Last updated: September 23, 2022
David Heinen, Vice President for Public Policy and Advocacy
The Center recently learned that some nonprofits have been deemed ineligible for the State Employees Combined Campaign (SECC) because they don’t meet an “efficiency ratio” in the state regulation governing the SECC. The Center is concerned that this rule may limit the ability for some nonprofits to raise funds from state employees through the SECC.
As background, the SECC is a workplace giving campaign that enables state employees and retirees to make contributions to charitable nonprofits that have been approved to participate in the program. State employees can use payroll deductions to make charitable contributions through the SECC. Among other things, nonprofits participating in the campaign must demonstrate that their total fundraising and administrative expenses are not more than 25% of their total revenue. A nonprofit must calculate its fundraising and administrative expenses ratio based on the totals on its most recent IRS Form 990 for management and general expenses and fundraising expenses (for the numerator of the calculation) and total revenue (for the denominator of the calculation). The Center has several concerns about this requirement:
- The 25% cap on the fundraising and administrative expense ratio may be impossible for certain types of nonprofits to meet. Nonprofits that rely heavily on volunteer services wouldn’t be able to include the value of these volunteers in their calculation of their total revenue. Likewise, a nonprofit might spend a significant percentage of its total revenue on administrative and fundraising expenses (potentially much more than the 25% cap in the regulation) if it had its facilities damaged or destroyed due to a natural disaster, if it was undertaking a major capital campaign, or if it had to temporarily cease in-person programs and services during a pandemic.
- Some of the specific components of the calculation are problematic. The terms “administrative expense” and “fundraising expense” aren’t clearly defined in the regulations, and different nonprofits may have very different ways of classifying their revenue in the lines on the 990 that would be used to make the calculation. Also, nonprofit “efficiency ratios” typically use total expenditures rather than total revenue as the denominator.
- The use of this type of “efficiency ratio”, while sometimes helpful in comparing the programs and services of similar nonprofits, can be misleading when comparing nonprofits that provide very different types of programs and services. Some types of nonprofits have inherently higher fundraising and administrative expenses than others, but that doesn’t make them less effective or less deserving of receiving contributions.
The Center is exploring the possibility of advocating for changes to the rule. As we begin working on this issue, it would be helpful to get feedback from nonprofits about whether they have concerns about the use of the administrative and fundraising expense ratio as a prerequisite for participation in the SECC. Let us know if your nonprofit shares these concerns and if you have examples of types of nonprofits that might have difficulty of meeting this ratio in some years.