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Wall Street, Donors Feeling Better, Fueling Revenue For Many Groups

By Patrick Sullivan - May 1, 2014

The Nature Conservancy’s (TNC) focus on its strategic framework, called “Global Challenges, Global Solutions,” helped to secure a $26 million gift for programs in Kenya, Tanzania and Zambia this past March. “A combination of the strategic framework and the maturation of some efforts to put strong and interesting programs in front of donors is starting to bear some fruit,” said Steve Howell, chief financial and administration officer for TNC in Arlington, Va.

The gift was from the Peter Hawkins Dobberpuhl Foundation in Brentwood, Tenn. The Dobberpuhl family has a strong interest in Africa, having been on safari in Kenya’s Maasai Mara preserve. “Our family’s outdoor experiences have been some of the most memorable in our lives. It would be a shame for future generations to be denied that opportunity,” foundation Co-Founder Holly Dobberpuhl told TNC, according to Howell.

“Our new framework is more broadly about strategies on a global basis to bring the relevance of conservation to people everywhere,” said Howell. TNC coupled a new focus on global programs with an equally new focus on global fundraising. “We’ve been the beneficiary of great increases of wealth in places like China, and the recovery of Europe,” he said. “Places where historically we didn’t raise any money, but now we’re seeing, particularly in China but even in Europe, recovering or growth economies are places you can raise money. That trend of global growth and wealth creation has helped our organization.”

Though the calendar year is barely one-third complete, many nonprofits operate on a June-to-May fiscal year. A strong domestic stock market, concerted fundraising efforts and challenges regarding unrestricted revenue are driving some nonprofits managers’ strategies in both fiscal and calendar year 2014.

U.S. stock markets continued their rebound throughout 2013 and into 2014. As of April 1, 2013, the Dow Jones Industrial Average stood at 14,578.54; the S&P 500 was 1,569.19; and NASDAQ ended the day at 3,267.54. Fast forward exactly one year later, and the Dow was 16,531.58; NASDAQ was 4,268.04; and the S&P reached 1,885.40.

More wealth means that individuals are more willing to donate, said Barron Segar, senior vice president of development for the U.S. Fund for UNICEF in New York City. “The stock market has been a win for most nonprofit organizations,” he said. “When there’s positive momentum in the economy, consumer confidence is up and that’s helping us to raise more money.”

U.S. Fund CFO/COO Edward Lloyd put it more succinctly: “Overall, we are having a fantastic year.” According to Lloyd and Segar, the U.S. Fund is poised to exceed its total revenue goal of $412 million by nearly $130 million. “At this point we’re forecasting more like $540 million,” said Lloyd.

Howell, too, is predicting a banner year for the organization. “We are right now looking at our February numbers. It looks like we’ll have our best year since before the financial crisis of 2008 to 2009,” he said. “That includes a fairly healthy increase in fundraising, steady growth in government grants, and a nice year in the financial markets.”

Some results might be difficult to duplicate year-over-year. And, $26 million gifts don’t happen every day.

DonorsChoose.org scored national media exposure this past February by a stroke of luck. A teacher used the words “Rachael Ray” in a project for her classroom. The cooking show diva heard about the project, funded it, and had the teacher and her classroom on the show via Skype. “Sometimes we get lucky,” said CFO Andy Kaplan. “We work really hard at spreading the word. We’re not going to name a football stadium or buy a blimp, but we want as many people as possible to know what we do.”

Donations are up for the New York City-based DonorsChoose.org. “We’re still a peanut on the not-for-profit landscape but we’re having a really good year,” said Kaplan. “Total donations are up between 15 and 20 percent, and the average donation is holding steady. We’re driving more revenue and as a result, donors are able to fund even more classroom projects.”

Though the Great Recession is technically over and the stock market is up, the economy continues to be challenging. Volunteers of America in Alexandria, Va., has received unexpected benefits from a sluggish economy in the form of donated air time for public service announcements (PSAs).

“We’re very fortunate that because of the economy, people are not paying for TV spots and stations are looking to nonprofits to fill spots,” said CFO Joseph Budzynski. “Visibility of any kind is good. It helps people know Volunteers of America, know the mission and hopefully drive people to learn more about what we do and drive them to want to give.”

