The NonProfit Times - August 15, 2008 - (Page 15)

Expenses Continue To Put Stress On Nonprofit Budgets BY MARK HRYWNA N onprofits were hit with increases in expenses last year that were two and three times the rate of inflation, driven by a hike in the federal minimum wage and the ever increasing cost to raise a dollar. The cost of raising more money -usually through capital campaigns -contributed to rising expenses as charities look to develop new, alternative revenue streams.The rate of inflation was more than 2.5 percent last year and about 3.25 percent during 2006. The 14-percent hike in the federal minimum wage that went into effect in July automatically raised labor costs for nonprofits. Hardest hit were those involved in retail operations, where employees usually earn at or around the minimum wage. Some of the biggest charities saw expenses jump 25 to 40 percent between the Fiscal Year Ending 2005 and 2006. A look at organizations in the NPT 100, The NonProfit Times’ annual study of the nation’s largest nonprofits (Nov. 1, 2007 issue), shows that total expenses for all 100 groups increased nearly 9 percent. In many cases, jumps in revenue also drove increases on the expense side, while in others the opposite also was true.The largest average increase among the 100 charities was in the category of program expenses (9.2 percent), fol- lowed by fundraising (6.7 percent) and administrative (6.7 percent). THE COST OF LABOR With almost 43,000 retail employees nationwide, Goodwill Industries International was among the hardest hit by the federal increase in the minimum wage last year. For the first time in a decade, Congress last spring approved a minimum wage hike that boosted the hourly pay 70 cents in July, to $5.85. The hourly wage will continue to rise 70 cents each summer, until it reaches $7.25 per hour in 2009. With many Goodwill employees at or near minimum wage, the federal increase was the biggest single reason for a rise in expenses, said David Barringer, vice president of member relations, at Goodwill’s member services center in Rockville, Md. “It’s a direct impact when the law changes. When people make a dollar more than minimum, they probably go up too,” he said. “It’s an immediate hit. We can’t raise used clothes prices right away, so it hits the bottom line right away,” INCREASED EXPENSES = GOOD NEWS? Barringer said. Revenue and contract work is up at Goodwill’s North American retail stores had $1.7 billion in revenue last Goodwill’s thrift stores, Barringer year, with labor accounting for $673 said, and that’s good news as it shows million of costs.“Labor is a big part of up as expenses after the nonprofit puts those revenues into services. any business, but for retail especially.” Susan G. Komen for the Cure, headGoodwill stores range from 3,000 square feet to 25,000 square feet,and in quartered in Dallas, had expenses AUGUST 15, 2008 THE NONPROFIT TIMES www.nptimes.com one case 40,000 square feet.During the past five years, the number of stores added has not changed much, maybe opening 50 a year.But,the size of stores has been getting bigger.“We’re replacing 6,000-square-foot with 12,000square-foot stores,” Barringer said.“Your employees don’t double when you do that but there is a significant (expense) increase obviously.” Energy costs will have a huge impact when you’re talking about 2,000 stores. Goodwill transitioned away from home pickups toward donation centers starting during the 1970s and the initial oil crisis. “We realized we have to change our business model,” Barringer said. Now a donation component is part of most every store. But if donations to Goodwill can’t be used, the charity has to deal with the cost of trash removal.“Community by-community, government is changing the way it’s charging for trash disposal,” Barringer said. “When you’re unable to re-sell, some percentage still goes to trash, so we continue to look for ways to reduce that”as tipping and dumping fees are increasing. Above: Goodwill Industries International has added donation centers to new stores to reduce the expenses involved in picking up donations. jump by 8 percent (from $200 million to $218 million), including 15 percent more in program expenses (roughly $150 million to $172 million). Other support categories such as administration and fundraising, dropped from 2005 to 2006.“That’s part of an ongoing strategy” of prioritizing based on mission and expenses, said CFO Kevin Speirits, a concept several nonprofits echoed. The pattern repeated itself during 2007 with total expenses rising 23 percent -- from $218 million to $269 million. While most of the increase again was in program expenses, supporting services also rose 18 percent, from $46 million to $55 million, according to Speirits. The additional expenses in the last year have been driven by a couple of things, Speirits said, including the sheer growth of the organization and a rebranding initiative for its 25th anniversary. During the next three to five years, Komen seeks other areas to grow, including expanding globally, Speirits said.“We really want to try to become a global leader in health awareness in breast cancer,” he said, which will require investments domestically and overseas. Budgets, page 16 15 Photo courtesy of Goodwill Industries of Southeastern Wisconsin, Inc. http://www.nptimes.com

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The NonProfit Times - August 15, 2008 The World’s Best Fundraisers Holiday Jeer Contents ‘Donate Now’ Atlanta Luring Major Charities Expenses Continue To Put Stress On Nonprofit Budgets Fuel Costs Eating Up Food Banks Get An Email Address, Generate Income Unique Items Drive Fundraising Auctions Nonprofit Styles Aren’t Out Of Fashion Limited ‘Face’ Time NPT Jobs Resource Directory

The NonProfit Times - August 15, 2008

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