KIPP is one of the most well-known and, we believe, effective charities in the United States: it has a long track record of improving students’ performance in school and Secretary of Education Arne Duncan has cited it as a model for education reform. In our recent analysis of KIPP, we’ve been surprised to learn that despite these accolades, some KIPP schools are considering cuts to core parts of the program (such as reducing Saturday school and the number of teachers available for after-school activities) and are being forced to significantly slow down the opening of new schools. KIPP Houston requires approximately $1.4 million to prevent these cuts and could use an additional $12-13 million productively to fund opening 3 new schools.

How does such a successful and acclaimed organization struggle to raise the funds necessary to continue expanding? We think a big part of the explanation comes down to the fact - which we’ve discussed before at length - that the issue of “room for more funding” (the question of how additional funding would affect a charity’s activities - i.e., the impact of the marginal donation, as opposed to the average one) is neglected by givers.

We came across the close to $15 million funding gap at KIPP Houston by probing the “room for more funding” situation for the KIPP Foundation, the national organization that we have been directing donors to. In the course of conversations on this topic, we ended up agreeing with KIPP representatives that

• The KIPP Foundation itself doesn’t have short-term “room for more funding”: it is committed to executing against its Board approved budget only. This does require a significant amount of philanthropic funding annually, but current needs pertain to future years.
• Specific KIPP regions do have room for more funding - and the KIPP Foundation doesn’t generally give grants to these regions (doing so isn’t in its model). The KIPP Foundation directed us to KIPP Houston as a specific KIPP region with a funding gap and capacity to expand.

Bottom line:

• One of the most acclaimed and effective programs in U.S. education needs $1.4 million to avoid cutting core programs and an additional $12-13 million to continue its expansion.
• This fact highlights the benefits of deeply analyzing “room for more funding,” something we’ve seen very little discussion of elsewhere in the context of charitable giving.

Details follow. (Note that we still recommend international aid organizations above U.S. organizations; this analysis is most relevant for donors who wish to focus on the U.S.)

Donors who want to support KIPP Houston directly can do so using our donate page for KIPP Houston.

Background

Over time, we’ve put more and more time and thought into the question of how to analyze a charity’s “room for more funding”, i.e., the question of how additional funding would affect a charity’s activities.

• For the early years of our project, our analysis was loose and conceptual, as we looked at basic heuristics.
• In December 2009, working with our top-rated charity VillageReach, we arrived for the first time at what we considered a “gold standard” room for more funding analysis, showing specifically how VillageReach would change its plans in response to different levels of total unrestricted revenue.
• During 2010, we started revisiting our recommended charities looking for a similar level of understanding. One of the first charities to provide it was our top-rated U.S. charity, the Nurse-Family Partnership (NFP). NFP told us that existing commitments can sustain the organization through 2015 at which point the organization would likely need additional donations to continue operations.

  We believe that donations to NFP are good: they provide a long-term safety net to an outstanding organization, and they support the cause of more effective and accountable charity more broadly. Nevertheless, we don’t think it’s fair to consider donations to NFP, today, to be the best option if there are other organizations that would use them to fill a more pressing need.

• The Knowledge Is Power Program (KIPP) is another U.S. charity we rate highly, and in response to KIPP’s question about how it could improve its rating, we responded that we’d like the best possible understanding of its room for more funding. KIPP Foundation representatives agreed to this and were extremely helpful. They were open that while the KIPP Foundation does not have the same type of long-term funding commitments that NFP has, and does require a significant amount of philanthropic funding annually, it does not have a compelling use for additional funds in the short term. But, the KIPP Foundation went on to clarify that, some of the regional networks (i.e., the actual KIPP schools) in the KIPP family do have pressing, if not urgent, financial needs.

  The KIPP Foundation does not have a mandate to directly fund KIPP schools. (For more on what it does, see our review of KIPP.) The KIPP Foundation told us that some of the regional networks have significant room for more funding. The KIPP Foundation referred us to KIPP Houston, which it believed could significantly benefit from additional funding.

KIPP Houston’s Room for More Funding needs as of July 2011

Based on this lead, we reached out to KIPP Houston, and in speaking with John Murphy, KIPP Houston’s CFO, it became apparent that it has a significant and immediate need for more funding. Specifically, KIPP Houston, which relies on money from the state for close to 85% of its annual operating budget, is planning for expected state budget cuts of 6% for the coming school year and 8.5% the following year, which would leave it with a budget shortfall of 4.7 million for the coming year.

