New Rules Have Charities Clamoring to Participate in Workplace Drive

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When the rules change, the pressure to read the trend data grows.

That's the case this year with the nation's largest workplace charity drive, the Combined Federal Campaign. The CFC in the National Capital Area is the largest of the local drives -- about $60 million was collected for charities and nonprofit organizations last year -- and local officials are watching to see the impact of the new rules on the 2007 solicitations.

The program's old rules made it difficult for charities with high-cost operations to participate in the drive, but those rules were dropped late last year by the Office of Personnel Management. A key rule required that charities spend no more than 25 percent of their revenue on fundraising and other overhead expenses.

In the first wave of 800 applications filed for the 2007 Washington-area campaign, 141 applications reported overhead expenses greater than 25 percent; 48 had more than 35 percent, and five had overhead calculated at above 100 percent.

That's a substantial increase in high-overhead applications compared with last year, said Stephen F. Ristow, executive vice president of Global Impact, which represents U.S.-based international charities. It raises concerns that federal employees will lose confidence in the CFC if they see too many organizations with high operating costs, he said.

"The overhead limit is one of the major ways that charities have been validated as being efficient with program dollars," Ristow said.

The preliminary data suggest that more high-overhead charities will be joining the CFC compared with the previous year, he said. For all of 2006, the local CFC received 73 applications with overhead costs greater than 25 percent. An additional 33 had overhead in excess of 35 percent, and four applicants reported overhead costs greater than 100 percent.

Under the old rules, the OPM asked charities to explain high overhead costs and often admitted many after they explained their accounting and financial statements. Under accounting standards, stock sales are often listed as expenses on charities' financial statements. Charities that pull money out of endowments can end up spending more than they raise from the public during the year, skewing their expense ratio.

The OPM has said enforcing the 25 percent limit had become a burden on agency staff, in part because of lawsuits from charities that failed to pass muster. Going forward, OPM will publish data on how much money gets diverted from charitable programs for fundraising and other administrative expenses in the annual CFC catalogue and leave it to federal employees to decide whether a charity is worthy of a payroll deduction.

The 800 applications for the Washington-area CFC were filed electronically and represent about half of the local charities that will be in the campaign. The remainder are paper applications, which will be reviewed by local officials over the next two weeks.

The OPM draws up the list of national and international charities that may participate in the CFC, which kicks off in September. OPM officials said they received 2,163 applications for the 2007 charity drive, an increase of more than 10 percent over last year. Of those, 254 applicants reported overhead costs greater than 25 percent.

The number reporting overhead in excess of 25 percent of revenue has been fairly stable in recent years, said James S. Green, associate general counsel at the OPM. In 2006, for example, 226 applicants exceeded the 25 percent limit.

Ristow said the full effect of the rule change may not be known until 2008 or later because many charities did not learn until recently that the OPM changed the rules last November. "The potential harm on the overhead regulation is going to be much larger in subsequent years than in 2007," he said.

The rule change has caused concern on Capitol Hill, and an aide to Sen. Charles E. Grassley (R-Iowa) said the senator is considering legislation that would bring back a 25 percent overhead limit for the CFC.

Linda M. Springer, director of the OPM, recently wrote senators on the Homeland Security and Governmental Affairs Committee to say that "changes to the regulations are not practical at this time."

She added that the OPM "is open to possible rule changes if and when appropriate."

Because of "expressed concerns," she said, the OPM will collect information on the number of new charities that participate in the 2007 campaign to determine how many have high overhead costs and will compare them with the rates in the 2006 charity drive.

Stephen Barr's e-mail address isbarrs@washpost.com.