Do Proposed Regulations for the Combined Federal Campaign Have Any Chance of Ending Fundraising Decline?

There was a vigorous rally in favor of immigration reform outside the Rayburn House Office Building, but the tenor of the hearing held by the Federal Workforce, U.S. Postal Service and Census subcommittee of the House Committee on Oversight and Government Reform didn’t quite have the same electricity. Audience members wore “Save the CFC” pins to demonstrate to subcommittee chairperson Blake Farenthold (R-TX) and his companions that the new Combined Federal Campaign regulations proposed by the Office of Personnel Management threatened the very survival of the nation’s largest workplace charitable fundraising campaign.

That’s really the issue at hand. After years of decline in fundraising and federal worker participation, OPM’s new ideas for reforming the CFC could be taken in two ways: as ideas to give a breath of life to the CFC and make it (and OPM) more effective in generating charitable deductions from federal workers, or as an effort to make the CFC administratively simpler and cleaner, but with little commitment to making it more effective as a tool for charitable fundraising. Or perhaps, like much of the world of workplace fundraising in the corporate sector, which is going by the boards, OPM sees little future in workplace fundraising in federal agencies (and the military) and implicitly sees the regs as a step toward sliding the federal government out of its CFC obligations altogether.

Initially, Rep. Farenthold opened the hearing by himself, as the other members were not yet in the room. He began by announcing that the hearing, which had been scheduled for the entire afternoon, would be truncated to only one hour, due to scheduled votes on the floor of the House. The rich discussion of the troubles of the CFC and its possible futures wasn’t enough to attract committee member participation, even with the hearing’s unexpected time constraint.

The draft OPM regulations, which remain open for public comment until today (July 11th), emerged from a commission convened to reexamine the Combined Federal Campaign on its 50th anniversary. The CFC-50 Commission made a number of recommendations for improving the CFC, but commission participants and federations of CFC-participating charities cried foul when they saw that OPM’s proposed regulations, published in the Federal Register in April, deviated—in some cases, substantially—from the commission’s. A tug-of-war started between OPM, which refused to release copies of the official comments it was receiving in response to the draft regs, and charities, who loudly decried what looked like bureaucratic subterfuge on the part of OPM, running changes that perhaps it wanted to propose all along under the cover of a bipartisan, multisector commission.

When Is a Crisis a Crisis?

Workplace giving has a long history in the U.S., with blue-collar and white-collar wage earners often far surpassing the wealthy in terms of the proportions of their income they devote to charities. Back in the day, workplace giving, often through payroll deduction, was the most significant avenue for charities to reach a broad number of donors. However, with the United Way’s long dominance of the workplace-giving arena and the management of local CFC campaigns, the United Way’s peculiarities took their toll. Its desire to control distributions in corporate workplaces through corporate-dominated boards alienated some donors, who preferred to designate their giving to specific charities that, sometimes, were groups not among the favorites of the United Way and its corporate board members. This led to the creation of local and national competitors with the United Way, and to United Way’s acceding to making designated donations somewhat less onerous. Nonetheless, workplace giving in the corporate sector has been on the decline, with the United Way keeping up its aggregate fundraising totals due to vastly increased solicitations among wealthy individual and corporate donors as workplace donations and donors diminish.

Another factor has been technology. The systems designed and promulgated by the United Way and some of its competitors are no longer quite so essential now that employers and employees can use technology for online donations without having to rely on the United Way. Additionally, the United Way’s accountability problems, ranging from the scandals in the 1990s around CEO William Aramony to the metropolitan Washington United Way’s scandals that resulted in the loss of its CFC management contract in the capitol region, did nothing but harm the process.

At the Combined Federal Campaign, despite an increased federal workforce, total donations have been declining for some years:

Donations have declined in the CFC, despite the size of the federal government. Compared to 2004, there were more federal executive branch and military employees in 2011, essentially comprising a large pool of potential contributors to the CFC:   

The federal workforce is not as large as it was during the Kennedy and Johnson administrations, owing to the spike in the size of the military during the Vietnam War, but it is paid much better, making the declining CFC totals disheartening. A bit more distressing is that the ability of the CFC to generate the hundreds of millions it has despite declining federal workforce participation rates is because of the increasing generosity of the donors who have stayed, giving substantially more per person and making up for the disappearing CFC donors:

Source:  CFC-50 Commission

Compared to a participation rate in the early years of the CFC in which four out of five federal workers donated, the participation rate in 2011 was less than 24 percent—one out of every four employees—and in 2012 plummeted further, to around 21 percent.

