Though given your apparent contempt for charitable giving, you must feel bad about your giving. You shouldn't imo. Why do you give given your cynical attitude?
I am not contemptuous of charitable giving, just discriminating. I like my $ to be as effective as possible. Earlier in my career I assumed that task was mostly the responsibility of those receiving my money. Now I tend to hold myself responsible in choosing which organizations I give to. In order to accomplish that, I must dig for a little data before donating. My first eye openers came from my own church when I saw the examples of educational funding & mission trips. True, there are elements of truth in them, i.e. they do fund education for those who could not afford it, and the mission trips do perform some good, but there are large components of scam in them as well. I used to regularly donate to fire & police sponsored kids camp (typically $50 sends a kid to camp for a day), until by happenstance I found out that of the $50 I gave the telephone solicitor agency got $37.5 and the kids camp ended up with $12.5. That was shocking enough to wake me up. Next I found out that the 75%/25% split was typical of such solicitation, and applied to other very well known nationwide charities, especially some of the big medical ones like the American Cancer, Heart & Lung type outfits. BTW, this was before or in the early Internet days, so digging up info was a little harder than it is now.
Next I got interested in looking at charity rating organizations such as Charity Navigator and others. It seemed like they would do most the work for me, and indeed, I relied on such for quite awhile. I typically look at the fundraising efficiency (per my concerns above), Administrative overhead, and what fraction of their $ goes to programs. I also like to know what the head honcho makes. I thought I was being sufficiently responsible guided by such info.
Then my wife became active in charity, forming her own organization, and I got sucked into the legal & tax side of getting it going. In the process she got involved in other charities and we spent time looking at their structure, fundraising, and reporting. Ouch! I came to understand that just because something is a legal charity, has a good cause, is a going concern, and LOOKS GOOD ON RATING REPORTS, does not in fact mean what I thought it meant.
As my wife’s charity grew, they eventually set up a thrift store, which in America is a very common fundraising vehicle for charities. Indeed, most Americans think that thrift stores are always linked to charities, but this is not true in fact. Saint Vincent de Paul, Salvation Army, Goodwill, and Humane Societies are well known examples of charities that run thrift stores. There are in fact thrift store chains in the US which are simply for profit 2’nd hand stores. If you are interested, the following link is a reasonable overview:
smartgivers.org
You also need to understand, that while thrift stores started in the USA primarily as a means of GIVING used clothing to the needy, they are now almost exclusively 2’nd hand stores that make no distinction as to customer need. They may in fact channel some of their goods to allied organizations that do distribute food & clothing to the needy however.
In my local community, the largest such thrift store which I could obtain data from was a Humane Society thrift store. This is a pure fundraiser, with some paid and some volunteer staff, all donated goods, (some thrift stores actually buy and resell) with the proceeds going to help fund animal welfare. They average about $250K/year in sales (this is a small town), and after all expenses, forward about $20K to the charities purpose of animal welfare. There is a Salvation Army thrift store, which might top these numbers, but being a church entity, I can’t get data on them. Their store is about the same size however. This is where the tax picture becomes interesting. Only 8% of the donated items in the above example make it to the charities purpose, yet 100% are eligible for tax deductions. Unfortunately, the data showing exactly what fraction of the $250K is claimed on tax deductions is not available. For that, all I can go on is my wife’s thrift store, where, it is still difficult to estimate this number. Donations under $250 require no documentation from the charity, so we have no idea how they get claimed. Donations close or over $250 require a letter stating what the items are, but the donor supplies the value, and we seldom see those numbers, but the majority of such donors request the letter. We follow the advice of our tax advisor, and suggest that people value the items at 20%-50% of new if in good shape. However, the store typically sells for 1%-20% of new, which AFAIK, is the result of thrift shopper mentality: They expect stellar deals. Given the inflated donor prices relative to store sales price, my WAG is that something like 50% of the stores gross sales are claimed as tax write-offs. My wife’s store is squeezing out 50% profits to her charity (all volunteer staff is the only thing saving their bacon here) so that means that in the end the claimed tax deductions happen to about equal the actual money flowing to the charity. Good I say, although it bugs me a bit that there is an inequitable distribution of tax benefits behind this, i.e. many of those who claimed a tax deduction actually got significantly more than they should have, while others got no benefit, but at least net, it is a wash.
In the case of the Humane Society, assuming the same tax deduction rate, we are looking at 50/8 = 6.25 times as much tax deduction claimed as the charity got money. Even assuming a low 20% net tax rate, it would pay the government to shut the thrift store down and fund the charity directly from public funds. That I find annoying.
For an exercise in trying to understand charity ratings, and actual performance try the following links. The first link is the Charity Navigator page for Goodwill Southern California.
charitynavigator.org
They have the best rating, 4 star, and excellent numbers. 91.7% goes to programs, 7.0% administrative, only 1.3% to fundraising, and it only costs them 6 cents to raise each $1. Sounds stellar to me.
Now, go look at this link:
goodwillsocal.org
and click on the 2005 financial statement. Page 5 & 6 are the ones to look at. Goodwill of Southern Cal clocks in with total revs of $70 million, and total expenses of $68.5, so they ring up a little surplus (which is OK). They run a number of businesses, but their thrift stores are the biggest with sales of 42+M. On page 6 you will see that Cost of goods sold on the stores is about 14M, so they are not strictly used I assume. The footnote on page 5 actually breaks out the donated store goods and the associated store expense (the reason I’m using this example, as I have not found this data elsewhere!) of $14,073,492 of contributed rev, and $13,842,111 of associated costs, for a net profit of $231,381. Think about the related tax picture, and this is not pretty.
