Ho-ho-ho! The Charity Deduction

In light of the recent extension of tax cuts for the middle class, the rich and the uber-rich full-throated cries for overhaul of the federal tax code have come up (again). Cynic that I am I don't see much emanating from the Cave of the Winds but more wind. But I digress.

In The New York Times on December 19th economist Richard Thaler argues that "it's time to rethink the charity deduction." The burden of his essay is that the donations of the rich are "valued" more than those of the poor because contributions are "subsidized" by the government through tax deductibility. He's right of course. A gift's value is worth more to someone in a 36% bracket than someone at 25% or 15% or zero. His suggestion is that the deduction be replaced by a tax credit to level the field.

We can expect that my industry's lobby will submit that if this happened The-World-As-We-Know-It would end(!) because a tax credit rather than a tax deduction would dis-incentivize and decrease giving at the top. I don't know, nor does anyone else, what the practical effect might be.

To me an equally intriguing problem (about which I have written frequently) is that the 501-c-3 is too broad and many organizations that qualify as "charities" are anything but. There should be a distinction between traditional charity - e.g. serving the poor, helping the sick, etc. and that donations to large and/or less needy charities (size to be determined) should be deductible on a sliding scale - i.e., a higher deduction (or credit) for gifts to the smallest and neediest. I know - how is this to be defined? I have no idea but someone invented the wheel because pushing and pulling was a big drag. This can be solved too.

If you're still awake - who writes about economics at Christmas anyway? - think about it: as a contrarian I pretty much applaud in general the work of WikiLeaks. Quite a show! But is it a charity in the traditional meaning? No. But a gift should be "worth" something but not as much as a gift, say, to a food bank.

Prof. Thaler admits that his other bete noire - the mortgage deduction - should also be one of the first points of attack in re-doing the tax code. His conclusion is that no serious progress can be made on deficit reduction (assuming that is a real concern - economists as usual disagree)and cutting expenses. He also concedes this is a non-starter.

I happen to think messing with the charity deduction is just another dog that won't hunt.

And on that profound note Happy Holidays to all!

HOMELAND INSECURITY: TERRORISTS WIN

ORAM MATTERS focuses on nonprofits, philanthropy and related topics and generally we avoid personal screeds and rants. This blog is a mix of personal and professional because like many of you I am a frequent flier - a road warrior - mainly for work.

I fly out of American at JFK mostly and am pretty much an expert in getting through security without hassle - unless I get stuck behind a family that has gotten into the priority access lane. Until now. Full body X-ray scanners are becoming ubiquitous along with the full-body pat-down (I had a Flair pen in my shirt pocket. Don't ask).

The object of terrorism is first and foremost to intimidate and frighten the civilian population; that is exactly what the Bush and Obama administrations have countenanced. Do you know of a single instance in which a TSA inspection interdicted anything other than your mouthwash and nail clippers? Meanwhile the cargo holds get a pass 98% of the time.

TSA is a huge p.r. boondoggle. Fifty billion dollars or so and counting but I do not feel a whit safer. The invasive X-ray machines should be withdrawn. Up to now inspections have been intrusive, even silly, but tolerable. Now we have crossed a line and without judicial review absolutely compromised Americans' freedom of travel.

Whether the X-ray machines violate 4th Amendment search and seizure the courts will have to decide. I've read that the courts are deferential to the executive branch in these matters so I hold out little hope. Meanwhile we are being bombarded with - according to the government - "microscopic" amounts of X-ray. In my view no one should be exposed to any amount of radiation unless it is absolutely necessary as a health or diagnostic aid.

It is barely possible that public outrage will prevail. TSA has already exempted pilots from the full body scanners; flight attendants are probably next. I don't know if the expediter services that you pay for (and that have not really caught on thanks be) will make any difference. I doubt it.

I hope this image makes you angry and disgusted It's not from J-Date.

If so may I suggest you get to one of the sites that are stirring the pot on this and join in the fight:

http://epic.org/bodyscanner/incident_report/ https://secure.aclu.org/site/SPageNavigator/TSA_Travel_Complaint

MICROLENDING: MACRO FAILURE?

In the 1970s Dr Muhammad Yunus, who went on to win the 2006 Nobel Peace Prize, pioneered in lending very small amounts of money to the very poor and near poor to Bangladeshi villagers enabling them to start small businesses. For example someone would borrow money for a cell phone and then rent out calling time to others. At first interest was modest and repayment was near 100%. Dr. Yunus learned early on that women were more reliable borrowers than men.

