My colleagues and good friends at Raybin Associates have put out the best thing I have so far seen on fund raising in these daunting times. What makes it different is that it has real ideas that nonprofits - regardless of size, cause, or experience can put to use.
With their permission:
“Ten Things Your Board Can Do…” “Eight Things to Tell Your Donors…” Avidly, we read each article as it comes across our desks, looking for magic. Surely, someone smarter than we must know how to bolster our fundraising in these parlous times. But we are disappointed. “Focus on your mission.” “Monitor expenses carefully.” “Be strategic.” “Thank your donors.” Please… tell us something we don’t know.
Despite all that is being written about the new philanthropic reality, no one can say what the world will look like in the next six months, 12 months, two years. All we have right now is a collection of anecdotes – many of them contradictory:
·The Brooklyn Academy of Music just announced a $300+ million building and endowment campaign. Carnegie Hall and the Metropolitan Opera are cutting their programming this season. WNYC (New York public radio) reports the completion of a $63 million campaign – $5 million over goal – with the last $11 million raised since September, 2008.
·We know of a cancer research organization in New York whose late fall Gala has historically been almost entirely supported by the financial services industry. Yet they raised nearly as much this year as last. But we’re also hearing of organizations canceling or scaling back major events for fear they will fail, or because they might be viewed as too glitzy in a decidedly anti-glitz time.
·Most of our New York City independent school clients report that they are at least holding the line with their Annual Funds at year-end – though it’s unclear what final numbers will look like in June. But we’ve seen some national data suggesting that annual giving in schools is down an average of about 9% this year.
·There are reports of people whose financial circumstances have not changed appreciably stepping up to larger gifts to compensate for those who cannot give as much this year.
We also have some facts. More than 40 years of data from Giving USA makes clear that even in extended downturns and recessions, philanthropy decreases less than other aspects of the economy. While the current situation is unprecedented in our lifetimes, we think it likely that experience will hold true again. (For more on the data, go to our website, www.raybinassociates.com, and click on “Giving During Recessions and Economic Slowdowns”on the home page.)
Magical thinking got our economy where it is today. But it is only reality-based action that will eventually get us out. And it will. There is no magic to fundraising, and there never has been.
So what are the “Nine Top Things You Should be Doing to Maximize Your Fundraising in a Downturn and Position Your Organization for the Inevitable Upturn?” Just like everyone else, we’ve been reading all the words of wisdom out there. Summarized, tempered by our collective century of experience, and with a few contrarian thoughts, we offer the following recommendations.
No magic here, just practical, common sense advice:
1.Development 101 has never been more important.Ask respectfully for your donors’ support. Thank them promptly and appropriately.
2.Pessimism becomes a self-fulfilling prophecy. Stop using very negative language like “dire” and “catastrophe.” It’s not time to panic.
3.Board members and volunteers may bring their personal anxieties to the table. If they’re feeling poorer, and especially if they have lost high-status, high-paying jobs, they may be reluctant to consider initiatives that could require them to take visible positions as leaders and donors. Reassurance from the CEO and Development staff about their value to the institution may be required. But in extreme situations, when their negativity becomes a serious drag on the organization, they may need to be encouraged to take a leave of absence from their leadership positions.
4.Don’t insult your donors by assuming they won’t be able to give this year and leaving them out of Annual Fund solicitation – even if they worked for Bear Stearns, Lehman Brothers, or Merrill Lynch. Maybe they can’t do $25,000 again, but if they’ve been steady supporters and you’ve stewarded them well, they’ll almost certainly try to give something.
5.“Your Annual Fund gift will help support the operating budget” is not a strong enough case for support right now. Be specific as you can about what difference giving will make to core mission-related programs – meals that will be served, families for whom financial aid makes all the difference, inner-city public school children who will still have music classes. Be clear, too, about what may have to be cut.
6.Development staff, Board members, and other volunteers may feel uncomfortable askingright nowand don’t know how to respond to donors who say they can’t give. They may also feel awkward about not being able to give as much themselves. Since you want to be out there asking, it would be a good idea (and probably a great relief) to get staff and volunteer solicitors together to talk about their fears and concerns, and to practice ways to respond empathetically to donors whose circumstances have changed.
7.Don’t switch your fundraising emphasis from current support to planned giving. We’re hearingsome conversation that this is a good way to help donors fulfill their philanthropicurges at a time when significant other giving may be out of the question. We spend a lot of time encouraging our clients to get their planned giving programs off the ground, and would never tell them to back off. And if you’re in an endowment campaign, these planned giving conversations may make sense. But generous as it is, a $250,000 charitable trust from a 50 year-old woman is not going to pay the rent any time soon. As income from all sources – endowment, tuitions, fees, philanthropy, government – declines, the short-term fundraising priority for most organizations must be budget support. You have to be out there asking for current gifts.
