Ranking Hawaii’s Charities

Charity Navigator has been using the same method to rate the nation’s nonprofits since 2002. In this issue, Hawaii Business looks at the 27 local charities on the list.

But it’s worth remembering that any such rating system, though valuable, is bound to have flaws. How do you compare charities with completely different missions? Is an organization that feeds the poor better than one that educates the young? Is public broadcasting more important than caring for rare plants? Is it more effective to help other charities or to serve the public directly? There are no clear answers to these questions.

So, rather than compare the missions of nonprofits, Charity Navigator looks at these organizations from the perspective of a potential donor. First, it asks, “Does the charity have the financial health to carry out its mission?” Second, “Does the charity provide donors with enough information to effectively evaluate the governance and oversight of the organization?”

Charity Navigator’s Financial Rating is based on the organization’s most recently available tax filings. IRS form 990 spells out the charity’s current financial status. In addition to the basic question, “Do revenues exceed expenses?” Charity Navigator looks at things like: What percentage of a charity’s expenses go to programs versus administrative overhead? How efficient is its fundraising? Are revenues and program spending growing fast enough to keep up with inflation? Does the charity have enough working capital to survive a downturn in the economy?

Charity Navigator’s Accountability and Transparency Rating measures how easy it is for donors to learn more about the nonprofit. Is financial information, such as the organization’s 990 and audited financial statements, available on its website? Who are the staff, and who are board members and what are their affiliations? Who is responsible for the tax filings? Are there potential conflicts of interest?

Taken together, the Financial Rating and A&T Rating provide an Overall Rating for each charity. This is the number Hawaii Business uses to rank local nonprofits against each other.

There are drawbacks to Charity Navigator’s approach. First, because nonprofits generally have no tax liability, they’re notoriously slow to file their 990s. The current list is compiled from tax filings that range from June 2013 to August 2015. In other words, the list compares nonprofits using information from different years. That can make a huge difference.

This year, for example, one charity rose nine place on the list based on the information in its latest filing. But other changes in the list could occur any time new tax filings are available.

The other major drawback to the list is that not all local charities are covered. In fact, Charity Navigator only has information for 27 Hawaii nonprofits, even though there are thousands of 501(c)3 organizations in the state. While most of Hawaii’s large charities are on the list, there are several prominent organizations missing. For example, religious organizations, such as the Salvation Army, Catholic Charities and many of the state’s private schools, are exempt from filing a 990, and therefore aren’t listed.

In short, Charity Navigator’s list isn’t perfect, but it’s a good place to start.

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1. Make-A-Wish Foundation

Fiscal Year Ending: August 2015
Last year’s ranking: 10
Overall Rating: 97.56
Financial Rating: 98.32
A&T Rating: 97.00

After several lackluster years, the Make-A-Wish Foundation soared to the top of Charity Navigator’s Hawaii rankings, rising nine places on the strength of an incredible 44.2 percent growth in revenue. This $807,772 increase in contributions was accompanied by a comparable 41.8 percent growth in the organization’s spending on programs. That also made the charity one of only two in Hawaii with a four-star rating in both the financial category and the accountability and transparency category.

2. Hawaii Foodbank

Fiscal Year Ending: June 2014
Last year’s ranking: 1
Overall Rating: 94.68
Financial Rating: 92.48
A&T Rating: 100.00

Until the Make-A-Wish Foundation’s meteoric rise, the Hawaii Foodbank was the top-rated charity in the state. In fact, it has received a four-star rating in both the Financial and the Accountability & Transparency categories in every year since 2010. It’s 94.6 percent rating in program expenses this year means that, of the $31 million it spent in 2014, more than $29 million went to feed the poor. Food banks typically do well in the Charity Navigator ratings, largely because they mostly deal in noncash transactions.

3. YMCA of Honolulu

Fiscal Year Ending: December 2013
Last year’s ranking: 3
Overall Rating: 92.03
Financial Rating: 89.47
A&T Rating: 96.00

Another charity that spends a high percentage of its revenue on programs, the YMCA came in just a tick under four stars in the Financial Rating category. Low growth in revenue and in money spent on programs kept the Y from a higher rating. The only thing that kept it from getting a perfect 100 A&T rating was failing to post a donor privacy policy on its website.

4. Punahou School

Fiscal Year Ending: June 2014
Last Year’s Ranking: 4
Overall Rating: 91.06
Financial Rating: 88.02
A&T Rating: 96.00

The only private school on the list, Punahou has a strong four-star Overall Rating. It loses a star in its Financial Rating because of a low 1.6 percent growth in revenue. In order for private secondary schools to get the full 10-percentage-point allotment for this category, they need to show 10 percent growth. Punahou also underperforms in fundraising efficiency: It costs the school 26 cents for every dollar it raises in donations.

