development.

 

Today that’s still important, but nonprofits are refocusing their boards to keep the charity accountable to its donors and community. Cash is still often essential, but now the focus is on donating a “personally significant amount” rather than a set dollar. That clever change is unlocking the door for many who otherwise couldn’t afford a seat at the table. And the hoped for result is a more diverse board and access to a larger donor pool.

 

“Charities can’t afford to appear unaccountable,” says Tara May, principal of Divine Rod a Washington, DC nonprofit consulting firm that helps nonprofits develop governance and accountability programs. “Donors remember Enron and other corporate scandals and want the same level of transparency in their planning and financial reporting as they are now demanding in the corporate world.”

 

Minority populations have largely been under represented on boards which troubled some donors who questioned whether the board could effectively understand the entire community. According to Lynda F. Williams, director of communications for BoardSource, a nonprofit industry board consulting group, they’re now demanding that a charity’s board be more representative.

 

“Charities are looking to reflect the community and that means a push to diversify their boards,” says Williams. “A diverse board will bring different perspectives, different ideas and recommendations that are better informed and more representative of the community’s needs.”

 

Experts say the typical nonprofit board member is a white male between 45 and 60. Booz Allen, another industry consulting group, says that minorities only constitute 14 percent of board seats compared with 27 percent of the general population.

 

To diversify and fill the open board seats, charities are targeting “up and comers” who are typically rising stars in the corporate world and “functional experts” who bring specialized expertise to fill open board seats. According to a Booz Allen survey, board seats are particularly hard to fill at small and mid-sized nonprofits and the greatest need is in large cities like New York, Los Angeles, Chicago and San Francisco.

 

Williams adds that public relation executives, accountants, lobbyist and legal experts are in the most demand. “Board members typically need to bring something of value to a nonprofit,” says Williams. “First [board members] need to believe in the charity’s mission, but you also need to bring money, a special expertise, or connections to occupy a seat.”

 

That said it’s still a philanthropist’s market. “Talent, skills, and smarts - matched with a passion for a charity’s mission - are hard to come by,” says Matthew O’Grady, associate executive director for the Management Center of San Francisco which specializes in finding and training board members. “It’s not easy to find the right match.”

 

Board membership isn’t easy. O’Grady warns aspiring board members of the many responsibilities of board membership. “You can’t say ‘oh I missed that meeting.’ You have a legal and ethical obligation to be involved in the charity’s strategy and ensure that the charity is accountable to the community,” says O’Grady. “In the end you’re responsible to donors and the community.”

 

Typical boards meet monthly and are responsible for evaluating a charity’s strategy, financials and commitment to its mission. “Some boards are very active and require a lot of commitment from its members,” says O’Grady. “Your purpose is to keep a charity honest and bring resource – both financial and otherwise.”

 

Industry insiders have long spoken a board truism: give, get or get out of the way. Simply put that means aggressive fundraising. “Personal donations and aggressive fundraising shows an interest in the nonprofit and a commitment to seeing it succeed,” says BoardSource’s Williams. Those who don’t give or get are often not invited back to the board.

 

O’Grady’s firm helps match board members with charities and says that the first step to entering a board is to understand what type of commitments are required. Often times there are both financial and time commitment required. “It’s usually best to first get an understanding from the charity’s management of the requirements and at the same time give them a snapshot of what you hope to bring to the table.” In addition, potential members should understand their fiduciary responsibilities and its potential legal ramifications, rules conflict of interest and confidentiality.

 

Divine Rod’s May says the change for a more representative board means a more trusting public. “The public wants to rest assured that their donations are in good hands. A more trusting public is a more giving public.”

 

###

 

I Want To Become a Board Member

 

Are you interested in becoming a board member of a nonprofit organization but don't know how to go about it? Here’s what BoardSource, the industry group that helps charities and board members, recommends:

 

1. First determine with what kind of an organization you would like to be affiliated with (health, homelessness, arts, education, etc.).

 

2. Take advantage of local volunteer centers, United Ways, or regional associations of charities to start locating nonprofits. If you have Internet access, visit www.guidestar.org.

 

3. Gather as much information as you can about what the organization does.

 

4. Indicate your interest in joining the board with another board member or the CEO. The organization may want you to join a committee or volunteer in another capacity before you are nominated for board service. A willingness to do this will help your chances.

 

5. Be prepared to ask questions. Focus on the mission of the organization, financial stability, constituents and customers, and the structure of the board. Recruitment is a two-way street. Make sure that the organization asks many questions about you.