An exception may be the donor who wants to set up a charitable lead trust, which provides income to the nonprofit for a fixed period of time, then the principal reverts to the donor or designated beneficiary. Lead trusts, however, are best funded with appreciated assets, so you may not have too many candidates for this planned giving vehicle.
8.If you’ve put plans for a campaign on hold, use this time to make sure your organization is ready to go when things begin to turn around. (Even if you’re not preparing for a campaign, these steps are the foundation of a strong Development program for any organization.)
-Work on Board development to make sure Trustees understand and are comfortable with their leadership roles. Plan some form of education about the issues in your field at each meeting. Be strategic about identifying new skills and talents you’ll need in the future and recruiting new champions for your cause.
-Engage Board, staff, donors, parents/members/users, and friends in developing an action-oriented strategic plan. Identifying a hierarchy of preferred options for the next two to three years will pay tremendous dividends – both in keeping the focus on mission and priorities, and when you get ready to frame your campaign case for support.
-Help Trustees and other volunteers refine their cultivation and solicitation skills with regular training and practice with different scenarios.
-While you’re asking for current support, take the opportunity to deepen relationships with your donors by talking with them about their interests, passions, and concerns. But don’t make every encounter a solicitation.
-Invest in building public awareness about your organization. Identify creative ways to bring the community in to learn more about who you are, what you do, and the people who make it all work. Raise your profile as an “expert” with Op Ed’s and letters to the editor. Take the time to update your website and your publications.
9.Now is an ideal time to take a step back and address all of those operational issues you swear you’re going to focus on in the quiet summer months, but never get around to.
-You may not be able to hire additional staff, but look ahead to what new skills and experience you may need when the economy begins to turn around; draft job descriptions and revise the organizational chart.
-Give existing staff a variety of professional development opportunities that will make them stronger members of your team and equip them for their roles in any future campaign.
-Take a hard look at your processes and procedures: gift handling, data entry, reporting, gift acknowledgments, relationship with the Business Office.
-Clean up your database and all those inconsistencies from past file conversions (finally!).
-Start prospect research or update existing work – recognizing that many asset values will be in flux for a while.
-Make sure you have working lists of major prospects, with detailed cultivation steps for each. Make it someone’s explicit responsibility to ensure that the plans are implemented and updated. Schedule at least bi-weekly prospect management meetings.
Some of the organization-building tasks identified in 8 and 9 above can be effectively undertaken by experienced staff and Board members. But others (strategic planning, a Development Audit, perhaps Board development and public awareness) usually benefit from guidance by seasoned outside consultants.
******
We know that giving is going to drop. The combination of the stock market contraction and the decline in personal income make that a virtual certainty, for philanthropy closely tracks both. But in this peculiar time of anxiety and hope, we believe that with sensitive asking, plenty of support for solicitors, pinpoint clarity about what difference people’s gifts will make, and a reasonably upbeat attitude, all organizations have it within their control to keep the slide from being cripplingly steep.
And don’t forget to focus on your mission, monitor expenses carefully, be strategic, and thank your donors.
Yesterday the Dow fell to 6723.29 its lowest close since April 1997 when it sank to 6583.48 It had begun the year at 6448.27. Over the rest of the year the market steadily rose and closed out at 7908.25 racking up 1459.98 points up 18%. So far this year the Dow has shed 1577.57 points and the mood out there is dismal with the market having tumbled 15% since January 2nd, and it is now down 50% from the 14000 high in October 2007.
Because the market bounced 1997 ended on an optimistic note that was reflected in Giving USA's 1998 data. In 1997 giving rose from $133.46 to $143.46 billion. To put this in perspective giving in 1997 was 1.8% of GDP and last year with the absolute dollars more than doubled reported giving was 2.2% of GDP.
The last quarter of 2008 was when the lemmings went over the cliff. In my view the full effect on philanthropy will not be felt until 2010.
Now that we have that out of the way let's eat cat food, up our meds, move to windowless offices and get back to client work.
At 1220pm the market was up 5 points! I'm back to meat loaf.
That these are hard times for the nation's nonprofits needs no further elaboration. Charity leaders are criticizing the President's budget plan because it cuts the tax advantage of a gift from people in the 33-35% tax bracket to 28% plus he proposes bumping the capital gains tax from 15-20%. Mercy. New York Times philanthropy beat reporter Stephanie Strom summed it up neatly - "among donors the concern was one of being forced to limit donations when charities need their support the most."
