She needs no introduction. My mom knows of which she speaks.
I’ve spent nearly 25 years managing grantmaking for a large private foundation and administered over $200 million in grant funds. The grants ranged from $1,000 to many millions of dollars. But making these grants was not much different than making ordinary individual charitable contributions, except for the zeros.
What did we look for in a good grant request? Because the rules for private foundations are so rigorous, we first made sure the grantee had a current IRS letter that said it was recognized as tax exempt under Internal Revenue Code Section 501(c)(3). The individual donor should also look for 501(c)(3) designation. That means that the organization does not pay any income tax and that donors may deduct their contributions from their taxable income. If there are any questions about tax deductible status, the IRS publishes a list of recognized organizations. It’s a bit cumbersome to search, but begin by visiting the IRS website and search for “Publication 78”. Or use this link. (NOTE: Churches do not have to have an IRS letter. Also, contributions to subdivisions of the state or federal government are deductible as long as the gifts are made for “public purposes”).
Next, think about what you want to accomplish. Do you just want to provide general operating support to an organization because you love the good work that it does? Then that gift is easy to make. But you may want to look at its financial track record first. You can look up its IRS Form 990 on the web at Guidestar. This is the information form it files each year, and it includes total gifts and grants received for the year, program service revenues (This means the funds it receives for doing its charitable program. For example this would include admissions from a museum, tuition for a nonprofit private school, insurance and private payments from a rehab center, etc.), investment income, and all expenses. The 990 also includes a list of the members of the governing board, the highest salaries, and much more.
There are also a couple of groups that “rate” charities. I’m not providing a link because I don’t always agree with their opinions. But you can search for them on the web easily enough. The primary problem I have with them is that they get really excited about high fundraising costs or high administrative costs. I look for these characteristics also (especially high salaries), but sometimes there’s a good reason for them. An organization that starts up a big fundraising campaign for a new building, for instance, might spend a lot of money up front in one year for consultants, printing, etc. Same with an organization that raises most of its money from direct mail solicitations. That’s an expensive way to raise money, but it can also mean survival to certain organizations. And an organization that uses volunteers heavily in their programs may appear to have a high overhead or administration ratio. But that’s because they don’t include the in-kind contribution of the volunteers. Locally, I see a free health clinic that spends most of its money on the executive director and a couple of staffers. If you used ratios to evaluate its operations, it would fail all the tests. But all the direct service is provided free by doctors, dentists, and allied health professionals. It is a very efficient organization. So instead of using ratios, I like to use good sense!
What else do I look for in evaluating a grant request, after I’ve confirmed that it has met the tax requirements? First, I evaluate the viability of the organization. I look at its operations and try to figure out if it will be operating for many years to come, especially if the grant is for a project with a long life (e.g. building or endowment). Does it have a good operating track record? Does it seem to have a good donor base? Is it spending money efficiently? Then I look at the project. Is it a project that I like? Does this seem to be the right organization to be doing this project? Is the project well planned? Will the organization be able to achieve the goals it has described? If the project is new, does the organization have the right people in place to make it successful? You would be surprised at how often an organization that is barely “making it” will strike out on a new expensive project without the funds to be able to see it through. And sometimes it works. Sometimes the new program area boosts the rest of the programs. But oftentimes it just sucks more of the resources out of the successful programs than can be sustained. Again, try to use good sense (which can really be hard when you have a real soft spot for a program).
Managing a nonprofit organization is very hard, and it’s especially hard to evaluate success. Sometimes executive directors engage in “empire building”, thinking a bigger organization with more employees is a good measure of success. Sometimes organizations try to run too many people through its programs, thinking a high head count is more impressive than a smaller head count with better outcomes per person (it’s easier to count heads than evaluate individual outcomes). Sometimes a governing board skimps on fundraising costs, maybe not hiring a development person (the fundraising person) when he or she would really raise many more dollars than the cost of the salary. Sometimes the governing board just isn’t paying attention. They don’t ask enough questions, don’t require current accurate financial information, because it’s easier to just listen to a glowing report and go home.
So how can you pick out a good cause when you don’t already have something in mind? Look for one that you know about personally or can find out about (e.g. a friend that uses their services, is on their board, or is a regular donor). Or look for one with results you can see (a local arts program or homeless shelter). Or look at other donors to the organization. Institutional donors (private foundations, corporations) usually have done the due diligence for you. Look at the donor lists in the IRS Form 990-PF of private foundations that fund the kind of projects you like (hello, Guidestar). Look at the corporate support placards at fundraising events. And then follow your heart.
*
Can you see how much I've learned from her? This is one of the most important posts that has ever appeared at Hollywood Housewife. I hope that you've learned something to help with your charitable giving decisions.
This has been part of my {Housewife Heart} series, dedicated to learning more about charities and the ways in which we donate. If you haven't yet, please vote in for the recipient in the Housewife Heart project. Voting ends Saturday.
Photo by Vince Alongi
