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Published: Sunday, 12/12/2004

Charities find holiday season less than jolly

BLADE WASHINGTON BUREAU

WASHINGTON - With the season for charitable giving in full swing, there is growing consternation about Americans' loss of trust in nonprofit organizations.

Brian Gallagher, president and CEO of United Way, announced recently that the results of a new survey his group commissioned showing two-thirds of Americans trust for-profit groups more than they trust charities.

"The entire nonprofit sector had better wake up on this issue," he said. He said the charitable world needs to have its finances more easily open to the public and disclose exactly where the money it gets from donations goes. He also said charities need to be more accountable, more market-driven and more sensitive to consumers.

A new Brookings Institution study has found that only one out of 10 Americans thinks that charities do a "very good" job of spending money wisely and only one out of five says charities do a very good job of running their programs and services. The study found that confidence in charities is 10 percent to 15 percent below what it was before the Sept. 11, 2001 attacks.

Embezzlement and misuse-of-funds scandals that hit several of the 1,300 local United Way organizations in recent years contributed to the lack of trust, but Mr. Gallagher and other analysts of the world of philanthropy say decline in trust of nonprofit groups as a whole grew much worse after the terrorist attacks.

A spokeswoman for the National Council of Nonprofit Associations said that Americans who gave money for the 9/11 victims were upset by news reports that some of their donations were channeled to victims of other disasters by such groups as the American Red Cross.

Also contributing to the growing skepticism about some charitable institutions was the federal government's targeting of some long-established charities as conduits for money to terrorist groups, charities say.

In November, 13 groups, including the American Civil Liberties Union, Amnesty International, and the Natural Resources Defense Council, sued the federal government to try to block a new federal regulation which requires groups participating in the Combined Federal Campaign to certify that they do not knowingly employ people or give money to groups whose names appear on any of several terrorist watch lists. The rule affects 10,000 nonprofits, which claim they are being told to enforce an illegal and murky rule which they do not have the capability to do.

A study by the Foundation Center in New York City and the Council on Foundations in Washington found that eight out of 10 foundations say the rule that prohibits foundations from funding groups that might have a connection with terrorists has made giving more difficult and especially affects international giving.

Many nonprofits are braced for more cuts in federal funds as the Bush administration grapples with a $500 billion annual deficit. The Independent Sector, a national coalition of nonprofit organizations, says the deficit is almost certain to hurt its groups. On average, it say, nonprofit groups get more than one-third of their money from local, state, and federal governments, a percentage that has been declining in recent years.

And even though the economy has been improving, giving has not kept up. The Salvation Army is reeling from being told by Target stores they may no longer put their kettles outside to target donations from customers.

When 155 major Jewish charitable foundations merged a few years ago, there were hopes for a reinvigoration in giving to Jewish charities by Jews. But that hasn't happened, according to The Chronicle of Philanthropy, which says that younger Jewish adults still are not giving as much as their parents used to give.

Another factor roiling the nonprofit world is that for the fourth year in a row, the proposed Charity Aid, Recovery and Empowerment Act did not pass. It would provide tax breaks for donors of up to $11 billion a year. Some sponsors fear the growing federal budget deficit makes it even less likely the bill will pass next year.

United Way's Mr. Gallagher says that this year's massive and damaging hurricanes have also drawn down funds at a time when such groups as United Way affiliates are struggling to come back from scandal.

Mr. Gallagher also blames the struggle for funds on competition from the rapid growth in the number of nonprofits being formed: 39,000 last year. Daniel Borochoff, president of the American Institute of Philanthropy agrees. "Public distrust heightened by too many bad actors in the nonprofit field cries out for regulatory reforms and increased donor diligence," he said in a statement.

His organization wants Congress to require that charities raising money for a popular cause such as injured firefighters, police, veterans, disaster relief, fighting cancer, or helping hungry or ill children have fund-raising costs of no more than 35 percent a year. The rule would not apply to more controversial causes such as abortion, gay rights, or legalizing marijuana.

His group also wants to require religious charities be subject to the same level of regulation and accountability as secular groups. And all charities raising more than $250,000 from the public would have to have a financial audit, with leaders of the group ultimately responsible, and all audits should be public.

The institute also wants federal regulation for nonprofits, just as business must answer to the Securities and Exchange Commission. Whistleblowers should be protected and the practice of forcing employees to stay quiet about internal wrongdoing should be abolished, the institute says.

A task force of charities plans to lobby the next Congress, which takes office in January, to pass legislation aimed at holding charities accountable for their fund-raising and spending. Mr. Gallagher says the goal is to force bad charities to change or "go out of business."

But United Way opposes changes some reformers demand, such as limiting the size of boards of directors or instituting government-mandated accreditation for nonprofits. "If we go too far, if we micromanage charities, we'll all be hurt," Mr. Gallagher said.

- Ann McFeatters



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