Watchdog group says agency spent too much on fundraising and hasn't brought in enough money to sustain itself. United Way says rating is based on old data, and it has improved.
Syracuse, NY -- The United Way of Central New York closely scrutinizes the finances of area charities to make sure donor dollars are used wisely.
But the agency’s own financial performance has not passed muster with an independent charity watchdog group, which says the United Way has spent too much on fundraising and hasn’t brought in enough money to sustain itself over the long term.
The local United Way was given the lowest ranking possible, a single star, by Charity Navigator. The independent nonprofit evaluates more than 5,000 U.S. charities based on their annual IRS form 990 tax returns.
The one-star rating, which means “poor,” is given to charities the group says perform far below industry standards and below nearly all comparable charities.
United Ways in Buffalo, Rochester and Albany all received three- or four-star ratings, which mean “good” or “excellent.”
Frank Lazarski, president of the United Way, said the low rating primarily reflects a sharp downturn in contributions triggered by the recession.
Lazarski said the local United Way — which collected more than $8 million last year to fund 39 agencies that feed the hungry, shelter the homeless and provide other human services — has already made changes that he hopes will be reflected in an improved rating next time around.
The watchdog group’s analysis shows the slice of every dollar raised by the United Way that goes to fundraising costs has been rising. The amount spent to raise $1 was 11 cents in 2007, 12 cents in 2008 and 13 cents in 2009.
The average amount spent by comparable charities in the Northeast was 10 cents, according to Charity Navigator.
Lazarski said he’s frustrated that the Charity Navigator rating is not based on the most recent data available, which he said show the United Way’s finances in a more favorable light.
The United Way’s 2010 fundraising expenses were more than $100,000 lower than they were in 2009, according to its most recently filed form 990.
The agency recently cut its own budget by 14 percent, or $243,000. It has reduced its staff from 28 to 25 and cut printing and other public relations expenses. The agency also has trimmed costs by using fewer paper pledge cards and more electronic pledge cards donors fill out online.
Factoring in those reductions in expenses reported on the United Way’s 2010 form 990, the charity spent about 8 cents to raise every dollar, significantly less than the 13 cents in 2009.
Counting differently
Lazarski said another significant change in the United Way’s 2010 form 990 could possibly lead to an improved rating when Charity Navigator re-evaluates its finances.
Money that donors designate for specific charities has not been reported in the past as part of the United Way’s revenue. The United Way began reporting that amount — $2.7 million — as revenue in its 2010 form 990.
“There used to be a consensus that that money should not be reported because those were pass-through dollars,” Lazarski said. “But we have to earn those pass-through dollars and pay for them.”
Many other United Ways had been reporting that money as revenue all along. The change will make comparisons between the local United Way and its peers fairer, Lazarski said.
Hurt by recession
The United Way’s annual fundraising campaign, based primarily on workplace solicitations and employee paycheck deductions, has been hurt in recent years as the economic downturn has wiped out many jobs in the area.
The United Way is in the middle of its 2010 campaign, which has a goal of $8.2 million. The campaign has fallen short of its goal the past two years, prompting the charity to cut funding to its 39 agencies by more than 10 percent.
“We’re not trying to hide the fact we lost revenue,” Lazarski said. To be as transparent as possible, Lazarski said the United Way posts its IRS form 990 and annual audit on its website.
Charity Navigator says that charities must increase contributions in order to sustain programs and services over time. “The fact that they have less revenue coming in over time makes them a more risky investment for donors,” said Sandra Miniutti, vice president of Charity Navigator.
What’s weighing down the United Way’s rating the most, Miniutti said, is its dwindling pot of revenue or contributions. The United Way’s revenue declined nearly 10 percent over a three-year period from $6.9 million in 2007 to $6.2 million in 2009.
Cushion wears thin
The group’s analysis also shows the United Way’s financial cushion to see it through economic slumps is too thin. It says United Ways and other charities need enough readily available money in reserve, also known as liquid assets, to survive downturns and sustain their services.
Charity Navigator likes to see charities with enough working capital to keep its programs afloat for six to 12 months if giving dries up. Miniutti said the United Way has enough working capital to sustain it for 4½ months.
Charity Navigator says donors should not use its ratings as the only factor in deciding whether to support an organization. It says donors should also seek additional information from charities themselves.
Lazarski said it’s important for people in the community to support the United Way at a time when its agencies are seeing increased demand for services and shrinking revenues. Before the United Way gives out money it carefully examines a charity’s finances and services.
“The real difference with the United Way is people know what their dollar is buying,” he said.
--James T. Mulder can be reached at 470-2245 or jmulder@syracuse.com