An attack on common percents

October 18, 2009
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In Friday morning’s session of the Next Audiences Summit, sponsored by the Arts Council of Indianapolis and Next Generation Consulting, speaking Don Pallotta, author of “Uncharitable: How Restraints on Nonprofits Ruin Their Potential” made a compelling case that our priorities are warped when it comes to funding non-pofits.

The biggest problem, according to Pallotta: We put too much emphasis on the “overhead” question.

Overhead, he said, doesn’t take away from the cause—it can be an important part of what creates impact. Pressure to keep overhead down can force non-profits to go without the things it needs to make progress. Plus, he added, it doesn’t tell you anything about what your dollar is buying.

If, he hypothetically presented, 90% of every dollar goes to soup at soup kitchen A as opposed to 70% at soup kitchen B, that does not mean that the first is doing a better job than the second. “If you visit you might find that A is in dilapidated facilities with burned out staff serving rancid soup while B has state of the art facilities, friendly staff, hearty nutritious soup, and great case management. What percentage went to the cause would give you none of this information," he said.

He finds the problem epidemic, noting studies that show that, when asked what information donors want to know, 79% said they wanted to know what percentage goes to program. Only 6% said they want to know if it makes a difference. “We’ve trained people to think the two are the same. If overhead is low, it’s a good charity that’s making a difference. But the level of overhead doesn’t tell you that. We don’t do this anywhere else in the economy. If Jonas Salk spent $10 million to raise $20 million and found a cure for polio, we wouldn’t say ‘This guy has 50% overhead, that’s bad.’ His result is a cure.”

So why do we keep asking it?

Pallotta points to Attorneys General who warn the charitable not to donate to charities that use more than 35% of your money in administrative costs. He points to organizations like Charity Navigator that are constantly quoted in the media but by their own admission don’t evaluate program effectiveness.”

The talk was clear in identifying a problem, but not strong on solutions. Pallotta encouraged the non-profit honchos in the crowd to stop using the word “overhead.” He said we need to build a national database to get narrative information about charities. And he encouraged attendees to “return to our wildest dreams. I the end, we have to have the courage to be true to our most daring ideas…with a focus on vision, this ideology will crumble under the weight of their magnificence and our determination to make them real.”

Your thoughts?

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  1. Aaron is my fav!

  2. Let's see... $25M construction cost, they get $7.5M back from federal taxpayers, they're exempt from business property tax and use tax so that's about $2.5M PER YEAR they don't have to pay, permitting fees are cut in half for such projects, IPL will give them $4K under an incentive program, and under IPL's VFIT they'll be selling the power to IPL at 20 cents / kwh, nearly triple what a gas plant gets, about $6M / year for the 150-acre combined farms, and all of which is passed on to IPL customers. No jobs will be created either other than an handful of installers for a few weeks. Now here's the fun part...the panels (from CHINA) only cost about $5M on Alibaba, so where's the rest of the $25M going? Are they marking up the price to drive up the federal rebate? Indy Airport Solar Partners II LLC is owned by local firms Johnson-Melloh Solutions and Telemon Corp. They'll gross $6M / year in triple-rate power revenue, get another $12M next year from taxpayers for this new farm, on top of the $12M they got from taxpayers this year for the first farm, and have only laid out about $10-12M in materials plus installation labor for both farms combined, and $500K / year in annual land lease for both farms (est.). Over 15 years, that's over $70M net profit on a $12M investment, all from our wallets. What a boondoggle. It's time to wise up and give Thorium Energy your serious consideration. See http://energyfromthorium.com to learn more.

  3. Markus, I don't think a $2 Billion dollar surplus qualifies as saying we are out of money. Privatization does work. The government should only do what private industry can't or won't. What is proven is that any time the government tries to do something it costs more, comes in late and usually is lower quality.

  4. Some of the licenses that were added during Daniels' administration, such as requiring waiter/waitresses to be licensed to serve alcohol, are simply a way to generate revenue. At $35/server every 3 years, the state is generating millions of dollars on the backs of people who really need/want to work.

  5. I always giggle when I read comments from people complaining that a market is "too saturated" with one thing or another. What does that even mean? If someone is able to open and sustain a new business, whether you think there is room enough for them or not, more power to them. Personally, I love visiting as many of the new local breweries as possible. You do realize that most of these establishments include a dining component and therefore are pretty similar to restaurants, right? When was the last time I heard someone say "You know, I think we have too many locally owned restaurants"? Um, never...

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