About Bob Bob serves as President and CEO of GuideStar and serves on the boards of Vision TV, Grameen Foundation USA, and the AAFRC Trust for Philanthropy. More...
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Posted By Bob Ottenhoff on December 30th, 2010, in these categories: Economy | Fundraising | Government | GuideStar | Nonprofit PracticeI spent some time yesterday preparing for an upcoming radio interview on nonprofit trends for 2011 with Lindsay Nichols of the GuideStar team. We identified three big issues that we think we will influence much of what goes on in the nonprofit sector in the year ahead:
- The economy: GuideStar released a report in late November that suggests that the free fall from the Great Recession is over, but the recovery is still uneven – with
 the speed and extent of the recovery depending on the geographic location, size, and type of the organization. Meanwhile, demand for nonprofit services, particularly vital social services, continues to increase.
- State and federal government financial issues: I recently wrote a blog about how nonprofits are being affected by drastic budget cutbacks in government budgets. Since then there have been a number of frightening reports predicting we could see a number of government bankruptcies this year. With government being the largest source of nonprofit revenue, this situation could get a whole lot worse before it gets better.
- Technology: No surprise to those working in the nonprofit sector: technology continues to change, modify and transform how we raise and donate charitable contributions. Network for Good recently published a new study about just how vital online and mobile giving has been to the nonprofit sector lately, with particular success seen after disasters such as Haiti or 9/11. At the same time, Apple has denied nonprofits to accept donations via their apps, which is causing some major discussion in the field. I recently blogged about this topic as well: http://ceo.guidestar.org/2010/12/15/apple-has-it-partly-right-nonprofits-should-be-vetted/.
Aside from these three major environmental trends, there are two other issues slowly evolving that could end up having a huge impact on the sector in 2011:
- IRS tax-exempt status revocations: As a result of the Pension Protection Act of 2006, there are about 400,000 nonprofits in danger of losing their tax-exempt status because they have failed to file annual returns with the Internal Revenue Service (IRS) for fiscal years 2007, 2008, and 2009. GuideStar has distributed multiple press releases about it, the latest in October. This will be a HUGE game-changer in 2011.
- Tax implications: Bloomberg Businessweek recently interviewed Dan Moore, GuideStar’s Vice President of Nonprofit Programs, as part of a story on how estate tax changes may affect charitable giving. In addition, when President Obama and Congress begin tackling the federal government deficit next month, look for the charitable deduction to be up for serious debate. Both of these two tax issues could have a major impact on how and when people donate to charity.
It will, as always, be an interesting year!
A few weeks ago, I had the pleasure of renewing a high school friendship with Jonathan Bradford. I thought his work with a nonprofit organization in Grand Rapids, Michigan, was so fascinating that I wanted to share it with you. Not only is he making great progress against formidable odds, his story reflects the challenges many nonprofits face today.
Bob: What does ICCF do?
Jonathan: The Inner City Christian Federation (ICCF) is a not-for-profit housing development and housing service corporation. Our chief products fall into two primary categories: The finance and production of affordable rental or owner-occupied units and the provision of housing counseling and education services that enable people to realize housing success thereby go on to pursue broader life goals. A bit more detail:
- Real Estate Development – ICCF has developed about 515 units of housing, nearly all of it single family detached. We arrange the financing using various combinations of financing from local banks and investors or loan/grant programs available from all levels of government. We then construct the building(s) most often ourselves because we are a state-licensed residential building contractor. For larger multi-unit projects we may go out to larger commercial contractors. We are also a U.S. Department of Housing and Urban Development (HUD) and Michigan State Housing Development Authority (MSHDA) certified property manager, so we also provide property management of our rental units.
