Financial Data Confirms The Worst About 2009

November 1, 2010       Mark Hrywna      

This economy is almost like watching a car wreck in slow motion: You know what’s coming; you just can’t do much to stop it. When the economy tanked and the stock markets plummeted toward the end of 2008, it didn’t take a psychic to see what was coming down the pike on Form 990s. This is the year those declines spilled red ink all over charities’ tax forms.

By far, the biggest difference within revenue categories tracked in The NPT 100 was investment income. At $400.66 million, investment income was responsible for just 0.62 percent of the total revenue of the 100 organizations while last year it was nearly $2 billion, accounting for 3 percent of all revenue.

Revenue for this year’s NPT 100 organizations — the 100 largest organizations that raise at least 10 percent of income from individual gifts — totaled $64.78 billion, which is up just a blip from last year’s $64.63 billion. That’s a difference of about 0.23 percent, or $150 million. But it’s important to realize that this year’s NPT 100 includes a $2-billion organization, Memorial Sloan-Kettering Cancer Center, which did not make the cut last year because its public support fell below 10 percent of total revenue — a key qualification of the study.

The declines came in other categories. Total public support for NPT 100 organizations was down more than 4 percent, to $32.23 billion from last year’s $33.71 million. It accounted for slightly less than 50 percent (49.77) of the aggregate income, compared to more than 52 percent last year. Less than half of the organizations reported more income from public support than the previous year’s study.

Government support made up almost 16.5 percent of revenue for NPT 100 organizations, at $10.66 billion. Program revenue totaled $18.88 billion, while other revenue was $2.55 billion. Expenses for the 100 largest charities were down 6 percent, more than $3.8 billion, from $64.2 billion last year to $60.3 billion. It’s important to note, however, that one of the largest organizations (Catholic Charities USA) could not report the category this year. It reported expenses of $3.9 billion last year.

Rebounding investments helped several organizations race up the list, including Boy Scouts of America (BSA) and Shriners Hospitals for Children, which made among the biggest leaps in this 22nd annual study.

So far in 2010, investments seem to be “bouncing back a little bit even though contributions have not,”said Dan Romano, CPA, partner-in-charge, National Not-For-Profit Tax Practice, at accounting and consulting firm Grant Thornton LLP in New York City. Grant Thornton assists with the compilation and analysis of The NPT 100.

“Those are still down but investments are coming up. It’s not going to get back to where it once was, at least any time soon, but that’s one good sign,”he said.

A good number of organizations revisited their investment policies and the types of investments they were in after the market collapse of two years ago. “It’s probably too late at that point because you’ve already absorbed the losses. A lot of them may have just changed the way they did things going forward without just dumping an investment and putting it into something else, to keep the unrealized loss,”Romano said.

There have been some changes among investment managers but nothing drastic, said Romano. “The types of investments is what has changed,”he said, after the Bernard Madoff scandals, charities are “rethinking the investments they’ve gotten into and more aware of what they need to look for,”he said. For more on charities’ investments, see the story on page 26.

Many organizations are facing cuts from government spending. Those that rely on subsidies from government agencies are in for some tough times ahead, Romano said, with some likely to be forced to close or reduce services. Even when governments are subsidizing nonprofits at all, he said, they’re likely delaying payments by a year or more, so organizations receiving support might be behind.

Mental health organizations, in particular, might suffer, according to Romano, because many people don’t realize the need. “Most of these organizations rely in a large part on government subsidies,”he said, while poverty relief groups will “still manage to hold their own, because most of them are the established ones.”Increased merger activity among like organizations wouldn’t be a surprise in the coming years. “You could see some of that, we haven’t seen a lot yet,”since the economy declined, he said.

The buy-in

Overall revenue needed to make The NPT 100 this year dropped for the first time in several years, and it declined considerably, from $178.75 million last year (JFK Center for the Arts) to $150.45 million (Jewish Federation of Metropolitan Chicago). That’s a difference of more than $28 million, or 16 percent.

Jockeying for the No. 100 spot was about as close as it’s ever been. The nonprofits that essentially ranked 101 to 105 didn’t miss The NPT 100 by much: Robin Hood Foundation, $150.58 million (FY 08 data was the latest available); National Public Radio, $150.19 million; Hadassah, $148.11 million; Children International, $146.16 million; and, Doctors Without Borders, $143.30 million.

There was more turnover than usual in this year’s list. The annual study saw about one of every seven organizations drop from last year’s list. Two large organizations whose balance sheets rebounded with the stock market — Shriner’s Hospital and Father Flanagan’s Boy’s Home — returned after a one-year absence from the list. Others returning from a longer hiatus, include the Muscular Dystrophy Association (MDA) (87) and Scholarship America (74).

Some 17 organizations reported total revenue eclipsing $1 billion while 55 tallied revenue of more than $250 million, 10 fewer than in the 2009 report.

