By Cristy Lytal
How are nonprofits calculating overhead costs, and do these rates impact third party ratings? How do these overhead ratios and ratings impact donations from both individuals and foundations?
Alexandra Graddy-Reed, an assistant professor at the USC Price School of Public Policy, aims to address these questions as the recipient of the Dugan Research Award for Philanthropic Impact, presented by ARNOVA (Association for Research on Nonprofit Organizations and Voluntary Action) and Charity Navigator. The award confers a $10,000 grant, the opportunity to present at the ARNOVA annual conference, and access to Charity Navigator’s extensive database.
“This award is a great opportunity,” said Graddy-Reed, who also received funding from USC’s Center on Philanthropy and Public Policy. “I’m excited that I get to work with these data that are not publicly available, to answer questions that are in the forefront of the conversations around charitable donations, and to see if overhead matters as much as we think it does.”
Previous research in the field has analyzed nonprofits in limited geographic regions over short periods of time, producing inconsistent findings. Some studies show no effect of either ratings or overhead ratios on donations. Others find that low overhead ratios have no effect, but high overhead ratios deter giving. Still, others point to negative ratings having no effect, but positive ratings attracting gifts and grants.
Graddy-Reed aims to pull this picture into sharper focus using data spanning a longer time period and larger geographic area. She will cull data from Charity Navigator, and the National Center for Charitable Statistics (NCCS) Statistics of Income (SOI) IRS data, and then run what she calls “all the fun equations.” These equations, Graddy-Reed explained, are rigorous measures of the complex dynamics involving ratings, overhead ratios and donor behavior.
Eventually, Graddy-Reed hopes the conversation can move beyond the overhead ratio, and address more meaningful measures of the impact and effectiveness of nonprofits.
“The overhead ratio conversation has been such a hot-button issue in nonprofits for so long now, but we need to figure out how to focus more on how these inputs create impact,” she said. “There is value in administrative costs, and there is value in looking at other measures of impact.”
Assistant Professor of Public Policy