Ken Goldstein, MPPA

Ken Goldstein has been working in nonprofits and local government agencies from Santa Cruz, to Sacramento, and back to Silicon Valley, since 1989. He's been staff, volunteer, board member, executive director, and, since 2003, a consultant to local nonprofit organizations. For more on Ken's background, click here. If you are interested in retaining Ken's services, you may contact him at ken at

Thursday, March 26, 2009

When Incentives Turn into Disincentives

All of us in the nonprofit sector are aware (or, should be aware) that the Foundations who support us have a minimum 5% payout requirement to maintain their nonprofit status. That is, they have promised the IRS that their grants and related expenditures will equal at least 5% of the total value of their assets each tax year.

There are those of us (and if you read this blog regularly, you know I'm one) who consistently call on the foundations to grant out more than the minimum, particularly in years, such as this one, when social need for nonprofit services is high and individual donations are low.

A little less known than the 5% payout, is the excise tax that foundations pay on their investment earnings. Currently, it is generally a 2% tax. However, it is lowered to 1% in any year that a foundation grants out more than their five-year average. This was meant to be an incentive for higher payouts in times of need.

Of course, it is a one-year incentive, since that higher payout raises the five-year average, the tax rate goes back to 2% unless grant amounts continue to rise each year. The return to 2%, according to some in the foundation world, actually then becomes a disincentive to increasing grants in the first place.

According to C. David Campbell, president of the McGregor Fund, a Detroit-based foundation:
"This year, most of the foundations in Detroit will be paying out much more than they have in the past because of the needs... But that will leave all of us in the position of paying more taxes going forward, which ironically will further diminish what we have to support nonprofits."
Enter Senator Charles E. Schumer, New York Democrat, and his buddies, Senators Debbie Stabenow and Carl Levin, Democrats of Michigan. Senator Schumer has proposed eliminating the current two-tiered system with a single excise tax rate of 1.32% in all years.

According to Robert S. Collier, chief executive of the Council of Michigan Foundations
"We are confident this will stimulate more giving by foundations... simply by making the administration of tens of thousands of smaller and midsize foundations much easier because they won’t have to spend a lot of time with their accountants trying to figure out if they have to pay 1 percent or 2 percent."
I'm all for anything that will encourage foundations to do what they're supposed to - support nonprofit organizations - but, really, was figuring out a two-tiered tax system really that much trouble for the foundation world?

And, more to the point, are foundations really saying that the only reason they can't step up and grant out more in this fiscal emergency is because they'll only save on one year's taxes? I know that many foundations are stepping up, and that this does not represent the attitude of the entire sector.

Now, I'm not saying that I'm against Schumer's bill. It's probably a great idea. I'm just saying that certain foundations need to increase their giving in an emergency, excise tax or not.

Thursday, March 19, 2009

Good news for fundraisers

Did I say "good news"? In this economy? Yes, I certainly did. This last January Cygnus Applied Research polled 17,365 people with a history of charitable donations to ask them about their philanthropic plans for 2009. The results (as reported in The Chronicle of Philanthropy) may surprise you:
  • 52% of donors said their gifts would be on par with 2008
  • Only 17.5% planned to give less than last year
  • Of those who were committed to a multi-year gift, 87% said they would pay on time
  • 42.5% said they would give to a charity they had not supported in the past if someone they knew was seeking the gift
  • 40.3% said they would give for the first time if the charity was working directly to help people hurt by the recession
  • Only 16% said they would not consider supporting a new organization
Survey respondents were not being unrealistic about the economy when answering these questions: 39% said they thought it would be at least three years before the economy recovered. 23.4% felt the economy would rebound in less than two years.

A final bit of caution before thinking this news is an open invitation to all sorts of fundraising plans:
Forty-one percent said they had stopped donating to at least one nonprofit group in the past five years because they felt overwhelmed by appeal letters, while more than a third said they were concerned organizations spent too much on fund raising.
As a result, online donations are expected to become more popular, while telemarketing, door-to-door canvassing, and direct-mail appeals may be less successful.

Wednesday, March 18, 2009

Washing Away in a Flood of Volunteers

Has your nonprofit been overrun and overwhelmed recently with a flood of new volunteers? The New York Times reports on the influx of the unemployed into volunteer service and its effects, both positive and negative.

The two forces feeding this growing volunteerism are, of course, the recession leaving many people with more free time than they'd care to have, coupled with inspiration from President Obama's call to service.

Here in the Bay Area, the Taproot Foundation - who help with organizational effectiveness by placing skilled professionals in volunteer positions - had more people sign up on one day earlier this year than in an entire month a year ago.

For those larger organizations, who are able to properly train, manage, and use these new volunteers, this is a wonderful resource. But what hit home for me was this paragraph:
... others grumbled that the current love affair with volunteerism ... can be a mixed blessing. Smaller organizations, with staffs of fewer than 20 and no full-time volunteer coordinator, have struggled to absorb the influx, especially since many of them have simultaneously had to cut back on projects in the face of dwindling donations and government grants.