Two notes on the data:

• The actual deficit would be slightly lower in the upcoming year and slightly higher in the subsequent year, but the average deficit over the 2 years is $4.7 million and our understanding is that KIPP would (we believe appropriately) budget for the two years together.
• We are relying heavily on KIPP Houston’s expectations for future state cuts. A two-year state budget cut of $4 billion has been passed by the legislature and according to a recent newspaper report (archived), a 6% cut across the board is expected in year one, while the subsequent year’s cut has not yet been allocated across schools, and we do not know when that will occur.

KIPP Houston told us that it expects to be able to raise an additional $1.7 million in donations (relative to what it had previously planned, a 50% increase from the previous year) and that it hopes to save $0.4 million by finding areas of potential savings (through operational efficiencies, etc.), thereby filling around $2.1 million of the funding gap itself. It could also use $1.2 million in bond income to fill the gap, though KIPP Houston told us that this would reduce its ability to expand in the near term because it had intended to put these funds toward expansion.

The remaining gap, estimated at $1.4 million, would need to be addressed through some combination of spending cuts to some of the items listed below; the final decision has not yet been made.

Potential cuts to KIPP Houston Operating Expenses in 2011-2012

Expense	Maximum amount
“KIPP Unique” Expenses - These include program areas such as, Field Lessons, KIPP Time (extended day) and Saturday school. Specific changes in this area will be left up to the discretion of school leadership.	$2.4 million
Putting a hold on the teaching fellows program (resulting in the replacement of fellows with teacher aides). Specific changes in this area will be left up to the discretion of school leadership.	$0.5 million
Freezing administrative hiring for expansion of KIPP Houston’s network.	$0.75 million
Reducing employee compensation plans, professional development and/or benefits packages.	$0.75 million

We asked KIPP Houston what it would do if it were able to raise additional dollars above and beyond its new fundraising goal (and close some of the gap). Mr. Murphy indicated that since many aspects of the state budget are still up in the air, these decisions have not been finalized, but were KIPP Houston able to raise additional dollars towards its budget shortfall, it would likely reinstitute “KIPP Unique” expenses and employee compensation, benefits and professional development packages first (with much of the details left to the discretion of campus directors), items we see as core to KIPP’s operations. In addition, this tightening of their budget and the use of bond income also means slowing down expansion plans in the Houston area, resulting in fewer students being served by the KIPP program than intended. Mr. Murphy explained:

“We recently were able to purchase property for our 24-26th schools and it is literally right in the heart of our more than 7,000-student waiting list. We could start things up there right away, but right now we can’t afford the construction because our capital is minimized. Those three schools could serve approximately 1,600 kids, but right now we just have to hold off and wait.”

Conclusion

As we’ve written, even a charity with proven impact isn’t necessarily a good investment - a key question is the impact of the marginal donation (not just the average one). For years we’ve recommended the Nurse-Family Partnership and the KIPP Foundation to U.S.-focused donors based on their strong case for impact, but as our analysis of “room for more funding” has sharpened, we’ve discovered that neither has a short-term need for more donations - and this in turn led us to find a specific KIPP network (KIPP Houston) that does have short-term room for more funding. (Note that we still recommend international aid organizations above U.S. organizations; this analysis is most relevant for donors who wish to focus on the U.S.).

While donating to the Nurse-Family Partnership or the KIPP Foundation does mean supporting an outstanding organization that relies on philanthropic donations to operate - and therefore is making a positive impact - we think there is a huge opportunity for a U.S.-focused donor to support organizations like KIPP Houston, for which more funds will make the difference between expansion and cutbacks.
Now the question is, how much of that nearly $15 million funding gap can we help close?

Donors who want to support KIPP Houston directly can do so using our donate page for KIPP Houston.

We’ve always been interested in GAVI, a large funding vehicle for immunizations (which we consider to be one of the best interventions out there for accomplishing good).

Until recently, GAVI projected a need for $3.7 billion between 2011-2015 (archived). However, yesterday there was an announcement that GAVI had raised $4.3 billion, more than enough to cover this need (archived).

In the past, we’ve refrained from recommending GAVI because we have trouble fully understanding its activities, but we’ve been continuing to revisit it and think about how we might gain better understanding. Now we are fairly confident in not recommending GAVI because it appears to have all the funding it needs (which, given its area of focus, we consider very good news).

This situation illustrates one of the trickier room for more funding-related challenges of individual giving. Even if a nonprofit has significant funding needs today, are there big donors right around the corner about to swoop in and render your donation irrelevant?

