How well do Nashville-area nonprofits perform?

Sunday, September 26, 2010 at 11:45pm
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Nonprofit bosses making almost as much as the president of the United States. Tax-exempt organizations spending more than a third of their money on overhead and fundraising. Numerous charities posting sub-par scores on a national rating scale.

Is there any excuse for such performance by Middle Tennessee charitable organizations? You might be surprised at the answer.

A comprehensive City Paper examination of all major Nashville charities has turned up numerous examples of seemingly questionable stewardship. And in a few instances, further investigation raises additional questions. For the most part, however, closer scrutiny reveals case after case in which numbers alone fail to convey a full picture of how well an organization is carrying out its mission.

Real or random?

In June, when national rating service Charity Navigator published a report on nonprofit performance in the 30 largest metropolitan markets of the U.S., Nashville ended up in 26th place. Among other shortcomings, the study found that local charities spend a higher percentage of their total costs on fundraising and more per dollar raised than the national norms.

Charity Navigator, based in Glen Rock, N.J., labeled some of Nashville’s best-known nonprofit institutions as middling-to-poor performers. Cheekwood, the Girl Scouts of Middle Tennessee, the Martha O’Bryan Center and Nashville Public Radio each earned just two of a possible four stars under the rating group’s system. The Country Music Foundation, operator of the Country Music Hall of Fame and Museum, got just one star.

In a city whose nonprofits are collectively a major economic force and an important focus of social life — as well as the linchpin of a community-wide effort to recover from May’s flooding — the bad grades arrived with a jolt.

“I think the entire Charity Navigator program is bogus,” said Lewis Lavine, president of Nashville’s Center for Nonprofit Management. “It’s random information, and any use of it does detriment to the sector.”

Charity Navigator bases its ratings on financial data that organizations must reveal every year in a publicly available tax filing known as Form 990. The methodology takes into account ratios that reflect on a nonprofit’s efficiency in spending the money it raises, along with numbers that bear on the solvency and financial health of the entity.

In a blog post earlier this year, Charity Navigator CEO Ken Berger conceded that “critics have correctly observed that CN’s fiscal rating system is one-dimensional and does not tell the whole story of a charity’s value, and therefore can cast in a negative light some nonprofits that are, in fact, doing effective work.” Berger said he and his team had “taken these criticisms to heart” and were revising their methodology in an effort to cover all aspects of nonprofit performance.

That said, the numbers and ratios clearly mean something. Charity Navigator is not the only entity highlighting them: So does the GivingMatters.org charity clearinghouse created by the Community Foundation of Middle Tennessee, which offers a page of financial information on each of about 850 nonprofits in Nashville and surrounding counties. (GivingMatters does not rate the organizations.)

Charity Navigator covers only about 30 Middle Tennessee nonprofits, several of them quite small and of a low profile. To gain a broader view of performance in the local nonprofit sector, The City Paper crunched Form 990 data, primarily gathered from GivingMatters, to identify Nashville’s major charities and evaluate how they are spending the funds entrusted to them.

Our research focused on 32 organizations based in Nashville and neighboring counties that exist primarily to further social, civic or artistic causes. In an effort to maintain apples-to-apples comparisons, we excluded educational and health care institutions. To keep the focus on major charities that raise money from the public, we included only those that had posted revenues of $3 million or more and individual contributions of $1 million or more in at least one of the most recent three years for which numbers were available.

We then analyzed several aspects of the data. Applying Charity Navigator’s current efficiency methodology to the 23 entities not covered by the rating service, we calculated how each would rate if covered. And using executive compensation information disclosed in Form 990, we examined the relationship between pay and performance.

A deep dive into the ratings

Twelve charities merit four-star ratings, according to the calculations, scoring above 38 on Charity Navigator’s 40-point scale. The Community Foundation, which the rating service does cover, comes out on top with a 39.78 — the 11th-highest rating of any nonprofit in the national Charity Navigator database of more than 5,000 organizations. Catholic Charities of Tennessee and the Nashville Alliance for Public Education are close behind.

Anyone familiar with the work of those three organizations will not be surprised at their high rankings. Each is well known locally for its success in carrying out its mission.

Also earning four stars, however, are Easter Seals of Tennessee and Mercy Ministries of America, both of which have experienced serious problems in recent years (see “Paying for poor performance”).

“Nonprofits should be evaluated by their outcomes,” Lavine said. “I think it’s absolutely appropriate to talk about the Easter Seals financial picture during the years it ran up to bankruptcy. That’s a question of management. That’s a question of the board. You look at outcomes, and bankruptcy is a bad outcome.”

Charity Navigator spokeswoman Sandra Miniutti said Mercy Ministries also gets high marks from other rating systems, such as the Better Business Bureau’s Wise Giving Alliance and the Great NonProfits website. “I think that shows that one-dimensional systems do not tell the whole story,” Miniutti said.

