Frequently asked questions about United Way of Lane County’s Charity Navigator Rating
A recent article in the Eugene, Oregon Register-Guard newspaper (April 11, 2011) focused on United Way of Lane County’s current Charity Navigator rating which shifted from four stars to two. While Charity Navigator does not claim that its system measures organizational effectiveness, this shift has raised some questions. The Register-Guard editorial board answered many of those questions with an April 12, 2011 editorial piece entitled, "United Way's two stars."
Doug White, of NYU Heyman Center for Philanthropy and Fundraising and designer of Charity Navigator's rating formula contacted us in regards to the above noted Register-Guard article and the negative consequences of depending on Charity Navigator ratings. His message and contact information is available here.
Simple rating systems used by sites such as Charity Navigator have come into question over the past few years. This article from Wise Giving: Spring 2011 discusses how to review what really counts in your charities. More information and charity ratings can be found on www.give.org, the Wise Giving site of the Better Business Bureau.
1. Why did the United Way of Lane County Charity Navigator rating drop from four stars to two?
The main reason for this shift is what you might expect – the economy. United Way of Lane County (UWLC) depends on workplace and community donations to support a countywide system of support that includes 61 programs in 44 local agencies as well as a range of community projects such as free tax assistance, the 211 call center, Days of Caring, Project Homeless Connect, and more.
The “great recession” ushered in an alarming rate of closures and downsizing among Lane County workplaces. As a result, we saw our annual campaigns going down rather than up for the first time. In spite of that, United Way volunteer leaders were committed to assuring that support to our partner agencies would continue. To do so meant that, along with United Way staff cutbacks and overall belt-tightening, we elected to draw from our undesignated reserves.
It was the revenue decline along with our reserve reductions that most strongly influenced our recent Charity Navigator rating. (NOTE: While our undesignated reserves have been utilized, our Board-established Emergency Reserve Fund remains untapped. See Question #7.)
2. Wouldn’t one solution be to distribute less to the community and keep more in reserves?
UWLC has a reserve fund for a reason – to enable us to continue our work and meet our commitments during tough times. Those times are now. As a stable organization, our reserves were ample to meet the need. As the recession drags on, however, it is clear that we will have more difficult decisions to make.
Our volunteer leaders are sensitive to outside ratings such as Charity Navigator but don’t make decisions to incur high scores. Their decisions are mission-based and aimed at advancing the common good for all of Lane County, not just United Way. .
3. Some other charities kept their higher rating. What’s different for United Way?
Charity Navigator uses a single measuring tool to evaluate over 5,000 charities, IRS Form 990. According to Charity Navigator, this is because, “…it is the only financial statement that charities are required by law to make publicly available.”
The IRS designed Form 990 to “capture the activity” of the organization and thereby provide the IRS with information that helps them to enforce current tax law; it was not designed to provide the basis for “standardized growth measurements.”
Charity Navigator itself reports, “...we do not recommend using our ratings as the only factor in deciding whether to support a particular organization.”
4. If all charities are rated with the same tool then it’s a level playing field, right?
Not exactly. While the comparison tool, IRS Form 990, is the same for all organizations, the information reported on those forms is weighted differently based on an organization’s category.
United Way of Lane County is considered by Charity Navigator to be solely a fund raising organization in spite of the many community programs United Way directly leads. Because of this narrow categorization, our score is most heavily weighted to evaluate our revenue growth (as opposed to the weighting applied to a human service organization, or an educational institution). When our revenue trend declines (as with this recession) our rating will drop.
5. Why aren’t there Charity Navigator points for all of United Way’s community work?
Because United Way’s value to the community does not show up in a simple formula nor can it be reported on IRS Form 990.
For example, in 2009 along with our partners, we organized tax sites that brought $7.2 million into the pockets of the working poor using a $15,000 grant from Wal-Mart and hundreds of volunteer hours. That $7.2 million that went immediately to work in this community by allowing low-wage families to pay rent, buy clothes and food, pay for fuel and more. But it won’t show up in our IRS 990.
The same can be said about the $1.4 million saved in emergency room visit costs by our Medical Access Program. Our financial outlay for this work was quite low but the community impact was significant. Again, that $1.4 million in savings won’t show up on our IRS 990.
6. Does Form 990 measure a charity’s effectiveness or stability?
Charity Navigator admits that using IRS Form 990 as the sole way to determine its one-to-four star ratings leaves out one of the most important measures; that of an organization’s effectiveness. Per www.charitynavigator.org“…, evaluating the effectiveness of a charity's programs is out of our scope. We hope over time to expand the information we provide donors, and that includes developing a methodology for measuring an organization's results.”
It can shed light on the issue of stability but is an incomplete picture. The 990 is a snapshot at one point of time in the life of an organization. United Way of Lane County’s revenue and expenses can swing significantly from year to year. If a large grant is booked, it gives UWLC’s revenue a boost for that reporting year only. If that grant is then paid out to partner organizations over the next two to three years, the 990 reports will appear as if we are engaged in deficit spending.
7. Is United Way of Lane County stable and strong enough to weather the continuing economic downturn?
Yes. Thanks to our highly-regarded volunteer leadership teams and professional staff, your United Way is a healthy organization. We have stayed true to our values of stewardship, leadership, integrity, and responsiveness. Yes, our reserves are modest but adequate to the times. We have adequate cash flow to meet our obligations and have protected our board established emergency reserve.