Philanthropy Funders: Bending the “Moral Arc”

Funders and the "New Normal"

“We need to stop quoting Dr. King, feeling good about ourselves, and then continuing to do the same old crap that hasn’t worked for generations.” 

That was the urgent plea of prolific nonprofit commentator Vu Le in It’s 2020. Be bold or get the hell out of the way (January 20, 2020), Nonprofit AF Blog.  That (dare we say justified) rant was over six months ago, well before we knew how monumentally bad this brand new year was going to turn out to be. 

        Funders and the Pandemic

In early August 2020, we began to explore the seemingly benign theme of the nonprofit sector “…anxiously await[ing] the time it can return to ‘normal.’” See Philanthropy Thinkers On Not Returning to “Normal” (August 4, 2020). In that first of several related posts, we wrote about the many warnings by experts and commentators against simply trying to turn back the clock. The “pre-pandemic ‘normal’ was imperfect at best….and the deep inequalities and structural deficiencies in our society have come into painfully crisp focus.”

We promised to return to this subject and probe it more deeply. In Funders Urged Not to Return to “Normal”  (August 26, 2020), we presented advice specifically on how philanthropy’s funders and grant-makers should approach the weeks and months ahead. We discussed the thoughtful article by foundation veteran David Morse a few months ago in The Chronicle of Philanthropy. There, Mr. Morse urges foundations and philanthropists to “help create the better normal” by continuing “… what they’re now doing to provide support to their grantees who desperately need it, just more of it and quicker.” He adds: “And just do it; it’s a waste of time, space, and money to crow about it.”

Since the outbreak of the COVID-19 crisis, blogger Vu Le has continued – and dramatically enhanced – his pre-pandemic pleas to foundations to radically transform their funding levels and practices.  But Mr. Le cautions – along with David Morse and many others – that funders will fail to meet the challenge of this catastrophe by merely tweaking the old system around the edges. They must  address the core problems of power and privilege in society and in philanthropy itself.          

As commentator Arundhati Roy points out in The Pandemic is a Portal (April 3, 2020), Financial Times, “[n]othing could be worse than a return to normality.” There can be opportunity amidst the crisis. “Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next….” 

       “Bending the Arc Toward Justice”

In It’s 2020. Be bold or get the hell out of the way, Vu Le chose the occasion of MLK Day to drill down his continual message that funders as well as nonprofit organizations should stop with the endless intellectualizing and move on to action to bend the “arc of the moral universe” toward justice. What’s the “definition of equity?” he asks rhetorically. “Here’s my revised definition: Equity is about restoring power and resources to the people and communities who have been most harmed by the ongoing legacy of colonization, slavery, and injustice based on white supremacy and toxic patriarchy….There. Let’s move on. It’s not perfect, but we don’t have years to debate it like we have been. Our sector needs to think, speak, and act more boldly.”

He was sadly correct; we didn’t have “years to debate it.” It was just six short weeks until the COVID-19 pandemic engulfed us.  

While Mr. Le’s more recent writings laud those funders which have stepped up to the plate early in this crisis by pumping out much more money than usual with fewer hurdles and restrictions, he emphasizes they must do much more. They must commit to not rebuilding the flimsy and flawed institutions that were the building blocks of the old “normal.” See, for example: 

Along similar lines, see articles of note by other authors:

        Participatory Philanthropy

 About a year ago, in What is Participatory Grantmaking? (September 10, 2019), we wrote about a “recent school of thought” described by New Zealand’s Lani Evans in her essay and report titled “Participatory Philanthropy: An Overview” (2015). Her “deep interest in philanthropy” moved her to consider “whether or not philanthropy hinders social change” because it is so grounded in the “…culture-laden belief, often unconscious but seldom questioned, that possession of a greater material wealth or professional expertise is necessarily accompanied by superior skills to make things better no matter what the circumstance. This “top-down” assumption that “… people with these assets know more… extends to narrow beliefs about the identification, measurement, and evaluation of effective philanthropic practice.”  

Recent writings pick up this topic with greater urgency and renewed consideration under our current turbulent circumstances. See, for instance: 

       Conclusion

Returning again to author Arundhati Roy’s The Pandemic is a Portal, philanthropy funders must “rethink the doomsday machine we have built for ourselves,” choosing – now – not to “drag… the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas,… behind us.” 

 

 

PayPal Giving Fund Settles Big Case

PayPal

In 2013, internet giant PayPal, Inc. created a “new platform … to make it easier for customers to donate money to their favorite tax-exempt charities.” At the same time, the firm established a 501(c)(3) called PayPal Giving Fund (PPGF) “to process and distribute those donations.” Donors were supposed to be able to make contributions online and select a charity” that would “ultimately receive the benefit of their contribution.

There is an undeniable trend in recent reports on year-to-year charitable giving: Online donations have grown rapidly. For instance, the jump in 2017 was 23%, following a 15% increase in 2016. According to the latest Blackgaud Institute Index for 2019,  “online giving grew 6.8% year-over-year and 8.7% of total fundraising came from online giving. This is on track with larger online trends, including e-commerce sales.”

This trend is changing the game for charitable fundraising. See, for example, The End of the Beginning of Online Giving (March 4, 2019) by Blackbaud’s Vice-President of Data & Analytics, Steve MacLaughlin. Online firms like PayPal, Inc. have established a presence in various forms to take advantage of the internet’s role in encouraging and facilitating contributions to worthy charities. 

In Class Action Lawsuit Against PayPal Giving Fund (June 8, 2017), we reported about litigation alleging that – though PayPal Giving Fund is “an admirable endeavor” – donations were not always getting to the designated charitable recipients, particularly if the chosen organizations had not already registered with PPGF and signed up for a PayPal business account. 

Now, 2-½ years later, there is a major settlement of the case, signed off on by almost half of the state attorneys general around the United States.

   PayPal Giving Fund Sued 

PayPal Giving Fund describes itself on its Form 990 as a nonprofit “operated for the benefit of the nonprofit sector” by helping charities raise “new, unrestricted funds.” It “raises awareness and support for nonprofits, primarily through the eBay marketplaces and PayPal.” Sellers on eBay can give all or a portion of sale proceeds, buyers can add a donation to purchases, and PayPal users can “simply make a donation to one of more than 29,000 participating organizations ….” 