This kind of endeavor is known as "contract failure" in academic circles - translated it means nonprofit activity arises when the incentive for profit is either too risky, too scarce or otherwise inadequate to attract investment and return in a for-profit enterprise.

About a decade or so this idea - at least in micro-lending - was turned on its head when banks and other capital aggregators realized they could actually make money lending to the poor if they charged higher interest than a nonprofit investor. And so they did. In India, as today's New York Times and other publications reported, extortionate interest rates have forced poor borrowers to replicate - i.e., borrow from second and third companies to pay interest to the first: a Ponzi scheme in reverse.

All of which brings me to this: in the last half decade a new corporate hybrid has developed. It combines a for profit motive with a greater good (nonprofit) mission. In other words oil and water. I think it may have been Woody Allen who said "when the lion lays down with the lamb the lamb doesn't sleep much." Put otherwise greed trumps need.

In my view the challenge for the hybrid company is to be able to pull this off actually make money and do good. The competition private business has brought to nonprofit micro-lending has essentially compromised an idealistic motive. As today's (Toronto) Globe and Mail wrote on November 12th "A debate is raging between those like Dr. Yunus, who say the sector should remain non-profit with its focus fixed firmly on the very poorest of the poor (those living on less than $1 a day), and entrepreneurs who favour a faster-expanding, for-profit approach backed by investors who want to do good – and see returns."

A related Globe and Mail chart shows what big business this is:

154.8 million Total number of microloan clients around the world as of the end of 2007

13.5 million Microloan clients in 1997

106.6 million Microloan recipients living on less than $1 a day in 2007

533 million Number of people affected by microloans worldwide, when family members are included, as of 2007

1,893 Number of microfinance institutions worldwide last year

$65-billion (U.S.) Size of gross microloan portfolio globally last year

98.95% Repayment rate among borrowers at Kiva.org, the world's first personal microlending website

$381.32 Average loan size at Kiva.

26% Average interest rate for a microloan (though some in Mexico have hit 90 per cent)

(Sources: Microcredit Summit Campaign; Microfinance Information Exchange, Kiva.org, CGAP.)

KIVA by the way is an outstanding vehicle for micro-lending. No it can't compete with predatory lenders

THE GIVING COUNT

On November 11th The New York Times published its annual Giving section; this morning Giving USA Foundation presented the Gurin Forum a timely conjunction. The forum is an endowed program, established twenty plus years ago by the late Maury Gurin one of the country's best fund development consultants, a mentor of mine, an idea machine and a curmudgeon.

This morning's program focused on "The Giving Count -- The Numbers: What Do They Measure? What Do They Mean? Why Do They Matter?" The idea of an open dialog on a subject of common interest to a specific audience is simple enough. But this had never been done in this way for a mostly non-academic audience. Given that 160 people - professional nonprofiteers, philanthropoids, major donors, data researchers and others showed up indicates we touched a nerve (and nearly ran out of Danish).

On behalf of the foundation and the forum I organized and led this event so am responsible for inadvertently failing to invite, among others, Charity Navigator and The Foundation Center, major data compilers for which I apologize and will correct at another opportunity. This collaborative discussion was impelled by the fact that there is a lot of research under way and a lot of data out there, worked on by an array of sources, each working from its own perspective. It's a dog's breakfast so the idea here was to have a cohort of researchers describe their work, tell us what it means, what it measures and why it matters.

There were two panels: the first was facilitated by Stacy Palmer editor in chief of the Chronicle of Philanthropy, Patrick Rooney, PhD executive director Center on Philanthropy at Indiana University; Bob Ottenhoff president & CEO Guidestar USA, Inc.; and Paul Light, PhD Paulette Goddard professor of public service New York University.

The second, facilitated by Ruth McCambridge Ruth McCambridge, editor in chief of Nonprofit Quarterly, facilitated the second panel. that included Charles “Chuck” Longfield chief scientist Blackbaud, Inc.; Ann Kaplan director, voluntary support of education survey Council for Aid to Education; and John Havens, PhD Senior Research Associate & Senior Associate Director Center on Wealth & Philanthropy, Boston College.

