Related: Changing the Conversation about Overhead

By David L. Thompson
The National Council of Nonprofits
Recently, a nonprofit leader told an audience in Washington, DC: “Nonprofits have a duty to advocate on behalf of the people who have no voice.” Many in the audience nodded in agreement, while one audience member said to a neighbor, “Yeah, but who has the time?”
For many of us committed to advancing our missions through advocacy, the question is less who has the time to advocate, and more: How much time could we save by working with governments to fix the problems that divert time and resources from missions?
Recently released data from the Urban Institute show that Hawaii ranks as the worst state in the nation in imposing arbitrary caps on reimbursements for administrative and overhead costs, also called indirect costs.

Nearly three out of four, 72 percent, of Hawaii nonprofits responding to the nationwide survey conducted by the institute reported that governments impose limits on general administrative and overhead costs, a significant failure to pay the full cost for services performed by the nonprofits on behalf of governments. Of those nonprofits, 13 percent reported being paid zero for their necessary administrative or overhead expenses, and nearly three out of five, 58 percent, received reimbursements of ten percent or less for these costs. Click HERE for HANO's earlier article about the study.
These extremely low overhead rates are far below what is necessary to do the job. Studies reveal that the usual range of overhead rates for for-profit companies and nonprofit organizations alike is approximately 25 percent to 35 percent. Yet, governments have historically imposed arbitrary restrictions on reimbursement rates that undercut the ability of their partners to succeed on behalf of taxpayers. Why? The most obvious answer is because nonprofits historically haven’t effectively advocated for fairness. 

Unrealistic limits on reimbursement of a nonprofit’s legitimate costs undermine its ability to perform vital services on behalf of government. Worst, current policies on administrative and overhead costs force nonprofit employees to spend time raising funds to fill the gaps. So to the question, who has the time to advocate, another question is: How much time must we divert from our missions to fundraise for government?
Thanks to the ongoing advocacy efforts of HANO and many other organizations, there is the promise of relief. Last December, the White House Office of Management and Budget published new Uniform Guidance that will require pass-through entities -- typically states and local governments receiving federal funding -- and all federal agencies to reimburse nonprofits for their indirect costs. If the nonprofit already has a federally negotiated indirect cost rate, that is what the states and localities must pay. If a negotiated rate does not yet exist, then nonprofits are empowered to request negotiating a rate or the nonprofits can elect the default rate of 10 percent of their modified total direct costs.
The new OMB uniform guidance is a huge win for nonprofits performing services under contracts and grants funded in whole or in part by the federal government. Furthermore, the benefits extend to charitable nonprofits with no government contracts or grants, as they could see less competition for scarce philanthropic dollars.
The OMB Uniform Guidance is a demonstration of the value of nonprofit advocacy, but it would never have happened if nonprofit leaders focused solely on getting the duplicate forms filed and resubmitted, and spent any leftover time engaging in fundraising activities.

Nonprofit leaders recognized that their problems where shared by others and did what nonprofit people do best -- they came up with solutions. That is the kind of every-day advocacy that is transforming nonprofits and their communities. It is mission-based and solutions-oriented -- just like every nonprofit.

David L. Thompson is Vice President of Public Policy for the National Council of Nonprofits in Washington, D.C. The Council of Nonprofits’ recent special report, "Toward Common Sense Contracting: What Taxpayers Deserve," highlights ready-made solutions to problems Hawaii nonprofits are facing.


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