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 October 27th, 2011, in these categories: Economy | GuideStarIt took a trip to New York this week and an episode of The Daily Show with Jon Stewart for my opinions on the Occupy Wall Street movement to begin to gel.
Daily Show reporter John Oliver did a hilarious report from the frontlines of Zuccotti Park but with a very powerful message:
we may feel uncomfortable about what the demonstrators are doing and how they look, but they’re at least taking some action – ineffective as it may be.
What about the rest of us who may feel unhappy about today’s economic situation or some of the policies that got us here? What are we doing about it? In Oliver’s video, his group of so-called normal people, after complaining a little bit, went off to watch television and feed the kids. In other words, business as usual.
My purpose for being in New York was to join with several colleagues to help set up a new foundation. Ironically, we had to walk past Zuccotti Park several times and so we had a good chance to observe the whole scene. Our group is determined to have this new foundation be one that is committed from the beginning to harnessing the power of our entire portfolio for social good – not just the five percent part. No matter how much we give away in grants, we’ll need the help of financial institutions to invest our portfolio wisely and see it grow.
Vince Stehle, a regular columnist for The Chronicle of Philanthropy and vice president for programs at the Democracy Fund, reminds us, “America’s foundations have an enormous stake in the safe and equitable operation of the broader economy. Perhaps they should use their influence as investors to demand that financial institutions operate transparently and with high ethical principles. Foundations—society’s institutional investors in the public interest—have an unusual opportunity. They can make their demands heard on Wall Street. But unlike the protesters, they can do it in the board rooms of the big banks. They don’t have to stand out on the street in New York’s Zuccotti Park.”
Brad Smith, president of the Foundation Center, makes another point of reminding us how important wealthy individuals are to the revenues of nonprofit organizations.: “No matter how you slice it, philanthropy is driven by asset-based wealth; indeed, large organized philanthropy of the foundation variety is fueled by the top 1 percent of the population that holds 23.5 percent of national income.”
New York Times columnist Nicholas Kristof called the demonstrations a “primal scream” in a recent column. That’s not a bad description: chaotic, unfocused, goofy at times, but energized. David Ignatius, associate editor of The Washington Post wrote
that it is part of a “global spring” of discontent against elites across the world and a delayed reaction to the financial crisis. I like those descriptions better than The Wall Street Journal’s Daniel Henninger: “the park’s people have settled into a barely moving mass of down market grunge ‘occupying”’ a marijuana oasis.” At its core, people are asking some fundamental questions: what kind of society do we want the United States to be? How do we give people the freedom and incentives to grow wealth, build a strong and resilient economy, create new jobs and do it in a way that benefits the greater good?
And what are we going to do about it?
Posted By Bob Ottenhoff on August 11th, 2011, in these categories: Economy | GuideStar Patrick M. Rooney, Executive Director, Center on Philanthropy at Indiana University I had the good fortune of participating in a panel this past weekend at the Summer Symposium of the Giving Institute with two very smart observers of the nonprofit scene: Matthew Bishop of the Economist and the co-author of Philanthrocapitalism, and Patrick Rooney, the Executive Director of the Center on Philanthropy at Indiana University and the person who oversees the Giving USA Report.
Both of them had a lot to say about the impact of the mega-rich on philanthropy.
The presentations took place while Congress was still involved in its debt crisis demolition derby thriller. Bishop observed that this is a “moment of crisis” that is “testing whether there are enough people who understand how the world really works.” “Doing stupid things to ourselves,” he said, would end up hurting the world’s economy as well our own. He thinks the American political system is in danger of turning our economy into one like Japan’s, where we merely muddle through with little growth.
For the last few years Bishop has been tracking the super rich and their philanthropic activities – people like Bill Gates, Warren Buffet, and Ted Turner. He is generally upbeat about their work and how their money and their data-driven approach to decision-making can make a big difference in the nonprofit sector. He’s also upbeat in general about the prospects for the super rich and observed that in today’s world there is an “economy for the rich and an economy for the rest of us.”
The very rich are part of a global economy that is experiencing annual growth increases of five, six, and seven percent. For the rest of us, dependent primarily on the American economy, we can expect high unemployment, no family income growth, and no likelihood of a government stimulus to prime the pump.
