By Matt Sinclair and Jeff Jones

Public support figures show decline overall

Perhaps no year in recent history was as topsy-turvy as 2003, and the latest findings of the NPT 100 attest to a tumultuous year for the largest charities in the United States.

This year’s NPT 100 organizations represented more than $45.4 billion in total revenue. Last year, these same groups reported total revenue of $41.2 billion. It’s the public support of these organizations, however, that creates an element of concern. These 100 groups reported public support (corresponding to the first two lines of a Form 990) of $20.7 billion. These same organizations, however, received nearly $22 billion in public support the previous fiscal year.

The decrease in public support is a reflection of people having less money to give due to a shaky economy in 2003. “With a down economy many donors were not able to contribute at levels they had contributed in the past,” said Frank Kurre, managing partner, of Grant Thornton’s National Not-for-Profit Practice. Grant Thornton helped compile and analyze the NPT 100 numbers.

The overall growth in total revenue owed much to improved investment revenue, largely due to a significant turnaround by Shriners Hospitals for Children, United Jewish Communities and the Salvation Army.

Investment revenue for these 100 groups had been nearly a negative $1 billion in fiscal year 2002. This year, the total investment revenue was more than $2.8 billion for all the groups.

The NPT 100 investment revenue figure is based on the sum of four lines of a Form 990, looking at the interest on savings and securities and other investment sales.

Changes afoot

While the total revenue for the top 100 charities rose a robust 10 percent compared to the previous year’s data for these same organizations, the “buy-in” point for inclusion in the top 100 fell below the previous year’s buy-in.

That characterization demands a caveat, however. This year “financial service charities,” specifically Fidelity Investments Charitable Gift Fund, Vanguard Charitable Endowment Program, and the National Philanthropic Trust were removed. The Schwab Fund for Charitable Giving, which had been included in last year’s NPT 100, reported total revenue well below $100 million. It too has been removed from the NPT 100 survey.

The exclusion of these groups says nothing of their place in the charitable sector, though they are not universally loved among other charities. This survey examines groups whose primary purpose is service rather than being a financial conduit to other groups. Discussion of reform of donor advised fund rules appears in a seperate story.

Their exclusion also does not affect the year-to-year assessment of these groups, which are compared to their own revenue and expense data from the previous year.

Growth and stasis

This year the largest group of organizations, the YMCAs, perhaps best typify the difficulty in characterizing fiscal year 2003. Ken Gladish, president and CEO of the YMCA of the USA, sounded as though the 974 independent YMCAs he represents had posted an overall deficit.

He described 2003 as “challenging,” a year in which sustaining high level service amid a demanding operational period, continuing demand for charitable contributions, and the growing disparity of “microeconomic climates” all contributed to the difficulty of further development. “Those climates have produced a wide range of economic environments for local YMCAs,” Gladish said, citing “really outstanding results to very, very difficult times.”

The numbers supported his contention. While the collected revenues of the nation’s YMCAs showed healthy 9 percent growth compared to the previous year, a closer look at the numbers showed barely 1 percent growth in public support, a $3 million increase in government support and a $6 million decrease of investment income (which is not a large source of revenue for YMCAs).

The primary source of the increase was in “other revenue,” a collective hodge-podge of rental income, some special events, and additional sources that don’t fit into the other more-defined areas of a Form 990.

Overall, this year’s NPT 100 organizations experienced a 7.57 percent increase in other revenue, totaling $1.9 billion.

Gladish pointed to a “healthy mix of income streams” including the growth in contributions and endowment gifts as well as more partnerships with local governments and other local charities. “There was growth in almost every one of the categories we measured,” he said.

Another change for YMCAs was in the reporting of the financial figures. In the past, the program service figure has been its largest revenue category. This year, YMCAs showed a clearer distinction between that revenue and membership dues and assessments. “We disaggregated the figures,” Gladish said. “(It’s a) more accurate relationship of the actual income stream.”

Like many in the sector, Gladish said he is looking forward to what next year’s NPT 100 will show for the Salvation Army (SA), when the billion-dollar bequest from Joan Kroc begins to get figured into the picture.

SA experienced a significant positive swing in investment income in fiscal year 2003 from the previous year. Investment income improved to roughly $556.3 million in fiscal year 2003, from a negative $281.3 million investment income in fiscal year 2002.

