I’ve warned the nonprofit sector.
Over the years, I’ve warned the nonprofit sector many times.
Most recently, I provided a warning last month in my post “Special Report: America’s 50 Worst Charities Named”:
As a profession, we must do more to self-regulate. If we do not, we can expect others to fill the vacuum. The ["50 Worst Charities"] investigative report is one example of how those outside the nonprofit arena are filling that vacuum. It’s only a matter of time before government regulators become even more engaged.”
Well, sticking one’s head in the sand did not work. Declaring that most community benefit organizations efficiently do good did not work. Instead, just as I predicted, government has stepped into the void. Due to the nonprofit sector’s failure to self-regulate or to lead the way with government officials, politicians are taking action to further regulate charities.
Oregon has become the first state in the nation to “eliminate state and local tax subsidies for charities that spend more than 70 percent of donations on management and fundraising, rather than programs and services, over a three-year period,” according to a report in The Statesman Journal. This might be a model law that other states soon consider.
Recently, the good leaders at GuideStar, Charity Navigator, and the BBB Wise Giving Alliance penned a Letter to the Donors of America. In the open letter, the authors stated:
We write to correct a misconception about what matters when deciding which charity to support.
The percent of charity expenses that go to administrative and fundraising costs—commonly referred to as ‘overhead’—is a poor measure of a charity’s performance.”
Reading the opening paragraphs of the letter, one might be led to believe that overhead costs should not factor into our giving decisions. However, the authors are quick to point out:
That is not to say that overhead has no role in ensuring charity accountability. At the extremes the overhead ratio can offer insight: it can be a valid data point for rooting out fraud and poor financial management.”
In Oregon, state legislators were clearly motivated to act by the behavior of charities at the extreme.
The Statesman Journal reports:
The Oregon Department of Justice has already identified the top 20 ‘worst of the worst.’
They include charities such as Michigan-based Law Enforcement Education Program, which spent just 2.7 percent of its funds on programs over the past three years; California-based Shiloh International Ministries, which spent 3.2 percent on programs; and Florida-based American Medical Research Organization, which spent just 4.2 percent on programs.”
As a result of the Oregon law, donors to the disqualified charities will no longer be able to take a state tax deduction for their contributions. Also, the disqualified charities will no longer be exempt from property taxes.