An audio of the proceedings has been posted to www.givinginstitute.org. Also available are presenters' PowerPoints.

This could have been a real snooze but because two participants John Havens and Patrick Rooney essentially disagree on each others' methodology. They mixed it up in the donnish fashion expected of academics but proved anew that the death of a drama is the lack of a villain.

FACE OFF

A few weeks ago Facebook Founder Mark Zuckerberg gave $100 million to Newark's mayor so he could improve his city's public schools.This morning it was reported that veteran Wall Street deal-maker and poobah Henry Kravis gave $100 million to his alma mater Columbia University.

At age 26 Zuckerberg is a multi-billionaire on paper. I've seen estimates in the $2-5 billion range. No one knows his net worth because the company is private. Kravis has been exceedingly rich for a long time and now in the late afternoon or early evening of his career has popped for the largest gift he's ever made.

I am fascinated by the juxtaposition of this old and new philanthropy. Both gifts are to education, one from a college dropout (okay Harvard) and one from a B to C student with a Columbia MBA. (I can but conclude that dropouts and C students run the world). Zuckerberg's gift is bold; Kravis' gift is old. Both men are Jewish. I don't know if that matters but they are.

I don't mean to be churlish but Kravis' gift is self-serving, inner-directed like most alumni giving and in support of the status quo. Zuckerberg's gift is outer-directed away from whatever his personal passions are and really quite objective, growing out of a chance meeting (well not exactly chance. Sheryl Sandberg the grown-up Zuckerberg hired away from Google to lend gravitas to what seems a nerdy high-top frat party arranged several "chance meetings" with major philanthropists).

I think Zuckerberg is a genius; I think Kravis is an extremely smart and quite generous transactional society philanthropist (i.e, he likes the limelight) - and a decent fellow from what I've heard. But what has he invented? Produced? Changed? Created? And for this he has made buckets of money. Zuckerberg, whatever you think about Facebook, actually makes a product that doesn't pollute the environment or poison his workers. In the doing he has revolutionized communications less than a generation after Bill Gates and Steve Jobs completely upended computing (as IBM slept). And if he's not quite living over the store his housing arrangements are reported as indistinguishable from a dorm room.

Kravis has a Facebook page. I doubt Zuckerberg even has a broker.

SOROS' GIFT TO HUMAN RIGHTS WATCH

This morning George Soros's $100 million gift to Human Rights Watch was reported. When you look at where these mega-gifts go they are usually to large, well established and well funded higher education or health care organizations, worthy benefactions without doubt. But iconoclast as he is, Soros probably realizes that funding human rights, in which he has long been interested and has long supported, may carry more import than a gift to an already well endowed university or medical center with a development office larger than most state legislatures and a pool of upgradable prospects. It's "setting-out-the-buckets" fund raising.

But funding human rights is a hard slog. There are grim stories of outrages against individuals, families, clans and tragedy aplenty from Afghanistan to Zaire. However systemic efforts to counter egregious abuse are not well understood or effectively communicated. Moreover there are scores of organizations engaged in human rights initiatives. Some tend toward immediate relief or advocacy and all compete for essentially the same donor type.

In Soros's case it seems he wants to give away most of his money in his lifetime and it reminds me of a story. Some years ago I was meeting with a certified billionaire (though not in Soros's class) and he told me he had a problem. Of course I asked what the problem was. "Well." he said, "I want to give away all my money before I die. My problem is I don't know how long I'm going to live."

He's still with us. I occasionally see him on the Times Square-Grand Central shuttle.

Corporate "Philanthropy": Oxymoron?

In Monday's Wall Street Journal there appeared a provocative essay by Arneel Karnani (whose first name WSJ managed to misspell), a business professor at University of Michigan. Titled "The Case Against Corporate Social Responsibility," the core argument is "the idea that companies have a duty to address social ills is not just flawed ... but it also makes it more likely that we'll ignore the real solutions to these problems."

In my opinion Prof. Karnani is right. But I have a slightly different take born of boots-on-the-ground. My experience is that no company in its right mind ever takes on "corporate social responsibility" for its own sake. Nor should it. Profit is always foremost, or should be; what gets marked down as social responsibility is almost always little more than a marketing ploy or a p.r. gambit. Years ago I worked with George Weissman, then head of Phillip Morris, and one of the few p.r. guys who ever actually rose to the top of a major public company. Weissman was one of the first to come up with the social responsibility tag. I once asked him if it wasn't still "just about hawking cigarettes." His answer was one word "yes." And we both laughed.