Kelly Phillips Erb, Forbes Senior Contributor explains in a March 2017 article, Lawsuit Against PayPal Alleges Charities Never Received Donations, that several plaintiffs had recently filed a federal lawsuit in the Northern District of Illinois. Among the most significant allegations in their 36-page complaint is that “a number of the charities never even knew that the platform existed.” Generally, “neither PayPal nor PayPal Giving Fund notifies the unregistered charities that a donation has been made to them or that they need to create an account to receive the money.” In addition, notwithstanding promises and representations that the donations would be given to a donor’s selected charity, “no effort is made to notify the customer that their chosen charity does not have the necessary accounts to be able to receive the funds and that the funds will not be delivered as promised.”

In Class Action Suit Filed against PayPal’s Giving Platform (March 1, 2017), Michael Wyland of The Nonprofit Quarterly provides further detail, including the raising of “… the thorny issue of how much of a donor’s gift actually gets to the intended charity. PayPal promised not only that 100 percent of donations would go to the charity of the donor’s choice but, ‘in email solicitations, [also] to add one percent to each donation.’” Apparently, that was not the case, according to PPGF’s publicly available 2015 Form 990.  

Mr. Wyland also emphasized the significance of this case. Plaintiffs were asking for – and eventually received – class-action status “on behalf of all charities and all donors to charities that were misled and/or harmed by PayPal’s actions as well as those of the Washington, D.C.–based PayPal Charitable Giving Fund.”

   PayPal Giving Fund Settlement 

PayPal Giving Fund denied the allegations but, in January 2020, there was news that almost two dozen states “entered into a  multi-state settlement agreement with this charitable arm of PayPal, Inc. The goal of this action by state charity regulators is to make sure that future donors are armed with enough and complete information “to make informed decisions” about participating in the PPGF program and giving platform.  

In PayPal Giving Fund Enters Multi-State Settlement to Ensure Transparency to Donors (January 16, 2020), Karen I. Wu, Esq. of Perlman+Perlman explains key areas of concern by these officials. Most particularly, they focused on “PPGF’s disclosure and grantee vetting practices” including findings that – 

  • Donations via the PPGF website “were made to PPGF” and not to a donor’s selected recipient-charity; and 
  • PPGF “could reassign a donation by exercising its ‘variance power’ when the selected charity did not pass PPGF’s vetting process.”

They also had problems with how long it took PayPal Giving Fund to transfer the donations to the intended charity-recipients and noted that “while PPGF does not collect fees from donors or charities for this service, charities receive contributions more quickly if they maintain a PayPal account, a fact that the regulators claim had not been adequately disclosed.” 

As part of the settlement, Paypal Giving Fund agreed to certain reforms that “focus on modifying the disclosures to ensure that donors know the full and complete facts about this program and its procedures. They committed to making “… many of these disclosures ‘unavoidable and prominent,’ which means that ‘the information is not included in an optional pop-up window or on another page accessed by a link on the original page.’”  

PPGF also agreed to tell donors when a donation is redirected to another organization. This reform may “… set a new industry-leading standard of transparency among online platforms that utilize an intermediary charity to facilitate donations to various causes.” 

Conclusion

According to Ms. Wu, “… state charity regulators’ concerns regarding transparency by online fundraising platforms are not new.” For instance, the National Association of State Charity Officials (“NASCO”) previously posted tips on internet and social media fundraising. And, in 2016, NASCO formed a Crowdfunding Working Group for state charity regulators to “learn from each other how the states handle issues relating to fundraising via third party websites and social media.” 

Online Charitable Giving: Cal AG’s New Guide

Charitable Online Donations

In the past decade or so, charitable giving and fundraising have been turned upside by the swift and dramatic rise of the internet.  As quickly as new means of asking for and giving money to charity have developed, legislators and government officials have responded as swiftly as possible to keep up with developments in this brave new electronic world. 

The individual states – rather than the Internal Revenue Service – have primary responsibility and authority in connection with all matters relating to charitable solicitations. Among the jurisdictions most active in monitoring these practices is California; its Attorney General, Xavier Becerra, has made it clear since his 2016 appointment and 2018 election that he will continue the aggressive supervision utilized by his AG predecessors, (now) Sen. Kamala Harris, and (former) Gov. Jerry Brown, both within and beyond the borders of the Golden State when warranted. 

The California attorney general has broad statutory powers and the support of the Charitable Trusts Section of the California Department of Justice. The agency has an active website devoted to charities and solicitation issues and publishes helpful guides and other resources for the general public as well as the philanthropy community. 

There are two publications this year especially worthy of note: the January 2019 revision to the 2008 Attorney General’s Guide for Charities: as well as the new Attorney General’s Guide for Online Charitable Giving dated July 2019. We’ll focus on the new guide in this post, but we’ll cover the revision briefly, too.

  Revision of General Charities Guide

The 2019 comprehensive revision of the Attorney General’s Guide for Charities is 113 pages long, and available free online at the agency website. The revision subtitle is “Best practices for nonprofits that operate or fundraise in California.”  There is also a live webinar discussing the Guide available on the California Department of Justice’s YouTube Channel (where else?) as well as additional resources on the Guide for Charities page

Since it’s a broad, “soup to nuts” publication, there is only a single chapter (of 13) relevant to charitable giving and solicitation laws and rules: Chapter 9, “Charitable Fundraising.” From pages 66-79, there is a discussion of “the legal issues and requirements under California and federal law governing charitable solicitations, also known as fundraising, charitable fundraising, and the soliciting of donations.”  

The topics cover “popular fundraising methods” including: mail, telephone, and website solicitations; newspaper and magazine advertisements; special-event ticket sales (bingo and raffles are mentioned, among others); use of collection bins; vehicle donation programs; and product sales. There is also in-depth explanation of special rules related to outside fundraisers and cause-related-marketing campaigns. While the Chapter 9 topic list mentions “online giving platforms,” that discussion is left for the smaller but significant new publication in July 2019. 

  New Online Charitable Giving Guide 

This new publication, Attorney General’s Guide for Online Charitable Giving, also available online, is much shorter – just 10 pages long. But it’s significant because it focuses on the relatively new phenomenon of “charitable fundraising platforms”; that is, sites including – most notably – “Amazon, Benevity, Charity Navigator, CrowdRise, eBay, Facebook, GoFundMe, Google, GuideStar (Candid), Lyft, Overstock, and PayPal.” 

It also covers the new “partnering platform charity,” an example of which is the PayPal Giving Fund, which receives donations and turns them over to a specific charity. “A platform charity like Pay Pal Giving Fund may even use what are called ‘donor advised funds to receive and distribute donations, but this is not required.” 

This Guide is described by the state agency as “an invaluable resource for the public and charitable fundraising platforms, which promotes informed charitable giving and the protection of charitable assets as online fundraising innovation evolves.”