At the bottom end of the scale, 10 charities came in with scores that would earn either two stars or just one. Yet close examination of the causes for many of the low ratings revealed circumstances that made their underlying data essentially meaningless.

The Country Music Foundation’s rating was skewed by expenses related to its $750,000 settlement in 2008 with the bankruptcy trustee for the estate of Bob McLean, a museum donor who turned out to be a Ponzi-scheme fraudster. The trustee was required to go after the Hall of Fame for assets funded by the crime, even though it had accepted the gifts in good faith.

In some cases, including the Girl Scouts, high fundraising expenses reflected the amount of executive compensation that an organization chose to allocate as fundraising-related, an accounting issue that can vary widely among charities. In other instances, high administrative overhead costs pulled ratings down but turned out, upon investigation, to result solely from anomalies in how expenditures were accounted for in tax filings.

Marsha Edwards, CEO of the Martha O’Bryan Center, cited another way tax reporting can present deceptive appearances. An apparent deficit sent her organization’s rating downward, but the vagaries of multi-year fundraising were the real cause.

“The law requires us to treat any kind of pledge as cash, but of course it isn’t cash,” Edwards said. “The way our 990 has to be written, it makes it look as though we had a very poor year on the financial side. From a tax point of view, that all makes sense. But it does not make sense as a way to judge organizational efficiency.”

High-paid honchos

The City Paper’s analysis looked at three aspects of chief executive compensation: average total annual compensation for the three most recent years for which numbers were available (either 2007-09 or 2006-08), a comparison of that number with the norms at similar organizations, and the average rate of increase in CEO pay over the three-year period.

Executive pay at nonprofits is a hot topic across the country, with some leaders facing accusations that they have overly enriched themselves at the expense of charitable missions. But Nashville offers no egregious examples in that regard. Most of the CEOs listed in the chart “Comp champs” are paid ample salaries with ample cause.

Alan Valentine has led the Nashville Symphony’s efforts to build the Schermerhorn Symphony Center and a $120 million endowment. With its investment portfolio hammered even before its home was flooded, he has given up a 7 percent contractual bonus and had no other pay hike since 2008. Journey Johnson runs one of the nation’s most successful YMCA organizations. Ellen Lehman has led the Community Foundation since its founding in 1991, and Rick Schwartz has led the Nashville Zoo to a nearly eightfold rise in attendance since it opened at Grassmere in 1997.

Although Charity Navigator’s rating system does not evaluate CEO pay, the organization does publish an annual compensation report that gives the median pay levels for leaders at entities of different sizes in different regions. By those norms, four of the five execs listed by The City Paper are earning well in excess of the norms for the types of charities they are running. Hugh Travis of the Boy Scouts is making more than double the norm while the Scouts’ base of participating youth has been shrinking.

One of these CEOs, the Community Foundation’s Lehman, is actually making slightly less than the median for leaders of large organizations in the South.

The chart (“Over and under”) shows how each CEO pay package locally compares with Charity Navigator’s median numbers.

Measure by measure

Charity performance is clearly hard to define, but in a difficult economic environment that forces nonprofits to compete strenuously for donations, many parties are trying to find effective ways to judge how well charities are doing their jobs.

The Center for Nonprofit Management’s Lavine pointed out that much creative thinking is going into this task of late. The local affiliate of Second Harvest Food Bank, for instance, is now measured by its national organization based on pounds of food given to the poor as compared with poverty rates in its geographical area.

“For those that don’t have easily quantifiable measurements, we are strongly suggesting they find indicators that are,” Lavine said. “Donors in Nashville are starting to look at outcomes. Most of the grant applications that you see now have some kind of output or outcome component to them. You have to give them a report on outcomes before you can get a renewal, for example.

“All of us in the industry are trying to look for ways we can legitimately measure success. It’s not easy.”

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7 Comments on this post:

By: stephfaris on 9/27/10 at 8:29

Thank you for this. After the flood of May 2010 wiped out my home, I found myself requesting assistance for the first time in my life. I'm someone who has worked hard, been responsible, and saved all my life. Every time I heard money was being raised for flood victims, I had hope that I might not have to wipe out the savings I'd worked so hard to set aside...but I was wrong.

Most of the money raised for flood victims went to the Community Foundation, who distributed the money around to various charities around the city. Several flood victims in my neighborhood set out in search of acquiring a few of those funds, and found we were blocked at every turn. Red Cross stops helping eight weeks after a crisis, but they do not stop collecting money. The other charities told us that unless we were low income, we could not qualify for any flood victim money.