As a native New Yorker, and therefore an innate cynic, I am much more comfortable with that "yes" than I am with the posturing that goes along with "social responsibility." In recent years I have become quite involved in helping clients into "cause related marketing," a practical application of the social responsibility thrust. Ultimately, when it works, CRM is the devil and the angel finding common ground.

If there is an act of apparently pure corporate beneficence it simply does not follow that "image," brand" or whatever the current locution is can be extended without any consideration of the good it will do the company. Fine with me. That way we each know where the other stands. Indeed in recent years what I have observed is an ever increasing transactional rationale to corporate giving.

Most probably every charitable gift - regardless of whether it is from a corporation or an individual is a mix of altruism and self-interest. I think of an A/B axis, pure altruism at one end, unmitigated self-interest on the other. Any donor's gift falls somewhere along that axis - and it does not necessarily fall in the same place with each gift. Depending on the cause there may be a greater or lesser degree of altruism v. self interest.

I give money each year to the volunteer fire department in the small town I live in: If my house is on fire I want to know I'm on the donor list. By small town standards I am also a "major" giver to the local humane society. This giving (almost every month) is 100% altruism. I am up to here in (needy) cats and don't want to add to the three who are in charge here. But I cannot resist the monthly newsletter - or the BRE that falls out! All my other giving falls somewhere else along the axis.

A cause marketing firm I work with has published data suggesting that socially aware companies do better at the cash register. Does that prove doing well by doing good really counts? Or is it just clever marketing?

Give It Up!

As everyone by now knows 40 US billionaires have pledged to give away more than half their fortunes to charity, the so called "Giving Pledge." This may be a p.r. stunt or it may be heartfelt philanthropic impulse - and at least among a few, it may be a bit of both. Most of the names on the list are familiar to the trade. There may be a few dark horses.

I am struck by some of the missing names; I can't go further because some of them are among my clients. That aside the first thing that comes to mind is why stop there? Why not encourage everyone who can to do the same? For as long as stats have been kept the total philanthropic handle in the US hovers just above (or in a few years just below) 2% of GDP.

Many of us feel the real challenge to philanthropy is how to move the needle up. Given that in 2009 donations in the US came to some $306 billion a 1% bump would be a major accomplishment: another $3 billion would/could significantly restore much that has been lost the last few years. Of course that wouldn't come in one year but the direction is what counts.

These generous donors aside, the richest people in America, there is a vast middle of near billionaires and "poor" billionaires to say nothing of those struggling with fortunes of $50 million or more. ... I am generally skeptical of pledges of this kind. They are not easily measured. Who is to keep score? Giving USA would pick up some of them. It is also well known that Forbes, the base list for billionaire metrics overstates some and understates others. It is admittedly hard information to acquire as the subjects for the most part are not completely cooperative. Duh.

Well. As I tell my friends I have already given half my net worth away. It's called the recession.

"A Maverick in the Field ... "

Prof. Marybeth Gasman of the University of Pennsylvania Graduate School of Education and her colleague Noah D. Drezner have just published an award-nominated scholarly study of The Oram Group's historic role in helping historically black colleges and universities raise funds. A Maverick in the Field: The Oram Group and Fundraising in the Black College Community During the 1970s is based on our company's files that are archived at the Center on Philanthropy at Indiana University, on some of my published speeches and writings - and on interviews with me some years ago. For the the full paper please cut and paste: http://embedit.in/HEhi5gGRFI.

Reading it for the first time was exceptionally moving and emotion-inducing. I lived it, participated in the work, and with other colleagues like Eve Bates and Liz Hicks, Paul Frillmann and many others carried forward Harold Oram's idealism hard pragmatism and great tradecraft. No other consulting firms in this field - of which I'm aware - have been the subject of such a study.

Comments appreciated. ...

The 2nd Quarter?Trends for the Year

Friend and colleague Marilyn Hoyt summarizes the second quarter...

An excellent roundup and informed speculation.

