Featured Articles

The rich deliciousness of Blue Avocado . . . in-depth stories that give you the inside scoop.

Deconstructing Sustainability

Maybe in some mythic past it was possible to think first about strategic impact goals, and then about how to raise the money. But today we know better: you can't talk about what you're going to do without talking about how to get the money. And, you can't talk about how to get money without talking about what you're going to do. This piece is adapted from a chapter in Nonprofit Sustainability: Making Strategic Decisions for Financial Viability, by Jeanne Bell, Jan Masaoka, and Steve Zimmerman.

What is sustainability?

Most of us in the nonprofit sector are familiar with setting programmatic goals. For instance, we might set a goal of reducing high school dropout rates by 10% in our community, or a goal of increasing the quality of the observations of one hundred amateur astronomy clubs. Nevertheless, we often aren't sure what our financial goals are, or even what they should be. If the financial goal in a for-profit company is to maximize profit, should our goal be to have $0 profit? Or should it be to grow an endowment of $10 million, or to have a surplus of 5%, or a deficit of no more than $50,000?

In classical economics, the answer to this question is . . .

A Gay Activist is Conflicted about the Marriage Equality Campaign

What if you got a chance to chat over coffee with a deeply experienced, witty, and smart gay leader about the movement for marriage equality? He might say something you haven't seen elsewhere about the campaign. Listen in on a conversation with Matt Foreman (left, with Francisco De Leon to right):

Matt, isn't the Freedom to Marry movement a huge, unexpected, and unqualified success?

Well, yes. But frankly, I'm also a little conflicted about the issue. Fifteen years ago, when activists started pushing marriage equality in New York and I was lobbying for pro-gay legislation, I said "Folks, stay the hell out of Albany -- we can't even get a hate crimes bill passed because it would include the dreaded words 'sexual orientation' and you want us to put marriage on the table? No way, no how!"

I was convinced that marriage would have stalled and derailed . . .

Citizens United Unfair to One Million Corporations

Jack Shakely, former president of the California Community Foundation, takes a different tack (with a little wisecracking) on what to do about the Citizens United decision allowing for-profit corporations to spend unlimited funds on electoral campaigns:

A few weeks ago I received a breathless email (if such things exist) crowing that California had become the sixth state to pass a law demanding a constitutional amendment to overturn the 2010 Citizen's United Supreme Court decision on political campaign spending by corporations. Great! I thought: now all we need is two-thirds approval in both the House and Senate, then ratification by thirty-two more states, assuming the six stay on board. Good luck with that.

Then I thought about Citizens United in a new way.

Sidebar: Donor-Advised Funds Background

This brief introduction to donor-advised funds (DAFs) accompanies the Blue Avocado article "Donor-Advised Funds: Un-Transparent Tax Shelters for Good."

In 1931, a New York community foundation created the first donor-advised funds (DAFs). But although the term was widely used for 75 years, the phrase "donor advised fund" was not codified until 2006 when Congress passed pension and charity reform legislation.

Most donor-advised funds are held at two types of institutions:

  • Community foundations, where donor-advised funds are typically the large majority of assets held and grants made
  • Large financial institutions that handle stock-trading, mutual funds and other for-profit investments; they have now expanded into DAFs, a nonprofit analogue that's a logical extension to their existing business and skill sets.

The IRS describes the features of a donor-advised fund:

  • Donors contribute to an administering 501(c)(3) to establish -- fund -- a DAF. The charity keeps accounting track of each DAF separately.
  • Contributions to the DAF cannot be taken back by the donor. Contributions qualify for an income tax deduction at the time of the donation, governed by the usual deduction rules and rates.
  • The donor has the right to recommend grants from the DAF to qualified charitable recipients. The sponsoring organization may not be legally required accept the recommendation (although implementing the donor's recommendation is the basis of the business model).

In contrast to a private foundation, a DAF typically affords the advantages of two kinds of anonymity for a donor. First, the donor's identity need not be disclosed to the nonprofit which receives a donation from the donor's DAF. Second, the administering organization (a community foundation or Fidelity, say) does not have to report on its 990 grants from DAFs on a fund-by-fund basis.