For most of us, he estimated, it will take us seven years or so to recover from the Great Recession and get back our assets back to where we were before, and there isn’t much
 Matthew Bishop, US Business Editor and New York Bureau Chief, The Economist we can do to change that fact. He believes this slow recovery will put pressure on nonprofit organizations to be much more effective and efficient, with much higher donor demand for proving results. On the bright side, he thinks it possible that these difficult times could result in a greater time of innovation experimentation.
Patrick Rooney went through the Giving USA numbers – pointing out a drop of 13 percent in giving from 2007-2009 and a small two percent increase in 2010. He observed that any growth is welcome but with an annual growth rate of two percent, it will take approximately seven years or so for giving to return to 2007 levels.
Rooney pointed out that 87 percent of giving comes from individuals or family foundations. In 2010, this resulted in $212 billion in contributions. The wealthiest three percent of American households are responsible for two-thirds of charitable giving. Just as Bishop thinks the rich have a good chance of getting richer, Rooney thinks the nonprofit sector is going to look increasingly for the wealthiest Americans to provide additional support.
If GDP growth continues to slow, as it did this last quarter, we may have no choice. Martin Sandbu of the Financial Times estimated the other day that if the economy had grown as fast in the first half of the 2011 as it did in 2010, it would have produced $225 billion more in goods and services than it actually did. The best way to increase philanthropic contributions is to hope for a growing economy that lifts all boats.
You can find key results from our recent 2010 Nonprofit Fundraising Survey and more on the importance of individual contributions here: http://www2.guidestar.org/rxg/news/publications/2010-nonprofit-fundraising-survey.aspx
Posted By Bob Ottenhoff on March 31st, 2011, in these categories: Economy | Government | GuideStar | GuideStar.orgIt’s time for executives of high performing organizations to begin thinking about what the new economic normal will mean for them. Too many nonprofits are operating off of business models created in the 1960’s. Those models had several components that are no longer sustainable. For starters, after non-stop growth in total donations, the nonprofit sector experienced a significant dip in 2009 (Giving USA) and I wouldn’t be surprised if we saw a further decline in 2010. At the very least, growth will be much slower in the years ahead than it has been in previous decades. At the same time, investment income has declined to historically low levels affecting foundation endowments and organizational endowments alike. Finally, there is the nonprofit sector’s traditional dependence on government grants and contracts, for nearly a third of total revenue. This is a source already in decline and likely to plummet before it stabilizes.
Here in Washington the federal budget news gets crazier every day. We are now operating the federal government in increments of several weeks at a time. Forgot about long range plans and strategy – a month is now an eternity. And the fight is about our current fiscal year, the one ending September 30! Still to come are debates over next year’s budget and all the big structural issues.
Our government budget problems are way too big for anyone or organization to think they won’t be adversely affected in some way. At least that’s the way I hope it happens -spreading the pain around to everyone -not just to those without PACS and lobbyists.
This includes nonprofits. For starters, we should expect some changes in the tax deductibility standards. Expect many government service fees to nonprofits to continue to be under stress or eliminated altogether.
Tim Delaney, President of the National Council of Nonprofits, has an excellent paper published in the Nonprofit Quarterly http://www.councilofnonprofits.org/news/national-council-news/tim-delaney-state-threats-nonprofits, detailing the pounding nonprofits are taking from government. He reports that governments are abusing contract relationships with nonprofits by not paying full cost of work, changing contracts in mid-stream, paying late or not at all, adding unnecessary complexities, and adding new fees. He’s been urging nonprofits to fight back – with lobbying, advocacy, and the tough tactics applied in the business world, and not take it any more.
But in a recent presentation at the Bradley Center, Gene Steurle, a wise veteran tax analyst, who has an excellent blog called The Government We Deserve, reminded us that currently the federal government is spending $31, 000 for every American each year and bringing in only $19,000 in revenue – not counting various tax deductions and loopholes. This is a path he suggests that will undermine our country’s security and not something we can avoid any longer. In 2009, for the first time in American history, he said, every dollar in the federal budget was committed before the fiscal year even began – thereby required elected officials to cut the budget or add to the deficit if they wanted to add any additional spending. Our only way out of this mess he suggested is to raise taxes, cut spending, and limit deductions and loop holes. Nonprofits are going to need to share in this sacrifice.
We’re about to enter a period of a “giant re-set” – a phrase first used by the National Governor’s Association.
