We have been in communication with Farm Aid regarding last Saturday’s Tribune article regarding Farm Aid’s efficacy as a charitable organization. See, J. George, Farm Aid Eat Away at Donations: Only 28% of Revenue From Last Year Made It to Family Farmers (September 17, 2005). We have also contacted...
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the Tribune, but have had no response to date. The Tribune seems very willing to print letters from readers voicing their personal opinions regarding public policy, but is apparently unwilling to print letters from readers who take issue with factual issues in stories and the methodology used in putting stories together--at least we haven't seen our very own Jack Siegel's letter reprinted in the online edition of the Tribune yet. We would hope that the latter would take priority over the former, but apparently not.
Tribune Article Omitted Major Farm Aid Activity. The Tribune article does mention grantmaking and advocacy activities. It failed to mention a telephone hotline that Farm Aid maintains to assist family farmers. The cost of staffing, promoting, and maintaining such a line is considered to be a program-related expenditure. Yet, the Tribune seems to have ignored those expenditures in developing its basic thesis.
Comparison to Bridge Concert Not Appropriate According to Young. The Tribune article also drew unfavorable comparisons to Neil Young’s annual Bridge School Benefit Concert in developing its thesis regarding Farm Aid. The Chicago Sun-Times reported that Mr. Young explained the reason why a higher percentage of the proceeds from the Bridge Concert go to the charitable beneficiary is because the use of the facility (and apparently the lights and sound system) is without charge. See, A. Golab, Farm Aid Singer Rips Up, Stomps on Newspaper (September 20, 2005). That just isn’t the case with Farm Aid, apparently because it changes geographic venues each year and the Bridge Concert doesn’t. Now one might argue that Mr. Young should stage the Farm Aid event at the same facility that hosts the Bridge Benefit, but that would miss the point. The reason Farm Aid changes venues each year is that in addition to raising money, it is trying to raise awareness regarding an issue that has national reach. The Bridge Benefit is of clearly more limited geographic interest. Not surprisingly, it serves more as a fundraiser than Farm Aid, which has other purposes.
Moreover, the fact that facilities are donated for the Bridge Concert does not eliminate the fact that resources were used to stage the concert--the organization just didn't take cash out of its pocket. From an analytical standpoint, the value of the facilities should be included in the organization's income, with an offset on the expense side. To see why this is the more appropriate way to assess the activity, let's assume the owner of the concert facility had said to Mr. Young, "I love you Neil. I will let you use my facility for free on Tuesday night. Normally, I receive $200,000 for the facility. Alterntively, I will give you $150,000." Now on just these facts, Mr. Young should take the facility rather than the cash. But suppose another comparable facility can be had for $125,000? Now taking the $150,000 cash contribution looks like the better course. At the end of the day, the organization is ahead $25,000. By ignoring the expense side of donated facilities, services, and goods, the organization inevitability takes its eyes off the true cost of staging an activity and keeping those costs down.
The discussion regarding donated goods and services aptly demonstrates why the financial statements are preferable to tax returns. Paragraph 8 of Financial Accounting Standards Board Statement 116 provides as follows:
8. Except as provided in paragraphs 9 and 11, contributions received shall be recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received. Contributions received shall be measured at their fair values.
Given Paragraph 8, presumably the financial statements for the Bridge Concert would have reflected additional revenue and an offsetting expense. As a consequence of "gross" rather than "net" reporting, we would have been able to fairly compare the cost of staging these two events. Of course, we fault many non-profits, including Farm Aid, for not making their financial statements readily available.
Chronicle of Philanthropy. Last week the Chonicle of Philanthropy ran a highly-favorable article regarding Farm Aid. Unfortunately, you must be a subscriber to read that article, but one has to wonder about the discrepancy between the Chronicle's and the Tribune's respective views.
More Transparency Coming to Farm Aid. When we spoke with a Farm Aid representative, we advised that the organization post its 990s and financial statements on its website. We also suggested that Farm Aid begin to supplement its Form 990 with more descriptive material explaining its activities, mission, and expenditures. We specifically recommended that the organization consider breaking its expenditures out by function. The Farm Aid spokesperson was very thankful for the suggestions and seemed to take them seriously. Time will tell.
Other charities would be well advised to heed this advice before another newspaper “rolls another number” on them.
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
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