“The market did have a nice rebound,” said Bill Hurula, national financial secretary, Alexandria, Va.-based national headquarters of SA. “We were able to participate along with everyone else.”

Hurula attributed most of the investment jump to an improved market.

“I would say the run up that we had for 2003 had a lot to do with the overall bounce of the market back, rather than any great strategy change that we made,” he said.

SA had roughly $3.74 billion (fair market value) in investments under management as of Sept. 30, 2003. SA has five investment committees. It has four regions plus a fifth at national headquarters, which has regional representation.

The NPT 100 groups’ less than 1 percent increase in government support indicated government didn’t step in to bail out nonprofits facing increased demands and less public support.

“As a result of deficits faced by many governmental units, many of these entities were not able to provide the social services support at the levels that were needed in 2003,” Kurre said.

On the expense side, NPT 100 groups had administrative expenses of nearly $4 billion, fundraising expenses of nearly $2.3 billion, and program expenses of nearly $37 billion. Total expenses notched roughly $43.2 billion.

The breakdown of roughly 10 percent administrative, 5 percent fundraising, and 85 percent program “shows that the top organizations are doing a pretty good job trying to keep their administrative costs at reasonable percentages, while still providing a high level of program services for the dollar,” Kurre said.

Overall, NPT 100 groups increased program expenses by nearly 5 percent compared with last year, while fundraising expenses remained relatively stable.

Anecdotally, Kurre said, he has noticed that organizations have streamlined special events and cut back on solicitations that weren’t performing well.

“Many not-for-profits boards have been asking, ‘what is the real surplus that is being generated from these development functions,’” Kurre said. “There has been some retrenchment over the past two years.”

As for assets, NPT 100 groups posted a total net change in net assets of $4.3 billion. Unrestricted net assets were roughly $28.6 billion, temporarily restricted net assets came in at $7.3 billion, and permanently restricted assets were $6.3 billion.

Mindful that not all organizations, particularly the largest ones, report these numbers, Kurre said, the numbers indicate that nonprofits are moving away from building endowments and toward seeking money for general purposes.

“They’re really focused on the un-designated money,” Kurre said.

Elsewhere, Lutheran Services in America (LAS), which for many years had held sole possession of the top spot, has been unable to complete an adequate survey of its system and no longer appears in the NPT 100 listing. Last year, its internal survey was completed primarily by its hospital affiliates, which tend to raise funds through program service revenue, and LSA could not show the requisite 10 percent minimum in public support.

This year, the organization was unable to report at all. In a letter to The NonProfit Times, Jill Schumann, president and CEO of LSA, said that after a few years of baseline snapshots of its network of nearly 300 organizations, “we have determined that the expense and effort of surveying annually is not a good investment. Instead, we will be focusing on broader information collection efforts within our network and using a variety of survey tools and formats.”

There’s little doubt the LSA network continues to generate multibillions in revenue, and when possible we will continue to include it in the NPT 100 list if it qualifies.

There was a resurgence of sorts this year as well. Catholic Charities in the USA submitted updated figures to the fiscal year 2000 data included since 2001. Not only was it able to report fiscal year 2002 data, it also included 2003.

Despite a sluggish economy throughout most of the time period of these organizations’ fiscal years (which are defined by each organization, and thus not standard among all groups), several organizations posted significant growth.

Looking at traditional categories of nonprofits, organizations that respond with food and other forms of relief showed significant increases. In-kind organizations, defined as those who received at least half of their public support through non-cash gifts, collectively posted 22 percent growth in total revenue. The biggest boost came from the AmeriCares Foundation, which showed growth of nearly 69 percent. The $284 million it raised above its fiscal year 2002 total revenue was literally half the increase of the eight in-kind groups together.

The 12 other relief groups also posted notable increases in total revenue, up 17.4 percent from the fiscal year 2002 figures for the same organizations. Catholic Relief Services, however, accounted for more than a third of the increase in revenue, nearly doubling its fiscal year 2002 total revenue. America’s Second Harvest (-4.1 percent) and the International Rescue Committee (-4.9 percent) showed decreased total revenue.

Religious organizations, which frequently conduct relief as part of their missions, also showed healthy growth of 9 percent (not including Trinity Broadcasting Network, which was still finalizing numbers at press time).

