Charity Overload: It is possible to have too much of a good thing

There can be too much of a good thing in this world--the most recent and well-known example being Twitter. Another example, believe it or not, is the non-profit organization, usually a charity.

For many years and long before I became a lawyer, much less one specializing in non-profits, I wondered why so often after somebody became famous or wealthy, he or she would create a brand spanking new charity or private foundation. My na?ve layman's view then was that most of the good causes already had existing organizations (especially the major diseases: cancer, leukemia, muscular dystrophy, diabetes, etc.) and that it was a colossal waste of resources to create a new organization for an already well-supported cause. I couldn't get past the simple observation that the recently flush celebrity (often a local pro athlete with a signing bonus) could have simply written a check to his favorite cause. Good deed done.

But no. We're still creating new charities like a house afire. As of 2005, we had almost a million public charities--909,224, according to the IRS. And that statistic does not include the ones the agency deems "inactive." In 2002, U.S. charities controlled about $2.1 trillion in assets, and that number had grown 66 percent over the previous 10 years. In fact, the non-profit sector's growth has recently outpaced that of the overall economy. Between 1993 and 2002 the sector grew 5 percent annually, but during the same period the GDP grew only 3 percent annually.

I understand that a growing economy would naturally lead to more charitable organizations, if only because new causes would emerge as society evolves. But you can't persuade me that there is not a tremendous amount of duplication and outright waste of money that on a purely organizational level goes to lawyers, consultants, Web designers, fundraising companies, and administrative and executive staff. If you reread that very short list you'll note that none of that money went to a charitable purpose. It is not that I think those people shouldn't get paid for what they do; it is, rather, that they often get paid multiple times to do the same thing within the same community to accomplish the same thing.

The successful professional athlete is a case in point. He is a huge celebrity in town and he wants to "give back," as they say. He is very proud of having graduated from the local high school and wants to encourage others, mostly young male students, to do the same. So he decides to offer college scholarships to a certain category of such students. But rather than donate a large sum to the school with the stipulation that the money be used for such scholarships, he decides instead to create his own organization--probably a private foundation.

He hires an attorney to set it up. He creates the bank accounts to hold the money. He hires an accountant to track the money. Perhaps he sets up a voluntary board of citizens to review scholarship applications. He, or more accurately, the new foundation, may not pay the volunteers for their time, but it pays for their luncheon meetings. Many times the new entity is little more than a bank account with limited expenses. That would be good. Other times the foundation or charity concludes it must have office space, or even a building of its own. Either way, it has to buy or rent furniture and office supplies, get phone and Internet service and, of course, hire a full-time staff to maintain the office.

Meanwhile, the town has at least four or five existing charitable entities, not including the high school itself, which easily could have taken on his scholarship program without incurring very many additional costs, if any. I'm sure they would have been happy to name the program after our local athletic hero and have him attend the annual dinner to hand out the scholarships. That should satisfy the ego that otherwise would want a separate organization. Shouldn't it?

Contributing Author

Bruce D. Collins

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