 

6. Educate yourself and expect the organization to educate you on the responsibilities and liabilities of a board member.

Posted by Jeremiah Hall at 10:45 AM | Permalink | Comments (0)

Appeared in  the Christian Science Monitor

 

SAN FRANCISCO

 

It's the season of swanky gala fundraisers and opening-night art events, but these days forward-thinking charities might not ask for your checks. Instead, they might ask for your house keys.

 

Stock-market see-sawing has shifted a greater share of many Americans' net worth to real estate, and charities have taken notice. Tapping that wealth has led some nonprofits to unveil savvy new tools. The nonprofits' first goal: Make the process of donating real estate attractive by offering donors - often elderly homeowners - ways to avoid estate taxes, pay off their mortgages, and even earn a stipend for life. Becoming a real estate donor involves some experienced maneuvering - not to mention a full contingent of lawyers and financial planners - but the benefits can be significant.

 

Experts say donors should familiarize themselves with the many real estate giving options and make clear who will bear the real estate transfer costs. Experts also recommend evaluating proposals from multiple nonprofits as many charities have different programs for real estate donations.

 

While donors need to be savvy, charities need to avoid real risks. "Real-estate fundraising isn't for the faint-hearted. Charities need to watch out for bad property or else they'll be stuck footing the bill," says Leo Arnoult, chairman of the Trust for Philanthropy and a Memphis-based fundraising consultant. "Most donors have good intentions, but some charlatans might be looking for clever ways to off load bad properties." Some experts express concern that charities may flout tax codes, creating proposals that seemingly have no cost to the donor and leave charities with all the risk. "There's clearly the opportunity to bend the tax code and a probability that abuse will occur," says Mr. Arnoult.

 

Real-estate donations come in many forms. Some are simple "bargain sales," where a donor sells a home to a charity at a substantially reduced price. The charity then resells the house and pockets the difference.

 

Proposals that offer the most donor benefit usually incorporate a hefty charitable donation, mortgage payoffs and annuities. Take a $500,000 home with a $100,000 mortgage. A charity may purchase the home for $100,000 - allowing the donor to payoff the mortgage - and offer the donor a tax deduction for the remaining value. That spells significant tax savings to most donors.

 

More complex transactions incorporate "life-estate contracts." One such deal allows donors to reside in the donated property until their death. Another results in the donor receiving a lifetime annuity in exchange for their donation.

 

Typically, a donor and a nonprofit will agree on the value of the annuity, but it often falls within 20-50 percent of a home’s value. Here the charity may front the cost of the annuity with what it hopes to gain in the home’s future sale.

 

Would-be donors can expect to see more nonprofits making real-estate options available as charities notice its advantages. Donating an automobile can cost as much as 80 cents on the dollar for a charity to process. An opening night arts gala might return 50 cents. Conversely, one home donation can potentially bring in more revenue than a typical fundraiser, according to Chase Magnuson, president of Real Estate for Charities of Carlsbad, Calif. Magnuson claims that less than 20 cents on the dollar goes to funding real estate donations. "Nonprofits are missing the boat by not tapping into this fundraising source," Mr. Magnuson says.

 

Marsha Lubick, vice president of philanthropy for Sharp Healthcare Foundation of San Diego, a Southern California hospital group, says her organization has seen a big increase in real-estate giving. "We send out dozens of proposals each month to donors interested in giving their property. It's important to give people options. We try and put together a package that will allow them to keep their home and give them monthly income." Lack of resources and know-how has kept most of the 1.2 million charities in the US from adding real estate to their fundraising portfolio. In fact, only 2 percent of the $240 billion Americans gave in 2002 was real estate and is primarily donated to academic institutions according to the AAFRC.

 

Magnuson says that figure stands to rise dramatically as more nonprofits diversify their fundraising activities in a tight economy. "Most organizations are reluctant to accept [real estate] donations because they're afraid it will be too difficult and it will take too long to benefit," says Magnuson. "That [reluctance] will change." Ms. Lubick knows the money isn't immediate and says it averages about a year for a donor to decide. "This is never an easy decision. Many homes have a lifetime of memories and that's hard for some people to give up." Lubick says many donors are torn between willing their property to their children and donating the real estate.

 

To help with the decision, Lubick says the key is a slow approach that involves the family and time to reflect on the advantages of donating a home. "It's a way for a donor to have a lasting legacy and get some immediate benefits from it," she says. Don't expect your community's soup kitchen to accept a major real-estate donation. According to Arnoult only medium to large nonprofits - think AARP and the United Way - are capable of handling these complex transactions. The financial and expert resources are greater than most small nonprofits can handle. For potential real-estate donors, Magnuson says having the right intention is critical. "Make sure you understand the many intricacies of planned giving, but understand that this is about giving to a charity. This should benefit everyone."

