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Three Stars and Proud

June 3, 2016

For three years running RSRT has received a top rating of four stars from Charity Navigator, an organization that assesses the transparency, financial health, and fundraising efficiency of non-profits. RSRT has fared very well for several reasons—our low overhead (an average of 4% of our expenses are spent on administration and fundraising; 96% on our research program); accessible financials; and good business practices. RSRT once again rated at the highest levels in these categories. But our overall rating this year dropped to three stars.

Why did RSRT drop a rating when we awarded more money to research last year than ever before (almost $9 million), had better fundraising efficiency than in the previous year, and were as transparent as ever on our finances? The reason is that Charity Navigator introduced a new metric to its rating system this year called Liability to Assets Ratio. Essentially, this compares the amount of money RSRT owes to the amount of money it has in the bank.

You’d be right if you guessed that RSRT’s bank account, compared to other non-profits with similar operating budgets, is not very large. That’s because we would much rather have those funds working for our daughters, granddaughters, sisters, and nieces with Rett Syndrome than sitting in the bank, so our assets are small. Our liabilities, on the other hand, are large. RSRT’s liability is the amount we owe in research awards. Many of our awards to scientists are over multiple years. This has a strategic purpose. Monica, Randy, and scientific advisors can work with researchers over a multi-year period, distributing portions of the full amount awarded as progress is made. But the full award amount goes down as a liability in RSRT’s books right away. Add those dollars up for multiple multi-year research projects and our liabilities are significant.

We would never want to change that model at RSRT of having low assets and high liability. It means we’re using maximum dollars to achieve our goal—treatments and a cure. The more funds we award to science, the more impact we have on the research and the closer we get to achieving that goal. In fact, since RSRT was founded in 2008, we have awarded more funds to research ($36 million) than we have received in contributions ($31 million). In other words, we operate in the red—we award funding to critical research even if we don’t have the money yet.

We are very fortunate to be able to do this. It allows Monica and Randy to look forward scientifically; to not be limited by what’s in RSRT’s bank account when an exciting research opportunity comes up. We wouldn’t be able to do this if we didn’t have families that hold events and loyal supporters we can count on every year. For example, Reverse Rett in the UK very generously supports RSRT every year. Even if we don’t have Reverse Rett’s contribution in hand yet, we can anticipate receiving it and use it to spur new or continuing research. So Reverse Rett’s support starts working for girls and women with Rett before we have even received it. The same is true of recurring events spearheaded by affected families. It’s a reminder of how important these events are, not only for the funds they bring in but also because they empower RSRT to influence and guide research even before the events happen.

The new Charity Navigator metric—Liability to Assets Ratio—measures an organization’s long-term financial status. It’s an appropriate measure for non-profits like universities or museums that are meant to do their good work indefinitely. They operate in the black, limiting liability and maximizing assets so they can be around decades from now to continue providing their services. RSRT is not built on this financial model. We have an end goal—a cure for Rett Syndrome—that universities and museums don’t have. Another way to look at it is that RSRT exists so it can put itself out of business by finding a cure, and our financial model reflects that by spending maximum dollars on research rather than keeping funds in the bank.

Frankly, we don’t give a damn about our Liability to Assets Ratio; achieving our goal of a cure is infinitely more important. One day RSRT will be out of business and I’ll be unemployed. It’s a day I long for with all my heart and soul. It’s a day I’ve promised my daughter. But to get us to that day, we have to do everything we can right now to maximize our funding coming in, and maximize our research spending. Three stars and proud.

(N.B. I have discussed with Charity Navigator the flaw in their new metric for organizations that have an end goal. They have been very receptive to my thoughts and assure me that the metric will be reviewed for its value in assessing non-profits.)