What should leaders of high performing organization’s be doing?
- For starters, get involved. We are about to enter a period of debate about reallocating how we spend our federal and state government resources. We need to be fighting for solutions that preserve desperately needed public services and invest in our collective future. Expect those with other approaches to be fighting too.
- Take a serious look at your organization’s business model. Are you taking steps to diversify your revenue streams? And are you being honest with yourself about the long term picture for your current plan?
- Think big. You’ve probably already done the easy belt tightening over the last few years in order to respond to the Great Recession. What’s to come may be even worse for some nonprofits. A friend of mine running a state association is facing a total zeroing out of his state support – a third of his revenue – and is now exploring a regional approach to back office functions. He’s thinking big. Today’s challenge could in fact end up being liberating – freeing us to think about our organizations and resources in brand new ways.
Posted By Bob Ottenhoff on October 26th, 2010, in these categories: Economy | Fundraising | GuideStar | Nonprofit PracticeWhen I first started writing this blog about the BBC, I had the world’s economy on my mind. But then a controversy over Juan Williams erupted adding a new twist.
With our economy stuck in neutral, it’s been interesting to follow the policy debate raging over what to do about it. Some pundits are encouraging another government stimulus plan in order to help prime the pump of development; others think the last plan was a horrible mistake and have turned it into a potent campaign target. It seems likely that gridlock will prevail and we’ll get neither more stimulus spending nor any significant changes in government spending.
Meanwhile, in the United Kingdom, the Conservative party leadership has proposed a massive cut in government spending of $127 billion over four years. The Wall Street Journal termed the U.K. a “global test case in the argument of choosing austerity over stimulus to repair the economy.”
One of the cuts that caught my eye is the one to the British Broadcasting Corporation (BBC). In return for a deal that guarantees a continued license fee for the next six years, the BBC agreed (or caved to government pressure, as the New York Times put it) to a freeze on its income and the assumption of new expense obligations previously handled by the government. The license fee obligates TV watchers to pay nearly $230 for every household with a color television set. The New York Times estimates that the license fee brings in $5 billion per year, and makes up nearly all of the BBC’s budget. The Guardian estimates that new additional costs and the license freeze will mean in effect that the BBC will experience a 16 percent cut in real terms.
The guaranteed revenue stream has helped the BBC become the best public broadcaster in the world and one of the world’s most powerful media companies, public or private. So although any cut is painful, the BBC has successfully fought off commercial competitors and critics who wanted to see the fee reduced or eliminated, as well as ensured itself six years of predictable revenue─not a small feat in a world of financial chaos.
Unlike the BBC, American public broadcasters rely primarily on voluntary contributions and local support for the bulk of its revenue. Our federal government contributes a measly $400 million or so for the entire system of over 1,000 public radio and TV stations. Most state governments provide some type of support, although these appropriations are under fierce attack at the moment in many places.
Last week’s firing of Juan Williams has brought some angry calls by politicians urging the elimination of federal government support. What these critics fail to understand is that American public broadcasting is primarily a collection of locally controlled and financed institutions, with relatively weak national organizations. This is both a strength and weakness. It is nearly impossible to destroy public radio because of its de-centralized nature. But the challenges in cobbling together funding from many local sources within a membership organization context─unlike the BBC’s license fee─means it will never have the domestic or international influence that the BBC enjoys.
Since there is no chance of a national license fee, the decentralized approach is not our only alternative─it may indeed be the best way to serve a country as diverse as ours.
Posted By Bob Ottenhoff on October 22nd, 2010, in these categories: Donors | Economy | Fundraising | GuideStar | Nonprofit Practice Here at GuideStar we try hard to listen and learn from people working in the nonprofit community. Every day GuideStar is in contact with hundreds of people like you at nonprofit organizations through emails and phone calls, answering questions, giving tips, and helping you meet the challenges of your important jobs. Another way we try to stay on top of issues is through our economic surveys which we share with the sector. Now, we are expanding our approach through a unique partnership. This week we launched a new economic survey in partnership with the Association of Fundraising Professionals, Blackbaud, Inc., the Center on Philanthropy at Indiana University, the Foundation Center, and the National Center for Charitable Statistics. By partnering with these institutions, we’re reaching out to new participants, expanding the audiences that will see the results, increasing the survey’s overall impact—and cutting down on the number of surveys you’ll be asked to take this fall.