It’s organized in four sections: 

  • Introduction: How and Where Can You Give to Support Charities Online?
  • Research Before Donating
  • Duties and Best Practices for Charitable Fundraising Platforms
  • Conclusion and Legal Notice

The two key audiences for this document are: (1) donors; that is, the “charitable giving public” and (2) the new platforms. 

Section II: The Charitable Giving Public 

Section II focuses on the donors’ needs: “Although it may be more convenient to donate to or support your favorite charities through charitable fundraising platforms, you should be fully informed as to how the donation process works for these indirect methods of charitable giving.”

Among the topics discussed are:

  • Who are you giving the donation to?
  • Will the charity receive the donation?
  • If the charity can’t receive your donation, can you choose another charity to receive it (as donations are not refundable)?
  • If the charity can receive your donation, how long does it take for the charity to get it? Can you be notified of this?
  • How much of your donation does the charity receive?
  • Is your donation tax deductible?
  • Will the charity receive your contact information?
  • Will your donation be used by a charity for the specific purposes described on a charitable fundraising platform?
  • Has the charity given permission to the charitable fundraising platform to receive donations through the platform?”

Donors are also told that “other material information that should be disclosed (and not only in fine print) include: information on refunds, the process for vetting charities before listing them on platforms or granting them donated funds, and the use of donor advised funds. For instance, if donor advised funds are used to accept donations, platforms should clarify what that means, why and how donor advised funds are used, and whether a donor advised fund is created for each donor.”

   Section III: The New Platforms and Partners

Section III focuses on the “… many companies [that are] unaffiliated with a charity ” but allow you to perform the following on their platforms:  

  • Select a charity to receive a donation from a list or database of charities;
  • Fundraise for charities, sometimes called crowdfunding campaigns or peer-to-peer fundraising, encouraging you to use your personal social media contacts to solicit donations for your favorite charity or cause (e.g., the platform may let you solicit and match donations to celebrate your birthday or another event); or
  • Support charities when you make purchases by, for instance, adding a small amount to a transaction that serves as a donation, or a donation is made by the platform or another corporation based on how much you spend online.” 

This part of the Guide is chock full of meaty directives including: 

  • Abide by fiduciary duties
  • Only list on platforms charities in good standing
  • Let donors choose how their information is shared and responsibly handle their information
  • Make the donation process transparent
  • Distribute donated funds as quickly as possible
  • Provide compliant tax donation receipts
  • Obtain prior permission from charities to solicit and receive donations intended for them
  • [Comply with] registration and other requirements”

  Conclusion

Taking a look at Chapter 9 of the revised Attorney General’s Guide for Charities and all of the new Attorney General’s Guide for Online Charitable Giving will likely devour most or all of an upcoming weekend, but there’s plethora of important information to digest. Bon appetit.

Blockchains & Nonprofits: A Primer

According to BDO’s most recent Nonprofit Standards benchmarking survey, almost 75% of CEO respondents expect to invest in more technology in the coming year. A corollary finding is that many of them find the vast scope and array of these new products “bewildering.” 

In this sphere, some of the loudest chatter has been about cryptocurrency – and a particular form of it: Bitcoin. It has been around for a decade, but in the past few years has exploded in popularity. We’ve covered the basics of this intriguing – but controversial – phenomenon that has attracted the interest of many uber-rich philanthropists as a new way to make charitable donations. 

A primer on cryptocurrency – which we’ve posted previously; see here – is not adequate, though, without explaining in terms as easy as possible to understand, the technology that is one step before Bitcoin and similar cryptocurrencies. That building-block concept is “blockchain.” 

What, Exactly, Is Blockchain?

It’s often said that if you want to make sure you understand a new concept, try to explain it in your own words to a five-year-old. (Without expecting any actual kindergartners to click onto this post), that’s what we’ll do here. We’re helped along in that task by the experts at Nonprofit Tech For Good. Part of that group’s mission is to introduce and explain, in simple lay language, the newest technology ideas and products. 

Their recent article, Blockchain Technology: What Is It and How Is It Relevant for Nonprofits? (May 30, 2019), is spot-on for this purpose. So we’ll largely eliminate the middle-person (that’s us) and rely on NTEG’s excellent primer on blockchain for nonprofits. 

Author Paul Lamb, from Man On A Mission Consulting, explains that, “at its core blockchain is a database technology.”  So far; so good: We know about and rely on databases and understand that it is technology that makes us able to use it.

But blockchain is not just new technology; it’s different. Blockchain has a unique nature; it’s “distributed.” Its software is decentralized; it “sits on a network of separate computers” that are called nodes. Also, each node acts independently of the others; each one has to “verify transactions and store” those records on that node’s own database. In its 10-year history, the Bitcoin blockchain – with about 10,000 nodes – has never been hacked, even though it has database software that is freely downloadable. 

By contrast, most businesses and nonprofits have been using databases that are “centralized on in-house or cloud-based servers.” That’s the problem, though; they are “easier to hack and alter.” The decentralized nature of blockchain makes it harder to mess with because a majority of those distributed nodes would have to be compromised at the same time in order for the intrusion to work.  

Why is this technology platform called blockchain? It’s because “transactions or the recording of information occurs in batches or blocks, with each block cryptographically tied to the next in a linear fashion.” 

Why is the blockchain technology that is the basis of bitcoin and other cryptocurrencies so useful? There’s no one (like a payment processor) in the middle: It can be “sent directly from you to me or vice versa in minutes for a very low transaction fee using an online wallet.” Conceptually, it’s just like “moving cash or a document directly from one safe to another.” And each node/host has the only combination or key to its own “safe.” 

The NTEG article has additional detail and explanation, including about “miners” doing things that are like “panning for gold,” and how the whole thing operates, but this is enough for our basic, explaining to a 5-year-old, version. 

What are Other Applications of Blockchain?

Bitcoin and other cryptocurrencies have dominated the headlines and our imaginations, but “as a database platform, a blockchain can support a range of [additional] applications.” There are public and private blockchain types, for instance, that include “faster and more private recording of data.”

Others “enable ‘smart contracts,’; that is, “essentially a piece of code” inside a blockchain that triggers a designated action when certain conditions have happened. (Contracts quite often include express conditions, concurrent or consecutive.) An example of a smart contract in the nonprofit field is one that allows a charity to get funds instantly when a donor receives proof of some action, like partial-construction milestones for a building. 

Conclusion

“Much more interesting than blockchain technology itself are the ways in which nonprofits and other social sector organizations can benefit from it” concludes Mr. Lamb in his helpful NTEG article. Giving examples, he emphasizes that “blockchain is still very much a nascent technology.” It’s exciting and developing rapidly, but “blockchain will take time to become truly user friendly and to fully find its nonprofit legs.” 

