CFC Confusion

March 1, 2007       Mark Hrywna      

Unhappy with the recent changes to the Combined Federal Campaign (CFC), and the response from the Office of Personnel Management (OPM), some charity leaders are taking their plight to Congress.

The major concerns are that the identification numbers long-term donors have come to expect for their favorite charity have changed and the requirement that charities spend no more than 25 percent on overhead has been dropped.

Thomas G. Bognanno, president and CEO of Community Health Charities of America, which represents 49 health charities, is part of an effort to inform Congressional leaders about the effect the changes might have on the CFC and the $268 million in charitable giving it annually generates. “In meeting with congressional staff, I haven’t yet found anyone who’s said, ‘This makes sense,’” he said.

In a letter to Rep. Henry Waxman (D-Calif.), chairman of the House Committee on Oversight and Government Reform, and Thomas Davis (R-Va.), Bognanno said he was “alarmed about the recent arbitrary actions taken by the U.S. Office of Personnel Management that will significantly constrain federal employees who give to these and other charities through the Combined Federal Campaign (CFC).” The letter was sent on behalf of Community Health Charities of America, as well as Earth Share, Global Impact and America’s Charities.

There are two significant changes that charitable leaders fear. First, OPM’s plan to issue random five-digit numbers to all local, national and international charities for the CFC, after years of using the same four-digit codes. Second, another regulation eliminates the requirement that a charity’s administrative and fundraising rate (AFR) falls below 25 percent of overall revenue to qualify to participate in the CFC.

Neil Denton, vice president of government relations and public policy for the American Red Cross, said there’s been conjecture from others in the community and on Capitol Hill, who worry that the changes might be prove to be a death knell for the CFC altogether. “We think we understand what it is OPM is trying to get done. We’re terribly concerned that it’s being done way too fast, without careful deliberation, that we’ve not had enough opportunities for affected folks in the community to air their concerns over this,” Denton said. “It seems there’s every good reason to pull the reins back and take a good look at this and make sure what we’re doing is good public policy. For us, the concerns are serious, for others it might be dire.”

Bognanno would like to meet with OPM officials to discuss the ramifications of the recoding issue, but says he’s been rebuffed. In a letter responding to his request for a meeting, OPM Director Linda Springer said any changes to the AFR regulation at this point, which went into effect in November and applies to 2007 CFC applications, would be “highly disruptive to the application process, would require a new rulemaking process, and will not be considered.”

As for recoding, Springer said OPM “carefully considered a variety of coding options,” taking into account concerns that some donors identify charities by the existing four-digit codes. “OPM decided to implement a random coding system that treats all participating charities equally and minimizes confusion. OPM found no specific evidence that donors focus on a charity’s code in selecting the charity by which they will make a contribution.”

Bognanno said data indicates a coding change would hamper charitable giving. The only time recoding was attempted, OPM changed the codes for 114 charities participating in the CFC of the National Capital Area for the 2005 campaign.

He said that designations dropped almost 25 percent ($1.1 million to $850,000) while campaign revenue increased 3 percent that year for local, unaffiliated charities. There were 72 organizations that experienced a drop in designations averaging 24 percent, and of those, 40 groups did not receive any designations. “Donors could not find them,” he said. “It’s very hard to get a donor back once you’ve lost them,” and under federal rules, there is no way to contact that donor except through the CFC campaign.

“The regulations were changed as part of OPM’s effort to modernize the CFC and to realize administrative efficiencies,” according to Edmund Byrnes, spokesman for the Office of Combined Federal Campaign Operations (OCFCO). “They were designed to address the current and future environment of the CFC where the electronic transmission of information will be more routine,” he said.

“The regulations update the criteria for CFC eligibility, streamline the charity application process, ease the administrative burden on the local campaigns, promote the use of electronic technology in the administration of the CFC, and expand opportunities during disasters and emergencies for federal donors to contribute to all charities participating in the CFC regardless of location,” according to Byrnes.

“We not only support this, we’d be willing to sit down and make this happen; we understand the need to do this. We are not opposed to recoding, but it’s the methodology and timing,” Bognanno said.

While there was previous discussion about recoding, Bognanno contends that there was “virtually no time to respond,” to the new regulations. “All of us were a little surprised about the Federal Register notice; it went out without any fanfare, a few days before the holidays.”

The regulations were finalized Nov. 20, 2006 and “vetted through public notice and comment process under the Administrative Procedure Act,” Byrnes said. “The recoding has been discussed for several years, but an announcement was made to CFC stakeholders in March 2006 that we would be recoding all participating charitable organizations for the 2007 CFC. After working with stakeholders to determine the format for new codes, OPM notified the public of the recoding via a Federal Register Notice issued on Dec. 21, 2006.”

Said Bognanno: “I’m the largest recipient of CFC funds; nobody talked to me.”

According to Kalman Stein, president and CEO of Earth Share, “It’s amazing that the only entity that doesn’t use codes (OPM) is perfectly fine with random codes.” Others argued for a smart numbering system that would add a local prefix or national prefix to existing CFC numbers, he said, but that was rejected.

“We understand the need for a new coding system, but there’s no justification for OPM’s plan,” said Stein, who also is vice chairman of the National Combined Federal Campaign Committee, which passed a resolution in January asking the OPM to reconsider both issues. “Why not try to do the least harm?”

Stein said that he understands changing numbers for local participants because of duplication, but on the national side, he believes adding a 0 prefix to the existing four-digit code would be more prudent than randomly assigning a five-digit number. Nonprofits publish the CFC codes in a number of materials, and have a lot of history behind them, he said. “You drive around D.C. at CFC time and you see banners with these codes. All that’s gonna change.”

Bognanno and others also have suggested that the 25-percent AFR not be eliminated, but improved by adhering to the 35-percent ratio that the Better Business Bureau (BBB) Wise Giving Alliance suggests. “It’s as widely accepted a standard as there is in philanthropy in America today; why not use that standard?” He suggested examining all of the BBB’s standards, which also include audit and governance measures.

Bognanno said that 90 percent of the public comments OPM received last fall opposed the elimination of the 25-percent rule, based on his review of information obtained through a Freedom of Information Act inquiry.

One of OPM’s motivations for the elimination of the AFR was to let the industry regulate itself and get it out of a position of making judgments, after litigation from groups concerning the list of qualified charities, said Anthony De Cristofaro, executive director of CFC of the National Capital Area.

“My concern is what does it do to donor confidence? You have to be able to assure them (donors) it (their donations) gets to where they want it to go,” De Cristofaro said. “People do things they’re comfortable with. When you change things, it takes a long time for people to adjust. Obviously we have a marketing challenge to communicate these things.”

OPM will “urge donors to carefully review the circumstances applicable to each charity to which they might donate, especially when the AFR is in excess of 35 percent,” Springer said in her letter, adding that OPM has posted information on the Web to educate donors about the resources available to examine charities.

“We do believe the CFC should have strong standards,” said Joe Haggerty, chief operating officer of United Way of America. “There’s always a certain ‘buyer beware,’ but people still expect you to have some standards at those organizations, and they should be based around financial accountability. There’s no reason to have overhead above 35 percent.”

Some regulation, even if you can’t uniformly police it, is better than none, said Earth Share’s Stein. “The campaign may be easier to run for OPM but not with an eye toward more participation and more giving. This is not an era in which you reduce standards,” he said.

CFC is the largest campaign in the world, Stein said, and “it ought to stand for a better standard for charitable performance, not take a pass on having standards of performance.”  NPT