5. Hawaii Public Radio

Fiscal Year Ending: June 2014
Last Year’s Ranking: 5
Overall Rating: 91.05
Financial Rating: 89.47
A&T Rating: 93.00

A four-star Overall Rating indicates HPR performed well across the board. It received a three-star Financial Rating largely because it spent a lower-than-expected percentage of its revenue on programs. Also, revenues haven’t grown as fast as they have at successful public broadcasting organizations on the mainland. In the other categories, though, HPR exceeded the standards of public radio stations.

6. Institute for Human Services

Fiscal Year Ending: June 2014
Last year’s ranking: 2
Overall Rating: 90.90
Financial Rating: 93.34
A&T Rating: 89.00

IHS seems to have lost its four-star A&T Rating solely because it failed to post its donor privacy policy on its website. In other respects, it has continued a stellar performance, although the organization’s Financial Rating declined slightly due to lower revenue growth. One worrisome note: Contributions to the charity were actually down slightly, though this was offset by revenue from paid services.

7. Honolulu Museum of Art

Fiscal Year Ending: June 2014
Last Year’s Ranking: 6
Overall Rating: 90.89
Financial Rating: 89.91
A&T Rating: 92.00

The museum’s Financial Rating came up just short of four stars, losing points for slightly higher than expected administrative expenses and a slightly lower-than-expected fundraising efficiency. As with so many local charities, these small details dragged down the amount of money available to spend on programs.

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8. Pacific Islanders in Communication

Fiscal Year Ending: September 2013
Last Year’s Ranking: 7
Overall Rating: 89.83
Financial Rating: 90.74
A&T Rating: 89.00

PIC is one of those rare charities whose Financial Rating is higher than its A&T Rating. The four-star Financial Rating is due in large part to the organization’s strong revenue growth: 11.6 percent. That equated to a 26.3 percent increase in the amount of money it could spend on programs. PIC could easily have gotten a four-star Overall Rating by simply providing more information on its website, including audited financial information and its IRS form 990.

9. National Tropical Botanical Garden

Fiscal Year Ending: December 2013
Last Year’s Ranking: 8
Overall Rating: 89.52
Financial Rating: 90.07
A&T Rating: 89.00

Another charity that could have earned four-star honors with a better A&T Rating, the garden, nonetheless, did well based on its Financial Rating. Hawaii’s high costs increased its administrative expenses, which reduced how much it could spend on programs, particularly relative to comparable organizations on the mainland. It’s A&T Rating was impaired because of a loan made to the organization by a trustee, a practice frowned on by Charity Navigator.

10. Hawaii Community Foundation

Fiscal Year Ending: December 2013
Last Year’s Ranking: 9
Overall Rating: 88.25
Financial Rating: 85.45
A&T Rating: 92.00

A tough year on the income side hurt HCF’s Financial Rating. Revenue declined by 6.5 percent; so, even though the organization did well in the other financial categories, it couldn’t rise to the four-star level. One other item of note: HCF’s A&T Rating suffered because the charity listed compensation of $106,000 for Jennifer Goto Sabas, a director. Although it’s common for the officers of nonprofits to be paid, compensating board members isn’t considered a best practice.

11. Japanese Cultural Center

Fiscal Year Ending: June 2014
Last Year’s Ranking: 12
Overall Rating: 87.02
Financial Rating: 83.04
A&T Rating: 93.00

A solid three-star charity, JCC, like many Hawaii nonprofits, suffered from anemic revenue growth: a mere 1.9 percent. Charity Navigator appears to have had a difficult time finding a category in which to place the cultural organization, settling on “International Peace, Security and Affairs.” To get full credit for revenue growth in this category, JCC would have to have increased revenue at least 10 percent. Interestingly, JCC owns its building and has nearly 13 years of working capital, the most of any listed Hawaii charity, and about 12 years more than the minimum for Charity Navigator’s highest credit.

12. Hawaiian Humane Society

Fiscal Year Ending: June 2014
Last Year’s Ranking: 13
Overall Rating: 86.46
Financial Rating: 88.11
A&T Rating: 85.00

Even though the Humane Society saw a dramatic 18.1 percent increase in revenue, more than doubling its contributions, it was only able to spend 5.2 percent more on programs. That’s because most of the increase in contributions were for its capital campaign, money that will redevelop its Moiliili facility and build a new campus in West Oahu. Because these funds are largely unspent, Charity Navigator doesn’t treat them as program spending. It’s also unclear whether capital expenses would qualify as program spending, so the Humane Society’s future rankings may also suffer.

