Changing the Rules

Some participants in multimillion-dollar federal charity campaign worry new approach will hurt donations

Some nonprofit coalitions that raise money in the federal government’s annual charity drive are urging Congress to force a federal agency to back away from two controversial actions.

The coalitions said in a letter to lawmakers that they worry changes by the U.S. Office of Personnel Management will weaken the integrity of the Combined Federal Campaign in the eyes of federal employees and might eventually cause them to reduce their contributions.

The government drive is important to many charities: More than $268-million was donated to charities nationwide through the 2005 drive, the most recent year for which figures are available.

At issue is a decision by the Office of Personnel Management to drop its requirement that charities, in order to qualify for the Combined Federal Campaign, must spend no more than 25 percent of their total revenue on administrative and fund-raising expenses.

Under the old rule, any organization that exceeded the 25-percent limit could participate only if it could explain why such expenses were reasonable and submit a formal plan to reduce them.

The agency said the move to drop the requirement stemmed in part from concerns prompted by lawsuits filed in the past over the rule. The government said it also was worried about the overall administrative burden on government staff members who determined if organizations met the rule.

The government noted that a “significant majority” of comments it had received on the issue of overhead expenses had opposed the idea of eliminating the requirement, which covers charities applying for the fall 2007 campaign.

Also at issue is a December announcement by the Office of Personnel Management that it would, by March 30, assign to charities participating in the drive “new, unique” code numbers that are used by federal workers to make their pledges to specific organizations.

The agency said the change is needed to help the government promote future “electronic-giving technology” and to eventually make it easier for federal employees to contribute to charities across the country, not just in the region where they work.

Participation ‘Eroding’

Thomas G. Bognanno, president of Community Health Charities of America, a federation whose national and local members raised $29.2-million in the 2005 Combined Federal Campaign, said in a letter to key members of the House of Representatives that the steps taken by the Office of Personnel Management “will severely hurt” nonprofit groups.

Even though contributions to the campaign have been increasing each year, the percentage of federal workers who give each year has been slipping, he said. “Participation in the CFC has been eroding,” he said. “I fear OPM’s actions will accelerate this disturbing trend.”

Adding to the frustration, Mr. Bognanno said, “is the fact that OPM has not worked collaboratively with these federations even though the charities they represent are long-time participants in the CFC.”

Mr. Bognanno addressed his letter to U.S. Reps. Henry A. Waxman, the California Democrat who chairs the House Committee on Oversight and Government Reform, and Thomas M. Davis III, of Virginia, the senior-ranking Republican on the committee.

Mr. Bognanno said his letter had been approved by other major nonprofit coalitions that raise money through the Combined Federal Campaign — including America’s Charities, Earth Share, and Global Impact — and that he has been meeting with Congressional staff members about the issues.

Mr. Bognanno had asked the Office of Personnel Management in December to meet with his federation and others to discuss the changes.

Linda M. Springer, director of the Office of Personnel Management, said in a letter to Mr. Bognanno this month that she appreciated his interest in meeting to discuss both matters.

But Ms. Springer made clear a meeting was not needed. Making any changes, she said, “would be disruptive to the CFC and would affect the integrity of the CFC.”

Overhead Costs

Mr. Bognanno told members of Congress in his letter that the government’s decision to eliminate the 25-percent requirement on overhead expenses will cause “accountability” to suffer.

The requirement has been a “distinguishing feature” of the Combined Federal Campaign for many years and “gives federal donors confidence that their gifts will be used for services, not overhead,” said Mr. Bognanno.

“Removing this important measure of accountability weakens the program’s integrity and will likely reduce overall donations, as well as the number of federal employees who give.”

He added: “It will also bring into the program thousands of additional charities that are currently ineligible because they do not meet basic requirements that ensure donations go to services.”

After filing a request with the government under the Freedom of Information Act, Mr. Bognanno obtained a 59-page summary of the comments the federal agency had received last year in response to its proposal for making changes to the regulations. The government did not identify the organizations that submitted the comments.

“All of us want to know from OPM: Why did you do this in the first place? And why won’t you talk to the federations of charities about it, when most of them are opposed to it?” said Mr. Bognanno in an interview. “We like this fund-raising standard because most of us are in the business of building relationships with donors, and it is comforting for the donor to know that we’re OK to give to,” he said. “Unless the government intends to compensate charities for any potential loss of donations, or unless it wants to get into the business of doing what charities do in this country, then perhaps it should be more sensitive to what the world of philanthropy is saying.”

Mr. Bognanno said Congress might need to pass legislation to roll back the change as a last resort.

The lawmakers contacted by Mr. Bognanno have not said whether they will take action.

In her letter to Mr. Bognanno this month, Ms. Springer of the Office of Personnel Management said that her agency does not plan to change its ruling on the overhead rates.

“Any changes to the administrative and fund-raising-rate regulation at this juncture would be highly disruptive to the application process, would require a new rule-making process, and will not be considered,” she said.

In the November announcement of its change, the Office of Personnel Management said that the overhead limit was hard to administer because of the “subjective nature” of deciding whether a charity’s explanation of high overhead costs was reasonable and whether its formal plan to reduce the expenses had merit.

“Much of the litigation affecting the CFC in the past several years has centered on this issue, resulting in a substantial resource drain on OPM staff,” the government said.