The overall decline posted by the six conservation groups is misleading. It’s all due to the more than $210 million decrease The Nature Conservancy (TNC) showed compared to its fiscal year 2002 numbers. Removing TNC from the calculation, the other conservation groups increased total revenue by $144 million, 26.6 percent growth.

Even the human services category, which includes seven of the top 10 groups, had its growth masked by the declining total revenue of one group. Removing the American Red Cross’s more than $1 billion decline compared to its fiscal year 2002 figures (which included September 11 giving), the 20 other human service groups grew 9.5 percent in total revenue – better than the modest 3.25 percent they otherwise show.

There are only eight education groups among the NPT 100 this year and only two within the top half. Yet four of the groups showed a decrease in total revenue compared to the previous fiscal year. Collectively, the groups posted an 8.1 percent decrease.

Indeed, the most sizable growth among these groups occurred for New York City-based Sesame Workshop. Its $67.5 million increase in total revenue was largely due to a $61.2 million gain from a venture the organization had previously entered into, and divested, in 2003, said Allan Gaherty, vice president and controller. Gaherty declined to give additional details citing a confidentiality agreement.

Civic and cultural groups also struggled through fiscal year 2003, with seven of the 13 groups showing decreases compared to the previous fiscal year. Collectively, their total revenue fell more than $392 million -- 14 percent less than what these groups reported the previous year. This category tends to swing wildly, however, as a year’s revenues often depend on successful shows or exhibitions.

Only the Metropolitan Opera Association, the National Art Gallery, The Carter Center, and National Public Radio showed increases in public support in fiscal year 2003. The NPR figure does not include its $1.5 billion Kroc bequest.

The Carter Center, which works toward peaceful resolutions to international conflict, has understandably seen its profile and revenues increase as the war on terror has expanded, particularly with the invasion and occupation of Iraq in 2003.

Health groups posted a gain of roughly $2.3 billion in total revenue largely due to Shriners Hospitals for Children’s $2 billion jump in total revenue.

Excluding Shriners, health groups’ growth was 4.14 percent or $239.5 million compared with last year.

In addition to those organizations that were dropped from consideration, some organizations fell out of the 100 because they failed to raise enough or because their public support level failed to reach at least 10 percent of their total revenue. The United States Olympic Committee, Robert W. Woodruff Arts Center, Local Initiatives Support Corporation, Twin Towers Fund, N.Y. Firefighters’ 9/11 Disaster Relief Fund, failed to raise enough. The Academy for Educational Development did not raise 10 percent of its total revenue through public support.

The NPT 100 welcomed several organizations either debuting or returning to the list. Direct Relief International of Goleta, Calif., made its debut as did Catholic Medical Mission Board (CMMB), based in New York City. While CMMB had been close to the edge of the barrier, Direct Relief showed a significant increase in revenue to crack the top 100.

Also returning were organizations such as the World Wildlife Fund, Museum of Fine Arts, Boston, Billy Graham Evangelistic Association (which changed how it reported its revenue), Rotary Foundation of Rotary International, The Carter Center, the National Gallery of Art, the Trust for Public Land, Wildlife Conservation Society, and Sesame Workshop.

By far, the most dramatic reversal came from the investment figures of The Shriners Hospitals for Children. Having posted negative total revenue in fiscal year 2002, the nearly $1.4 billion it reported for fiscal 2003 represents a $2 billion swing. The organization’s total revenue remains closely connected to its overall investment picture.

In general, switching investment managers has been a contributing factor of the investment income jump for all NPT 100 groups, according to Kurre. Grant Thornton has seen many of its nonprofit clients reassessing their investment managers’ performance over the past three years, Kurre said.

A large movement by organizations to change their investment managers could result in realized investment gains because some investment managers force organizations to sell their portfolio so they can re-invest based on their formula, Kurre said.

Another oddity of this year’s NPT 100 occurred during the collection itself. While obtaining the data is never a simple process, this year two organizations acknowledged internal debates over generating system-wide data to be used in this annual survey of America’s largest charities.

The nearly year-long process of data collection for this annual report covers the national systems of the organizations. For most of these organizations, these are consolidated figures of independent, separately incorporated organizations.

While the dollars raised at a Seattle chapter of Brand Name Charity likely mean nothing to its related chapter in Oneonta, N.Y., developing the scope of what these 100 organizations can do in the field is valuable. To borrow from a political adage: A billion here, a billion there, and pretty soon we’re talking about real money.

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