13. East-West Center Foundation

Fiscal Year Ending: September 2013
Previous Year’s Ranking: 14
Overall Rating: 86.45
Financial Rating: 84.32
A&T Rating: 89.00

The foundation got a solid three-star Overall Rating, with three stars in both Financial and A&T. That’s remarkable given how much of an outlier the charity is in both areas. For example, the foundation spent only 60.3 of its revenue on programs, by far the lowest of any ranked Hawaii charity. Similarly, its administrative expenses came to 34.5 percent, the most on the list. The foundation also failed to list its donor privacy policy, audited financials and IRS form 990 on its website, all of which lowered its A&T Rating.

14. Maui Food Bank

Fiscal Year Ending: June 2013
Previous Year’s Ranking: 15
Overall Rating: 86.31
Financial Rating: 81.07
A&T Rating: 96.00

Timing made it difficult to assess Maui Food Bank’s proper ranking. Charity Navigator’s numbers are still based on the organization’s June 2013 tax filings. At that time, compared to all the other ranked nonprofits in Hawaii, the food bank spent the highest percentage of its revenue on programs. It also spent the lowest percentage on administrative costs. But revenue actually declined by 1.5 percent, which cost it on the Financial Rating. The food bank also failed to include its CEO’s salary on that year’s IRS form 990, which cost it four points on its A&T Rating. In its June 2014 filing, though, the food bank made and spent more than $1 million more than the previous year. If those numbers had been taken into account, Maui Food Bank would likely have risen in the rankings.

15. National Kidney Foundation of Hawaii

Fiscal Year Ending: June 2013
Previous Year’s Ranking: 16
Overall Rating: 86.10
Financial Rating: 83.09
A&T Rating: 90.00

Here’s another charity whose June 2014 filing arrived too late to be taken into account by Charity Navigator. And like the Maui Food Bank, the Kidney Foundation’s revenue and expenses both rose. But, in both years, the organization showed substantial losses, which worked against its Financial Rating. And, because losses affect future ratings in the Charity Navigator calculation, the foundation’s standing will likely remain lower for a few more years.

16. Maui Arts & Cultural Center

Fiscal Year Ending: June 2014
Previous Year’s Ranking: 17
Overall Rating: 86.05
Financial Rating: 83.64
A&T Rating: 89.00

An unusually high percentage of MACC’s expenses, 30 percent, were for administrative costs. That means the charity received little credit for its program spending. That accounted for its relatively low Financial Rating. The organization also ran a $1.5 million deficit for the year, to go on top of a $1.3 million deficit the previous year. That means MACC’s standing will likely fall next year.

17. Aloha Council Boy Scouts of America

Fiscal Year Ending: December 2013
Previous Year’s Ranking: 18
Overall Rating: 85.08
Financial Rating: 85.18
A&T Rating: 85.00

The Aloha Council is an across-the-board three-star charity. Aside from the slow revenue and program-expense growth typical of most Hawaii nonprofits, the Scouts showed an average Financial Rating. In the same vein, its A&T Rating was depressed by a typical failure to provide basic information on its website, including a donor privacy policy, the names of board members, audited financial statements and its IRS 990.

18. Hawaii Opera Theatre

Fiscal Year Ending: May 2014
Last Year’s Ranking: 10
Overall Rating: 84.56
Financial Rating: 79.69
A&T Rating: 92.00

One of the few Hawaii nonprofits for which Charity Navigator has updated fiscal year 2014 numbers, HOT fell eight slots on the list since last year. Even though total revenue was up for this fiscal year, the organization’s Financial Rating suffered from large deficits the two previous years. It’s A&T Rating also suffered, though apparently only from failing to post its new audited financials up on its website.

19. Aloha United Way

Fiscal Year Ending: December 2013
Last Year’s Ranking: 19
Overall Rating: 84.00
Financial Rating: 77.38
A&T Rating: 100.00

Despite a perfect A&T Rating, AUW was only a three-star charity. As usual, the cause was the organization’s falling revenue; this was the eighth consecutive year of losses. These affected the charity’s ranking in the usual ways: through declining program spending and by complicating Charity Navigator’s basic calculus of the nonprofit’s financial status. The losses are averaged out over several years to normalize income.

20. Honolulu Theatre for Youth

Fiscal Year Ending: May 2014
Last Year’s Ranking: 20
Overall Rating: 83.63
Financial Rating: 86.78
A&T Rating: 81.00

Like many three-star charities, HTY could have easily improved its ranking by simply providing the recommended items on its website. It received a low A&T Rating of 81 for failing to include a donor privacy policy, audited financials and its IRS form 990 on its website. In addition, HTY’s board did not see the organization’s form 990 before it was filed with the IRS, which isn’t considered a best practice. And, like many Hawaii nonprofits, HTY didn’t describe a specific process for determining the compensation of its CEO.