Posted by Jeremiah Hall at 10:44 AM | Permalink | Comments (0)

As appeared Christian Science Monitor

SAN FRANCISCO - In tough economic times, nonprofit fundraisers are replacing their running shoes and ball gowns with storefronts and shopping bags.

The economy has hit nonprofits hard and forced many to slash services and layoff workers. Traditional fundraising events like award ceremonies and charity marathons are increasingly void of donors leaving many nonprofits to wrestle with remarkable budget deficits. But rather than capitulate, some nonprofits have discovered a new and creative fundraising channel that includes some curious tools: storefronts and sidewalk sales.

Experts have coined these nonprofit businesses "social purpose ventures," as they meld seemingly conflicting objectives: running businesses for revenue while delivering on a nonprofit's social mission - whether it's saving the environment or serving the homeless. Across the nation, ventures are hiring ex-cons to drive moving trucks, teens to mend bicycles or homeless to prepare restaurant meals.

"This won't necessarily save nonprofits, but it certainly gives them a new revenue stream and a new opportunity to deliver on their mission," says Jaycee Pribulsky, program manager for Seed-co, an organization that helps nonprofits construct business ventures in New York and Florida. "These programs are having a real impact [on the community] by giving many a second chance and keeping others off the streets."

According to Seed-co, the programs have been around for years, but only in the last two years has the numbers notably increased and the programs matured. Last year the group saw inquiries grow from 20 to 150 nonprofits. In a survey commissioned by the Pew Charitable Trust, 42 percent of nonprofits say they are now operating a business venture, primarily in the cultural and health institutions. Another 23 percent are planning ventures.

San Francisco's Delancey Street Foundation is one such program. The nonprofit has provided more than 10,000 ex-cons and the homeless with housing, food and a job at one of the many businesses the foundation operates.

"The conventional rule of thumb is that 75 percent of individuals released from jail will go back. If they enter our program, that statistic drops to 25 percent," says Dr. Mimi Halper Silbert Delancey Street's president. "So often convicts leave prison with no hope, no housing and no job - our program gives them that, but also gives them a way to succeed. Plus, we're giving them a real, marketable skill that they can take to their next job."

Running a small, community based nonprofit business venture is no easier than running the neighborhood grocery store and some nonprofits contends it's considerably harder. They face many of the same marketing and financial issues and are often ill-equipped to handle them.

"Ultimately nonprofits are looking for ways to shield themselves from economic uncertainty, but they have to understand that it's not always easy and it won't completely replace traditional fundraising," says William Grinker, Seed-co's director. "There has to be an inherent way to merge the business with the mission. If you can't do that then a business venture won't be easy."

According to the Pew Charitable Trust survey, business ventures often fail because of poor business planning and lack of capital. The survey also showed that only 35 percent of ventures make a profit the rest either break even or are subsidized. The Internal Revenue Service is also a roadblock. The agency told New York City's Recycle-a-Bicycle to wait five years before approving its nonprofit tax status.

"That [IRS decision] certainly hurts our ability to raise funds, but it doesn't change our commitment to seeing to it that we keep children occupied with something good to do," says its founder Karen Overton. Recycle-a-Bicycle started with a tiny grant from Seed-co to offer New York City youth an opportunity to get off the street and learn responsibility. The program brings teens into a nearby bicycle shop to learn the ins and outs of bicycle repairs and a retail operation.

"Every child that enters our program learns valuable skills they often aren't taught at home," says Overton. "The shop gives them that and our customers get the satisfaction of knowing that they're helping children."

Experts see nonprofits leaning on business ventures more in the years to come. "Tough times have led many nonprofits to our doors and the popularity is only growing," says Seed-co's Grinker. "This isn't about replacing existing funding sources, but it is a way for [nonprofits] to diversify and lessen the impact of downturns."

Recycle-a-Bicycle's Overton jokes that the economic downturn has only caused her to add the number of sidewalk sales rather than turn children away. "The shop raised about $50,000 last year. It takes more than that to run the program, but it gets me that much closer to helping children."

Posted by Jeremiah Hall at 10:40 AM | Permalink | Comments (0)

As appeared in the Christian Science Monitor

SAN FRANCISCO In her fight against the spread of HIV in her community, Pat Christen faces the loss of a key tool in her arsenal: the donated funds that have helped her campaign to raise awareness.