The 2010 second quarter is behind us. The Financial Times notes that "The US housing market is the biggest debt market...with more mortgage debt outstanding than US government debt" and, in another article, that the federal deficit now and for some time to come is about 1/2 ov what it was at the end of WWII as a % of GDP. Encouraging news and dismal news still swirling around. So where are we now? (Please let me know if you want the citation of any of these notes. Also if you'd like to add a colleague or if you prefer not to receive these notes:)

The staff volatility trend is emerging quickly:
**Nonprofits are starting to re-hire against the positions that were laid off (An April business survey conducted by the NJ Star Ledger found that for the first time in 2 years, more CEO's are planning to hire than lay off)
**Recruiters with large nonprofit practices are seeing strong upticks in demand beginning about last May
**CEO's and development staff are leading in searches conducted by recruiters
**The Chronicle of Philanthropy notes in separate articles that nonprofits are starting to increase salaries again, but foundations are not
**Nonprofit professionals who have lost confidence in the potential for moving ahead where they now work are not only looking to move to another position, but more readily to another city. Assertive Boards and supervising staff are well positioned to recruit a strong candidate if they can demonstrate that their nonprofit is ready to roll again
**If you are searching, check carefully as you interview. Many job descriptions now roll-up the effort of 2 or even more former positions. It may be hard to meet expectations, let alone win success, if this is the situation. Know before you go:)

Corporate philanthropy is redefining itself
**The trend toward bringing marketing priorities into corporate foundation giving has been growing for over a decade
**Now, with corporate foundations still depressed (many had a policy not to diversify their investments), we are seeing what a colleague in the Bay Area refers to as "blurring" across giving methods. The value we are expected to add to the CSR (corporate social responsibility) equation is beginning to show up as part of the giving discussion whether we are working with corporate foundations, corporate contributions, gala ticket purchases from departments supporting their clients/prospects, corporate volunteer programs, employee matching, charity partnerships/awards, or in-kind giving.
**I think most of us are used to thinking of the U.S. as the bellwether in corporate voluntarism. Is this the next big thing coming over the horizon from Europe and Asia? GRI (Global Resource Investment) is fast-growing as the definer of sustainable standards. In Europe, there is a trend toward requiring GRI compliance in order to win contracts, so our international companies are now playing in this field. Where does philanthropy stand in this paradigm? Well, the good news is that the most recent survey on community impact has lots of references to philanthropy: http://www.globalreporting.org/NR/rdonlyres/6D00BC14-2035-42AB-AB6A-5102F1FF8961/0/CIReportfinalnew.pdf. The less good news is that in GRI's own rubric, philanthropy
appears to be positioned in opposition to "sustainable" community inputs. Current thinking does not seem to be moving toward encouraging/requiring philanthropic activity. So....here's a free newsletter to help us watch what's happening http://www.globalreporting.org/griportal/GRI/NewsPressEvents/frmNewsSubscribe.aspx

Foundations seem to be putting out more RFP's
**It seems that the pressure to make scarce resources meaningful is leading to more directive behavior from foundations -- defining the project and issuing an RFP, providing technical assistance/consulting rather than funding, taking on their own projects and producing them soup to nuts (often with nonprofit contractors), setting rigid expectations (such as a merger) prior to releasing more funds or accepting another proposal. Will these patterns spread across the sector and come to dominate activity? Probably not...but since this is growing trendlet, it's one we want to follow attentively
**Keep in touch with your foundation funders and prospects! They notice when we disappear because funding is greatly reduced or on hiatus. Now is the time to call -- to thank, to noodle what's going on in the sector we serve, to act like a real colleague

Government is getting hungrier
**In 2010, we are experiencing tough times in state, county and city budget as cuts in funding
**As stimulus monies end and the tax base is not yet recovered, government is getting hungrier
**Operating cash reserves are more important than ever. We are seeing more frequent stories of school districts, county and state government holding contracted funds "in reserve" or just plain waiting months and months and months to pay. In some instances, grants have not yet been received even as new proposals for the coming year are in review.
**Populations are voting to increase taxes for selected needs (Arizona Prop 16, Georgia education)
**However this won't do the whole job.
1) Governing Magazine notes excise taxes (tobacco, liquor) are on a steep climb.
2) Limiting tax exemptions for charitable gifts is under discussion in New York and elsewhere.
3) Taxes on admissions income has been tested in Illinois. When over 100 supporters turned out for an open meeting, the tax idea disappeared and now discussions of much higher fees for water, sanitation services, and/or other city services are underway.
** Now is the time to check in with colleagues in your field. If precedents exist where these taxes or user fees are in place, it is a problem for all of us. We need to be informed and ready to act.
** Just as in every other part of our work, we need to keep telling the story internally and externally. It is a strong bulwark against the ignorance that yields bad legislation and -- believe it or not -- there's still service and capital funding out there. Our elected officials and their staffs as well as department staff know where it is. Keep talking!