Can the Combined Federal Campaign be saved? Should it be saved? For the 24,000 or so charities that get some level of support from CFC donors, workplace giving counts, and workplace giving from federal government employees is distinctive. With their knowledge of what government can and can’t do on its own, government employees bring an important perspective to charitable giving. Unlike those entities that imagine donors assessing charities purely on the charities’ terms, these donors have a tactile sense for the government side of the public service equation, and therefore have demonstrated at times serious commitments to social change organization in their CFC giving.

Perhaps those disappearing CFC donors are not cutting their charitable giving as they leave the federal workplace giving arena, but no one seems to have tested that. The value of workplace giving is not simply that donors are presented with an array of charities that have been reasonably vetted by nonprofit CFC campaign managers. In workplace giving, potential donors are introduced to the potential charities. The ask is made where they work; they get to talk with colleagues on the shop floor or at their desks about potential charitable recipients, and they get involved. For many Americans over the years, workplace giving has been a mechanism not just of charitable fundraising, but charitable education, providing a direct and personal means of interaction for donors and charities.

The downward trajectory of the CFC is seen in fewer donors and smaller total amounts, a combination that leads to a smaller community of donors connected to a variety of public service oriented charities. Whether or not they are giving by clicking donation buttons on the Internet, the diminution of a “donor community” is a serious loss in an increasingly atomized world.

OPM’s Disturbing Strategy

One might think that at OPM, the strategy would be one of “all hands on deck.” Reversing the tide would be paramount. Something doesn’t ring right, however, in the proposed OPM regulations. They seem to spurn the advice OPM is getting from charitable federations that have been longtime CFC participants, as well as the advice OPM got from its own CFC-50 Commission.

There might be good reason for the OPM to be suspicious of some of the advice it gets from national organizations and national charitable federations. A study by one of the federations, the Workplace Giving Alliance, suggested that the participating CFC federations have been less than clear in how much money they take from donations to their member charities on top of the costs charged by the Principal Combined Fund Organizations (PCFOs) that run the local CFC campaigns. In some cases, the regular audits of PCFOs conducted by OPM’s Inspector General have found serious irregularities. The 2012 audit of Global Impact’s management of the National Capital Area Combined Federal Campaign found more than $300,000 of disallowed expenditures by Global Impact for the years 2007 through 2010. That’s an anomaly compared to the solid performance of many other PCFOs, but well publicized and disturbing, nonetheless.

For these PCFOs and federations, running a CFC campaign or soliciting CFC donors for member charities is a source of income—a line of business, in a way. But for the charities receiving CFC donor contributions, the CFC is a means of reaching charitable donors in their regions and, through federations, nationally. Their input seems to have been lacking in the process of generating the regulations. Asking for written comments in response to a Federal Register publication seems to be an ass-backward means of soliciting input from constituents and stakeholders.

Were they part of the CFC-50 Commission that ostensibly led to the regulations? Not all that much, and that seems to be the consensus critique of the OPM effort to fix the Combined Federal Campaign. But even if charities had been aggressively solicited and consulted in the CFC-50 process, the problem outlined by the witnesses before the subcommittee was that the OPM regulation proposals don’t match the CFC-50 recommendations. Why go through the process of having a commission if the commission’s recommendations are going to be flouted by the recipient agency?

In this case, the major areas of divergence between the CFC-50 commission and the OPM proposals center on three issues:

• The Commission encouraged the CFC to use more online giving options for donors, but OPM responded by recommending the requirement that charity lists and pledges be limited to electronic means; that is, Internet-only. Given that significant numbers of employees in some cases make their donations by paper submissions, that would result in a definite loss of donations.
• The Commission encouraged the CFC to work gradually toward mergers of some of the Local Federated Coordinating Committees, a number that has already dropped over the years from more than 300 to less than 200. But OPM is proposing a significant elimination of local campaigns, a shift to larger regional campaigns, and more centralization of functions within OPM itself.
• Out of the blue, with no reference to the CFC-50 report, OPM proposed that participating charities be hit with an up-front, nonrefundable fee so that, rather than a percentage of donations going to PCFO administrative costs, donors would see 100 percent of their donations going to charities.

Other than a vague and unresponsive statement offered to the committee by a representative of the OPM, all of the testimony was critical of OPM’s proposed CFC changes, much like the opening comments of Congressman Farenthold.