“Can you make them stop calling?” groused one nonprofit executive, who spoke on the condition of anonymity...
I'm currently serving as Interim Executive Director at an agency with nine staff members. The Volunteer Coordinator left that position in December and because of budget restrictions has not been replaced. We now have a backlog of volunteers to follow up with, and limited resources to put them into positions where they can be of service.

Taproot has had to scale back on their recruitment of professionals:
“It’s like a Greek tragedy,” according to Lindsay Firestone, who manages pro bono projects for Taproot. “We’re thrilled to have all of these volunteers. But now organizations are stuck not being able to take advantage of it because they don’t have adequate funding.”
But, as much as we may complain now, we know it won't continue forever. The media focus on volunteerism will wane as another issue comes into vogue, and the economy will pick up sooner or later (sooner, please!) sending these volunteers off to their paid positions.

How we handle these eager volunteers now will greatly influence how we can use them and interact with them later.

Bertina Ceccarelli, a senior vice president at the United Way in New York, sums it up this way:
“My hope is when they decide it’s time to do something else, they have fond memories of what they learned at United Way... Maybe they’ll even become a donor..."
Of course, we all know, nobody just "becomes" a donor. Donors must be cultivated. Sending a potential volunteer away today may mean you're turning down a future donation. Something to think about.

Saturday, March 14, 2009

Resisting the Pressure to Merger

A couple of years ago, I wrote a post here about when it makes sense to take an existing partnership and explore a merger. In that posting, I wrote that
the reality is that it is increasingly difficult for small organizations (budgets under $750,000) to operate successfully, and create sustainable funding. As much as I love small, grassroots organizations, sometimes they can better serve their communities as part of a mid-sized agency.
Today, that is truer than ever, and many of the small agencies that I love so much are in major trouble as their funding dries up, while clients are still lining up at their doors. Also true right now is that there is growing pressure on these small organizations to merge coming from the funding community (foundations and local governments).

In the long term, many of the mergers they envision may indeed make sense. But the savings they imagine will not occur anywhere near soon enough to be a solution to this year's budget problems. In fact, to make mergers truly work for the betterment of the organizations (and their clients), will actually require an additional investment for FY 2009-10 - an investment that doesn't seem likely to come from any of the sources promoting the mergers.

"Quick and easy" mergers really only exist when one of the partners is in such deep trouble that their only other option is shutting their doors and the other partner has plenty of resources to invest in salvaging the best of what the defunct organization has to offer.

When two small- to mid-sized organizations, who are each struggling but surviving, come to the table together, there's much to discuss and agree upon before any mergers occur. From deciding on what name the resulting organization will be called, to which Executive Director stays on (and what to do with the one that doesn't), to how to merge the boards (and elect new officers), to going through and reconciling each line of the two different sets of by-laws, this is a process that can take at least several months to over a year to settle. And once that's done, it's time for the lawyers to review what's been decided and put it into a legal form.

Here's a sample, simplified merger budget:

As you can see, while mergers may save money in the long run (and even that is often questionable if the deposed ED is needed to stay on to manage a second site), there are considerable upfront costs, and a major time investment required to make them work. And, bringing us back to the start of this post, the partnership has to make sense.

Wednesday, March 11, 2009

A Plan to Survive

Today I gave a presentation on Fundraising Planning in the New Economic Environment at the Nonprofit Forum in Redwood City. The Forum brought about 200 nonprofit professionals from throughout San Mateo and Santa Clara Counties to the conference center on the Oracle campus to share strategies for surviving the current economic collapse.

I've taught on the topic of fundraising planning many times over the years, and, of course, have my book out on the subject, but the question I had to ask myself in preparing for today was, "Has the current economic situation changed how we should approach the subject?"

The answer was simply, "No." Good planning is still good planning. The process I outline, and the tools I include, are valid in any economy. The plan that each of them creates for their agencies, of course, will be different today than it may have been a year ago, but the process is the same.

The most important thing was simply to take the time to plan, properly analyzing their funding mix, identifying gaps, establishing realistic goals, and working the plan.

Yesterday, while doing my final preparations for the conference, I came across this posting of a new study by Retriever Development Counsel with a few characteristics of nonprofits that are surviving the recession. Those characteristics include:
  • Those nonprofits with diversified funding, good management, and "learning cultures" seem to be coping much better than others.
  • Successful nonprofits appear to be putting more focus on development activities, particularly donor relations, including cultivation of major donors.
This is nothing new. When I was working for Compasspoint Nonprofit Services (one of the organizers of today's conference) during the dot-com bust of 2002 we did a similar survey, and - not surprisingly - we found that those organizations that were doing best were those that had a development plan.

The plans were all different, and all unique to the organizations that made them. There's no right or wrong plan. The only mistake is failing to plan.

Maybe in a good economy you have the luxury of sitting back and "just letting the money roll in" without any design or thought to how it's going to happen. But today we don't have the time to take chances like that. The time spent planning will be paid back to you with security and sustainability.