Worth Reading:

www.GivingUSA2010.org -- just as comprehensive as ever, and now free on-line. This is the go-to reference for 2008-09 trends, where private funds are coming from and flowing now.

Turns out that employing about 10% of the U.S. working population pays off. Business journals have been really helpful through this period. Subscribe if you haven't yet. Travelling around the country, I see them most consistently providing us with useful articles on the state of a local nonprofit sector (health & hospitals, the arts). And they are great compilers of lists. This week the San Francisco Business Times built its list of top corporate funders and unveiled them at their annual Corporate Philanthropy Awards http://www.examiner.com/x-10861-SF-Nonprofit-Business-Examiner~y2010m7d22-San-Francisco-corporate-philanthropy-awards-spirited-once-again while Crain's New York Business together with the nonprofit Arts Alliance inked thoughtful articles on the arts sector as well as a useful rundown on the top 100 http://www.crainsnewyork.com/article/20100718/FREE/307189995

The Pew Foundation continues to publish such helpful and thoroughly prepared reports. Here's the latest from July 14th -- a look at the effect of all these furloughs and layoffs on the nonprofit sector. There is some nice categorical work here so you can look at your particular field. http://ccss.jhu.edu/pdfs/LP_Communiques/LP_Communique19_jobs.pdf

****
Thanks to all the colleagues, grantmaking staff, and trustees who keep finding time to give me the observations see here. Let me know what you are thinking! (Thanks to Joni Podolsky, community engagement specialist, Bay Area, CA)

NEW GIVING USA BLOG

We want to alert you to a new resource. Beginning in June, Giving USA Foundation’s Melissa Brown began an excellent blog about information, ideas, and recommendations for fundraising coming out of GUSA’s ongoing research. About once a week, Melissa is posting updates to giving information or new ways of looking at the data GUSA collects. We encourage you to bookmark: http://www.givingusa2010.org/blog .

We have just returned from the Giving Institute’s Summer Symposium, our consultant association’s annual conference on best practices, trends, and forward thinking. As always, there was a session about GUSA, of which Giving Institute is the producer. Patrick Rooney, E.D. of IU’s Center on Philanthropy, who oversees the Center’s ongoing role as the research partner for Giving USA, noted that year after year, the forecast—which draws from available IRS data and uses well-tested and vetted econometric models—has had a variance of only 1-1.5%, which is astounding.

Knowing we can rely on the data, we had, as always, a deep discussion about the ways the data can be most useful to our clients, given that our resources are not unlimited. Questions to GUSA staff from Giving Institute firms, including Oram, included what the overall giving picture looks like when certain large inputs or outputs are removed. We know from the data, for example, that overall, direct individual giving (itemized gifts only), which makes up 75% of all reported giving, declined just. 0.4% last year. (Bequests are a separate story, of course.) But in a world where a handful of donors can shift the entire picture by giving large sums into investments or a few select places, we were curious what all the superb bar charts and graphs would look like if GUSA took out what we call the “super-absorbers” — the mega-gifts to mega-institutions. True to form, GUSA is ready to take up the challenge and see what they can do. Your questions can help continue to refine how this marvelous resource to all of us can continue to expand its relevance.

Stay tuned, and keep an eye on the blog. Melissa’s July 20 post concerns “Giving to Religion.”

THE BLESSED USE OF TAINTED MONEY

Does the blessed use of tainted money purify it?


Early on in this business I learned not to question the provenance of money. Not much "old" money was generated in a saintly manner. For "new" money much the same can be said much of the time. I don't know of charities turning away donations aside from those who turn away gifts from tobacco or liquor companies. Whatever your take on the evils of rum or tobacco the makers are acting legally if not morally.


But what about "Illegal" money? The Spence School and Asia Society, two of New York's most elite institutions are fighting the government's demand that they repay funds donated to them by a man later convicted and about to be sent away for running a Ponzi scheme. This claw-back strategy became a thing when the Madoff empire collapsed.