I should note that the stores in general are their income source, with 42,182,944 – 34,590,353 = 7,592,591 in profit. They netted a further 2,332,455 in contributions and trust income (some of it restricted) plus another half mil in interest and asset changes.
What I would like for your to take away from this is an understanding of how the data presented in the nice friendly pie chart and numerical data on Charity Navigator is not telling the whole story in this case (and perhaps in most cases?).
First, for many charities, donations, and the associated fundraising figures are often a minor part of the business. In this example (2004 data on Charity Navigator) fundraising expense is listed as 783,523 which divided by /0.06 = $13+M of donations which is about right for the “Other Revenues” category on the reported 2004 audited financials. This is only 13/60 = 21% of the organizations total revenues. Even if this were the only issue, we could simply state that this Goodwill is a sizeable business, which generates 4/5ths of its revenue from non-donations. But the real truth is WAY different. The VAST bulk of the 13M tagged as fundraising is donated goods, and they list the expense associated with that, so that almost no net proceeds comes from these donation. Thus the effective donation rate is way less, with cash donations being far more efficiency, but the overall fundraising efficiency pitiful, rather than the excellent rating giving by Charity Navigator. Specifically, for 2004 I calculate the following:
“Other Revenue” donations are (excluding interest on investments and assets)
Contributions, trust income: 1,743,646
Cap contributions: 98,311
Donated goods: 11,569,724
Total: 13,411,681 (check x 0.06 = 804,700 so close to the reported fundraising costs) Note that I don’t know exactly what items are included as current year fundraising related, but I appear close. It could be that trust income, which might be a significant portion of the 1,743,646 might not be considered as part of current year fundraising activities.
Unfortunately, the store expense associated with the donated goods was in fact 11,296,390, leaving a net profit of donated goods at 273,334. Thus I compute their actual fundraising as having netted only 2,115,291 on expenses of 783,523 giving an efficiency of only 0.37 (they spend 37 cents to raise $1). Plus there was the potential for 11,569,724 of tax deductible charitable giving if valued at honest FMV available for tax deductions. IMO, pretty poor.
I should also note that Goodwill S.C. gets more than this net 2.11M of private donation as a federal grant as well (3.5M).
What does depress me a little, is the realization that the 75/25 ratio I found shocking is perhaps not all that bad, once you go out and try to do better yourself. I now understand why some organizations have decided that outsourcing fundraising, even at that steep price, is worth it. In addition, from a governmental tax revenue basis, it is perhaps not so bad either. This is why I would love to see some really excellent research published on the economics of American charitable giving. IMO, Brooks didn’t dig deep enough to see these issues, yet he draws conclusions regarding private giving vs governmental programs. You can’t draw such conclusions unless you examine the whole picture.
My goal is not to discourage people from giving to charity. Try to seek out ones that match your expectations of performance, and don’t stop with the data presented in the charity review sites. Dig a little deeper. If you are really motivated, go to charity board meetings, or write some letters to your local newspaper encouraging more disclosure and better transparency.
Re. #1 I know of very few rich hunters who give their trophies to a museum for a writeoff - I think thats pretty rare.
It was the example used by Senator Grassley to attack the issue, not my creation.
Re. #2 Do you know that thrift stores (there is one run by Northwest Area Ministries near me) really give only some of their sales to charity? Are the churches in Northwest Area Ministries really a bunch of scam artists? Sorry I don't believe they're making a profit off their thrift store.
See above, I know quite a bit about thrift stores. Some indeed are meant primarily as a means of giving goods to the needy, such as perhaps your example, but most are now simply 2’nd hand stores frequented by all economic classes, and used primarily as fundraisers for charities, unless they are actually just for profit stories with no charity connection. I should also note that the rise of dollar stores in the USA is a newer entrant playing a somewhat related for profit angle, largely selling production overruns or 2’nds that are new. They are having an impact on the thrift store scene.
Re #3 - I've had my kids in Christian schools and never encountered that. We paid our own tuition. No help from anyone. The churches did have a fund to pay for tuition for needy students but they weren't church members - they were minorities and really were needy.
I went K-college that way as well. But later I was exposed to individual church congregations that implemented “every child” plans which worked as I described. I should note that the individual congregation did not own the school, they just had a “club” paying plan which met the IRS rules for charitable giving. To me it was unethical.
Re. #4 - I don't have personal experience with this but I've known people who did go to Panama and elsewhere in the area - they didn't go to resorts but to poor places and it wasn't a vacation but work. I don't know exactly what they did - this was years ago but I know it was work.
Again, nothing illegal, but to me, I find the charitable giving efficiency of such practices to be shockingly low. Why not skip the vacation, send the money, and employ the unemployed locals? That would have reasonable efficiency. This “scam” is VERY common now in the USA. My local newspaper generally has a little blurb on all such trips (not much else in town) so I see how frequent they are. For many people I know, this is the only international travel they do, and it is all tax deductible charitable giving. I’d like to seen a study just on this one item in the USA.
PS: I'm not trying to bash Goodwill or any other charity here, merely pointing out some issues I see. |