Before we recommend a charity, we seek as good an understanding as possible of its room for more funding, and this includes asking it about what revenue it expects in the future. This is the best way we know to avoid recommending a charity just before its funding gap is closed by megadonors, but we don’t think this approach is foolproof. We continue to find the issue of room for more funding - and in particular, the possibility of a GAVI-like situation - to be very difficult to deal with.

The situation in Japan is tragic and worrying, and our hearts continue to go out to those affected and responding.

On Friday, we recommended that donors wait to see how the situation unfolds before giving. At this point we are ready to make a recommendation, though of course this is subject to change as the situation changes.

We believe that

• Those affected have requested very little, limited aid. Aid being offered far exceeds aid being requested. (Details below.)
• Charities are aggressively soliciting donations, often in ways we feel are misleading (more on this in future posts).
• Any donation you make will probably be used (a) by the charity you give it to, for activities in a different country; (b) for non-disaster-relief-and-recovery efforts in Japan.
• If you’re looking to pursue (a) and help people in need all over the world, we recommend giving to the best charity you can, rather than basing your giving on who is appealing to you most aggressively with images and language regarding Japan.
• If you prefer (b), a gift to the Japanese Red Cross seems reasonable.

Overall, though, a gift to Doctors Without Borders seems to us like the best way to effectively “respond to this disaster”. We feel they are a leader in transparency, honesty and integrity in relief organizations, and the fact that they’re not soliciting funds for Japan is a testament to this. Rewarding Doctors Without Borders is a move toward improving incentives and improving disaster relief in general.

Donate to Doctors Without Borders

Below, we give the evidence we’ve found that the relief/recovery effort does not have room for more funding.

Because the situation is changing rapidly, we often include archived versions of the pages we link to (these archives will retain their content even if the pages themselves are changed).

Determining room for more funding in a disaster

As argued previously, we think it’s an open question whether a given disaster has room for more funding. Our basic (evolving) process for assessing the needs in a disaster situation is:

1. First see whether a significant gap exists between requested and pledged/committed aid. Requests for money are, in our view, a necessary (though not sufficient) indicator that there is room for more funding.
2. Next, collect whatever information is available about the progress of the relief effort, and look for signs that money is or isn’t a primary bottleneck to a better effort. In the case of Haiti, we’ve found signs that non-monetary issues have been primary obstacles to progress.
3. If it seems that more money is both requested and needed, look at what is being spent, and on how many people, and make an assessment of how this giving compares to everyday relief for the world’s poor. In the case of Haiti and the Asian tsunami, we concluded that relief appeared less cost-effective than everyday international aid. The story might be very different in less-publicized disasters that have more trouble attracting funding.

At this stage, we don’t believe that this crisis passes the first test above. It looks to us like more aid is being offered than requested.

Info from OCHA and ReliefWeb

One of the first places we look in a situation like this is to U.N. Office for the Coordination of Humanitarian Affairs (OCHA), which is “the arm of the UN Secretariat that is responsible for bringing together humanitarian actors to ensure coherent response to emergencies,” as well as its affiliated site ReliefWeb. ReliefWeb is especially useful because in addition to consolidating official updates on an unfolding crisis, it consolidates official appeals for funding. Here’s what we observe from these sources:

• There is no official appeal for Japan at this time. See the list of appeals (archived) and appeals page for Japan specifically (archived), which includes funding information but no appeal.
• Very limited assistance (and even more limited funding) has been deployed by Reliefweb-reporting sources. Both the latest situation report (PDF) and latest funding summary (both updated as of today) make it clear that
  • Most assistance being provided is in the form of specialized relief teams, not cash.
  • Committed or gifted cash from Reliefweb-reporting sources includes $1 million from Sri Lanka, about $750,000 from the U.S., and other gifts bringing the total to about $2.2 million - about twice what Zynga has raised for Save the Children through social gaming.
• Contrast with Haiti: a comparable situation report (PDF) 3 days after the disaster announced an appeal for $562 million, with $66 million already gifted and $359 million pledged.

Japanese Red Cross

The latest official update from any Red Cross appears to be a March 12 information bulletin from the Japanese Red Cross (archived). This bulletin opens with the following:

This bulletin is being issued for information only, and reflects the current situation and details available at this time. The Japanese Red Cross Society, with the support of the International Federation of Red Cross and Red Crescent Societies, has determined that external assistance is not required, and is therefore not seeking funding or other assistance from donors at this time.

I’m not exactly sure how to square this with the donate page for the Japanese Red Cross (archived), which states:

If you wish your fund to be distributed directly among the affected population of the earthquake and tsunami, please direct your fund to the following bank account. If you need the receipt of your fund, please state so clearly in the comment section of the bank transfer order. All the fund received under this account will be transferred to the Distribution Committee, which is formed around the local government of the disaster-affected prefecture and to administer the distribution of fund.