The institutions' argument is that they accepted the funds in good faith, they had no way to know the gentleman was a crook he was not so labeled at the time. Ergo they have no obligation to return the money.


The legal issue I will leave to the lawyers. The ethical question intrigues me because if every charity had to repay every cent of ill-gotten gains that they indirectly received through a good-faith (if not purely motivated) donation I would fear for the worst.This does not appear to be a clear and imminent peril but does lend light to the illusion that the government's on it. Would I advise the Asia Society or the Spence School to give back the money? I would not. Would you?


There's the old story about the wizened preacher who was offered $1000 of tainted money to repair the church roof. "Tain't enough," he replied.

Disaster Fundraising

On NPR this morning Carrie Khan and Marisa Penaloza report that "the charitable outpouring for Haiti has been huge. To date, Americans have phoned, texted and mailed in more than $1.3 billion, according to The Chronicle Of Philanthropy. Much money was spent on immediate relief, but hundreds of millions of dollars remain in the coffers of nonprofit organizations from the American Red Cross to Oxfam."

First of all that is a tremendous outpouring of generosity illustrating once more that Americans are exceedingly generous and compassionate, second modern technology enables a lightning philanthropic response but third it is essentially impossible to move that much money through the turnstiles effectively and efficiently.

The hare's speed of dollar acquisition versus the tortoise's pace of distribution is an old story in philanthropy and it has tripped up the Red Cross - as one example - more than once. When part of the Oakland-San Francisco Bay Bridge collapsed in October 2009 and Katrina in August 4 years ago, the Red Cross was inundated with money. They sat on a lot of it, and in the Oakland case, re-distributed a portion to other disaster relief reserves. In Katrina the public outcry compelled them to assure donors their money would stay in Louisiana. Did it? How could you know?

One can argue that it is better to have it and not spend it than it is not to have it at all. Whether charities are sophisticated and efficient in handling money is not the issue. The end use of charitable funds raised in a disaster setting is always a challenge. Having worked in Haiti, India, the Philipines, Thailand and elsewhere - in non -disaster situations - what I learned is that there are really not enough troops on the ground - either nationals or imports - to oversee the good use of donations, nor enough good management for real oversight and the charities themselves are not held to strict standards of accountability by independent entities.

All that said, and allowing for the enormous challenges Haiti and other disasters pose charities must be held accountable for the stewardship of all funds - those on reserve waiting for distribution, and other funds in their possession. As the NPR report makes clear there is no real oversight of charities' finances. The Form 990 that all non-religious charities have to file annually are not fonts of information. For one thing they are often late (extensions are automatic); they are most easily accessed on Guidestar (forget the IRS directly) but those reports are, on average, at least 2 years old. Charities' annual reports are not required to show finances. Many don't, others offer condensed pie-chart types of reporting, and because there are really no rules trying to compare one charity to another is well nigh impossible. A few private sources like Charity Navigator "rate" charities but neither this group nor the few others I know of can cover all of them.

No one is going to hold out the SEC as a model of government oversight. The technical term is "yuck." But even the SEC has centralized, if weak, enforcement powers. Nothing like it exists for oversight of charities. There are state regulations and registration requirements but often no budget nor person-power to deal with charities effectively. I have long advocated an SEC-type charity, separate from the IRS, an idea that goes back to a guy named Carl Bakal who raided it in his book "Charity USA" a generation or so ago. This is of course a skunk-at-the-picnic sort of thing and I haven't picked up a lot of picnickers!

And when God's in the picture things really get mysterious. I don't mean God works in mysterious ways. I mean religious organizations don't have to file any kind of report. Thus a lot of good and maybe some not-so-good info is simply unavailable to anyone on the outside.

The takeaways are disasters raise money fast, spend it slowly and there is virtually no information on what costs were incurred, the ratio of output to retained funds, or whether they can really do what they claim to do what they say the do.Yet I gave more than once to three Haiti-relief organizations.I suppose I could disable the "send" button the computer and the cell phone. But not quite yet!

What Do Those Giving Numbers Mean?

July 1st marked the beginning of a new fiscal year for an uncountable - but huge - number of nonprofits in academia, health care, the arts and just about every other category. This start coincides with many governments' fiscal calendars. For most of us a new beginning carries the promise of brighter times and a rosier future.

