Allied Charities of Minnesota

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ACM Update - Expenses, Star Rating and Retained Cash

05 Apr 2021 13:53 | Rachel Jenner (Administrator)

Members,

By all accounts, E business continues to grow. It grew at a 16% clip the previous fiscal year. If that trend continues for FY2021 it will mean that electronic revenue share will cost charities $5 million more than the previous fiscal year.

With the recent announcements of the price increase on paper tabs, it will cost charities $3 million more annually to buy their paper tabs.

Those two increases mean that our expenses will go from 53% of net receipts to 55% of net receipts.

Increased costs of doing business do not get covered from just anywhere, they come from donation dollars. Increased costs hinder our ability to serve our missions and communities.

Assuming payout stays where it was in FY2020 (it has not done that for the past 7 fiscal years, but one can always hope) it would mean that after payout of 84.88%, the average organization would have 15.12 cents remaining for expenses, taxes/fees and donations. Expenses will take 8.31 cents and taxes/fees will take 4 cents, leaving the average organization with 2.81 cents per dollar wagered for mission and community. Payout has increased on average .31 cent every year the past seven years, going from 82.7% in FY2014 to 84.88% in FY2020.  

Under the GCB proposed star rating change that would measure donations against expenses, the average organization would then have a ratio of 29.9% or a star rating of 1. Higher expenses, taxes/fees translate to fewer dollars that the organization will have for mission and community. As expenses and taxes/fees increase an organization’s star rating will decline as well. Without corresponding tax relief it will become increasingly difficult for organizations to stay off of probation.

The GCB has stated that organizations will be able to stay off of probation by spending down their retained cash, in effect buying your way out of probation. While that may work for one year, it is not something that an organization would be able to do long term.

Here is what is not said about the retained cash amount listed in the FY end reports. That number is from June 30 of each year, the end of the state’s fiscal year. It is not the end of the fiscal year for every licensed organization. Many organizations wait until the end of their fiscal year to spend down. Many organizations carry over funds in order to have the amount needed for a larger purchase that they cannot afford in one fiscal year. A retained cash amount would only have value if it was from the fiscal year end of each individual organization.

All of the fiscal guidance that I could find states three to six months of operating expenses is what a business needs to have on hand at any given time. Even using the number from June 30, the average organization has $46,000 in retained cash which equates to 3.8 months of operating expenses. The organization that I found with the largest amount of retained cash had less than 10 months of operating expenses.

For the long term survival of charities and everyone who relies on income from them, there needs to be frank discussions about changes that need to be made in order to keep charities from going under. I understand that nobody wants to discuss the elephant in the room, but if it isn’t this will not continue forever.

Regards,

Al Lund

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3250 Rice Street
St. Paul, MN 55126

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