Uncategorized · December 25, 2022 1

What should we expect from the charities who are asking for our support?

Marty Levine

December 24, 2022

As we approach the end of the year I am besieged as I expect you are by requests for donations. They fill my snail mail and digital in-boxes. And they flood the airwaves making them hard to avoid any time my TV is on.

Two organizations, both asking for donations to help seriously ill children, have been almost omnipresent. Both organizations pull upon our heartstrings with the pictures, stories, and voices of children whose lives are threatened by their illnesses and the struggles of their parents to find a way to keep them alive. And both present themselves as the light in this very dim situation that can only continue to do their work if they can get you and me and everyone else who sees their message to become a donor.

I began to wonder about the story behind these appeals. In a nation in which affordable health insurance and access to quality medical care are embarrassingly problematic, I wondered if these two organizations, seemingly doing great work to overcome those barriers for kids at risk, were another sign of our systemic problems.

But that is not actually their reality. The two organizations are well-known: Shriner’s Hospitals for Children, which stands as number 37 on Forbes’ list of the nation’s largest charities, and St. Jude Children’s Research Hospital which is even larger, ranking third!

But Forbes’ list is only one measure of how effectively they are able to raise funds.

It could be that they raise a lot of money because they are spending it as fast as it comes in to meet the need. But in both cases, that’s not so.  These are not struggling charities whose revenues are facing financial shortages that threaten their very existence.

Rather than spend it on the children and families whose stories they use to tug on our heartstrings, or rather than spend it on the research they also claim to support, much of what they raise goes to further build their reserve funds which are already of reserves of immense proportions.

Saint Jude’s combined financial statement for 2021, the last year available on its website,  shows that they ended that year with revenues exceeding expenses by $2.4 billion. Yes, that is billion! And they had total assets of about $9 billion of which 7.8 billion were held in cash and investments. To put these numbers in perspective, for that year they reported spending $1.2 billion on program services of which about $.5 billion went to patient care, the focus of the season’s blitz of advertising that caught my attention.

The picture for the Shriners Hospitals is very similar. They ended 2021 with a reserve of $10.4 billion which resulted in annual income of more than $1 billion. When that is added to their more than $700 million in bequests, donations, and other annual income streams they were able to end the year having spent $960 million less than they spent on services, management, and all other expenses.

If these were for-profit businesses, these numbers would be signs of great success. But they are not. They are charities. They are providers of medical services to those who may have no other option. Each dollar held in reserve is a dollar that is not being spent to help those they say they were created to serve.

Last year ProPublica gave us some insight into the thinking behind this operational approach as it studied St Jude’s practices. I was interested in how they rationalize such massive surpluses and reserves.

“The hospital said it needs a large reserve because its unique operating model relies on donations to fund annual operating costs. ‘[W]e are highly donor-dependent and subject to the economically driven vagaries of charitable giving,’ the hospital said in a written response to ProPublica questions.

“But the hospital’s reserve is already more than large enough to buffer against recessions and potential drops in donations, said Ge Bai, a professor of accounting and health policy at Johns Hopkins University. ‘They should be spending the money as aggressively as they raise it, but they seem to be hoarding,’ Bai said.

“The hospital said it is also raising billions to fund the construction of new housing and research space, although its plans do not currently include spending any of the reserve on new facilities.”

Protecting an organization from the proverbial “rainy day” when funds are hard to raise and for the possibility that it will need to make future large expenditures is a common refrain in the non-profit world, one I heard often in my years leading JCC Chicago. It is the same rationale that wealthy men and women use to justify their establishing large foundations or Donor Advised Funds from which they distribute funds in a trickle, if at all. 

But how much of a cushion is enough?

That is a question that has no clear answer. The Council of Nonprofits cited Kate Barr, President & CEO, Propel Nonprofits,  perspective to answer to this question. “[E]very nonprofit needs to have adequate cash balances available to support the timing of payroll and other expenses, as well as to pay for unanticipated costs or increases. It’s a myth, however, that a single standard applies for all nonprofits.”

From my perspective, this question can only be answered in the context of a larger consideration. If we refuse to create government-sponsored and financed programs that protect us all – ones that provide access to all of the basic services that I think we are all entitled to –  medical care, food, housing, education, etc., and if we then see the philanthropic community as the buffer ultimate provider of our social safety net, we cannot allow philanthropies to follow the path of St Jude’s, Shriners, or Bill Gates.

But if charities are to be given this role, if we refuse to have our government do what government should do then we need to not look away when we see that charities view their “businesses” as more important than fulfilling their role as a part of the nation’s safety net. Rather than applaud their boards and executives for their skilled management we should ask that,  in return for the favorable tax benefits we give to their donors and for their own ability to operate tax-free, they spend what they raise. We should ask them to take the risk of running without massive endowments rather than ask those they could serve to go without the help they need. .