But coming off a substantial drop in giving in 2009, and 2008, clouds of uncertainty are fogging the mirror. One reason for concern is that the Giving USA Foundation data - summed up here in the last blog - simply did not pass the sniff test of actual experience rather than the statistical extrapolation (on which GUSA numbers are based).

In that context Ruth McCambridge and Rick Cohen opined in a two-part takein The Nonprofit Quarterly is well worth reading. Entitles "Giving USA and You: Cognitive Dissonance Anyone?" Ruth's argument, briefly put, is a few very large foundaion grants skewed the picture. Rick's main point is aggregate corporate giving appears to have gone up because of non-cash gifts, an increasing tranche for company philanthropy.

Take a look at these two provocative essays. (www.nonprofitquarterly.org)

And if your new fiscal year just started, may you prosper.

US Giving Down 3.6% in 2009; 2nd Year of a Drop

For the second year in a row charitable giving in the USA has declined.

That matters could have been worse - and indeed that many of us in the field expected far worse - may be of some consolation. Furthermore though there is nothing but the anecdotal to go by 2010 seems to be headed north though stock market conniptions remain a continuing worry - especially in New York City and immediate environs - that account for an estimated 25-30 % of the philanthropic "handle."

Giving USA Foundation(TM) and our research partner, the Center on Philanthropy at Indiana University, said that estimated total charitable contributions from American individuals, corporations and foundations fell to $303.75 billion in 2009, down from a revised total of $315.08 billion for 2008. The 2009 drop represents a fall of 3.6 percent in current dollars.

Giving USA has reported U.S. charitable contributions since 1956. The inflation-adjusted drop of 3.2 percent for 2009 is not as severe as the decline found in 1974, when inflation-adjusted giving fell by 5.5 percent. The year 1974 was also a very difficult year of recession.

The national results from Giving USA reflect all charitable giving to all charitable organizations in the United States. The national estimates do not show changes that any one organization or any one geographical region or city might have observed; they calculate total giving by more than 75 million households across the United States, more than 1 million companies, an estimated 120,000 estates, and about 77,000 foundations. The gifts go to more than1.2 million IRS-registered charities and an estimated additional 350,000 American religious congregations.

A free executive summary of the 2010 report is available at Givingusa2010.org. If you would like the full version in PDF post a comment.

SHOULD NONPROFITS BE TAXED?

The constricted budgets of state and local governments have brought an old idea back to the table: taxing nonprofits' revenues (some already pay property and sales taxes). What about it?

Leaving aside the legislative changes that would be required to amend the IRS code what effect would taxing nonprofits have? These are some of the counter arguments I've heard over the years:

• Services might have to be curtailed.
• Smaller organizations would suffer disproportionately.
• Taxation might discourage giving.
• The theory of "contract failure" holds that nonprofits arise to provide services the government would not.

Some arguments the other way are that there are too many 501-c-3s duplicating programs and services and taxation might shrink the field; another view is that a great many charities - especially in health care and the arts - despite being established as charities don't really provide charitable services. Hospitals especially are often criticized for giving far less unreimbursed free care than the theoretical worth of their tax exemptions.

I have long thought about the practicality and desirability of a tiered system of deductions for charitable contributions - basically the larger the organization the lower the deduction - a sliding scale. This might be effected through a tax credit rather than a deduction. I don't really know - but it does suggest a parallel: perhaps it is time to look anew at both deductions and exemptions. There are over 1.6 million charities - most of them small but nonetheless drive about 10% of the economy in employment.

The sector is highly fragmented; and I don't really trust all the data. For example: Giving USA under-counts corporate giving because it cannot collect data on cause related marketing the fastest area of company "giving:" is CRM really charity? And because smaller estates don't have to file returns there are undetected bequests. Maybe more on this June 9th when GUSA's data for 2009 giving is released publicly.

Also much has been made of the multi-trillion dollar charitable wealth transfer - the Schervish/Havens model. here I am a real agnostic and hope to engineer a debate on this in December when Giving Institute meets in New York. I read not long ago that $43 trillion of wealth evaporated in the recession. Where then is the "transfer" coming from?

Despite the hullabaloo taxation of nonprofits is probably a non-starter as is my idea for tiered charitable deductions. But one never knows. Everyone once thought the world was flat. Now only a few do. They're in the other party.