Behested Payments: Now, It’s L.A.’s Turn

On February 17, 2019, the Los Angeles Times ran a story with the headline: An L.A.councilman promoted a charity. Should he have disclosed the donors? The story was about (former) Councilman Mitchel Englander who, for many years, had taken an active part in fundraising for the North Valley Family YMCA.

He had, according to this reporting, probably run afoul of a California law requiring “… elected officials to report any donation request they make that results in a charitable contribution of $5,000 or more, which are known as ‘behested’ payments.”

Anyone who read our post from about a year ago titled Behested Payments: Critics Take Aim would certainly know all there is to know about “behested payments.” Apparently, the Nonprofit Blogger missed that one.  (The Nonprofit Blogger is a collective name for a group of distinguished professors of nonprofit law who rotate writing posts of interest to the charitable community, each one of which we devotedly read and admire.)

This time, it was Professor Daryll K. Jones who quickly dashed off:  What’s Wrong with “Behested” Payments to Charity (Part I)?:  He begins: “There was an interesting article in yesterday’s L.A. Times regarding something the left coasters call ‘behested payments.’  On the right coast, the practice is probably more often referred to as ‘pay to play’.”

Professor Jones is correct on several points: (1) It’s mostly a “left coast” thing; wildly popular among California pols; (2) “politicians’ habit and history of soliciting charitable donations to their favored causes” is not as prevalent elsewhere in the U.S. and is outlawed in some jurisdictions; and (3) there is enough wrong with this practice or at least ripe for abuse that eventually government bodies react to public outrage and rein it in.

That’s what happened in the past year or so in San Francisco; hence, our blog post last February. This time, it’s the Los Angeles City Council that took action just a few days after the L.A. Times’ Englander story ran. That’s what we’re covering now.  

Behested Payments: What are They?

By way of recap, the word “behest” does, indeed, sound like something draconian out of the Middle Ages.

The first known use of the word is from 12th century England, meaning: 1. An authoritative order, command; 2. An urgent prompting.”  It evokes an image of “…Sir Guy of Gisborne galloping through the Nottinghamshire countryside announcing the Sheriff’s latest behest that lord and serf alike hand over their valuables forthwith: a behested payment, so to speak.”

Nowadays in 21st century California, it’s a practice “where an officeholder either requests or suggests that people in the community make donations to one or two of the official’s favorite charities. In some cases, the official sets up a new 501(c)(3) which receives theses donations and then makes grants for charitable activities and services benefiting the community.”  The consequences today of not complying with the behest are nothing like being thrown in a dungeon, but you may not get that contract with City Hall your business needs desperately.

A few decades ago, behested payments produced only a trickle of activity. But in recent years, it’s become a popular “gesture” involving big bucks from major business interests in the community.  An eye-opening article from 2017 in the L.A. Time, ‘A tricky area of philanthropy’: LA mayor solicits millions for his favored causes describes how this practice has ballooned at all levels of government, across party lines, and without regard to an officeholder’s previously announced disdain for big money in politics.

Back in 1997, a “number of legislators were seeking advice” on how – or if – to report certain types of contributions. What if an “official asks a person or business to make a donation to the official’s favorite charity or to contribute to an agency project; for example, a skate park?” That year, the legislature responded by amending California Government Code section 82015, the state’s political campaign disclosure law.

The practice is legal in California, but there are some restrictions. “According to guidance from the California Fair Political Practices Commission (FPPC), a “payment is considered ‘behested’ and subject to reporting if:

  • it is made at the request, suggestion, or solicitation of, or made in cooperation, consultation, coordination or concert with the public official;
  • it is made for a legislative, governmental or charitable purpose; and
  • it does not qualify as a gift (made for personal purposes), or a contribution (made for election-related activity) to the elected official.”

See also, a helpful publication by The Institute for Local Government:  Understanding the “Behested Payments” Issue (2012);  “Ask and Ye Shall Report” is the key takeaway.”

“These payments are not considered campaign contributions or gifts,” the state’s political watchdog explains, “but are payments made at the ‘behest’ of elected officials to be used for legislative, governmental or charitable purposes.”

But where – exactly – is a line that shouldn’t be crossed, regardless of complying with the rather minimal disclosure requirement? As Professor Jones so aptly points out: “The …  sinister implication is that the donors are doing two bad things.  First, they are avoiding campaign donation limitations by steering campaign contributions to a candidate’s favorite charity, through which the candidate receives some sort of implicit benefit associated with the donation.  Secondly, the donor is buying access to city hall….”

More particularly, as to the idea that the officeholder receives a benefit, “the candidate who can steer donations to a charity by sending out personal “behests’ [sic], is treated as the charity’s favorite son or daughter, though the charity never implicitly tells its stakeholders to “vote for so and so because he supports us.”  

L.A. Takes Action

There were a number of factors precipitating the current action by Los Angeles Council members to put some curbs on behested payments.  

First, the LA Times article on February 17, 2019, highlighted what made the Mitchell Englander situation somewhat more egregious than the run-of-the-mill behested payment scenario. “For years, local businesspeople had contributed sums [to the named charity] way over the $5,000 public disclosure threshold, but Englander had not complied with that rule at all.”  

Also, the former councilman’s involvement in the charity’s fundraising events went far beyond his usual level of involvement; that is, identifying him as chair of the group’s Booster Club Dinner” with photos of him surrounded by children.”  This time, “he went an extra step, signing a letter to potential donors — one with an image of City Hall — encouraging them to contribute to the event.” (And, of course, not complying with the disclosure duty at all.)

Second, for months the FBI has been investigating “possible corruption at City Hall” and amid this probe, “the practice of fundraising for charities favored by politicians has come under new scrutiny.”

By February 20, 2019, – 3 days after the LA Times article – the City Council Ethics Committee had convened and recommended action. This was adopted by the full Council. The provision includes “banning non-individuals and developers form contributing to local elections, along with a ban on some ‘behested’ payments made to a charity or government program at the request of an elected government official.”

Apparently, the idea to ban certain behested payments had been raised before but hadn’t passed the Council. It was also fueled by a newspaper article last year on donations by another Councilman, Jose Huisar, (named but not yet charged in the FBI probe) to his Catholic high school alma mater, for which his wife worked as a paid fundraiser.

The “behested payments” rule – for which there are certain exceptions – includes a ban of payments from “restricted” sources, which includes a lobbyist, a lobbying firm, a bidder, a contractor, a person who attempted to influence the elected official in the previous 12 months, and developers.”

