Charity Ratings: What Does It Mean to See a Falling Star?

Like many other non-profit organizations, last year Charity Navigator lowered our rating from four stars (excellent) to two stars (needs improvement). Since many donors rely on third-party rating services such as Charity Navigator to inform their giving, we would like to offer an explanation.

Since 2007, Grassroots International received Charity Navigator’s highest rating of four stars. However, after a review in November 2010, Charity Navigator downgraded the rating to two stars. When asked why, we were given the following reasons:

1. Grassroots International did not match in 2006-2009 the growth achieved in 2005-2008. Charity Navigator measures organizational efficiency and uses growth as a major determining factor. And it does this by comparing the last fiscal year with a fiscal year three years prior. So 2009 is compared to 2006, and 2008 to 2005. By way of explanation, let me offer two reasons.

   First, Grassroots grew significantly leading up to the organization’s 25th anniversary in 2008, and many donors gave “something extra” that year to celebrate the accomplishment and set up a 25th Anniversary Fund. That fund has been used to make grants and initiate programs in a responsible manner over a period of four years. Receiving increased donations in correlation with anniversaries (generally five-year increments) is simply part of the cyclical nature of fundraising.

   Secondly, shortly after the 25th Anniversary campaign, the bottom fell out of the economy. While Grassroots International has been able to maintain its global funding and U.S.-based advocacy, we did not grow at the same rate as earlier. Stability does earn a star in Charity Navigator.
    

2. As an international organization, Charity Navigator deemed that Grassroots International should have been insulated from the economic downturn within the United States. This ruling occurred despite the fact that Grassroots International is a U.S.-based charity that raises its funds domestically.

Our friends at the Unitarian Universalist Service Committee (UUSC), who suffered a similar change, summarize it this way: Charity Navigator uses a complex formula to rate charities, taking into account a wide range of factors. These are grouped under one of two categories: (1) organizational efficiency and (2) organizational capacity. Generally, organizational efficiency measures proportions of funds used for programs against non-program expenses. Organizational capacity measures rates of revenue growth.

In the case of Grassroots International, the presumed factors in our falling stars stem from a lack of growth and our resolve to maintain our grantmaking and support for resource rights and food sovereignty using funds raised specifically for that purpose during our 25th Anniversary campaign in 2008. While many charities that did not have endowments – like Grassroots International – were forced to shut their doors, Grassroots International was fortunate to be able maintain steady support for our partners, and keep our commitments to them and stay true to our mission.

Grassroots International was not alone in experiencing a loss of stars in the recent Charity Navigator ratings. In fact, more than 180 charities were downgraded, due in large part to the negative effects of the economy on organizations’ growth and capacity, including well-respected organizations such as the UUSC, Oxfam America, Amnesty International, CARE, and Habitat for Humanity (Orange County, N.C.).

We understand why third-party evaluators like Charity Navigator are helpful to donors as they weed through dozens of funding appeals from worthy-sounding organizations. However, such services are limited in their information and capacity. Literally thousands of nonprofits launch, change, or die off every year. Watchdog organizations with relatively small staffing cannot be expected to know the nuances at each nonprofit organization in their portfolio before adding or taking away a star, or moving from a B- to an A-. They rely on formulae, 990s and trends identified by lobbyists from the large nonprofit agencies. Unfortunately, however, in this scenario staying true to mission, honoring commitments to partners, and implementing planned spend down of funds raised for the specific purpose of making grants do not factor.

Charity Navigator ratings offer one source of information. For those seeking a bigger picture, we encourage you to ask additional questions directly from the non-profit organization – whether Grassroots International or any other you are considering giving to – itself.