- Housing Counseling and Education – Whether for our own residents who are in or going in one of our properties, or for clients referred by one of several other non-profits or local banks, we provide a broad array of learning opportunities around topics related to home maintenance and home management. For example these include classes on plumbing repair, furnace maintenance, or landscaping on the one side and family budgeting, and insurance/tax matters and parenting on the other. We also operate a five unit emergency shelter for homeless families. This is a building that we designed and constructed about 21 years ago to provide 30 day crisis intervention shelter for families. Because it is not a dormitory model and has instead five fully furnished and equipped efficiency apartments, it was the first shelter in Michigan that was designed to enable adolescent and adult males to stay with their families. Until five years ago, a common demand profile would run at 50 to 75 cases per year and many of them would be in some way related to the borrower having too much debt (i.e., over-leveraged). In the most recently completed fiscal year we saw about 780 families and roughly 80 percent of them were at risk of losing their houses because of economic interruption: loss of employment, overtime pay, bonuses, or more rarely divorce or death of bread winner.
Bob: I understand you have a for profit subsidiary. How does that work?
Jonathan: Yes, in 2003 we launched a mortgage brokerage called Providence Home Mortgage (PHM). Using our own capital or that which was lent to us at very advantageous rates, we started PHM as an antidote to proliferation of predatory lenders in our community. PHM is just a broker. That means we are doing the leg work for larger lender/servicer companies who in turn represent larger investors. We are to larger lenders what a local Chevy dealer is to GM. In our nearly seven years of operations, we have had three strong years, two marginal years and two bad years; overall we have not broken even yet. Clearly a large part of the reason for that is the housing finance crisis of the last 3+ years. We are rather proud of the fact that we have been able to weather this storm thus far.
Bob: How important is government revenue to you and what has happened to it the last few years?
Jonathan: At any given time we have at least 10 different “purchase of service” contracts going with the City of Grand Rapids, Kent County, the State of Michigan, or the Federal Government (mostly HUD). Most years these contracts will comprise about 45 percent of our revenue. So you see it is very important.
Over the last five years it is safe to say our government contract revenue has increased a good 30 percent. Nearly all of this is related to the foreclosure crisis. We receive funding from two different sources for foreclosure counseling and three sources for the acquisition, rehab, and resale of formerly foreclosed houses.
Bob: What do you see as your biggest challenge in the next few years?
Jonathan: There are at least two. The first and biggest challenge is to stabilize philanthropic revenue thereby enabling us to continue to attract and retain top talent. The world of housing is so volatile and constantly challenging right now such that this will continue to be a daunting task. The second challenge is much more nebulous: As is the case in many cities, there is a significant “back to the city” movement in Grand Rapids. In broad urban planning conceptual terms, this is most welcome because economic diversity is key to long term urban health. Indeed, ICCF wishes to be a part of this effort, but we are committed to doing so in a manner that ensures the interests of current residents are protected while also creating genuine value and attractiveness that will benefit all.
Bob: How do you measure success?
Jonathan: In the fact that ICCF places as much emphasis on high quality real estate development as on services that empower our residents toward new levels of independence and accomplishment success measurement comes in two forms. In real estate we must accomplish the construction or reconstruction of the building(s) in a manner that the market accepts, i.e., it is sold or rented with minimal delay at a price that covers our costs net of grants and/or tax credit equity, etc. True success also demands that we design and construct the building(s) in a manner that is truly respectful of both the resident and the neighbor or passer-by. This in turn requires care in aesthetic design, energy efficiency, and construction quality. Success in services to our residents and clients is fundamentally about their realization of goals that we have helped them set. It could be to retain the house they already have, or acquire a better house at a lesser cost than their current arrangement. It could also be the gaining of skills that will help them better maintain and retain their house or quite simply live for a short time in a place more safe than a the basement of an abandoned house or under a bridge.
 Jonathan Bradford in front of ICCF's headquarters
Bob: In this picture you are standing in front of a pretty fancy building. Is there a story here?
Jonathan: There are actually several stories here. The building is the former D.A. Blodgett Home for Children which as of September 2007 became ICCF’s home. It was built in 1908 as an orphanage. In 1948, when foster care had replaced institutions for the care of children, the building was given to a private physical rehabilitation facility called Mary Free Bed Hospital. Because of the polio epidemic in the 40’s and 50’s they needed more space. They actually removed the entire facade of the building and grafted four different ugly utilitarian additions on the front of the original building nearly obscuring its extraordinary neo-classical Italianate beauty.