Conclusion

This recent move by the Los Angeles City Council will undoubtedly not be the last word on “behested payments” in the State of California. There will likely be moves in other counties and municipalities, as well as on a state-wide level, to reconsider this practice.

Rage Giving: The RAICES Example

In  Rage Giving: What’s the Formula For Success?, we described an example of this phenomenon following the tumultuous 2016 presidential election that resulted in windfalls to certain nonprofit organizations. “Americans turned in droves to well-known groups including the American Civil Liberties Union, Planned Parenthood, the Southern Poverty Law Center, and the Environmental Defense Fund.”  

We asked: “So what happens when the skies open up and rain down money? What’s the formula for success for receiving and putting to good use these rage donations?”

In that post we selected the American Civil Liberties Union:  “Now, eighteen months in, it appears that the [ACLU] has set a good example that other organizations may want to learn from and follow.”

Some of the keys to the success of the ACLU in scaling up, suddenly and dramatically, include: a 100-year-tradition of making strategic adaptations to changing issues and conditions, and planning wisely even for low-probability contingencies that – if they happen – will have a major impact on the organization.

Refugee Agency, RAICES, Moves Center Stage  

Money falling out of the sky does not always come free of charge; there are predictable pitfalls and complications. If an organization can’t scale up quickly and smartly to deal with the emergency event as well as the sudden flow of resources, there will be bad press and criticism which will not only slow down or stop the rage donations but also create negative publicity from which the organization may never recover.

In the post-2016 election period, there have been many examples of the fortunes of nonprofits changing dramatically – either better or for the worse.

Recently,  “a formerly obscure Texas legal charity struck the jackpot. Millions of Americans, horrified by families being torn apart at the border, started sharing and donating to a campaign to raise money for RAICES, the Refugee and Immigrant Center for Education and Legal Services in Texas. The main Facebook fundraiser ended up bringing in almost $21 million” – although the original stated goal was just $1500 to help out a single family.  

So far – and it’s still early on – the RAICES story is an example of an organization that has adapted well to its new-found fame and success. This organization did not suddenly spring up out of nowhere, though, when the family separation/border crisis erupted. For the past 30 years or so, RAICES was the “leading expert” on “reuniting families.”  The head of communications, Jennifer Falcon, explains: It’s just something that nobody really talked about, but it’s actually very common that families get separated and get lost and shuffled around the immigration system.”  The system has been broken for a while; “the tension really start[ed] about four years ago” and “things really got crazy” with the recent zero-tolerance policy was implemented.

RAICES has been “ramping up a lot over the past four or five years” to meet this need, but funding had been problematic. Before the windfall coming from an online fundraiser, RAICES had relied heavily on government money, but that was likely to dry up under the current administration’s policy of slashing funds for immigration services.  In the last fiscal year, the organization’s total assets were less than $4 million.

The RAICES Windfall

The money windfall began when a family named Willner set up a Facebook page for the purpose of “bonding out” one specific refugee family.  The goal was $1,500, but the publicity – partly due to the national news organizations focus on the crisis – created a deluge of interest. This fund spiked to $21 quickly. And the money is flowing in from “people just sending $50 checks” and proceeds from “probably thousands of little fundraisers.”  Quickly, the total grew to $30 million or so.

That success created some initial glitches. The organization’s website crashed briefly, and they “haven’t even been able to keep up with all the donations – [they’ve] had to hire more staff.” They “literally have been given so much money [they] don’t even know how much money it is.”

The money has primarily come in for the purpose of bonding out refugee families. RAICES took a bold step, making “headlines more deliberately. The group called a press conference in Washington to ask the Trump administration to accept a $20 million bond check to free thousands of immigrant mothers, rather than requiring individuals to be bailed out one at a time.”  The nature of the expenditures – that is, on bonds – means that much of the money will come back eventually and can be used again.

RAICES also used some of the donations to create a database of separated children and a hotline to help in the child-parent reunification process.

The group also wants to “help resettlement. Even after reunification, these families have been through extremely traumatic events. They’re going to need grief counseling … for a long time, especially young children…. And they’ll need flights and travel expenses to be paid for…. They need attorneys to be able to help them navigate through [the immigration process].

Donation Declined

The group is also deliberately pivoting to an advocacy function, too. The Willner Facebook campaign raised RAICES’s “national profile.” They’ve been “embracing that,” going to Washington to ask the government to accept the single $20-million bond check, and in other actions. They also “went to Washington” to “bring up that this is a larger conversation about reform and how complicated the bond process is.” “We need our elected officials to step up,” says Ms. Falcon. “There needs to be reform for this process. We don’t believe detention is the way. There are no benefits in detention. All we see are abuses of human rights, trauma, heartache.”

While keeping to their main function of providing low-cost and pro bono legal services to asylum seekers, they are now “creating an arm for advocacy,” too. “Advocacy is something that we’ve always done, and right now we’re adding a little bit more to that arm of things.”

All of this new funding made another decision easier: The firm Salesforce donated $250,000 to RAICES as part of a $1 million pledge to “help families separated at the US border but the organization rejected it. In an open letter to Salesforce, the group explained the money was not accepted because Salesforce refused to cancel its contracts with Customs and Border Protection.

With so much need, many groups would be hesitant to turn down any financial support “that could possibly expand its direct programming.” But by “standing firm and rejecting the donation, RAICES is further reinforcing its principles.”

Conclusion

It’s still early days for RAICES’s new financial cushion and increased national visibility, but – so far – the group seems to be handling the “rage giving” windfall well. Several factors have contributed to the success so far including the important fact that the group was well-established and had a clear expertise in this field as well as a strong connection with the population to be served.

Second Thoughts About Cryptocurrency Donations?

In early April 2018, we posted Bitcoin and More: The New World of Donations. Cryptocurrency was Introduced just a decade ago, but by 2017, it was taking the world by storm.

Cryptocurrency has applications and implications across the economic spectrum. The nonprofit world has begun to sit up and take notice: This new technology offers an added type of payment option for charitable donations; it has some notable benefits including quicker processing, lower fees, and easier access to international donors. Tech-savvy individuals – including a swath of newly minted Silicon Valley billionaires – are big proponents who want to make their philanthropic contributions in this manner, not least because there are highly attractive tax advantages.

Of course, the great Bitcoin Crash of 2018 showed that there are serious downsides to this untested market. That volatility continues, there are lawsuits, and the government looks ready to step in for some much-needed regulation.

