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President's Anniversary Report 2011

Predictions Past and Future

April 5, 2011

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As we approach our web site’s ninth anniversary we continue the tradition of reflecting on prior predictions and make some new ones for the year to come.

Looking Outward

Here are my predictions (in typical Charity Navigator top ten format!).

  1. Decreased Funding by the Federal Government (New prediction) – In 2010, I predicted correctly an increase in federal funding, but going forward I predict the very opposite! We are beginning to see evidence of a roll back with the recent election of a much more conservative slate of representatives in the House and Senate. Since Republicans now have a clear majority in the House and many are focused on drastically reducing the federal deficit, we already see evidence that federal funding is likely to be cut back (here, here and here). Those that are especially dependent on government funding, such as international development agencies and some human service organizations can expect to see the greatest reductions in funding.
  1. Decreased State and Local Funding (Continuing prediction) – This trend continues from last year and now gives a “one-two punch” to many charities, given the anticipated federal funding cuts. As a result a “perfect storm” is coming for many nonprofits as was noted in a two part article by Tim Delaney, President and CEO of the National Council of Nonprofits (here and here).  The following statement I made last year, seems to be only more true today, “The nonprofit sector is going through a hellish period in terms of its ability to garner adequate revenue to provide even the same level of service as in the past, while the demand for services continues to rise. “
  1. Government at All Levels Increase Attempts to “Tax” Tax Exempt Organizations and/or Reduce Donor’s Tax Deductions (New) – In an attempt to shore up the dramatic decline in tax revenue due to the bad economy, states and municipalities are desperate to find new revenue sources. They look at the tax exempt organizations as a rich field of previously un-harvested revenue. They do not call it a tax since the organizations by law are tax exempt. They call it things such as a PILOT (payments in lieu of taxes) but in my view it is just another name for a tax! Recent attempts to accomplish this can be found here and here. It will only increase as the economy suffers. On the federal level, the Obama administration has tried a number of times to reduce the charitable tax deduction for higher income individuals who provide the lion’s share of charitable donations.  A recent federal commission report was equally sobering with its suggestion to entirely do away with the charitable tax deduction and replace it with a 12 percent tax credit. Although most of these efforts have not yet seen enactment; it is a harbinger of what is to come.
  1. Rising Demand for Charities to Provide Information on Their Impact (Continuing) – Rising demand for evidence of results includes a dearth of new books on the subject (here and here are two examples). We also witnessed the first Social Impact Exchange conference and the pursuit of creation of social impact bonds. I also saw this rising demand for impact information first hand at a recent conference of approximately 100 local charities. When asked how many of them are seeing an increase in this demand for information from them, virtually every hand was raised. The Alliance for Effective Social Investing is now planning to have a separate West Coast branch and is in discussion with international representatives as well. An international Social Impact Analyst Association is also being launched. The Independent Sector is expected to role out standard effectiveness reporting tools for nonprofits within the next month (called Charting Impact) and Charity Navigator is full bore into adding results (including impact evidence) soon.
  1. Mergers, Program Closures and Layoffs (Continuing) – See #1, 2 & 3 as to why!
  1. Scandals As Always, Only More So (Continuing) – The calls about scandals only continue to roll in. As a result we launched a donor advisory system for charities that are under investigation or in legal battles that raise questions about their operations. Gary Snyder author and advocate, has his hands full sending out a twice monthly alert on the plethora of scandalous activities going on within the sector. Those of us who desire better ethics and standards of behavior have a long road ahead!
  1. A Greater Divide in Opinion Over the Role of Government in the Charitable Sector (Continuing) – The changing nature of government funding noted above is not just about a reduction of available revenues to fund charities. There is also a philosophical/political divide over whether government should be funding charities of some kind at all. Indeed, even now the vast majority of charities are very, very small and do not get any government support. However, government is a much bigger funder of charities today than private contributions (more than double). Therefore, if this trend to reduce or eliminate government support continues to gain momentum, the nonprofit sector will be radically transformed. The divide is heated and the consequences could be enormous. However, our country was built on the premise that compromise and pragmatism will win out over political posturing on either side. The American people tend toward the center and I hope a happy medium can be found.
  1. The Battle for the Soul of the Nonprofit Sector will intensify (Continuing) The debate over measuring impact has indeed continued to intensity as Charity Navigator and some of our colleagues put an increasing emphasis on measuring effectiveness and results. Two recent examples of responses to critical reactions to measuring results can be found here and here.
  1. Donors May Suffer Information Overload Due to Explosion of # of Web Sites on Charity (New) -As it has become increasingly easy to create web sites and pull freely available data, we are seeing explosive growth in sites that provide information on charitable giving. Over a year ago there were an estimated 60 plus web sites in the space. I would not be surprised if there are double or triple that number at this point. The providers of information include rating agencies like ours, social connectors such as Jumo and Causes, transaction facilitators such as Network for Good and DonorsChoose, as well as intermediary services from credit card companies such as the American Express Members Give program. On the one hand, diversity of options for people to choose from is great. On the other hand, when the number of choices becomes this extensive, the average donor may wonder more than ever where to turn. We believe that it is critically important that any web site that helps people with their charitable giving should provide some type of assistance in ferreting out the good, bad and ugly of charities. We hope to collaborate with as many of the non-rating sites as possible to make this vision a reality. Meanwhile, it is increasingly the wild west out there!
  1. The Innovation and Creativity of the Nonprofit Sector will Meet the Challenges (New) - Experts have observed over the years how amazingly creative and adaptive the nonprofit sector is. Some even argue that it is vital to the very core of the American economic system. The nonprofit sector has seen tremendous challenges before and has consistently met those challenges and continued to provide vital, mission driven services to people and communities in need. I predict therefore, that new and innovative approaches will continue to meet the problems noted above and overcome them. Some examples of recent vintage include microfinance, social impact bonds, scaling initiatives and click to give initiatives. As a result, I remain hopeful about the continued vibrancy and success of the largest, most resilient and dynamic nonprofit sector the world has ever known.

 

Looking Inward

As predicted last year, 2010 was as a major year of change for Charity Navigator in the transformation of our rating system (now called CN 2.0). We have already compiled data on accountability and transparency for over 4,000 of the charities we evaluate and anticipate completing this process by this summer. We will then “flip the switch” and have a two dimensional rating of all of the charities we evaluate. It will be a historic moment of positive change that gives our users greater depth of analysis. In 2010 we also began to test a prototype to evaluate the results reporting of the charities. We anticipate by this time next year, that tool will be ready to put into practice. Our efforts to collaborate with other “information intermediaries” has also begun to bear fruit with the new Write a Review feature that is powered by our friends at GreatNonprofits. We also made some major steps forward in walking the walk that we talk, by providing more information on our web site about our own internal efforts to measure our work and improve our organization. So things are looking good here!

Looking Toward You

You were incredible in 2010! Those of you who are our supporters are now nearly 22,000 strong. That is over 10,000 more supporters than 2009. Wow! This increased support is what is making all of the achievements mentioned above possible. We hope you will continue to help us get to the goal of creating the best charity rating system the world has ever seen that is free to all who desire independent and high quality analysis. To that end we continue to look toward you and strive to continuously improve in our ability to serve as “Your guide to intelligent giving”.

 All the best,
Ken Berger

 

 
 
   
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