Budzynski said while his organization’s PSAs don’t specifically ask for donations, they help to raise awareness and get the brand in front of more people, which could partially account for the increase in individual contributions. Individual contributions increased in 2013 and are continuing to do so in 2014, according to Budzynski.

Uncertainty regarding the charitable deduction does not seem to be affecting these organizations’ finances. President Barack Obama again proposed capping deductions at 28 percent in his most recent budget, a move that researchers say could cost the sector up to $9 billion annually. But, that hasn’t affected donations so far. “Any time uncertainty goes up, be it the stock market, government uncertainty, tax reform, the charitable deduction, we monitor it. We don’t see any of that right this second,” said Howell.

An expired tax credit has impacted the constituency of DonorsChoose.org, making the organization even more necessary for cash-strapped teachers. “Teachers could take a deduction on their income tax return for up to $250 spent on supplies,” said Kaplan. “This benefit expired at the end of 2013. This makes it even tougher for teachers who want to spend their own money equipping their classroom, and makes the availability of DonorsChoose.org even more important to public school teachers.”

Both the U.S. Fund and TNC have been struggling to find sources of unrestricted income. Lloyd said increasing unrestricted funding is a priority for the U.S. Fund this calendar year. Howell called the issue TNC’s biggest challenge. “While fundraising is growing and that’s great, you have to align donors’ gifts with your strategic plan or you end up with things important to strategy that can’t be funded,” said Howell.

TNC’s solution has been to try to broaden their donors’ interests. “We don’t ask for general funds, though we do have membership and bequest programs that raise those funds,” said Howell. “The smart move is, instead of a donor being interested in a particular project, raise their sights a little.”

If a donor is interested in river conservation, said Howell, TNC will try to get the person to give to the fresh water program as a whole. “That gives us a little more flexibility,” he said. “Rather than going for unrestricted gifts, broaden the applicable use of the gifts you get. We call that lightly restricted gifts, and they add a lot of flexibility.”

 

The expense side

Salary considerations have been a concern this year. “Salary expenses are our number one cost, between 50 and 60 percent of all costs,” said Budzynski. Healthcare, specifically, has gotten more expensive this year. “Healthcare benefit costs increased between 8 and 30 percent. That’s a big driver of personnel,” he said.

Lloyd and Segar said that salaries have become more competitive recently and that can lure away good personnel. “The salaries other organizations are willing to pay are very surprising,” said Segar. “There have been occasions we’re losing staff because other organizations are paying aggressive salaries. We want to be competitive but we’re not going to be out of the marketplace.”

Everyone is focused on efficiency. Budzynski said grantmakers are less willing to fund projects with a lot of overhead, often capping approved indirect cost rates at less than preapproved rates. VoA receives north of 60 percent of its funding from government grants, so it’s a concern. “For example,” said Budzynski, “if an organization has a pre-approved indirect cost rate of 12 percent but the government grant has a cap of 7 percent, an organization would have to bear the administrative costs over the capped grant indirect reimbursement of 7 percent. This puts tremendous financial pressure on nonprofits to fulfill their missions. There is a real cost to administer the grants, and these costs continue to rise year-over-year. It seems the grantmakers are not acknowledging the increasing costs to properly and efficiently administer the grants.”

This has led VoA to be more selective with what grants it pursues. “It continues to force us to say, how can we do things more efficiently?,” said Budzynski. “We’re starting to become more cautious,” he said, in going after grants with capped indirect cost reimbursement.

Kaplan said that because the organization has grown dramatically, efficiency is a primary driver. “Five years ago, we were one-quarter the size and had about 50 people. Now we’re four times as big and we have 65 people.” The demands of running a larger organization with comparatively few people mean that it has to be run as a tight ship. “My job as CFO is to make sure we run a transparent organization with the highest integrity, process everything correctly, the first time, at low cost,” Kaplan said. “I do that by hiring great people, teaching them as much as I know, giving them opportunities to learn things and turning them loose.”  NPT

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