The End (of charitable giving) is Near!

It often seems that we are worrying about something we can see but then get blindsided by something we never saw coming.  So it is with the demise of charitable giving as we know it.

Many folks are focused on Congressional ineffectiveness in dealing with our budgetary morass, and fear (perhaps rightly) that the current version of the charitable deduction will either go away or be severely altered, thereby doing away with a substantive reason for charitable donations. People are not wrong to have this concern I just think we might be missing the bigger threat.

The New York Times recently reported on two distinct trends in philanthropy and when these trends join hands, charitable donations as we know them will shrivel, if not disappear.

Donor Advised Funds

The first trend is the enormous growth in Donor Advised Funds. These funds allow people to set aside money (into the “fund”) and receive an immediate charitable deduction.  The money however can remain in the fund without actually being distributed for any discernable charitable purpose for years and years. Companies like Fidelity, Schwab and T.Rowe Price offer such funds. You can read more about Donor Advised Funds in the New York Times article here.

You can also read an interesting and enlightening response to Times article by the Princeton Area Community Foundation (which offers its own versions of Donor Advised Funds) here.

Program Related Investments

The second trend is something called Program Related Investing. This means that rather than giving money to a 501(c)3 charity the money is invested in profit making companies (or hybrid Public Benefit Corporations) that in some way address a societal need that traditional charities may not be adequately addressing. It used to be that a foundation might invest some of their corpus into such “do-gooder” investments while conducting traditional philanthropy from earnings.

The new twist is that some foundations have made such Program Related Investments as part of their required annual 5% disbursement funds. This implies that a foundation (or donor advised fund?) need not make any actual charitable “donations” at all. You can read more about Program Related Investments in the Times article here.

When Donor Advised Meets Program Related…

Very soon, some savvy marketers will figure out how to package pools of “do-gooder” investments, and sell them to people who have money in donor advised funds. Then folks will get the joy (and deduction?) of charitable giving with the fun of investing in potentially profit-making enterprises while never having to actually hand money over to organizations doing silly things like feeding the poor or helping the sick or aged.  Instead they will be bankrolling start-up corporations that plan to create profitable items that “improve the environment,” or other potentially lucrative ideas. Once the companies start generating profits, our donor advised investments will grow and we can do it all over again, without ever having to actually “donate” to a charity. 

Of course we know these investments will be profitable because it is unimaginable that someone on Wall Street would create products that generate fat fees, sell them to people who may not fully understand the investments, and stand by and watch the investments tank… that couldn’t happen, could it?

Posted in Charitable Deduction, Charitable Giving, Donor Advised Funds, Nonprofit Finance, Nonprofit Governance, Philanthropy, Program Related Investments | Tagged , , , , , , , , | Leave a comment

Shameless Self Promotion

My new book, The Finance Arts Guide To Nonprofit Cash Flow, was recently featured in the Nonprofit Times Blog!

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Shameless Self Promotion

With the publication of the Finance Arts Guide to Nonprofit Cash Flow I have been out and around promoting the book.  I am thrilled to have been asked by the Geraldine R. Dodge Foundation to submit a guest blog article which you can access here.

I also recently appeared on the internet radio program, the Not For Profit Exchange, being produced by a dear colleague, Pat Bohse. We talked about the book and how to get nonprofits to budget more responsibility.  You can download the interview here, and learn more about Pat and her excellent consulting firm here.

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Can You Pitch Planned Giving When The Donor Is Stoned?

The New York Times reported on groups that grow medical marijuana and use the proceeds to support cultural projects, avoiding the need to seek donations. (Read the story here.)

I generally don’t care much what people do in the privacy of their own homes as long as everyone involved consents, etc… but there is something about this that concerns me greatly, and I inherited it from my Mother.  My Mother was a nurse and taught nursing for many years. She believed very strongly that our system of funding healthcare was seriously flawed (she’d still believe it but she died a few years ago).

One of her criticisms of our system of healthcare was that the profit motive should not be applied to people’s suffering. She had no problem with paying people decently for working in the field, doing research, etc., but to see people dying because the cost of medicine was too high while pharmaceutical companies declared billions in profits, she felt, was unconscionable.

I’m no expert on medical marijuana but I am under the impression that many of the folks who use it are suffering from serious, often terminal conditions.  I would think that if I required medical marijuana to relieve my suffering and maintain my appetite that the profits from that marijuana might go to researching the cures to these diseases.

And if you’re not opposed to using the profits generated from very sick people to further arts projects, then why not talk about planned giving with these self-declared prospects?

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Let Us Celebrate Failure!

One of the things we seldom admit to in the nonprofit world is that a project or idea failed. We talk about changing demographics, altered priorities, or changes in the funding landscape, but we don’t want to admit that something we put a lot of time and other people’s money into just simply failed.

So I was very impressed and amused to read in The New York Times about a group that gets together to talk about how some technology projects created by international development and aid groups have failed.  The goal is to spread the learning among folks who do this kind of work because we don’t just learn from each other’s successes.

The sponsoring group, Fail Faire, brings a sense of humor to the event, something I find often lacking in the nonprofit sector. I know we are all trying to do good works, but would it really be so awful if we laughed at ourselves now and then too (Lord knows the funding community is laughing at us every time they read our applications!).

The Fail Faire folks are also very open-minded and they even provide instructions about how you can conduct such an event for your organization or field.  Check out their instructions here.

Admitting failure is a lot like therapy, sometimes it is more effective and lasting when conducted in a group setting.

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The Nonprofit Sector may be shrinking… without even trying!

For those of us who study the nonprofit sector it sometimes appears that there are just too many nonprofit groups. Too many groups addressing similar issues, more groups than can be sustained by the available pool of users, subscribers, buyers or funders… and too many groups that can’t seem to afford to build a professional infrastructure or a sustainable organization.