In the end, the only money available to flood victims who had good credit and had at least one family member working full-time was in the form of loans, which will be required to be paid back. The most generous offer we were given was in the form of a zero interest loan. We were not interested in going into debt to put a house back together that isn't worth what we owe on it anyway, so we wiped out our savings and will now have to struggle. That's fine...but it was really disheartening to find that when people really needed it, the very charities we'd donated to for most of our lives fell through.

Yes, we wiped out our savings. At least we had that. Some of our neighbors weren't so lucky. We've watched people go $15,000-$50,000 in debt to rebuild a house they will now be forced to stay in for at least 10-20 years. We've seen hard-working, responsible people turned away while Taylor Swift and Ke$ha sang their hearts out to raise money for Nashville Flood Victims. I wonder if the musicians who worked so hard at telethons and concerts all over the city realize the money they raised was mostly given to victims in the form of loans that will have to be paid back.

Hands On Nashville was the ONLY charity that did not disappoint during this time. They were there in the days after the crisis, pulling out drywall and lifting heavy things. Every cent of charity money I give for the remainder of my days in Nashville will go to Hands On Nashville. And never, EVER, will I give to United Way or Red Cross again. Sometimes it takes going through a disaster to find out how a system truly works...but if you think your money is going where it's supposed to be, you might want to do a little research.

By: yogiman on 9/27/10 at 8:31

It is easier to give to someone you know who needs it, rather than give it to someone else to give it to them for you. After all, aren't you going to have to pay them to do it for you?

By: Loretta Bridge on 9/27/10 at 9:43

I too have heard many many Nashville flood victims that say they were unable to get any real help because of their income level was too high, about $45,000 and they did not have
any savings. Sad that these people had given to the United Way other charities through
payroll deductions all their working lives, but when they needed help they could not get any. The Red Cross would not even come into one area because the homes were high end homes. However, one couple I know had just used all their savings to buy and get into their home. I WILL NEVER GIVE TO THESE organizations again either. I will help Hands On Nashville because of just that "Hands On". NEVER AGAIN TO UNITED WAY OR THE RED CROSS.

By: frodo on 9/27/10 at 3:04

Some say that, because middle income people did not receive the help they thought they should get from United Way and Red Cross, they will never give to those organizations again. I suggest we all take a deep breath and consider how this all plays out. Taking care of low income people through these organizations is far more efficient than accomplishing it through bigger government and higher taxes. Starve those organizations and that is exactly what you will get. The current President and Congress is already hostile to nonprofits because these politician/social-engineers want you to give the money to them and not to a nonprofit they cannot control. And, unlike tax receipts, politicians cannot use nonprofit funds to reward key constituents for getting out the vote.

I feel sure Red Cross and United Way would be happy to serve as the insurance policy against disaster for all income levels if we would give them that mandate and increase our giving to them by about 10-fold. And there are some nonprofits who don't demand proof of income before providing help in a real disaster. Second Harvest is one example.

But it all comes down to what you want to pay for and whether you think your money is better spent by Washington politicians or by local nonprofits that, despite their shortcomings in an unprecedented disaster, are run by local boards.

By: yucchhii on 9/27/10 at 4:07

WHY is it that the NASHVILLE RESCUE MISSION, being the BIGGEST "SCAM" in town, and NOBODY seems to want to do a story about that? I'd REALLY LIKE TO KNOW!!! The head honcho there makes cose to $90,000 A YEAR to run a "HOMELESS SHELTER"!!!! The people there get treated like dogs, I wouldn't give their food to a COCKROACH! With the conditions of the place that the HEALTH DEPT has been told about NUMEROUS TIMES about it and yet NOTHING has been done! Hmmmmm, VERY INTERESTING! Channel 5 puts out the commercials about the plave and how they're showing love and care to the homeless...BS!!! Some of the people who claim that the rescue mission did ALL SORTS of things for them in the commercials are either people who work in management or are actors. NONE of those people even stay there...I'VE "NEVER" SEEN ANY OF THEM while I stayed there for ALMOST 2 years! And they "NEVER" had ANYTHING to help anybody get back on their feet. C'mon, That place is sooooo FULL OF BULL, IT'S COMMING OUT THEIR EARS!!!!

By: localboy on 9/28/10 at 11:58

Good story...while each set of numbers has its own story behind it, it's informative to see a compilation in one spot.

By: StacyHarris on 10/18/10 at 10:45

The Country Music Hall of Fame and Museum's one-star Charity Navigator rating is not surprising to anyone who has kept up with how the Country Music Foundation conducts business.

Evidence of repeated scandal, disclosure of which has remarkably remained under the radar, is unsuppressed for all who can stomach it at

http://stacyharris.com/adultery.html

at

http://stacyharris.com/iveykyle.html

at

http://stacyharris.com/ronnie.html

and at

http://stacyharris.com/horsnell.html

Stacy Harris
Publisher/Executive Editor/Media Critic
Stacy's Music Row Report