Bill Aims to Punish Charities with High Fundraising Costs

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April 12, 2011; Source: Statesman-Journal | The Oregon legislature is moving closer to passing a bill that could prove costly to charities that spend too much to raise funds. Earlier this week, the Oregon Senate gave overwhelming approval to legislation that would allow the attorney general to strip nonprofits of their tax-deductible status if less than 30 percent of the funds they raise are spent for charitable purposes.

Attorney General John Kroger has already made a case against charities whose expenses he feels are excessive by listing some 20 organizations that fail to spend at least 65 percent of their proceeds. The bill, that now goes to the House, would give him power to take action against offending charities, which now can only be prosecuted for other offenses, such as fraud.

The bill had the support of all but two of 30 senators. Sen. Ginny Burdick said she voted for the bill because it “targets the worst of the worst,” which is how she characterizes what she says are “non-profits engaged in unethical fundraising practices.”

For one senator, however, her no vote expressed disappointment that the bill does go far enough. Sen. Joanne Verger said she favors requiring charities to spend 70 percent on programs. If passed, charities could still solicit donations, but that money wouldn’t be tax deductible to donors.—Bruce Trachtenberg

  • Scott P Daughtridge

    This is interesting. I wonder if any other state legislatures have or are thinking about proposing a similar bill.
    I also wonder how the organizations in question continue to be approved for funding (grants, donations) if they cannot show that they are using their current funds properly.
    I agree that the government should play a role in holding non-profits accountable is important, but this could establish a precedent of the government holding the tax exempt status over the heads of organizations in order to persuade them to behave in a certain way.

  • Christopher Lytle

    While I am in favor of holding nonprofits accountable, I’m afraid this is an oversimplified and ultimately ineffective blunt instrument to address a complex issue. in 2003 the Illinois Att. Gen sued Telemarketing Associates for excessive costs (Telemarketing Associates was taking over 90% of funds raised for a Veteran’s group). It went to the Supreme Count and failed for a number of good reasons….new nonprofits have higher costs, particularly if their cause is unknown; right of free speech, etc. The point is that measuring effectiveness of donated funds is much more complex than simply measuring how much is spent on program vs fundraising. Those numbers are subject to wild interpretation and misrepresentation. Unless and until there is a concerted effort by the nonprofit sector to measure programmatic impact and effectiveness, which has been done by other industries we’ll be revisiting the costs of fundraising as a yardstick ad nauseum…and have. The stakes are huge given the charitable dollars given and spent. The economic impact and issues related to public trust call for an objective, fair and sophisticated set of standards and metrics to fairly assess performance. How much is spent on fundraising may be one, but alone is woefully insufficient.