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Charities find gifts aren't a given

A TIMES INVESTIGATION

On average, for-profit fundraisers keep 54 cents of every $1 they collect. In some cases, nonprofits get nothing.

July 06, 2008|Charles Piller and Doug Smith | Times Staff Writers

But the group came up with that figure by designating most direct-mail and telemarketing costs as "services." The practice is legal if information, such as criticism of pork-barrel projects, is included in fundraising pitches. The American Institute of Philanthropy estimated the actual cost of the group's overall fundraising at 69 cents per dollar.

Some other economic-policy nonprofits steer clear of commercial fundraisers, emphasizing foundation grants and direct contact with donors.

Telemarketing and mass mailings can raise awareness, but "there's always something about it that rubs me the wrong way," said Ryan Alexander, president of Taxpayers for Common Sense in Washington, D.C. "It's important that people know that their dollars are going to the mission."

Joseph Bast, president of the Heartland Institute, a Chicago nonprofit that promotes free-market approaches to environmental and social problems and accepts corporate donations, said he didn't trust telemarketers to safeguard his group's image, especially when returns can be low.

"It's not a very good risk," he said.

Costs and credibility

American generosity has its limits. The charitable pie in the U.S. has accounted for about 2% of the gross domestic product since 1970.

Meanwhile, the number of charities has risen dramatically. More than 1.9 million nonprofits -- one for every 150 U.S. citizens -- fill gaps in government services, give voice to diverse views and compete fiercely for this limited share of donor dollars.

Tax laws, designed to encourage giving, don't take into account how much money reaches the charitable cause. Donors to commercially run drives can write off the entire donation, even if most of it goes to the fundraiser.

Lawmakers periodically have considered reining in the fundraising industry. But the U.S. Supreme Court has limited their options by upholding the free-speech rights of fundraisers and charities.

Recently, public confidence has been shaken by news of inefficient for-profit fundraisers used by police and firefighter charities. And congressional hearings depicted some veterans' charities as little more than shells that enrich fundraisers and executives.

In a national survey conducted in March, 70% of those polled said charities waste "a great deal" or "a fair amount" of their funds.

Charities "may be losing their most prized possession: their reputation for caring," said Paul C. Light, a professor of public service at New York University who wrote the survey and has studied nonprofit governance for more than two decades.

Many charities hire for-profit fundraisers precisely because they need help selling themselves to a skeptical public. They can be "a godsend and a lifesaver," particularly for charities without staff fundraisers, said Diana Aviv, chief executive of Independent Sector, a trade group for nonprofits.

Limited information is available about such firms; most are privately held and many shun the media.

Those that specialize in nonprofits with long-standing patron networks tend to offer better returns. New York-based telemarketer DCM Inc. works exclusively for arts groups, including the Los Angeles Philharmonic, targeting ticket buyers and former donors. It enjoys one of the best records in the business, returning, on average, 72 cents per dollar raised.

"I don't think that telemarketing is a great contribution to Western civilization, but art is," said Phil Miller, DCM's president. "We provide a good service for great organizations."

Even so, many charities get stuck with unfavorable terms.

A contract between Michigan-based TeleService USA and the veterans charity VietNow makes donor lists "the exclusive property" of the fundraiser. If the charity switches fundraisers, it would lose access to past supporters -- the most likely future donors.

TeleService USA, which delivered to its clients, on average, 11 cents per dollar raised, did not respond to requests for an interview.

Hundreds of charities follow the practice used by Operation Lookout, many accepting set-rate contracts that deliver a sliver of gross donations. For small charities, the contracts seem to minimize risk: Fundraisers pay upfront costs, and charities get guaranteed -- if often small -- returns.

But major charities are the dominant users of for-profit fundraising, whether to raise money for basic costs or to expand a donor base. Among 1,614 charities with commercial campaigns registered in California, 100 accounted for 73% of gross donations. Just two, Paralyzed Veterans of America and the American Diabetes Assn., together took almost 14%.

In theory, large charities use for-profit firms more efficiently because they can tap long-standing donor networks. In practice, they do little better than small ones.

Fundraisers for these major groups, meanwhile, reaped a windfall. Those for the 100 top-grossing charities received nearly $977 million, and firms for just the top two pocketed $171 million combined.

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