By the fall of 2018, experts and observers were ready to take a second look at the cryptocurrency craze and evaluate it anew from the perspective of donee organizations, donors, and philanthropy generally.

“There are a lot of Bitcoins out there, and lots of people and businesses are starting to use them for real-life transactions.” For the nonprofit world, though, there are more questions than answers. 

What is Cryptocurrency?

In Bitcoin and More: The New World of Donations, we included background and definitions of key terms. Cryptocurrency is known also as “digital currency”; Bitcoin is just one type of cryptocurrency, albeit the one with the most name recognition so far.  It’s a “digital token – with no physical backing – that can be sent electronically from one user to another, anywhere in the world.”  A key feature is that it is decentralized via “distributed ledger technology.”  

There is an easy-to-understand description in Should Your Non-Profit Accept Bitcoin for Donations? “Bitcoin,” the author writes, is a new digital “currency” or “store of value” that exists on computers and on the web.”  It’s a “little like gold. It is worth something, can be used to buy things, or can be sold for dollars, euros, pesos, or other currency.” Helpfully, he adds a link to a “slightly longer, but still fairly non-technical explanation of what Bitcoin is”: a video, prepared by WeUseCoins, with cute animated cows. And, “if you want a highly technical answer for the question, check out both the Wikipedia entry for Bitcoin as well as the official Bitcoin site.”

Cryptocurrency: Pros and Cons

Volatility; Liquidity

From the perspective of the donee-charity, there are attractive advantages. If there’s a way to add another payment option, particularly one desired by newly minted uber-rich, tech-savvy philanthropists, which is also easy to set up and simpler and cheaper to administer and gives better access to international donors, cryptocurrency looks like a no-brainer. See What You Need to Know about Cryptocurrency In Your Nonprofit for a discussion of these advantages [“Because there are fewer people and processes involved, cryptocurrency transactions are fast and efficient.]

“A good number of non-profits have started accepting Bitcoin donations …. In Brave New World: How Cryptocurrencies and the Blockchain Are Changing Cryptocurrencies, Julia Travers writes for Inside Philanthropy about many new and exciting examples of nonprofits adopting this innovative technology. Many of them take advantage of Bitcoin payment processing firms like Coinbase and BitPay that make it easier to accept Bitcoin and immediately convert them into U.S. dollars, euros, or other currency. (For U.S. nonprofits, cryptocurrency transactions must be reported in U.S. dollars.) There are also direct trading platforms, peer-to-peer marketplaces, and offline selling.

This immediate conversion into standard currency helps avoid one of the biggest arguments against cryptocurrency: lack of liquidity and the likelihood of taking huge losses when there is market volatility. So far, “the volatility of cryptocurrencies is incredibly high.”  “[S]ome types of cryptocurrency seem to disappear while others like Bitcoin have been very remained amid volatility of value.”  Since cryptocurrency value is based on supply and demand, there can be, and are, serious fluctuations.

“Generally, it is lawful for a nonprofit to accept a donation in the form of a cryptocurrency. However, this does not necessarily mean that it would be prudent for all nonprofits to do so.”
Among the experts raising alarm bells about cryptocurrency – and particularly, the large concentration in some of the largest nonprofits and donor-advised funds, who hold onto the donations instead of liquidating them – are Professors Philip Hackney of the University of Pittsburgh and Brian Mittendorf of Ohio State University. In Charities take digital money now – and the risks that go with it, these two academics, who write prolifically on nonprofit organization issues, write that “an increasing share of charitable giving is coming from a small group of extremely wealthy donors as the percentage of Americans who donate to nonprofits declines.”

“Mega-donors,” they explain, “contribute assets like stocks and bonds”, instead of cash; these contributions yield highly attractive tax benefits. In 2014, the IRS ruled that cryptocurrencies are to be treated like these non-cash assets. So the uber-rich are now stuffing huge amounts of Bitcoin into their favorite donor-advised funds at the Silicon Valley Community Foundation or in the huge commercial DAF firms like Fidelity Charitable. These donations are being held, instead of liquidated immediately, amid seriously troubling volatility in the market.

 Uncertainty; Ambiguity

Among the additional concerns about cryptocurrencies are uncertainties, even as to the much-touted tax advantages.  
There are helpful discussions of the tax treatment and implications to donors and to the donee-organizations at What You Need to Know about Cryptocurrency In Your Nonprofit as well as at Cryptocurrencies and Nonprofits by Gene Takagi, Esq.

Since virtual currency is treated as an asset rather than cash, there is no value assigned to the gift, but the donor is required to document the value including in the case of donations of more than $5,000 adding a qualified appraisal. There is “no real guidance” on some of these details. And, of course, that creates uncertainty as well for the donee-organization that has reporting and documentation duties.

Because cryptocurrency is so new, there is little regulation, and what exists varied significantly from nation to nation. “Relying on unregulated infrastructure and exchanges is risky.”

There are additional concerns because “cryptocurrencies are anonymous and uninsured. And they’re technology dependent.  This means that should anything go wrong, there is no recourse or direct way to get the money back.” Governments could get into cryptocurrencies, and do a better job of managing them.

In addition, “[b]lockchain-based currencies can both cloak personal finance and be adopted for criminal use like investment scams and money laundering.”

Conclusion

“The urge to donate digital money, especially once the meteoric rise in the value of bitcoin and similar assets created the opportunity for investors to reap huge potential charitable tax breaks, was only natural.”

But it may be that the famous quote from Betty Davis’s character in All About Eve applies here: “Fasten your seatbelts, it’s going to be a bumpy ride.”

The Charity Raffle in CA: An Update

Around the United States, raffles are among the most popular fundraising methods for charitable organizations. Many groups, though, are unaware that raffles are governed by strict rules on a state-by-state basis.

A few years ago, in June 2015, we tackled the key misconception; that is, the payout to the winner can be whatever the organization wants it to be. It’s Just a Little Raffle: What’s the Big Deal?  Each jurisdiction has rules on the allowable percentage to be paid to charity vs. to be paid to the winner. In many jurisdictions, a 50/50 payout is allowed. In California, the rules are more stringent. As of that June 2015 post, the payout limit was 90/10; that is, the winner can be awarded no more than 10% of the proceeds.

A few months later, In Surprise Change to Charity Raffle Rules in California, we posted news of a limited change approved by the California legislature that benefits just a handful of organizations that hold raffles. There was opposition, but it was a touted as a temporary change only, scheduled to sunset on December 31, 2018, if lawmakers did not make it permanent by then.