21. MAO Organic Farm

Fiscal Year Ending: December 2013
Last Year’s Ranking: 21
Overall Rating: 83.23
Financial Rating: 79.00
A&T Rating: 89.00

Farming isn’t your typical example of “Other Educational Programs and Services,” the category into which Charity Navigator puts MAO Farms. That may partly be why it received a relatively low Financial Rating: 15.1 percent of the farm’s outlays were for administrative expenses, which is high for this category but considered low for farming operations. Also, after strong growth the previous year, MAO saw revenue flatten this year, which resulted in a slow, 3.1 percent increase in program expenses.

22. Special Olympics Hawaii

Fiscal Year Ending: December 2013
Last Year’s Ranking: 22
Overall Rating: 82.86
Financial Rating: 78.09
A&T Rating: 89.00

Special Olympics offers a great example of how many minor issues can collectively lead to a relatively low Financial Rating. The charity’s low level of program spending cost it 2.5 points; slightly high fundraising expenses and poor fundraising efficiency scores cost it 5 points and 2.5 points, respectively; low revenue growth cost it 5.7 points; slow growth of program spending cost it 4.4 points; and a slightly low working capital ratio cost it another 2.5 points. None of these details were critical on their own, but they combined to limit the Special Olympics to just a two-star Financial Rating.

23. Ronald McDonald House Charities

Fiscal Year Ending: December 2013
Last Year’s Ranking: 23
Overall Rating: 81.10
Financial Rating: 75.65
A&T Rating:89.00

The Ronald McDonald House ranking is probably a good place to speculate about how Hawaii’s high cost of living affects local nonprofits’ Charity Navigator standing. RMH loses a few points because of its low revenue growth and consequently low growth in program spending (a recurring theme for Hawaii charities). But the organization’s biggest single drawback on its Financial Rating is the low level of program spending. It’s tempting to believe this reflects how expensive it is to run a home in Hawaii. 

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24. Hawaii Theatre Center

Fiscal Year Ending: May 2014
Last Year’s Ranking: 10
Overall Rating: 78.26
Financial Rating: 73.17
A&T Rating: 85.00

HTC’s low rating was mainly due to a 16.8 percent decline in revenue. That resulted in a 10-point deduction from the charity’s Financial Rating. It also created a $1.2 million shortfall on revenue of only $1.8 million. This was on top of $891,839 in losses the previous two years. HTC’s A&T Rating was reduced for failing to post important information, such as the names of its board members, audited financial reports or an IRS form 990 on the organization’s website.

25. Bishop Museum

Fiscal Year Ending: June 2013
Last Year’s Ranking: 25
Overall Rating: 73.26
Financial Rating: 64.88
A&T Rating: 86.00

Bishop Museum is another organization whose Charity Navigator ranking doesn’t yet reflect its latest tax filings. Its low standing was largely because of a very poor financial rating of 64.88, which reflected the museum’s low spending on programs (only 46.4 percent of the budget) and relatively high administrative costs (47.4 percent of the budget). Because museums have large expenses to care for their facilities and collections, they typically perform poorly in these categories. The museum was also dinged for a $14,377 loan to the CEO and for receiving loans from board members to help pay key bills. Bishop’s latest tax filing shows some improvement, including going from a deficit of $335,731 to an excess of $253,770. But it probably won’t change the museum’s two-star rating.

26. Hawaii Islands Ministries

Fiscal Year Ending: June 2014
Last Year’s Ranking: 26
Overall Rating: 70.83
Financial Rating: 67.98
A&T Rating: 74.00

Despite a slightly higher Financial Rating than Bishop Museum, HIM received a lower Overall Rating because it had the lowest A&T Rating in the state. The industry best practice is for an independent accountant to prepare the charity’s financial statements in cooperation with an audit oversight committee of the board of directors. A full 15 points were deducted from HIM’s A&T score for failing to use an independent auditor. Another seven points were deducted for not having its current audited financials or IRS form 990 on its website. HIM also spent more than any other local charity on CEO compensation as a percentage of total expenses (though the CEO’s $94,830 compensation package was dwarfed by the $368,983 in CEO compensation paid by the much larger Punahou School).

Unrated

27. Hawaii Centers for Independent Living

Overall Rating: Donor Advisory

HCIL did not receive any specific rating. Instead, Charity Navigator issued a donor advisory for this charity. That’s because the former executive director of the nonprofit was indicted in federal court for allegedly embezzling nearly $180,000 over the course of two years.