When Mary Free Bed left the building for a new facility in 1976 it was home to a few small businesses for 12 years or so. In 1988 it was abandoned and in the early 1990’s was briefly considered as a site for a charter school. After being left to rot for 16 years the City of GR issued demolition orders in mid-2004. We acquired it late that year and persuaded the city to give us a year to raise the funds and put a historic rehab project together. We started demolition of the 1950’s additions in January 2005. After a total recreation of the original facade and a historically considerate adaptation of the interior into offices and classrooms we moved in just in time for the big housing implosion of the fall of 2007.
Although we wouldn’t presume to have the answer to Sigmund Freud’s famous question, we do applaud the approach that Cynthia Gibson and Bill Dietel take in their provocative article “What Do Donors Want?,” in a recent issue of Nonprofit Quarterly. At GuideStar, we have long known that the majority of donors give according to their hearts. They look for nonprofits that align with their own sets of values, and they look for the nonprofits themselves to prove that they are worthy of the donations. That’s what makes the nonprofit sector so interesting – there’s something for everyone.
We think it’s important that nonprofits make that emotional connection for donors. But in a crowded marketplace, with multiple nonprofits working towards the same mission and providing similar programs, we also believe it’s the high-performing nonprofits that, in fact, deserve these generation donations. And that’s a distinction that we have to make.
In fact, many donors who are solely motivated by strong personal interests─religion, education, health and friend─will probably continue to be the vast bulk of donors. But even here data can play a role: one person told me he gives to the same organizations every year, but uses GuideStar to make sure everything is still okay.
And it must be said: sometimes it is the most passionate donors who seek data. In our experience, an increasing numbers of donors who are determined to solve a problem or make a difference are the ones most likely to want to know about the results of the organizations they support. If a person’s goal is to, say, provide low income housing or end malaria, these passionate donors want to make sure the organizations to which they send their hard earned money actually know how to make a difference. During the Haiti earthquake crisis we were flooded with phone calls from people not about whether to make a contribution, but which organizations had the capabilities and experience to actually deliver. Passion often demands data.
Above all else, we know that we need to understand better what drives charitable giving in order to understand better how to drive that giving to high performing nonprofits. We recently partnered with Hope Consulting to conduct and market test research on this topic to better understand and inform the philanthropic sector on the behaviors, motivations, and needs of individual donors, foundations, and those who advise them. We hope to use the findings of this research to help shape our core offerings of nonprofit data and information to the world.
As President Obama recently remarked at the Millennium Development Goals Summit in New York, New York, “Guided by the evidence, we will invest in programs that work; we’ll end those that don’t. We need to be big-hearted but also hard-headed in our approach to development.” In other words, the job of providing data to donors is tough, but somebody’s got to do it.
Posted By Bob Ottenhoff on August 18th, 2010, in these categories: Economy GuideStar June 2010 Economic Survey - Map of Responding Organizations GuideStar’s latest economic survey has just been released, and you can find the results here. Over the last two years, we’ve increased the number of economic reports we undertake in order to get a better feel for what is happening in the field. This was our first economic survey this year and the fourth survey we have released in the last 18 months. Participation in the survey was high, with more than 7,000 nonprofits responding.
The headline for this latest report: the economic recovery is slow and painful for many nonprofit organizations.
About 40 percent of respondents have seen a further decline in contributions in the first five months of 2010 compared to the first five months of 2009. at the same time, a majority (63 percent) have seen an increase in demand for their services.
Given the general state of the economy, I don’t think we should be too surprised by these results. After a nice boost in the first half of the year, the recovery seems to have stalled and maybe is even beginning to drift—sideways if we’re lucky, but perhaps even downwards.
We know from experience that the most accurate predictors of charitable giving are such indexes as the stock market, the unemployment rate, and consumer confidence. If these are uncertain or declining, so too will charitable giving. And now we have a new factor: the sorry condition of state government budgets, which is putting enormous pressure on nonprofits that rely on fees for services.
