Issue 1- Summer 2013: Asking a bigger question

Foot_QuestionThere is no doubt that we live in a society with many needs. A large number of

citizens would like more resources deployed to help those in need, improve education

and health care, and support most of the other missions that now fall to charities. The

debate over fundraising costs, however, is largely a distraction from the central issue:

just how should we pay for these vital goods and services?

 

More competition means higher costs

Government funding is neither totally sufficient nor equally distributed. That gives rise to tremendous fundraising competition among charities. As pressure grows to raise money, charities find themselves paying more staff or contractors to raise the money once brought in by a shrinking pool of volunteers. It is quite possible that fundraising costs will actually rise over the next few years. Also, we rely increasingly on a group of major donors, some of whom offer gifts with substantial strings attached that often undermine the effectiveness and mission of the charity. The central issue is not one particular charity’s fundraising costs, but how the sector as a whole should be funded. Let’s take the example of a charity that raises $1 million through fundraising. If this charity, for argument’s sake, spends $0.35 to raise a dollar, then its fundraising ratio will generally be acceptable to Canada Revenue Agency.

 

True cost of fundraising

Now let’s assume that the million dollars is receipted. That means Canadian taxpayers essentially contribute about $0.45 through forgone taxes for every dollar raised. When you take into account the charity’s cost of fundraising plus the incentives provided by government, you see that the real cost to raise a dollar through fundraising is about $0.80.

Spending or giving up $0.80 to raise a dollar is not an efficient way to raise money for charitable missions. By contrast, if taxes were to be raised, the cost of bringing in that extra money through taxation would probably be less than 1%.

So the central problem is not that it costs your charity money to fundraise. It is that fundraising is difficult and very costly for many charities. There are better alternatives to relying so much on fundraising — we could channel more public funds to charities. But the question is whether there is the political will to support long-term government funding for sustainability of the charitable sector.

True costs lead to a different question

As we have seen from recent media coverage, there appears to be a large number of Canadians with offshore accounts. Some of them may not be contributing their fair share to pay for the various benefits that taxes provide in our society. Collecting any taxes owed and providing greater funding to the charitable sector would be a good start. In the long run, though, if these measures are not adequate, we have a big decision to make. Is it better to spend $0.80 to raise a dollar (in terms of fundraising costs and government tax benefits), or are higher taxes, which cost little to collect, needed to pay for the important work of the charitable sector?