One possible interpretation is that funds will be given directly to those affected by the earthquake, but funds are not needed for the relief effort itself.

Japanese government

This quote from Reuters (archived) is consistent with the above picture:

Japan’s government has received offers for assistance from 91 countries, and has accepted assistance from about 15 based on assessed needs, mostly for specialized international urban search and rescue (USAR) teams and medical teams.

Charities
Charities seem to be sending a very different message from the above sources. By and large, they seem to be aggressively soliciting donations, and we feel that many are implying these donations will be used in the relief/recovery effort. (Details in a future post.)

However, a close look at the language they’re using reveals that their actual involvement in relief/recovery may be very limited and they are seeking donations for other activities. Gizmodo’s Mark Wilson did a good early analysis of this phenomenon, and a look at the up-to-date descriptions of activities from the Chronicle of Philanthropy (archived) and InterAction (archived) still appears to me to indicate limited involvement, and to be full of language that raises questions about whether involvement is forthcoming. A few examples:

• “Catholic Relief Services: The organization said Friday it has personnel standing by throughout the pacific, waiting for requests for help from Caritas Japan.”
• “Oxfam America: The organization’s Web site this morning displayed the headline “Worst Quake in Japan on Record” and asked visitors to donate to its Saving Lives 24/7 Fund.” The Saving Lives 24/7 fund (archived) appears global in focus.
• “Save the Children: The charity said Friday it is mobilizing people and supplies to respond to the earthquake. The organization has worked in Japan for 25 years. On Saturday, it announced it had partnered with online game company Zynga to add calls to donate in the company’s games. On Sunday, the charity said it has sent an emergency team to assess needs in the worst-affected areas.”
• ” World Vision: The charity this morning reported that its offices in Indonesia, Papua New Guinea, the Philippines, and the Solomon Islands are on alert to assist in tsunami response. A team is also on standby for possible deployment.”

One notable exception is Doctors Without Borders, which has been completely explicit that it is not seeking funding for Japan relief. Its note on funding for Japan (archived) states

At this point, we are drawing on unrestricted donations given to MSF to fund our efforts, and we are not accepting donations specifically earmarked for recovery efforts in Japan. We greatly appreciate your generosity and encourage your support of our work. We will continue to post updates on our homepage, Facebook, and Twitter as new information becomes available.

Many other organizations may also be soliciting donations only for global efforts, but Doctors Without Borders has the most clear and explicit note that we’ve seen.

On Friday, we stated that “we prefer Doctors Without Borders … because of its past decision to stop accepting donations for Haiti relief; this greatly reduces the risk in our eyes that it will over-solicit, a very important concern in this case.” It appears that Doctors Without Borders has, in fact, not over-solicited.

This may cause Doctors Without Borders to raise less money in this disaster, but we’re hoping at least some donors will reward it.

The bottom line

I wouldn’t want anyone to take this post as an argument that (a) the situation in Japan is anything other than extremely tragic and extremely challenging; (b) you shouldn’t give to charity.

My interpretation, rather, is that

• the people and government of Japan are extraordinarily well-prepared, as well as competent and well-resourced, and do not need significant external assistance in order to mount a maximally effective relief and recovery effort.
• Therefore, you as a donor do not have the power to improve the relief and recovery effort in Japan. If you do give, your gift will probably be used (a) by the charity you give it to, for activities in a different country; (b) for non-disaster-relief-and-recovery efforts in Japan.
• Of the above two possibilities, I find (a) more appealing, because Japan is a wealthy country and everyday needs are greater elsewhere. But if you’re looking to pursue (a) and help people in need all over the world, I’d highly recommend giving to the best charity you can, rather than basing your giving on who is appealing to you most aggressively with images and language regarding Japan.
• If you prefer (b), a gift to the Japanese Red Cross seems reasonable.

Overall, though, a gift to Doctors Without Borders seems to me like the best way to effectively “respond to this disaster”. We feel they are a leader in transparency, honesty and integrity in relief organizations, and the fact that they’re not soliciting funds for Japan is a testament to this. Rewarding Doctors Without Borders is a move toward improving incentives and improving disaster relief in general.

Others with similar sentiments

• Brigid Slipka makes the excellent suggestion of putting aside a donation and giving it later.
• Saundra Schimmelpfennig further defends this idea.
• Felix Salmon urges unrestricted gifts to help people in general, not donations targeting Japan.