Rep. Dave Reichert (D-WA) bemoaned that these regulations were announced without benefit of Congressional hearings, or in some cases, connections to the CFC-50 report. He criticized OPM’s proposed elimination of PCFOs in favor of Central Campaign Administrators and shifting of local campaign committees to regional committees as “impractical and unwise and…only add[ing] to the federal work force and bureaucratiz[ing] a campaign dependent upon the enthusiasm of local federal agencies and staff.”

Ken Berger of Charity Navigator led the charge against the up-front administrative fee, pointing out that to suggest to donors that 100 percent of their donations go to program and none to charity is a falsehood. “The argument that this change will shift the costs of the CFC program from the donors to the charities doesn’t really hold water,” Berger wrote in his submitted testimony. “Much, if not all, of the charities’ money comes from donors in the first place, so when the charity pays the up-front fee for participation, it’s donors’ money that’s being used.”

Debby Hampton of the United Way of Central Oklahoma called out the up-front fee proposal for what it is: “This [proposal] is designed to give employees the impression that there is no cost associated with distribution of charitable gifts to a community. In fact, Mr. Chairman, you will not be surprised to hear that there is a cost associated with operating a charity. This proposal does not shift the cost, it just hides it. This is contrary to our experience that donors value transparency and accountability from charities.” She also pointed out that for individual charities that participate only in local CFCs, an up-front flat fee could knock them out of the game entirely. Hampton was also strong in pointing out the impacts of shifting to an internet-only campaign.

Kalman Stein of EarthShare lambasted the OPM proposal to shift the onus of campaigns from local committees and PCFOs to regional bodies. “Local charity management (PCFOs, currently under the supervision of the LFCCs) would be eliminated [in the proposed OPM regulations] in favor of regional marketing organizations,” he wrote in his official testimony. “This would dramatically diminish the role of local federal employee volunteers to the detriment of the campaign, and OPM would need to create the capacity to manage all fund raising, web development, processing and operations internally, and it has no experience in these areas. Such a radical reorganization of the campaign was not considered or discussed by the CFC Commission.”

Exploring the Mind of a Federal Agency

What is going on in the minds of the OPM administrators? Given the barest of hearings, the subcommittee wasn’t able to do much to plumb the real reasons for OPM’s passing over the CFC-50 recommendations and coming up with ideas that, whatever the self-interest of EarthShare and the United Way, do not make much sense for reversing the long term decline in CFC donations and participation.

Is OPM trying to euthanize the Combined Federal Campaign? Are there believers in OPM that workplace giving is a charitable fundraising technique of a bygone era, that “fixing” the CFC is akin to perfecting the buggywhip? Perhaps, but the OPM strategy seems much more self-interested than that. The OPM’s Fiscal Year 2014 budget justification is all about streamlining operations and cutting costs. The proposed regulations go much further than the FY2014 budget in calling for electronic donations and PCFO mergers, though it does contain the provision for an unspecified upfront CFC participation fee for nonprofits. To an outsider, some of the provisions of the OPM regulations look like efforts to make OPM’s life easier, especially with a very small complement of OPM staff assigned to the CFC full-time, not necessarily to reverse the downward trajectory of CFC donations and participation.

An equally disturbing consideration in the OPM analysis is its lack of consideration of the needs of small charities. Hitting small charities that may receive only a couple of thousand dollars in the CFC seems to be a surefire means of convincing small charities to get out of the game. This would favor large charities, which fits with other parts of the administration’s approach to nonprofits, such as in the Social Innovation Fund. Moreover, pitching an idea that simply camouflages the real costs of charitable fundraising violates any pledge of transparency and honesty that the CFC and its donors rely on. The OPM proposals won’t deceive donors, and might not even deceive Congressional oversight committees.

But therein lies the problem. The committee and subcommittee looking at the CFC are also embroiled in the IRS scandal and several other investigations of the Obama administration. Much of their content is focused on finding political fault and fingering wrongdoers rather than fixing the problem. At the CFC, there is a big problem to be fixed. The CFC-50 Commission provided some ideas on how to address them, but they need testing and analysis. The OPM has leapt past that step to come up with solutions that not only don’t fix, but actually might exacerbate the problem. This is where Congressional oversight is really important. A committee that meets for an hour, in which most members are in-and-out participants, and doesn’t take the time to grill agency staff for what’s really at stake misses the point. Will the subcommittee meet again after OPM summarizes the comments it receives in response to the draft regulations? By all indications, it had better reconvene and dig deeper, else the Combined Federal Campaign might be in line for bigger, more serious problems than ever.