Posted on January 2, 2007

Charities Make Case for Funding Administrative Costs

After years of listening to donors insist that the funds they donate should be devoted exclusively to programs, a growing number of nonprofits are trying to convince donors that spending money on overhead isn't necessarily a bad thing, the Wall Street Journal reports.

Often influenced by charity-watchdog sites, many donors have become extremely selective about the kinds of charities they will support, often supporting only those which spend a tiny fraction of their budget on administrative costs. Charities have countered by seeking gifts specifically to help fund overhead, arguing that such gifts are vital to their ability to grow, attract quality staffers, and deal with rising costs. "The key," said Eric Schwarz, CEO of Citizen Schools, Boston, "is you don't call it overhead. Talk about metrics. Show that to get even better results and expand to reach more kids we need to invest in our team."

Still, asking donors to support administrative costs is a tough sell — no matter how its packaged. According to a new study by the Center for Effective Philanthropy, 49 percent of foundation CEOs said they prefer to make grants that support specific programs rather than provide general operating support — in part because it's easier to track funds allocated to program.

Nevertheless, many philanthropy experts argue that finances are only one measure of effectiveness; donors, they say, should also consider how effectively a charity fulfills its mission. "If a charity spends 80 percent of its expenses on programs, it doesn't necessarily mean that it is doing a better job than one that is spending 70 percent," said Bennett Weiner, chief operating officer of the Better Business Bureau Wise Giving Alliance. "Charities are more than just financial statements, and people shouldn't make donation decisions solely on financial statements."