This has led to a lot of effort in the nonprofit community, at least among funders and consultants, to advocate for consolidations, mergers and other efforts to improve efficiency and sustainability.

Well it turns out that maybe we didn’t need to work so hard after all. A little known provision in a piece of legislation enacted in 2006 makes it mandatory for the IRS to revoke tax exempt status from groups that fail to file their required forms with the IRS.

Now, in a report issued by Guidestar, written by Linda M. Lampkin, (available here) it is estimated that as many as 355,000 nonprofit organizations may soon lose their tax-exempt status due to their failure to submit appropriate forms to the IRS over a period of 3 years.

If New Jersey has 1/50th of these it means that we could lose 7,100 nonprofit organizations in the next year simply due to neglect.  More likely, because of New Jersey’s sizable populations (nearly 3% of the US) our share of soon-to-be-defunct nonprofits may be closer to 10,500!

So you can stop worrying about whether there are too many nonprofits, we may soon be losing quite a few.

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Measuring What Matters in the Arts

One of the great challenges in arts management of the last decade has been the increasing interest in assessment. Many funders and rating organizations are trying to figure out how to measure whether an organization is effective at what they do.

One common comment on assessment is that we “measure what matters.” I’m not sure this is true so much as the reverse, we make more important the things we measure.  This has led to the “teach to the test” mentality of the No Child Left Behind era.

Things are easier to measure in some businesses than others. The medical field has various measures ranging from the length of emergency room wait times to the survival rates of heart surgery patients. Environmental groups show the weight of litter removed, the improvement in water quality, or even the number of people who show up to volunteer for clean-up events.

The arts have struggled with this and relied primarily on “butts in seats” measures. However, this obviously benefits the largest organizations and takes no account of whether the audience was in any way engaged other than by showing up.

If the only thing we can measure is how many people show up then we are creating an environment that will only value blockbuster shows with low ticket prices. That’s great for some things but won’t lead to a broad array of meaningful or impactful arts experiences for audiences or participants.

Finally, a group in the UK, The Independent Theatre Council, is trying to address this situation by offering measurement tools that engage on many levels.  Check out their material and put it to use.  Then the things that really matter might begin to get measured.

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I want to play too!

No, this is not the refrain of a young sibling just itching to get in the game… it is perhaps the future of the arts.

The divide between professional artists and amateurs is increasingly blurred and more and more people want to participate in the arts, not passively, but actively. Just because you chose to become a lawyer or a doctor doesn’t mean you have to completely give up your artistic ambitions.

The Baltimore Symphony Orchestra recently invited nonprofessional musicians to join with the professional orchestra for an informal concert and over 400 people asked to participate!  You can read more about the program in the Washington Post or see it for yourself on YouTube.

As the arts struggle to reach and maintain audiences this seems like an excellent example of creative thinking to engage participation at a much more profound level.  Is this the future of the arts?  Perhaps not, but I bet lots of orchestras will give this a try in the near future.  The BSO now has 400 more engaged ambassadors than they did before.

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What’s the worst that can happen?

I don’t tend to use this phrase often because I have a very active imagination. But you don’t need an active imagination to find examples of what can go wrong for nonprofit organizations.

Typically, as nonprofit managers, we look outward to see threats that might undermine our efforts. There might be a terrible fundraising climate. Certainly the recession took a toll. Patrons or constituents may lose interest in our services.

When we do look inward to identify problems it is typically in the form of asking whether specific staff members are up to the challenges we face… “Is Janet the right person to head fundraising if we start a capital campaign?” “Does our marketing team really understand what to do with social media?”

But we seldom look to see if the people near and dear to our organizations are stealing. Yet this is far more prevalent than most of us imagine.  A recent example, reported in the Harvard Post, shows how the CFO of the Fruitlands Museum managed to steal over $1,000,000 from the organization over a period of 6 years before being caught.

Some years ago I attended a training session offered by a local accounting firm (Amper Politziner & Mattia) on nonprofit fraud and it was quite an eye opener. If you believe that everyone involved with doing good work is incapable of fraud, find a training session, or at least do a search of nonprofit fraud. Folks have come up with some pretty imaginative ways to steal from their employers.

So remember that the worst thing that can happen to an organization is not always an external threat.

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Compulsory Education for Nonprofit Board Members?

Yes indeed, the California Attorney General’s office ordered the Board of the Museum of Contemporary Art in Los Angeles (MOCA) to undergo “special fiduciary training” last year, according to an article in The New York Times.

The Attorney General’s office wasn’t too pleased when they learned that restricted endowment funds had been used to pay operating expenses.  Of course many states adopted new regulations last year to loosen the restrictions on endowment funds, as reported in The Wall Street Journal (New Jersey, my home state, being one of them).

But the real issue here has to do with Board member oversight. Having worked for one of the larger nonprofit arts organizations in the country, as well as some of the smallest, I am intrigued to see that just because a Board has very wealthy and otherwise sophisticated Board members, does not mean they truly understand their Board responsibilities. Being a millionaire (or even a billionaire) doesn’t necessarily make you an expert on nonprofit finance and governance.

So if one of the more high-powered Boards in Los Angeles is forced to undergo training because they don’t understand their fiduciary responsibilities, what is the likelihood that your Board, or the Board on which you serve, would pass muster?  One way to ensure that an angry Attorney General won’t shut you down is to bring in someone to provide Board training, document that you did it, get signatures from those who attend, and keep the documents on file.  Of course, the goal is to create truly sophisticated and cognizant Board members so that issues like those that nearly brought down MOCA can’t happen.

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