The Surprising Efficiency of Government Redistribution

Every year when it comes time to participate in the Combined Federal Campaign (CFC), I am careful to peruse my local catalog before deciding to which charities I will donate money.  In addition to the 25-word descriptions of each charity, the Office of Personnel Management (OPM) also lists the administrative and fundraising expense rate (AFR), defined as follows:

The Administrative and Fundraising Rate (AFR) represents the percentage of dollars spent on administering the charity. It is calculated as a percentage of the organization’s total support and revenue. OPM, as well as the philanthropic community at large, remains concerned about excessive AFR levels. The philanthropic community generally considers an AFR in excess of 35 percent to be problematic. Some organizations are listed with a negative AFR. While there are other reasons this may happen, these are often the result of organizations reporting negative revenues caused by investment losses experienced  during these extraordinary difficult economic times. Donors should check with the organization and/or review its IRS Form 990; which is available to the public for a complete explanation. Each situation is unique. Donors may contact the charity directly and/or industry oversight organizations in order to better understand the financial status, service delivery record, and governance policies of the charity before donating.

As an example of some charities in the CFC catalog and their associated AFRs, here are some organizations to which I have donated money over the last several years:

11223 Retinitis Pigmentosa International Society for Degenerative Eye Disease and Related Disorders (800) FIGHT-RP www.rpinternational.org EIN#953707483 Restoring Vision and making the world accessible again through TheatreVision Description, Adult Stem Cell Transplants, information hotlines, education. The miracle of vision must be preserved. 17.3%

83997 Catholic Charities of the Archdiocese of Washington (202) 772-4300 www.catholiccharitiesdc.org EIN#530196524 Provide physical and mental health care, legal services, immigrant education and assistance, employment services, disability services, foster care, adoption services, shelter, education, and crisis counseling. 15.8%

10561 Muscular Dystrophy Association (800) 572-1717 www.mda.org EIN#131665552 Fighting neuromuscular diseases through worldwide research, a nationwide network of clinics offering comprehensive medical services, and far-reaching professional and public health education. 24.2%

11453 Fisher House Foundation (888) 294-8560 www.fisherhouse.org EIN#113158401 We build and donate Fisher Houses at military/VA medical centers, support existing houses, help military families in need and award Scholarships for Military Children. 3.0%

Just as a brief aside, my father has retinitis pigmentosa, one of my best friends from high school (who passed away just last year) was literally one of the poster children for the Muscular Dystrophy Association, I’m Catholic, and I’m in the military, in case you were wondering why I choose to donate to these particular charities.  Now obviously in an ideal world the AFR for every charity would be zero, or as close to zero as possible, but as you can see that is simply not the case.  I had always operated under the assumption that government must surely be less efficient than charitable organizations at redistributing money, since they seemingly have no incentive to do otherwise, so I thought I’d look into it myself.  Here’s what I found:

Social Security

The fiscal year 2012 total budgetary resources of the Social Security Administration (SSA) are expected to be approximately $13,000,000,000.  The combined distributions from Old-Age Survivors Insurance (OASI), Disability Insurance (DI) and Supplemental Security Income (SSI) are expected to be approximately $805,000,000,000.  Using a calculation similar to that used to obtain the AFR, let’s call it AFR*, you get AFR*=1.6%.  I realize this is a rather naive number in that, unlike a charitable organization, SSA does not incur its own fundraising costs, but still, this is a surprisingly low number.

Medicare

According to the 2011 Medicare Board of Trustees Report, total expenditures were $247, 924,924,000 while administrative expenses were $3,461,486,000 (see page 59).  This gives an AFR* value of 1.4%, similar to that of the SSA.

Supplemental Nutrition Assistance Program (SNAP)

Data for SNAP outlays and expenses is available for 1969 through 2010 at the USDA website.  For 2010, total benefits paid were $64,704,520,000 while expenses were $3,603,540,000.  This gives an AFR* value of 5.3%.

What Does It All Mean?

I had always thought that, at least to some degree, part of the problem with entitlements was the inefficiency of allowing a bureaucracy as big as the federal government redistribute wealth.  I thought surely it must be inefficient, regardless of the economies of scale.  I realize these are very simple calculations, not taking into account the overhead of the Internal Revenue Service and parent organizations for the examples given, but even if the AFR* values I have calculated are five or ten times what I have shown, the problem does not lie in the overhead, but in the entitlements themselves.  Something must be done to wean our friends and neighbors off the government teat, because it seems we are nearly as efficient as we are ever going to be.

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