Now, with the sunset provision in the recent past, proponents were able to pass a bill late in last year’s California legislative session, making it permanent. Now, certain nonprofits affiliated with major-league sports team may continue to hold 50/50 raffles in this state.

With this limited change now in place indefinitely, it’s a good time to review the ground rules about raffles in California and – in particular – how much a sponsoring organization is permitted to pay out to a raffle winner.

The 90/10 Raffle Rule

California’s raffle rules emerged two decades ago when “California’s gambling industry was essentially unregulated.” The Legislature tackled this Wild-West problem first in 1984 with weak legislation; this was changed in 1997 with the passage of the much-tougher “Gambling Control Act.”

There was pushback, though, on this hardline approach; a consensus agreed there should be exceptions for tribal gaming and for some charitable activities and events including bingo. The revised raffle rules were then made via constitutional amendment. As we explained in It’s Just a Little Raffle: What’s the Big Deal?:

(Without going into a big rigamarole about how complex lawmaking can be in California, and why items you’d think could be accomplished by a regular amendment in the Legislature, can’t be done that way), suffice it to say that the matter had to be approved by the voters in a March 2000 ballot initiative.

So, the voters amended the State Constitution (Art IV, Sec. 19) granting the legislature authority to permit certain nonprofit organizations to hold certain types of raffles. To do that, legislators amended Penal Code sec. 320.5, effective July 1, 2001, to authorize certain types of raffles under narrow conditions. There were additional requirements and restrictions added as well.

That’s how the 90/10 payout rule came to be the law in California, notwithstanding the huge popularity of 50/50 raffles elsewhere in the United States. We pointed that out in How Your 50/50 Raffle is Like Drinking a Beer When You Were in High School. It’s done a lot, but here in California, it’s illegal. “What’s legal now is akin to drinking non-alcoholic beer, which has been described by some as only just a bit ‘better than being left empty-handed at a party.’”

Here’s the bottom line: The Golden State allows only 90/10 or better raffles. At least 90% of a raffle’s gross receipts must be paid directly to beneficial or charitable purposes in California. This works best, of course, when most or all of the raffled items are donated.

There are more rules and regulations that California organizations need to know about raffles; we’ve covered them earlier, here. Since the newest developments involve the 90/10 rule and the 50/50 narrow carve-out in 2015, we’re focused on that aspect of the law in this post.

The 50/50 Narrow Raffle Exception

In the midst of the usual mountain of bills (including high-profile measures) awaiting California lawmakers each September trying to beat the clock before the 2015 Regular Session was adjourned, there was a small proposal to tweak the charity raffle rules just a bit to benefit major sports franchises and their associated nonprofits.

The tough 90/10 payout rule for California charity raffles was modified so that at major sporting events, Californians can enjoy a 50/50 raffle, like those held at other locations around the nation. Although the payout is lower than for raffles held by all other California organizations, the large number of attendees at sporting events creates a windfall for all concerned.

Though there was organized opposition from nonprofit organization associations, SB 549 passed both houses of the legislature by September 5th, with significant bipartisan votes.  Along with many other newly enacted bills, the measure sat on the Governor’s desk for almost the entire 30 days allotted to him to sign or veto it.

The California Association of Nonprofits, on behalf of a coalition of some 100 charity leaders, stepped up lobbying efforts to persuade Governor Brown to exercise his veto. Their key arguments were: (1)  the charitable community was a key participant in the “multi-stakeholder process” that resulted in enactment of the 90/10 raffle law in 2000; (2) SB 549 would unfairly create an exception for “an exclusive set” of nonprofits; (3) a 50/50 split is contrary to the “intent” of the original law “that the primary purpose of any charitable raffle is to benefit a charity.”  

Despite this plea that “…laws governing charitable raffles should be tightly crafted with input from stakeholders throughout the sector and should treat charities equally,” the California governor signed the bill on October 5, 2015.

There were important conditions, though: first, the law was temporary with a scheduled sunset at the end of 2018; second, there was to be an audit and report.  

In the 2018 Regular Session, the California Association of Nonprofits and other opponents put their weight against Assembly Bill 888 which would make the 50/50 national sports league carve-out permanent.

Despite legislators’ promises in 2015 of a progress report on if and how California communities would benefit from the 50/50 raffles, “there has been no audit or review to see if this program is working or where the money is going.” The first draft of this bill would have permitted these raffles to go on indefinitely without any oversight at all.

The final bill includes another sunset on these big raffles in 2024 and authorizes more money for auditing and compliance by the California Department of Justice. This measure passed the legislature and was signed into law by the governor.

Conclusion

CalNonprofits will continue this fight by coordinating with the Attorney General to make sure that there is meaningful oversight.” They will also renew their efforts to “make raffle rules simpler for smaller authentic charitable raffles.”

Crowdfunding Regulation in CA: What’s Next?

Crowdfunding for charitable purposes and beneficiaries has exploded in popularity in recent years. “It seems like a perfect marriage: the internet and charitable fundraising.”

A lightning-speed way to pitch alerts about causes – often in times of emergency – for which generous people in your own backyard as well as around the globe can help with the click of a mouse.

See, for instance, our earlier posts on “donation crowdfunding” about Sweet Briar College in Virginia, and the Girl Scouts of Western Washington.

The bottom line, though, about this exciting new form of online fundraising technique is that it is – plain and simple – fundraising. Notwithstanding the sometimes ad hoc nature of these appeals, they are “charitable solicitations” and charity regulators – at all levels of government – take an interest in charitable solicitations and solicitors.”

Existing Crowdfunding Regulation

In California, as around the United States, interested stakeholders, lawmakers, and regulators are working to create an atmosphere in which these online donations can flourish in a way that protects the donors and charitable beneficiaries and conforms to existing principles of charitable-solicitation regulation and oversight.

The Attorney General’s Office has issued a helpful publication titled Crowdfunding & Nonprofits: The Attorney General’s Guide for Crowdfunding Sites, Charities, and Donors. It opens with a general expression of support and approval: “Crowdfunding sites provide online place for individuals, businesses, and/or nonprofits to solicit funds. This is a new twist on an old practice. In times of need people have always reached out to their families and friends for help. [These] sites tap into these connections and make it easier to ask a wider audience for more money without the social friction that accompanies asking for money.”

There is a reminder, though that “[i]n order to protect the public and ensure transparency, charitable solicitations are subject to government oversight. Crowdfunding sites are not exempt from regulatory oversight.”

More particularly, the AG reminds participants that, if a site meets the statutory definition of a “commercial fundraiser” or “fundraising counsel,” it must register with the Attorney General’s Registry of Charitable Trusts and comply with the reporting requirements in those statutes.

