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Seattle Nonprofit Veteran Says Push To Cut 'Overhead' Starves Charities

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If you’re a shareholder in a company, you probably want that business to run as efficiently as possible. Lately it’s gotten easier to apply that mentality to nonprofit charities, too, with online rating sites that score charities on how much of your gift goes directly to the mission, and, in some cases, call out organizations with high overhead.

It sounds like a smart way to give, but Eric Walker says it’s a troubling trend.

“Wouldn’t that be a good thing if 99 cents of my dollar went to the soup in the soup kitchen?” Walker asked. “The problem is there's a whole bunch of work to put that soup in the pot and get it to the soup kitchen that there’s nobody to pay for.”

The longtime executive at the Seattle-based aid group PATH and current advisor to the Charity Defense Council visited KPLU to talk with Tom Paulson of Humanosphere.org.

The Right Ratio

Walker said the push is coming not only from small donors and the movement to comparison shop among charities. Now large private foundations, who are picking up more and more of the tab in international aid work, are imposing restrictions on how much of their grants can be used to fund overhead.

The Bill and Melinda Gates Foundation cap overhead and other “indirect costs” at 15 percent of a grant. Other foundations require even more austerity, limiting overhead to 10 percent.

The trouble is, said Walker, that’s simply not enough money to fund a healthy back office.

“It takes about 25 cents on the dollar at minimum to have a robust, sustainable organization that is not only solving the old problems, but helping to figure out how to solve the new problems,” he said.

He said what may seem like bloat or bureaucracy to some often includes people that make an organization run, like accountants and receptionists. And starving administration leaves fewer resources for strategy and planning.

“This is a complicated enterprise that requires enough support to be there for the long term,” he said.

'Starvation Cycle'

Walker said many nonprofits simply accept the restrictions and find ways to make it work. But he said that can lead to a “starvation cycle” where every cut to so-called “overhead” puts the organization deeper in a hole: They need more money, but the available grants require even further disinvestment in the organization’s health.

“It’s like being on a diet and never getting off of it, and you end up wasting away,” he said.

Some of the charity evaluators have begun to rally to Walker’s point of view. Last year three of the nation’s biggest evaluators, Charity Navigator, Guidestar and BBB Wise Giving Alliance, wrote an open letter denouncing the “overhead ratio” as a poor measure of a charity’s performance.

And Walker said he hopes big foundations will get the message as well.

“They only want to pay for this narrow strategic path to success,” he said. “And things like staff development, strategic thinking, opportunities for people to shadow professionals in their job, et cetera, just don’t get done.”

This interview was excerpted from a longer version at Humanosphere.org.

Gabriel Spitzer is a former KNKX reporter, producer and host who covered science and health and worked on the show Sound Effect.
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