The “Hardest Place in Nation to Raise Money”?

Putnam Barber

President, The Evergreen State Society

Is it really true that Seattle is the hardest place in America to find support for nonprofits?

If you believe the banner headlines across the front page of one of our metropolitan dailies on August 14, 2003, Seattle tops a list of 20 American cities in terms of how hard local charities have to work to raise money for their good causes. The figures look pretty depressing.

A closer look, though, suggests that we really don’t know.

The story summarizes research done using financial data from 35 area nonprofits and comparing them with organizations in 19 other major cities. The Seattle organizations spent 13 cents on fundraising for each dollar of contributions; Houston’s, according to this study, spent just a nickel!

The article, in the Seattle Post-Intelligencer, was based on a report of some research conducted by Charity Navigator, a New Jersey based nonprofit that provides information about the finances of some of the country’s larger nonprofit organizations.

Information about the scope, workings and impact of the nonprofit sector is undeniably appealing. These organizations provide many of the things that make communities livable -- and some services that make the difference between survival and disaster, comfort and pain, for neighbors near and far. While they’re at it they tug at our heart strings -- and our purse strings -- with powerful images of charity, philanthropy, justice and decency. We want them to succeed. And we want to believe their commitment is equal to their goals.

So when someone goes to the effort of preparing statistical reports that put into sharp relief some critical facts about familiar names in the local nonprofit scene, it’s reasonable to spring to attention. It’s too bad that the basic approach adopted by Charity Navigator can’t carry the weight of the conclusions they attach to their work. Even after Charity Navigator performs their careful calculations on the data, we don’t actually have any better idea how the fundraising challenges faced by Seattle-area nonprofits compare with those in other communities across the country.

Charity Navigator uses the figures reported on IRS Form 990 as the foundation of their analysis. Sandra Miniutti, Director of External Relations, explained this choice on the phone by saying that charities are required to file this form every year and that the instructions guarantee a good deal of consistency in the way the figures are reported. Both claims are true, up to a point, but there still isn’t enough convergence on standards for preparing the 990 to support much confidence in comparisons for a wide variety of nonprofits, in widely scattered cities. University researchers analyzing 990 data consistently conclude that 990 data is useful for broad-brush summaries about America’s nonprofits, but that detailed comparisons, charity-by-charity, just can’t be done in a reliable way using the information from this source. (See, for example, “Financial Measures in Nonprofit Organization Research: Comparing IRS 990 Return and Audited Financial Statement Data” by Karen Froelich; Terry Knoepfle; and Tom Pollak. Nonprofit and Voluntary Sector Quarterly, June 2000, vol. 29, no. 2, pp. 232-254.)

Everyone who works with 990 data is frustrated by how difficult it is to match up fiscal periods with any confidence; since organizations report on different accounting years, even 990s identified with a single year may cover quite different periods (when the ending month falls anywhere in the calendar year, the report carries that year's date). But the reports included in Charity Navigator's list range even more widely than that: the most recent 990s available at Guidestar for the listed organizations were reports for these years: 1 for 2000; 20 for 2001; and 14 for 2002.

There are also problems about the way nonprofits were selected to be in the study. All the P-I story says is that they are “some of the large organizations” in the area. One of the largest in the list -- World Vision -- is based here but raises money throughout the world. It's hard to find a focus for the others even when they are primarily local in orientation; some are support organizations, some operating groups, some primarily funding intermediaries.  In each category, there are other organizations that might just as well have been included. When you consider that there are 7,800 recognized nonprofits in King County (separate figures for Seattle aren’t available) with something over $24 billion dollars a year in revenues, a report based on 35 of them -- even 35 “large” ones -- can easily miss some major parts of the story.

The P-I coverage offers a couple of consolations, though. It provided an occasion for executives of several local nonprofits to outline just how hard on their programs the recent downturn in public support has been. Comparisons neither sharpen nor dull these grim facts; many local nonprofits have seen painfully reduced contributions that have resulted in real losses for our community. Hearing these reports may have caused some readers to look deeper into their wallets. There was as well an unprecedented boon in the fact that neither the Charity Navigator report nor the P-I’s reporter condemned the reported costs of fundraising as, somehow, excessive. The reflexive bashing of fundraising -- as if asking people for money is something that should be done by sprites that need neither food nor shelter -- is almost a given in stories like this one. Refreshing that no-one succumbed to that temptation. (Further on that theme, the article occasioned a strong presentation of the rationale for fundraising efforts by Stuart Grover and Sonya Campion, of the fundraising counsel Collins Group, on the Op-Ed page of the P-I in early September; see http://seattlepi.nwsource.com/opinion/139191_fundraise12.html.)

Recent years have seen a rapid, and very welcome, increase in the amount of information available at the click of a mouse about nonprofit organizations in the US. The website operated by Philanthropic Research (http://www.guidestar.org) allows anyone to view recent 990s filed by any public charity. (Charity Navigator does not use the Guidestar 990s, but gets copies directly from the IRS.) Some observers respond to the availability of all this new data with deeper respect for the complex work nonprofits do and for the difficulty of creating meaningful assessments of their effectiveness based on financial summaries alone. Others try to drill through the complexity to distill useful indexes of nonprofit effectiveness from financial ratios and summary statistics.

The impulse to create financial indexes has probably been strengthened in the last year or so by the frequent revelations of ever-larger accounting frauds at publicly-traded for-profit companies. Certainly, the Enrons, WorldComs and Arthur Andersons of headline infamy have given us reason to worry about how huge and critically important institutions are conducting themselves. But the other lesson to learn from those shocking stories is that financial reports didn’t give investors, customers, suppliers or regulators the information they needed to prevent outrageous misbehavior.

The situation for nonprofits is, of course, much more difficult. When you’re looking at a for-profit company, it’s reasonable to start with the bottom line -- whether it’s making money and if so, how much. Other important questions can of course be asked, but without a return on the investment everything else can’t count for much. Nonprofits don’t have a bottom line in this sense; the only way to tell whether a nonprofit deserves recognition and support for its work is to understand what it’s trying to do and weigh carefully whether its programs and activities show promise of meeting those goals in a reasonable way at a reasonable cost. The 990 isn’t designed to do that, and readers won’t find much help in the figures they find if they go looking there.

There’s a deeper sense in which this comparison helps us to see how important good information about nonprofits is: investors in for-profit companies know they are taking a risk when they do it, while donors to a nonprofit shouldn’t have to worry for even a moment that their generosity will be abused. Accountants, analysts, journalists and consultants have devised sophisticated models for estimating the risk -- and balancing it against the reward -- for every sort of investment. The nonprofit counterparts to those measures won’t be financial ratios, though. We need to look for clearer and more compelling ways of telling the story of what each nonprofit does, how it chooses among the options it has for achieving its goals, and the tools it uses to stay on course. Measures like those will never yield satisfying “league tables” that reliably rank nonprofits, or communities, against each other across even a town or city, much less the country.

It’s not important to know whether Seattle’s nonprofits have a harder, or easier, time raising money than others across the country. It is, though, really important to know whether they are effectively meeting our community’s needs for quality services, challenging experiences, and critical innovations. Really, really important! People who work on developing measures of nonprofit performance should be putting their creative energies to work on that problem.