We invite you to be part of this inaugural survey by answering the questions at the 2010 Nonprofit Fundraising Survey website: http://www.nonprofitfundraisingsurvey.org/. The survey will take about five minutes of your time. The questions in this month’s survey are about changes in giving. A summary of responses to date will be visible as soon as you hit “submit,” and you can go back later to check again. Data collected will be reported in the aggregate, with no reference to individual participating organizations. Results will be published jointly by the participating organizations throughout the year, with further analysis to help guide you and your colleagues in this new era for fundraising.
On another note, last week, the Chronicle of Philanthropy reported that charitable giving to the nation’s 400 biggest donor-funded nonprofits fell 11 percent in 2009, the steepest drop since the Chronicle began tracking those numbers 20 years ago.
The United Way and the Salvation Army, which saw decreases of 4.5 percent and 8.4 percent respectively, actually got off relatively easily. Other top 10 organizations like the Y (17.2 percent) and Food for the Poor (27 percent) reported much bigger drops. Experts don’t expect charities, which are as battered by the recession as any other industry, to do much better in 2010 than they did in 2009; most fundraising directors say they’re expecting growth of just 1.4 percent over last year.
These results track with GuideStar’s own most recent economic survey, released in August, which showed that 40 percent of respondents saw 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) saw an increase in demand for their services. As I said before, there’s no doubt that the nonprofit sector continues to face an incredibly difficult philanthropic environment
One academic researcher responded in the Chronicle that our interpretation of the survey results was too bleak. Here is our response which was published Sunday in the Chronicle:
In a letter to the editor (“The Nonprofit World’s Finances Are Not as Bleak as a New Study Suggests,” September 23), Lester Salamon commented on GuideStar’s 2010 Economic Survey, taking us to task for what he felt was an overly grim picture of the effects of the economic downturn on the charitable sector.
We at GuideStar stand by our interpretation of the data resulting from our economic survey. While we are pleased for each nonprofit that has moments of good news, the data is clear in its conclusion that many continue to face great challenges, and most have a long way to go to achieve the success they experienced before the recession.
One important aspect of our findings with which Mr. Salamon disagrees is the impact of the decline in charitable giving. Although it may be statistically correct that “such giving accounts overall for only about 12 percent of nonprofit revenues,” when you start to actually look at individual organizations, you see a different picture.
Charitable revenues, when viewed in the aggregate, are dominated by a relatively small number of very large health-care providers, universities, employee-benefit trusts, and the like that derive most of their revenue from program services. For the 4,102 respondents to the GuideStar survey that gave us sufficient information to track back to their Form 990 filings, the median dependence on charitable contributions was 44 percent; for those with annual revenues under $5-million, about a third of respondents depended on charitable giving for 75 percent or more of their revenues.
There is another aspect of the GuideStar survey, however, that is difficult to convey in numbers. There were 7,014 usable responses, and nearly 3,000 of the respondents made comments about how their organizations were doing.
Although 69 percent of survey respondents reported that their 2010 budgets had increased or stayed about the same, this is not necessarily an unalloyed sign of good health. Consider these typical comments from organizations that didn’t cut their budgets in 2010:
“It was better than 2009, but not as good as 2008. We do feel that we’re no longer in free-fall.”
“Cash flow continues to be the problem. We will survive but we may have to cut programs and positions.”
“We have increased revenues by about 50 percent but most is one-time stimulus funding and will not likely continue.”
“Due to decrease in donations, we had to rely on credit to continue operating and now we are in debt.”
“We are struggling financially due to the decrease in contributions.”
“We are operating out of our reserves. We have about six months left and we will fold if no money comes in.”
To be sure, not all the comments are negative, and many of them show resilience as old organizations learn new strategies for raising funds. But the overall tenor of the comments from organizations we are in direct contact with suggests a sector that is nervous and uncertain about what the future holds.
If we report that things are better than they are, the individuals and institutions that are in a position to help may not step up to the plate.
We hope you find these surveys helpful as you make your plans for the remainder of 2010 and 2011. One of the characteristics I like best about my nonprofit colleagues is their optimistic, can-do attitudes. We are resilient and determined. This continuing economic downturn is difficult, but not impossible. What makes us stronger – and more creative and innovative – makes us better. Good cheer to all.
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 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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