Some of the aggregate revenue is bound to be counted twice, as in the case of United Way’s dollars. The Alexandria, Va.-based organization gave more than $100 million to four of the largest charities on the list:

  • American Red Cross (5), $220 million;
  • The Salvation Army (6), $123 million;
  • Boys & Girls Clubs of America (8), $123 million; and,
  • YMCA (1), $120 million.

Of the $4.12 billion in revenue reported by United Way, almost $1 billion was passed on to 25 organizations within The NPT 100.

Overall, there were few surprises in this year’s study. Romano pointed out that relief agencies still managed to fare well, at least compared to cultural institutions, which makes sense given donors’ financial situations. “If you’re going to have limited money to donate these days and you’re going to use your discretion where to give it, with all that’s going on in the world, I guess you’re going to give it to the true relief organizations,” he said.

Romano said cultural institutions might continue to see revenue and contributions drop a bit, at least in the near future. “Ultimately, they’ll come back,”he said, but charitable contributions are much more focused in the current environment.

Relief organizations, meanwhile, can expect to boost their dominance on next year’s NPT 100. The millions raised in response to the Haiti earthquake, which struck in January 2010, likely will begin to show up on this year’s Form 990s.

Dropped from this year’s list were 14 organizations, of which four were museums: American Museum of Natural History ($135 million), Museum of Fine Arts, Boston ($69 million), Los Angeles County Museum of Arts ($22 million) and Museum of Modern Art ($104 million). For some, like MFA, Boston, it’s because of the completion of a massive, years-long capital campaign. Others that won’t be found on this list but were there in 2009 are: Christian Aid Ministries ($116 million in revenue this year), Conservation International Foundation ($100 million), Covenant House ($130 million), New York Presbyterian Fund (-$8 million), and U.S. Olympic Committee ($123 million).

A few organizations fell off the list not because of total revenue, but because public support dipped below the required 10 percent of overall revenue. Four organizations went that route: Academy for Educational Development (which had $41.1 million of its overall $434 million come in public support); Consumers Union ($18.7 million of $253 million); Eisenhower Medical Center ($23.5 million of $395 million), and Scripps Research Institute ($37 million of $464 million).

On the other side of the coin, cracking 10 percent public support to make the top 100 were multibillion-dollar behemoth Memorial Sloan-Kettering Cancer Center and The Legal Aid Society. Among the biggest movers in The NPT 100 was a newcomer, Teach For America (TFA) at number 51. “They’ve had a lot of attention drawn to them so I guess the donations are following suit,”said Romano.

Founded in 1990, TFA has been experiencing significant growth in recent years, with public support jumping from almost $60 million in 2007 to $117 million in 2008 and $218 million last year. “Scale matters a great deal to us,”said Eric Scroggins, TFA’s executive vice president of growth strategy and development. “We want to be on a scale commensurate with the problem we’re looking to address,”he said.

TFA recruits graduates from among the nation’s best colleges for two-year commitments to teach in low-income communities, both rural and urban. “We’re building a movement to eliminating educational inequity,”said Scroggins.

TFA’s applicant pool has consistently grown 20 percent a year, and even more so in recent years, Scroggins said. The growth was bolstered by the lack of opportunity in other sectors, the economy, and a historic presidential election in 2008 that galvanized the college-age generation. “The surge in applications is a huge opportunity for us,”said Scroggins.

In the midst of a $60-million, five-year growth plan (2005-2010), TFA saw a window to accelerate its growth and launched another five-year fund in 2009, aiming to raise $80 million by 2013, according to Scroggins. “It will allow us to make some of the up-front capacity investments to scale our program help invest in regional growth plans,”he said.

The Mississippi Delta Corps, the TFA affiliate in Oxford, Miss., usually recruits about 80 teachers. It received a boost in funding from the state, helping to bring in more than 250 teachers, Scroggins said. The organization also opened a rural training institute, with the help of $5 million from the state. Texas grew its corps from about 600 to 1,000 members in two years, opening new sites in Dallas and San Antonio, with state contributions of $8 million over two years, as well as contributions from several large foundations, according to Scroggins.

Investments in the national infrastructure helped to open four sites last year, and six the year before, said Scroggins. Since 2005, the organization has boosted membership from 3,800 to 8,200 and expanded from 22 to 39 sites across the nation. TFA’s ambitious plans aim to grow corps membership to 15,000 by 2015 in 60 of the nation’s poorest communities, Scroggins said.

Growing membership means eventually those members will become alumni who hopefully give back to TFA. Two-thirds of the 20,000 alumni still work full-time in education and TFA hopes to have 50 percent of them give time or money to the charity this year. The goal is to have 40,000 alumni by 2015, according to Scroggins, with 60 percent giving time or money by then, which would be on par with the best alumni giving rates for colleges and universities.

Money raised through alumni is “not an insignificant amount, but not significant at this point,” Scroggins said. “We definitely see a lot of potential for that.” NPT