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Debunking the Overhead Myth

Debunking the Overhead Myth

  • Comments 2
  • Hi Ariel, great article! And timely.

    How do you feel this relates to the new law passed in Oregon today (www.huffingtonpost.com/.../oregon-charity-law-overhead_n_3528295.html) which eliminates state and local tax subsidies for charities that spend more than 70 percent of donations on overhead (management, fundraising, etc.)?

    Are these organizations working with other advocates for the charitable sector, like the Council of Nonprofits, to advocate for change in state capitols?

    Super interesting stuff!

  • The Nonprofit Association of Oregon believes that the solution to the "overhead" dilemma cannot rest on the establishment of a single numerical metric. In fact, we at NAO applaud the Guidestar, Charity Navigator, and the Wise Giving Alliance for helping to shift the conversation through their "Overhead Myth" letter. Overhead is not the ultimate measure by which nonprofits’ effectiveness should be measured. There should never be a ratio that “good” nonprofits spend 65 or 70% (or 90%?) of their revenues on programs. Let's have the debate and reach some agreements in our sector to define impact measures that can demonstrate our effects on society as well as business performance ratios that make sense. Let's adopt some Standards of Excellence of what it means to be a nonprofit along the lines of the initiative that the Maryland Nonprofits and others have initiated. (www.marylandnonprofits.org/dnn/Strengthen/StandardsforExcellence.aspx)

    At the same time, let's recognize that while that discussion/debate is continuing, our sector’s credibility gets eroded every time a new scammer is uncovered collecting donations from well-meaning citizens but then putting only a fraction back into the programs for which they are collecting. It was with this in mind that the Nonprofit Association of Oregon supported HB2060 to set a "floor" based on the current mechanism nonprofits are required to submit to the state for reporting revenues and expenditures. We believe this is a practical approach that does not let the perfect be the enemy of the good. Our Oregon Attorney General is now empowered to review those organizations at the extremes of the overhead ratio as reported in 990s and force them to disclose to their donors that they cannot take Oregon tax exemption. At a time when the status conveyed by the charitable tax incentive is under attack in so many states and at the Federal level, we felt that it needs to be kept sacrosanct to those organizations that are actually providing community benefit.