Minnesotans, who donate more than $1 billion a year to charities, soon will have more information before they write checks.
The Minnesota Charities Review Council is revising its standards for charities, setting the tone for acceptable practices for roughly 5,000 Minnesota nonprofits.
What percent of a charity's budget should be spent on fundraising, travel, administration? When is it too much? Do charities have whistleblower policies?
"You read horror stories about telephone solicitors taking 85 percent of what people donate: That's the kind of thing people want to avoid,'' said Chuck Jorgansen, a retired Minneapolis physician and frequent charities donor who has monitored the proposed changes.
"It's so hard to do all this investigation yourself,'' he said. "It's nice to have someone have the standards and do the screening.''
Jorgansen is among hundreds of Minnesotans who have attended town hall forums across the state on the proposed rules, which are expected to be approved next month by the council's board of directors.
The standards are important. They will provide the measure of a nonprofit posted on the Charities Review Council website, which gets nearly a half million hits a year from people searching for information on nonprofits. More than 75 percent of Minnesotans donate money to charities, a council survey showed.
The proposed new rules are among steps being taken across the country to help donors navigate the growing nonprofit sector and to help strengthen nonprofits' governance and practices.
On Wednesday, the council held its final town hall meeting in Minneapolis. Martin Wera, nonprofit services manager at the council, explained the proposed standards to a group of Twin Cities philanthropy leaders. The changes would include:
•More money allowed for fundraising and administration. This is probably the most controversial change. Many donors such as Jorgansen say it is a huge factor in their giving. But some nonprofits say they need more flexibility, especially in this economic climate.
Seventy percent of a nonprofit's expenses must be spent on programs, according to current standards. That figure would be lowered to 60 percent if the nonprofit includes an explanation of why.
•"Impact on the community'' will replace the more vague "accomplishments'' measure of a charity's success.
"It's easy to count things that may not matter,'' explained Rich Cowles, executive director of the council. "Let's say you provided classes for 'x' number of students. Well, did they learn anything? Did it allow them to get jobs?''
•Tighter travel and reimbursement policies and a prohibition of loans to board members.
•New emphasis on diversity. Current standards don't mention diversity in nonprofit organizations. The proposed rules encourage charities to include diversity in hiring staff, board members and volunteers.
Term limits for boards?
One surprise from the town hall meetings is that many charity leaders have urged the council to include term limits for board members, Wera said. The council will now consider including them in its standards.
"It's the problem with 'Minnesota Nice,''' Wera told the group Wednesday. "[Charities say] 'There is a board member who is dead weight but we really don't want to tell them to leave.'''
Brad Thorson, executive director of We Can Ride, a therapeutic horseback riding service based in Minnetonka, was among the people attending the Wednesday meeting.
He said he supported the changes, but wondered how small nonprofits such as his could meet the financial standards.
One criterion is that nonprofits should break even or make a profit for two of the past three years, Thorson said. The economic downturn has made that impossible for We Can Ride, he said, but the organization nonetheless has 500 volunteers assisting 250 clients.
Building donor confidence
Meanwhile, Jon Pratt, executive director of the Minnesota Council of Nonprofits, said stronger standards translate into stronger donor confidence. But limits on administrative and fundraising costs shouldn't be such a key measure of an agency's success, he said.
He asked: If an educational nonprofit moves 90 percent of its students into college, why does it matter how much it spends on administration?
About 10 percent of Minnesota's workforce, or 269,000 people, work for nonprofit organizations, from multimillion-dollar medical companies to small advocacy groups.
About 400 of those nonprofits, including most of the largest, voluntarily post annual reports with the Charities Review Council and are reviewed by the council, Cowles said.
Other charities monitor the standards, he said, and often they are expected to adhere to them by their donors and their boards of directors.
To read the proposed standards, or check information on Minnesota charities, go to www.smartgivers.org.
Jean Hopfensperger • 612-673-4511