We are currently updating our review of Nurse-Family Partnership National Service Office (NFP NSO) (one of our top-rated charities). We did our main review of NFP NSO in 2008 and since then we have continued to develop our research process, and in particular our approach to assessing room for more funding, i.e., how much more money a charity can productively use. At this point we feel that NFP NSO has room for more funding only over the long term, and that potential donors should take this into account.

This conclusion is not final, but it seems like an observation worth sharing now. We plan to publish our updated review of NFP NSO, including our final take on its need for individuals’ donations, later this year.

Details: In 2007, NFP NSO launched a campaign to raise money so that NFP NSO could become, over a ten-year period, self-sustaining on the fees it collects from local NFP programs. In 2007, NFP NSO successfully got commitments of approximately $50 million for this purpose, the full amount it sought (see Annual Report 2007 (PDF), page 31, and our phone conversation with NFP NSO (DOC)).

Since then, NFP NSO has revised its cash flow projections, making the projections less optimistic in light of the weak economy. It has shared these cash flow projections for our eyes only. The projections anticipate that donations will be needed for several years to cover the gap between earned revenues (from local NFP programs) and expenses, and that it will take until 2021 to get to the point where earned revenues cover 98% of all expenses.

From these projections, it appears to us that existing commitments can sustain NFP NSO through 2015, at which point the organization will likely need more donations in order to continue operating. It also seems likely to us that any additional donations in the meantime will be essentially “held for a rainy day,” i.e., saved for the point at which they are needed to cover this gap. Because NFP NSO’s goal is to become self-sustaining on earned revenue, it seems unlikely that it would use more donations to directly increase the reach of its program (e.g., through providing its services to local NFP offices for free or reduced prices).

We feel that NFP NSO is an outstanding organization, with a stronger case for its effectiveness than any other organization we know of doing work on U.S. equality of opportunity. Therefore, we very much hope that it raises the funds that are necessary to continue operating, and in plenty of time. However, it seems important to note that its need for more funds - and ability to translate them into more outcomes - is fairly far off, when compared to that of (for example) VillageReach. (Note that we don’t mean to compare NFP NSO to VillageReach in terms of outcomes, or in general. We’re simply contrasting longer-term vs. shorter-term room for more funding.)

Note: NFP NSO reviewed and approved this post prior to publication.

It seems like no one is sure why Unitus is closing its doors. That said - what can we learn from this situation if, as stated, Unitus is closing down because it has accomplished its mission and no longer needs to exist?

“We have always thought of Unitus as a project, and that when we completed the project, we would have the integrity to say we were done,” says Joseph Grenny, one of the seven founders, and the chair of Unitus’s board. (From the Chronicle of Philanthropy’s report on Unitus)

From a donor perspective, what this quote is describing is the issue of room for more funding, which we’ve discussed at length (see our page and blog post series on this issue). No matter how successful a program is, there are limits to how much it can be productively expanded.

In December, we argued that room for more funding is a key question few others are asking charities. The Unitus case – if they did in fact shut down because they “completed the project” – lends support to our argument.

• Last year, Philanthropedia polled 130 professionals in the sector; Unitus came up as a top recommendation.
• The Omidyar Network has granted $11.7 million to Unitus since 2005. (See the Chronicle story.)

We can’t find evidence that Unitus itself gave an indication that its use for more funds was limited. According to the Puget Sound Business Journal, Unitus was “interviewing potential candidates for its vacant top fundraising post as recently as a month ago.”

Donors shouldn’t rely on a charity to tell them when it’s running out of room for more funding. We believe that the issue of “room for more funding” is one of the most under-recognized issues in the field of charity evaluation, especially for individual donors.

We’ve previously argued that the “headline program” a charity uses to raise money may not be the one you’re effectively funding with donations - even if your donations are formally restricted to that program. (See our full series on the topic).

Now the Chronicle of Philanthropy quotes a fundraiser saying exactly the same thing, as a suggestion for charities rather than a warning for donors.

Nonprofit organizations’ biggest concern with the approach Kiva and DonorsChoose take is that it brings in donations that must be used for a specific purpose, rather than undesignated gifts that can finance anything, including overhead expenses.

But that’s an accounting issue, not a fund-raising issue, argues Michael Cervino, vice president of Beaconfire Consulting, in Arlington, Va.

“If you’re already planning as an organization to spend money on A, B, and C programs at a certain level, then there is no reason not to use that program as a poster child for your fund-raising efforts,” he says. “Go ahead and raise that money. You’re going to spend it there.”