The DAF administering ("sponsoring") organization typically provides the legal, administrative, investment management, and accounting work for DAFs. Compared to creating a private foundation, DAFs are often lower cost to administer for a donor.

For example, let's say that donor Phil A. Thropy has a high income year, and makes a $1 million donation to a donor-advised fund at Fidelity. That year he can deduct $1 million from his taxable income. The following year, Phil directs $50,000 from his DAF to his alma mater Harvard and $20,000 towards the YMCA. Over the next years (without limit), Phil makes grants from his DAF and can add funds to it as well. He pays Fidelity annually a fee of 0.6% (60 basis points) to administer the fund. (Fidelity charges low amounts for higher deposits.)

When Phil dies, the ability to direct the DAF passes to his heirs or designee. Community foundations often ask DAF donors for a provision that states after the second or third designee, any remaining funds would revert to the community foundation's general fund. In other words, Phil's daughter could continue making grants out of the DAF after his death, but if Phil had agreed to such a provision, upon his daughter's death any remaining funds would become unrestricted assets of the foundation.

How much money is in DAFs?

How many DAFs are there with how much money? The most recent data released by the IRS is for tax year 2006:

  • 2,398 institutions administering donor-advised funds
  • 160,000 donor-advised funds
  • $31.1 billion held in donor-advised funds
  • New contributions to DAFs in 2006 were $9 billion

More recently, The National Philanthropic Trust (NPT) published its 2011 Donor-Advised Fund Report. Intended to be "highly indicative" rather than "accurate," NPT collected data voluntarily offered by 478 administering institutions. NPT found that these 478 administered 162,000 DAFS with assets of $30 billion and charitable giving of $6.2 billion.

To return to the article that accompanies this sidebar, "Donor-Advised Funds: Non-Transparent Tax Shelters for Good," click here.

High Pay for Nonprofit Execs? Analysis of 100,000 Salaries

Everybody has an opinion about whether nonprofit executives are paid too little or too much, but almost nobody has any real data outside their own experiences. At last! Economist Linda Lampkin (left) analyzed 100,000 nonprofit CEO salaries and has a definitive (if a little statistics-wonky) answer:

Sometimes it seems that the whole credibility of the charitable sector hinges on the issue of compensation. So what exactly is too much pay? And who is getting it? A colleague and I decided to analyze Form 990 compensation data to bring some real numbers to the discussion (database info at the end of this article).

The IRS says nonprofits must pay "reasonable compensation" but there are few specific guidelines other than that total compensation must be compared with "what ordinarily would be paid for like services by like enterprises under like circumstances." "Like enterprises" means organizations that provide similar types of services and have similarly sized budgets. Using the ERI Economic Research Institute database of compensation data from Form 990s in 2009 (the most recent full set available), we calculated the mean and median salaries for almost 100,000 CEOs of charities, by revenue size:

Analysis of 100,000 nonprofit CEO salaries

[1] Mean is the mathematical average, calculated by adding up the data points and then dividing by the number of data points.[2] Median is the midpoint of the data, so the number of data points having values greater than or equal to the median is the same as the number less than or equal to it.[3] Standard deviation, a measure of the variability of the data, is the average amount by which individual data points in a data set differ from the arithmetic mean of all the data in the set.

Getting Real About Real-Time Evaluation

Every once in a while a field creeps closer to actually being helpful to nonprofits. Thanks to evaluators Clare Nolan and Fontane Lo for explaining a type of program evaluation -- and how to make it work for you.

Have you ever had an evaluation conducted for a program, and then waited months--or even years--for the findings to come out? When you finally got the evaluation report, were you annoyed because you had already changed the program significantly?

You're not alone! Traditional evaluations emphasize proving whether or not a program has worked. This requires a rigorous study design (with things like interventions and control groups), and findings are typically issued after all data are collected and thoroughly analyzed. That approach can mean a long time frame that makes the results useful for proving something to a funder, but less useful to a nonprofit earnestly trying to improve its services.

Real-time evaluation (RTE)

Fortunately, the field of evaluation has evolved and other forms of evaluation have emerged that emphasize . . .

Text Generation Leaders: Using Mobile Phones for Nonprofit Outreach

There are more people with cell phones than people who use Twitter . . . so then, why is there so much more nonprofit talk about Twitter than about reaching constituents and donors through their cell phones?