For example, in 2005 the Make-a-Wish Foundation of America, in Phoenix, won a fight for its national organization to participate in the Combined Federal Campaign after the federal government first said that the organization had been spending too much money on overhead costs and did not qualify for the 2005 federal campaign.

The Office of Personnel Management said it changed its rules because it also “believes that federal donors should have an opportunity to donate to a wide range of charitable organizations and should not be limited in their choices to those charities with administrative and fund-raising rates of a specific rate, so long as the [overhead costs] information is available to them to make an informed decision.”

The government said it would continue its practice of calculating overhead costs of all participating charities and publishing the figures in its annual brochure of eligible charities that is provided to federal donors.

In addition, the government said it will add a statement to the brochure that says the Office of Personnel Management and nonprofit officials remain concerned about excessive overhead costs, and that the “philanthropic community at large” generally considers overhead costs above 35 percent “to be problematic.” The brochure will urge potential donors to make sure “they fully understand” the overhead expenses of charities before contributing.

Counter Proposal

Mr. Bognanno of Community Health Charities suggested the government consider adopting the standards of the Better Business Bureau’s Wise Giving Alliance, including one that requires charities to spend no more than 35 percent of contributions on fund raising.

He said his federation has always been supportive of the government’s handling of the Combined Federal Campaign, and added with a laugh: “You have got to go pretty far to get charities angry when you have taken away a standard as opposed to imposing one.”

The government’s decision on overhead costs also drew praise, however, including support from Patrick Maguire, president of Maguire/Maguire, a consulting and marketing company in Corte Madera, Calif., that works with 15 federations that represent national charities that participate in the Combined Federal Campaign.

Mr. Maguire said donors pay close attention to the overhead-expense figures of charities that are listed in the government’s annual brochure of participating groups and “punish” charities with high overhead.

What’s more, Mr. Maguire said, all of the 27 coalitions of charities that participate in the federal drive “had a full and fair opportunity to participate in the deliberations” with the government that eventually led to the new regulations, and that a majority of the coalitions supported the government’s actions.

Identifying Charities

Mr. Bognanno said that his federation and others understand the need for the government to modernize its operation of the Combined Federal Campaign, and that such a change necessitates altering its approach to assigning code numbers to charities.

But, in his letter to the congressmen, Mr. Bognanno said that changing the codes in the way the government is doing “creates donor confusion and leads to reduced donations.”

Mr. Bognanno said that his organization and the other charity federations have sought to work with the Office of Personnel Management to seek a compromise in the way the coding would be changed.

In her letter to Mr. Bognanno, Ms. Springer of the Office of Personnel Management said that the government had carefully considered “a variety of coding options” and decided to assign new code numbers randomly in a way “that treats all participating charities equally and minimizes confusion.”

“While there may be donors that do identify national/international charities by the codes used in prior years’ CFCs, OPM found no specific evidence that donors focus on a charity’s code in selecting the charity to which they will make a contribution,” wrote Ms. Springer.

Mr. Bognanno told the congressmen that in 2004 the government changed the codes for 112 charities participating in the Combined Federal Campaign of the National Capital Area and that overall contributions from federal workers to those charities dropped by almost 25 percent.

Donors to the Combined Federal Campaign “use these codes year after year when making contributions,” said Mr. Bognanno. “Workplace campaigns in the private sector also use these codes.”

Mr. Bognanno said the government’s announcement that it will assign new code numbers comes too late in the season because many organizations have already produced marketing materials for the fall 2007 campaign using the current code numbers. “There is no time to react,” he said.

However, Mr. Maguire said that the government gave coalitions several years’ notice that coding changes were coming. Moreover, he said that the government once changed the codes for all the charities of one of his clients, Christian Charities USA, and the groups in the coalition wound up raising just as much money as they had raised before the change.

“The truth is that even those givers who give to the same charities each year look up their names and associated code numbers in the campaign’s givers guide first,” said Mr. Maguire.

In her letter to Mr. Bognanno, Ms. Springer said that the federal government’s timing of the changes in code numbers “allows adequate time, in advance of the CFC commencing September 1, 2007, for changes in marketing materials for national, international, and local charities and federations.”

Mr. Bognanno said he hopes members of Congress will persuade the Office of Personnel Management to postpone the coding changes for a year and to work with his and other organizations on a compromise. “Give us time and let us work with you is all we ask of OPM,” he said.

Checking Out Charities

Mr. Bognanno was also critical of the Office of Personnel Management for its recent statement that the government is putting more responsibility on donors to perform research about charities, saying they should turn to watchdog groups for help in choosing organizations to support.

Last year the Office of Personnel Management said, “at the time when the CFC was established in the 1960s, OPM filled a regulatory void by setting standards for evaluating the fiscal accountability and governance of charitable organizations. Today, this role is better served by the industry, its oversight organizations, and the Internal Revenue Service.”

“They are just saying ‘buyer beware,’” said Mr. Bognanno. “But not every federal employee is in an office in Washington, D.C.,” with access to outside advice, he said. “Some are in the military, some are deployed overseas. The government is saying to that employee, Do your own research, take the time to look up on a Web site to see if this is a legitimate charity you want to give to. But why would you do that to a federal employee? Why not just have a standard?”