When the Great Recession hit in late 2008, I began writing about the “new normal” for the nonprofit sector—a period where the nonprofit sector will no longer experience the revenue growth (from foundations, individuals and government) we had become accustomed to over the last few decades. In Monday’s Wall Street Journal, Mort Zuckerman said he thought the “new normal” meant that our children will not have a better economic life than we have had. That’s very sobering, more than I’m willing to admit at this point. I wasn’t saying that the “new normal” meant nonprofits wouldn’t have any resources, since many still have plenty, but that for most the next few years will be a time when consolidation and contraction are more likely than growth and expansion.
Back in 2009, a few friends and correspondents took me to task, saying I was unnecessarily negative and that things would quickly bounce back to normal. The “new normal” may not apply for certain subsectors of the nonprofit sector and for some regions of the country, but in general our new survey underscores the fact that we still have a slow and painful recovery ahead.
To read GuideStar’s press release about our economic survey, please click here.
Posted By Bob Ottenhoff on December 2nd, 2009, in these categories: Giving WiselyI was happy to be part of a news release issued yesterday that dispels the myth of using ratios as the only valid way to evaluate a charity. For more than a decade, GuideStar has preached the mantra that judging a nonprofit’s effectiveness is based on how well that organization delivers on its mission and not by running overhead or other ratios based on Form 990 financials. It’s one of the most frequent issues I speak to reporters about.
As a pioneer in the field of nonprofit transparency, GuideStar has collected information well beyond financials from thousands of nonprofits. Our data collection tool has always included a section where organizations can elaborate on their missions, program activities, and annual outcomes. You might also be interested in checking out two of the many resources we make available on our site: "A Donor’s 10-Step Guide to Giving Wisely" and "Why Ratios Aren’t the Last Word."
Finally, this year, through a partnership with GreatNonprofits, we’ve added third-party reviews to our nonprofit report pages as another way to help donors evaluate how well a charity accomplishes its mission. Thousands of reviews are now available.
We are excited that others share our view, and I commend my colleagues who collaborated on this release for standing together to deliver this very important message.
Posted By Bob Ottenhoff on August 3rd, 2009, in these categories: Economy | GeneralOn July 22, I joined Brad Smith, president of the Foundation Center, on a teleconference to talk about the future of the nonprofit sector. It was the first time GuideStar and the Foundation Center have collaborated on such an event and only one of a few things our organizations have ever done together. It was great fun, and I really enjoyed working with Brad and his staff. After many years working for foundations, Brad brought interesting insight into the world of how foundations think and work. After such a great start, we are pursuing other activities to do together.
With moderator Katherina Rosqueta, founding executive director of the Center for High Impact Philanthropy at the University Pennsylvania’s School of Social Policy & Practice, ably guiding the conversation, Brad and I discussed the impact the economy is having on the sector and what we believe it means for the future. I presented the results of our latest nonprofit economy survey, which covered March through May of this year. Some 52 percent of participants said contributions to their organizations had decreased compared to the same period last year, 58 percent reported that demand for their organizations’ services had increased, and only 36 percent said that they had adjusted their 2009 budgets in response to the recession.
I was surprised by how similar these results were to the findings from our previous survey, which covered October 2008 through February 2009. In particular, I expected more organizations to have altered their budgets after several months of reduced income.
I see changes coming in the near future as the year unfolds. I suspect many nonprofits are living off reserves, which they can’t do forever, or making only minor adjustments to their current budgets, hoping things will improve soon. I also believe that different types of nonprofits are feeling the recession’s impact in varying degrees. Some subsectors and some regions of the country are being hit harder than others. Still, I believe that overall, the sector’s going to have to come up with new ways to cope with fewer resources and greater demand. Outsourcing, more meaningful collaborations, pooling resources, and bartering are just some of the options we need to consider. In the end, I think that our individual organizations and the sector as a whole will be stronger because of these efforts.
We’ve posted a recording of the teleconference on our site. I invite you to listen, and I welcome your comments.
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