We talked with a non-neutral Doug Plank of MobileCause to learn more about the benefits of using cell phones to reach people. MobileCause provides services that make it easier for nonprofits to use mobile phones.

Q: Why should nonprofits read this article about cell phones, anyway?

A: People are connecting with you through their mobile phone whether you know it or not: 40% of people will experience your website for the first time through their phone, and 30% of all American adults read their email on their phones.

But we don't have anyone's mobile phone numbers! And they'll be mad if we call them!

First, you are not going to phone them. You are going to communicate with them by text. You are going to poll them, give them information that they've asked for, and thank them by text. And sometimes you will ask them to volunteer and give by text.

Probably the most important thing you can be doing now is building . . .

Vanguard Foundation Update: With Leader Pleading Guilty, "Truth and Reconciliation"?

The Vanguard Public Foundation was a high-profile, influential, progressive institution in San Francisco: the original "rich kids" foundation making grants to radical grassroots organizations and involving community members in grantmaking. As we chronicled in earlier Blue Avocado articles, Vanguard's ambitions coupled with absence of CEO oversight led to making the Foundation and many of its donors easy targets for a get-rich-quick scheme. Rick Cohen provides this update:

In all likelihood, within the next couple of months the former president and CEO of the Vanguard Public Foundation -- Hari Dillon -- will be sentenced for his self-admitted role in a small-scale version of a Bernie Madoff-like scam.

And around the same time, Mouli Cohen -- the persuasive businessman behind the scam -- will be sentenced as well. Just two weeks ago, he was convicted in U.S. District Court on 15 counts of wire fraud and 11 counts of money laundering (plus three counts of tax evasion). More than $30 million of foundation and donor money have disappeared.

As of now: Cohen is in jail and Dillon is facing jail; the Vanguard Foundation has closed its doors; there's talk of a grantee lawsuit (for awarded but unpaid grants); some activists are calling for a "tribunal" or a "truth and reconciliation process;" and progressive nonprofits are . . .

Contract Wizardry: Conjuring Impact from Government Contracts

Have you ever tried to piece together eleven government contracts for overlapping programs, trying to make them fit together to fund all the costs? Or have you had six foundation grants, all for the same program area, but each requiring different line items and paying for separate, narrowly defined expenses? If so, you are either a Contract Wizard or you need to know one:

The term "contract wizardry" caught our eye in a recent article from the Bridgespan Group: "Clients at the Center: Realizing the Potential of Multi-Service Organizations," by Bob Searle, Alex Neuhoff, and Andrew Belton. To learn more, we spoke with Bob and interviewed two real-life contract wizards -- one at a $700,000 nonprofit and one at a $65 million nonprofit.

Most funders -- whether government or foundations -- fund specific programs rather than provide core support to nonprofits. For example, a government contract with the local health department may fund case worker services to people with alcohol and drug abuse problems. Another government contract -- this time with the state and on a different fiscal calendar -- may fund services to people with disabilities, including alcoholism. And a foundation grant -- again on a different timeline -- may fund a research project that includes some family-based services for people in a specific neighborhood.

The challenge for nonprofit finance managers is not any simpler than turning a human into a hedgehog, and requires . . .

Only Bad Restaurants Go to Scale

We in nonprofits are good at taking on myths and sacred cows. But perhaps the least examined of these myths is the one about "going to scale." This OpEd takes a closer but brief look at the conventional wisdom in this area:

Myth #1: Nonprofits don't go to scale (get a lot bigger) because they lack the vision or the ambition

The reality here is that the dominant capital markets for nonprofits -- government and foundations -- actively work against nonprofit growth.

Regarding foundations, the common funding policy of "one smallish grant per organization per year" means increased volume doesn't lead to larger foundation grants. In fact, when nonprofits grow, many foundations become less interested in them. A commonly stated reason is "we want to feel where our size grant can really make a difference" . . . which often translates to: "we feel better funding organizations where we are one of their most important funders."

Government -- overall the biggest funder of nonprofits -- is not only the biggest engine for growth but also the biggest barrier to growth. Most community nonprofits . . .