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By Matthew Sinclair One-third declined in total revenue Americans have debated when the economy started to tumble. Was it when the Internet stock bubble started leaking in 2000? Was it in early 2001 when the recession "officially" started, according to the definition of three consecutive down quarters? Was it after the devastating attacks on September 11, 2001 knocked the global economy for a loop? If the 100 largest nonprofits in the country influence the debate, a strong evaluative tool would be the financial data covering the fiscal year that began on July 1, 2000 and ended June 30, 2001. Most of this year's top 100 organizations hold to that fiscal year, and the 100 organizations collectively grew only 2 percent. Comparatively, from FY 1999 to 2000, total revenue for these organizations grew nearly 20 percent. Robert Leavy, national managing partner for nonprofit industry practice at the Boston office of accounting and management firm Grant Thornton LLP, which helped compile and analyze the data again this year, said things may get worse before they improve. He noted that organizations saw their total assets and the value of their investments plummet, which could pose all sorts of challenges for the future. "This is the first year we're seeing endowments fall below the original corpus," he said. "The accumulated gains have been lost." Generally, with an endowed fund, organizations can only spend from the income it generates or just a portion of it. "The corpus of a truly endowed fund would be inviolate from spending, but not inviolate from market conditions," Leavy said. Many major gifts given during the economic expansion of the 1990s, without the benefit of decades-long exponential growth, are now valued at lower amounts than when donated, and organizations may feel programs get pinched. "Organizations are now dealing with issues like this because of the market decline," Leavy said. By far, the most influential organization on the list's slowdown this year is the Salvation Army (SA). Removing its nearly $1 billion decline in total revenue (a direct result of investment income decline) the remaining 99 organizations would have shown an increase of 4 percent in total revenue. Clearly, however, the days of the NPT 100 organizations posting overall jumps of 10 percent or more, as occurred for the past several years, are a thing of the past. To be included in the NPT 100 - at 14 years, the oldest annual ranking of charities in the country - nonprofits must raise at least 10 percent of total revenue from public sources, such as individual donors and foundations. The list does not include groups that predominantly issue grants, such as foundations and United Ways. The public support figure used is a combination of both "direct" public support and "indirect" public support, which can include foundation grants and government contracts. Organizations must, therefore, derive less than 90 percent of revenue from program services, government grants, investments, etc. This year the "buy-in" for inclusion is more than $96 million, nearly $5 million more than the number 100 slot last year. The editorial staff of The NonProfit Times triple-checks the data, which was compiled with the help of the Boston office of accounting and management firm Grant Thornton LLP. Data were gathered through an exhaustive, year-long examination of Form 990s, audited financial statements, annual reports and personal contact with several hundred organizations. Whenever possible, the data is taken directly from the Form 990s. Since many religious organizations are not required to file 990s, the data was derived from the audited financial statements. The information is also double-checked and confirmed with the organizations, which has led to restatements from published 990s. The good news from the NPT 100 data for FY 2001 is that almost two-thirds of the 100 organizations posted positive growth despite weak economic conditions. Yet, the one-third that declined included six organizations posting decreases of at least $100 million. SA's $917 million drop in total revenue was almost entirely as a result of investment woes of the fiscal year. While some of the initial stream of post September 11 donations were part of its public support, the downturn in the markets made its impact known. "It's an unrealized loss," said Don McDougald, national treasurer and secretary for business administration at SA's national headquarters in Alexandria, Va. "It's a paper loss in all four territories that we're required to book. I spoke with two of the finance secretaries. They have not actually sold any stock. So we have no realized loss. … Our expectation is that we'll see improvement in the stock market and that will disappear." McDougald explained that with five different investment programs (the four territories and the national headquarters) each is unique and has different allocations and portfolios. He's not expecting those unrealized losses to turn around quickly. "What I hear is we're not going to see a complete recovery for 10 years," he said. "That's not an informed judgement. … The finance secretaries will be meeting in January to review the whole position and determine if we need to have a change of strategy or just where we're going to go." Of course, the loss in total revenue in fiscal '01 affected programs, though the devastation of September 11 brought a stream of gifts. "(Donors) plan to make a gift of X dollars for the Salvation Army designated for the disaster work and don't make the donation to continue the ongoing support. So, we do get hurt a bit," McDougald said. "As of last September we had not seen that. We had not been impacted by those decisions. But since then it is having an impact, although Christmas was very good." Traditional categories Health organizations, the second-largest category behind human service, were decimated by the market, as it dragged the total revenue to $416 million less than what these 20 organizations posted in FY '00. Investment income for health organizations declined 84 percent. The news wasn't all bad, of course. Conservation groups showed an increase of 11 percent in total revenue, despite seeing investment income fall 54 percent. In particular, public support (up 23 percent) and program services (up 29 percent) helped conservation groups overcome the market's woes. Cultural groups saw revenue climb a more modest 6 percent, as public support revenue and government grants hung in the 35 percent growth range. The public support figure is deceiving. Without the $384.3 million increase enjoyed by the Metropolitan Museum of Art, the category would have shown a decline. The 2 percent growth for the 100 would likely have been even smaller except for the Lila Acheson Wallace Fund's decision to close, which pushed hundreds of millions into a couple of these organizations. The Wildlife Conservation Society, for example, issued a new Form 990. It originally reported its total revenue was a healthy $9 million more than FY '00. It now reports growth of nearly $200 million. Among the smaller categories, relief groups were able to withstand a 68 percent decline in investment income through an almost equal increase in program service revenue. On the whole, the eight organizations showed an 8 percent increase in total revenue. Religious groups actually posted 34 percent growth in investment income, though at 3 percent, revenue from their investments is a small part of their total revenue. The 4 percent ascent in public support was a better indicator of what moved those groups in fiscal '01. Educational groups could only depend on the kindness of friends. The nine organizations that make up the category -- including returnees The Carter Center and Local Initiatives Support Corp. (LISC) -- collectively showed declines in government support, investment income, membership (earned) income, and program service revenue. The change in their public support ($127 million) was greater than the change in total revenue ($108 million). Debuting or returning to the NPT 100 this year are: WGBH Educational Foundation; Institute of International Education (IIE); Sesame Workshop (formerly known as Children's Television Workshop); Schwab Fund for Charitable Giving; The Carter Center; New York Police and Fire Widows' and Children's Benefit Fund; and LISC. IIE is unique in that its public support figure derives predominantly from "indirect" revenue. James Lapple, the vice president for finance and administration, said the strong growth in indirect public support is from government contracts with the state department and U.S. Agency for International Development (USAID). "They're not contributions, they're contracts," he explained. "It's the way our auditors present it." The organization's 15 percent growth in total revenue was spurred by the increase and expansion of those government contracts, Lapple said. "There's also foundation work in that line," he added, referring to line 1b of the Form 990. "I'd say it's 70 percent U.S. government (contracts), 30 percent foundation." Organizations with large numbers of affiliates, particularly those in federations, appear to be having increasing difficulty in compiling a system-wide figure. Such federations also have caused some confusing data in the accompanying charts. Because affiliates can apparently be inconsistent with allocation of revenue, the national organizations might assign it to different categories. So, while the total revenue figure is correct, the break out categories do not always "foot" across. As in past years, footnotes were added for those organizations whose data included such confusing reports, such as Goodwill Industries International. Human service organizations would have posted a loss in their investment income even if the Salvation Army hadn't been factored into the equation. As a group, these 22 organizations -- including newcomer N.Y. Police and Fire Widows' and Children's Benefit Fund (NYPFW) -- posted an increase of more than $270 million in total revenue compared to the previous year. NYPFW represented more than 35 percent of that growth figure, however. Fiscal 2002, which includes the entirety of the American Red Cross's Liberty Fund and much of the public support boost the Salvation Army experienced post September 11, should show an interesting swing in the category's figures. NYPFW follows a calendar year for its fiscal year. The organization received thousands of donations as a result of the terrorist attack in New York -- raising more than $97 million in less than four months for an organization that hadn't reported any "public support" on its form 990 the year before. The organization, started in 1985, paid for funeral services and sent an annual check to some 430 "historic widows" of police and firefighters who died in the line of duty prior to September 11, said David Golush, the treasurer. The organization had been looking to build its endowment to $10 million so it could send widows $2,000 a year and not hold fundraisers. Having cancelled its endowment plans, the organization now has a reserve fund of $7 million, which will take care of expenses. After September 11, the organization had 731 beneficiaries and eventually raised some $116 million (including almost $20 million in 2002), Golush said. Officials polled major donors and also sought legal help about its next step, Golush said, and the organization eventually decided to distribute $118,000 to 9/11 beneficiaries (approximately 300) and $38,000 to "historic" widows. Come October, 2003 all will be on equal footing and will receive $12,000 a year for seven years, Golush said. Leavy noted that there's been a dramatic drop in investments as a percentage of total assets. "It was 38 percent of total assets in 2001, where in the prior three years it was 53, 54 and 51 percent (for those that can be calculated)," he said. "That goes to the resources these organizations have going forward to sustain or increase programs. … Spending policies don't differentiate between realized and unrealized." The decline in the stock market has a "double whammy effect," Leavy said. Previously, donors had more wealth from which to give, so organizations' public support and investment incomes grew. "Now those same folks are frightened for their own retirements. … Their 401(k)s are down. Those same people are not going to be in the same position to make gifts." Though he didn't want to sound gloomy, "I think this is only going to have a compounding effect on the abilities of organizations to fulfill their missions."
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