Ms. Christen, executive director of the San Francisco AIDS Foundation, is not alone.

Across the country, small and mid-size nonprofits are struggling to keep services afloat in harsh economic times. While the economic impact varies widely, few regions have been shielded, and nearly every charitable service has been challenged.

Cuts in public-sector grants have been a factor. In Connecticut, for example, more than 1,000 private nonprofits could face cuts of 5 to 10 percent or more in state funding, according to the Associated Press.

Connecticut legislators are still rankling over the details, but several dozen private nonprofit groups learned earlier this month that their contracts with the state might end unless the state can find more money.

For many national nonprofits, a downturn in individual and corporate giving compounds the effect. The United Way of Chicago, for example, announced cutbacks of 19 percent. And in Atlanta, local United Way officials estimate a 2 percent shortfall.

Nationwide, total giving fell 2.3 percent last year according to the American Association of Fundraising Consultants (AAFRC). According to the group, this year marks the first slowdown in giving since 1993. In past years, donations grew as high as 10 percent annually.

Experts attribute this year's drop on rising unemployment and a tumbling stock market. Art and cultural programs have been hit particularly hard, especially in New York City, according to Diane Baillargeon an executive vice president with Seedco. To assist, her New York-based organization lends millions of dollars in no-interest loans to nonprofits. She's seen many groups abandon service programs, lay off staff, and turn away those needing help.

"We've seen a dramatic increase in the number of stressed nonprofits. It's a tough economy with government funds drying up and individuals reluctant to give," says Ms. Baillargeon. "Art programs have been truly hard hit, but even the direct human-services programs have seen dollars decrease."

At the center of the nonprofits' woes is the enduring economic uncertainty. Many experts attribute the stock market plunge to the downturn, making individual donors - including many who feel tapped out after post-Sept. 11 donations - reluctant to give. Corporate donors have scaled back giving by 14.5 percent, according to the AAFRC.

Atlanta, home to one of the nation's largest airports and travel industries, has felt the impact particularly hard. "Atlanta was used to significant growth in our economy and our fundraising always kept pace," says Mark Dvorak a vice president with United Way in that city. "After 9/11, the travel industry workers were without jobs for months,
and for some it just hasn't gotten any better."

Mr. Dvorak says many Atlanta nonprofits have struggled to keep up with the demand, and many are reluctantly contemplating staff and service cutbacks.

Nonprofits haven't been shy in stepping up their appeals, and some have taken lessons from their for-profit cousins as never before. "Nonprofits are seeing just how valuable their assets are and creating ‘social-purpose business program’ to earn income from them," says Baillargeon of Seedco. “More and more their treating services like businesses.”

Seedco has helped nonprofits create workforce development programs that place employees for a fee and even organized youth groups to create and sell greeting cards.

New York's Brooklyn Children's Museum created a one such program to find new revenue sources. The program, in its infancy, has already generated new revenue for the museum. The program works by employing inner-city youth to staff the museum’s gift shop.

New Haven and New York’s City Kids Foundation is another example of social-purpose business programs. Here the organization aims to develop and train young leaders. The group recently began marketing their instructional material and creating videos to generate additional funds. The products are peddled to other nonprofits.

City Kids president, Liz Sak, says many nonprofits got fat in the 1990s. “You have to build an economically stable program and some nonprofits created program after program to keep up with the flood of money. They never prepared for the any downturn on the economy.” Ms. Sak says her social-purpose business program is profitable and accounts for 10 percent of her organization’s revenue allowing her to weather the downturn relatively well.

Organizers say these for-profit programs further the nonprofit’s goals of involving and supporting the community.

Other organizations have stepped up their "in-kind donation" programs. These programs save money by receiving equipment and supplies from manufacturers at no or substantially reduced costs. Atlanta’s United Way recently started a program to collect and distribute these donated goods to nonprofits. The agency hopes that by offering nonprofits a range of free goods from - staplers to computers - it will lessen the impact of the fundraising shortfalls.

Still, some large nonprofits have actually weathered the economic storm well. Recently the American Red Cross closed its Colorado wildfire-disaster fund, saying it had received enough funds to support its relief operations – even before the fires abated.

That news sometimes disheartens smaller nonprofits, concerned that the public will perceive that their needs, too, have been met. But it doesn't distract them from their mission. "All I care about is stopping HIV," says Christen. "My community needs our
services and I'm focused on delivering [it]."

Posted by Jeremiah Hall at 10:39 AM | Permalink | Comments (0)