In addition to imposing requirements on outside crowdfunding firms and personnel, California law imposes supervisory duties on the charitable organizations for which the crowdfunding appeals are made. There are serious consequences for failure of any organization or person to strictly follow these rules.

The California Attorney General’s Office list certain “best practices” for participating charities, including: (1) don’t use unregistered fundraisers; (2) don’t misrepresent the nature or purpose of the solicitation; and (3) disclose how much of a donor’s contribution will be kept by the site.

Legislative Action on Crowdfunding

In CA Considers a Charity Crowdfunding Bill, earlier this year we reported that legislators attempted – not for the first time – to pass legislation on this activity. The bill introduced in the 2018 Regular Session of the California Legislature, AB 2556, was crafted in coordination with PayPal and the crowdfunding industry.

Reaction was positive to the extent that interested stakeholders want to see legislative action, but there was early consensus that the particulars of the measure needed some reconsideration and refinement.

AB 2556 never made it out of committee, while stakeholders including the California Association of Nonprofits sought input on how to improve this (or a future) bill.

Call for Cooperation

Now that the particulars of AB 2556 are officially off the table, CalNonprofits and others are continuing to explore the parameters of useful legislation and other regulation that will allow charity crowdfunding in California to flourish while ensuring that donors and organizations are properly protected.

“For over a year, Californians have been discussing potential crowdfunding regulations. Multiple competing perspectives have come up in the debate, many of which are mutually exclusive. CalNonprofits has stepped up to the challenge and introduced its Principles for Responsible Crowdfunding to help get everyone on the same page.”

In an Open Letter to Crowdfunding Companies, dated November 16, 2018, CalNonprofits, ask for cooperation and dialogue in light of certain “concerns” about “the easy access for scam artists purporting to be legitimate nonprofits, undisclosed fees, uncertainty about tax-deductibility, and slow fund disbursement to nonprofits, among many others.”  

The association hopes its Principles for Responsible Crowdfunding will “serve as a guide for policymakers in the Golden State, and help set the standard as the rest of the states take their own look at this evolving field.”  

These Principles assert that “all parties must protect the integrity of the relationship between donors and nonprofits,” including assurances that donors’ money will go to designated charities in a timely manner.

For these reasons, online platforms must:

  1. Explain at point of donation who gets the money and if it’s tax deductible
  2. Ensure that the donor has control over personal information
  3. Disclose all fees before donation
  4. Transfer funds to designee nonprofit within 30 days
  5. Confirm to donors the donation was received by donee
  6. If designated charity can’t be found, ask donor for alternate recipient
  7. Provide publicly available annual report
  8. Engage with charitable organizations and government regulators as this field evolves. 

Conclusion

CalNonprofits ends its letter by asking for continued cooperation and input to develop proposals for legislation.

Are Funders Ready to Throw the Overhead Myth Overboard?

Once upon a time – not so long ago – nonprofit organizations lived in an enchanted land where on the stroke of midnight a fairy godmother swooshed in, waved her magic wand, and – poof! – gone were all of the general operating expenses incurred that day.  

Bright and early the next morning, the grateful trustees, executive directors, and fundraisers were free to – truthfully – tell all and sundry that their donations and grants are spent on their wonderful charitable programs.

It Was All a Cruel Dream

About a decade ago, a few brave souls rode into town explaining to anyone willing to listen that none of it is true.

In Year-End Queries and The Overhead Myth, we explained that, back in 2009, “authors Ann Goggins Gregory and Don Howard published a landmark article in the Stanford Social Innovation Review. The title says it all: The Nonprofit Starvation Cycle.”

The premise was a forceful articulation of the reality that it takes money to achieve charitable purposes, and that nonprofits are correct to spend enough in overhead, including salaries, so they are not constantly in dire financial straits.

In March 2013, activist and fundraiser Dan Pallotta “railed against the demonization of overhead in a ‘lively and irreverent’ TED talk he called The way we think about charity is dead wrong.”   He called out the “double standard that drives our broken relationship to charities.” Nonprofits are lauded for “how little they spend – not for what they get done.”  

Soon after, on June 27, 2013, the editors of The Nonprofit Quarterly, posted a landmark letter: The Overhead Myth (June 17, 2013) from GuideStar, Charity Navigator and the Wise Giving Alliance “calling for an end to the obsession many have had with nonprofit overhead costs as a proxy for measuring effectiveness…” It was addressed to the “Donors of America,” and began: “We write to correct a misconception about what matters when deciding which charity to support.”

They explained that “[t]he 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” and that more attention should be paid “to other factors of nonprofit performance: transparency, governance, leadership, and results….”

Steps to Banish the Overhead Myth

Respected commentators had taken the crucial first step: shedding daylight on the preposterous notion that a fairy godmother creeps in after office hours and makes all of the “taboo” expenses of real-world nonprofits miraculously evaporate overnight.

The second step has been educating the organizations themselves, and their key personnel, that the emperor, written up frequently in the Style section for his sartorial brilliance, actually wears nothing at all.

(Oh, wait – that’s a different fairy tale – but apt, nevertheless.) See, for instance:  Why Is Overhead Expected in the For-Profit Sector, but a Punishable Offense for Nonprofits? and How Individuals Can Help with the Overhead Myth Smackdown.

The third step is just as important as the second. If donors, funders, and government grantmakers don’t also understand that the insidious cruelty of The Overhead Myth, then there will be no progress. The newly enlightened nonprofits will still have to beg and plead for scraps to keep the organization afloat in what experts decry as The Nonprofit Starvation Cycle. We’ve also written about that in Rethinking the “Scarcity Thinking” That Holds Back Nonprofits. To the extent that “overhead” remains a taboo in fundraising and grant writing, that starvation cycle continues.

Compounding this dilemma is that “(t)here is no magic number across the board. Foundations don’t have a single industry standard percentage for nonprofit overhead.”  Of course, “(s)ome foundations, happily, will advertise what they see as an ideal ratio of general operating expenses to overall expenses.” This is “unfortunate because every nonprofit —

operates a little differently. Some are run by volunteers and have little to no overhead expenses. Others may have a lot of general operating expenses for one reason or another. It’s simply impractical to apply a single standard to every single nonprofit out there.

The “good news is that ‘more and more, nonprofits are trying to change the perception of overhead as taboo….  The other good news is that more and more foundations are open to funding general operating expenses.”

Conclusion  

In the second part of this series, we’ll focus on some groundbreaking thinking – and action – by leading foundations including the Ford Foundation, which recently announced a dramatic new grantmaking focus on general operating support.