Tuesday, November 27, 2012

Charity Check Cashing?

As the microfinance trend grows, I wonder why no major charities or foundations have looked to what I see as a point of obvious need – a charitable footprint in check cashing, payday lending, and other short term consumer debt. 

The idea behind microfinance is to provide loans to small businesses and entrepreneurs who either cannot get loans or have to pay exorbitant rates for loans they can get.  A nonprofit can step in and offer loans at interest rates well below market rates and, in doing so, help promote individual success and local economic growth.  To me, these same principles can and should be applied to payday lending.

Tuesday, November 20, 2012

Helping Wounded Veterans

The American public has a strong desire to help wounded veterans as they return home.  In this vein, I have recently been struck by the prominence of the Wounded Warrior Project.  ABC/ESPN, Heinz, Under Armour, the NFL and the PGA Tour, among many others, have sponsored the Wounded Warrior Project and/or publicized its efforts.  It led me to wonder what other charities serve wounded veterans and how they differ from one another.  I decided to look into three prominent charities that seek to help wounded veterans: the Wounded Warrior Project, the Fisher House Foundation, and the Injured Marine Semper Fi Fund.  Before discussing what their financials reveal about each organization, a bit on their stated missions.

Tuesday, November 13, 2012

Charitable Contributions and Tax Reform

As the federal government considers tax reform as part of a broader effort of improving its long-term budget crisis, charitable contributions have been one area of discussion.  The question seems to be whether the deduction afforded taxpayers who donate to charities is a “loophole” that should be removed from the tax code.  Being one of the larger deductions, it seems a natural target.  On the other hand, charities rely heavily on contributions, and these contributions are sure to decrease if the tax benefit is removed.  What surprises me is that there has not been a strong push for what I see as sensible middle ground – restrict the charitable deduction to cash donations.  Let me elaborate...
  • According to IRS figures, noncash donations to charities that are claimed as deductions on individual tax forms amount to around $50 billion each year.  A recent study by Ackerman and Auten (2011) in the National Tax Journal estimates that this accounts for $9 billion of lost tax revenue each year.  Depending on whether you ask the Democrats or Republicans, this amounts to somewhere in the range of 9-12% of new revenue goals.

Monday, November 12, 2012

The Lance Armstrong Foundation

The recent decision by Lance Armstrong to sever ties with the charity he founded, the Lance Armstrong Foundation (LAF), marks a substantial point of transition for the organization.  In reading much of the coverage of Lance Armstrong and his foundation, I have been struck by some fundamental misconceptions about the foundation.  Below, I discuss three things that hopefully help clear up these misconceptions.

1. Where the money comes from
One question that immediately arose after Lance Armstrong decided to stop fighting doping charges was how it would affect donations.  Since most public charities rely very heavily on public donations, the concern is a natural one.  The prominence of this question was underscored by quick press releases by the foundation noting an uptick in donations in recent weeks.

100% Charities – Too Good to be True?

A somewhat new trend among charities is to publicize to potential donors that 100% of their donation will go directly toward the charity’s stated mission.  The implication is that the charity is very efficient with donor funds and, thus, your donation will be put to good use.

It turns out this 100% promise is a bit too good to be true.  What typically underlies the promise is a circumstance where a charity has other sources of revenue (corporate sponsorship, board member donations, or giving by other charities or foundations).  The charity designates (a portion of) the funds from other sources to be used to meet non-program needs such as fundraising and administrative costs, thereby leaving all new donations to be dedicated to the mission.  However, since money is fungible, the organization could have just as easily promised any individual donor that 100% of their donation would go toward legal fees or travel expenses and designate that the revenues from others sources be used for programs.  In short, the 100% promise is somewhat empty, as almost any organization could make that promise to an individual donor.  A more meaningful indication of efficiency is what percentage of all the organization’s expenditures are spent on programs.  This figure, the “program expense ratio”, gives a much better sense to donors of the efficiency with which the organization uses funds (it too has flaws, but that’s a story for another day).

Thursday, November 8, 2012

The Accountability Gap

Here are a few facts:
  • In 2010, total charitable giving in the US was over $290 Billion.
  • Of that amount, an estimated $29 Billion, or 10%, went to churches.
  • The IRS requires virtually all charities to file a "Form 990" (or variant thereof) on an annual basis.  The filing provides disclosures about an organization’s revenue sources and how its funds were spent.  Further, each organization is required to make their Form 990 available to the public.  There is one notable exception: churches (which encompasses houses of worship broadly) are not required to provide this information.
  • The IRS also places limits on political activities of charitable organizations.  However, the IRS has all but shut down its enforcement of these requirements for churches.