Social scientist Paul Schervisha Giving USA Foundation board member and esteemed colleague says "Obama is setting in place tax-rate and discount-rate policies that tend to lower charitable giving. And he is doing this exactly during a time when the recession, financial insecurity and depreciation of assets also negatively affect charitable giving."
Do I qualify as a "charity leader?" I'm president of Women's Prison Association, treasurer of Jazzmobile and a director of PICO National Network and Giving USA Foundation. And I disagree with the other anointed leaders: My take is that the $300 billion plus donated to US charities is a pimple on the great butt of the government trillions it will take to turn this nation around. Or otherwise put the insiders' chattering about the lessened charitable deduction fails utterly to consider that without the government contracts and grants that pass through the books of virtually all but discretely religious organizations private philanthropy - essential as it is - will simply not cut it.
The greater good is in Obama's courageous commitment to taking on all interest groups, including ours, because that is exactly what's required. My guess is at least 90% of the so called "charity leaders" voted for him, not exactly a shocker given the Ken and Barbie alternatives. Obama made clear his priorities throughout the campaign. What's the big surprise here?
Stephanie Strom also quoted veteran New York consultant Margaret Holman: "Research has shown again and again that for major donors, taxes are at the bottom of their list of reasons they make these gifts" and she reported Giving Institute director Bob Sharpe's trenchant observation that the alternative minimum income tax already limits the charitable tax deduction to 28% for the very wealthiest donors.
Giving USA has been measuring the philanthropy handle since 1967. The bar chart looks like a Madoff report: up virtually every year for 40 years - through recession, war, rampant inflation, high hem lines, low hem lines, 9/11 - and tinkering from time to time with the charitable deduction.
Yes as a professional I'd like those who give the most to get the most. But as I Brasso their plaques I'd like to see universal health care, a green environment, poor kids who can read and write, full employment - and if the arts can't prosper they should at least flourish.
Not to mention an end to foreclosures, two wars and serious jail time for the anti-government Ayn Randers whose (objectivist) greed got the country into this mess.
Charity is big business, 10% of employment, 2% of GDP, millions of organizations; we are as much a special interest as farmers, oil companies, defense contractors etc. Somebody needs to put total interest over self interest.
On February 11th The New York Times (Feb. 11) ran a story suggesting that the boards of foundations that invested money from Madoff and thereby realized ill-gotten gains may have acted imprudently and below the level of fiduciary responsibility to which they are legally bound by failing to properly assess the provenance of Bernie's money. The IRS could (theoretically) step in and demand that the boards make the foundations whole and not to be caught out each of the fifty states could potentially do the same. Oy.
Do the charities to whom these foundations awarded tainted money now have any legal obligation to return those funds? I raised this in my obit on the JEHT Foundation (below) and have been thinking about it since.
So I asked Sarah D. McShea an attorney specializing in legal ethics about it. "I don't think there is any legal duty on the part of recipients to return grant money to foundations that improvidently invested their endowments with Madoff" she said. So legally grantee boards would seem to be off the hook. But as a trustee of three nonprofits, and as a consultant to many others I would advise looking gift horses in the mouth.
I don't want charities to be embarrassed.
If pledges are involved I don't want charities to be stiffed.
In these hard times there seem to be "mini"-Madoffs emerging every day.
A Bullet Dodged
R. Allen Stanford (Photo: Joe Skipper/Reuters)
Several federal agencies, including the F.B.I. and the I.R.S., have spent recent months looking into the business activities of the Stanford Financial Group, run by R. Allen Stanford. But now federal authorities are investigating whether those rewards were simply too good to be true. Several federal agencies, including the Securities and Exchange Commission, the F.B.I. and the Internal Revenue Service, have spent “many months” looking into the business activities of the Stanford Financial Group, which is based in Houston, and Mr. Stanford’s bank based in Antigua, which issues high-yielding certificates of deposit, according to two individuals briefed on the investigations who were not authorized to speak publicly.
During my time as chairman of Giving USA Foundation afellow board member began an adagio with executives of Stanford. The quid we offered for their quo was a multi-year full page back cover ad on our jewel publication Giving USA. There was a lot of dither and the expected gift though always imminent never materialized. We could not have known we'd have sold out our brand.
An old Southern preacher was asked if he would accept a gift of tainted money to rebuild his fire-ravaged church. He is said to have replied "... t'aint enough."
The JEHT Foundation is one of the total casualties. I attended this event in my capacity as president of the board of Women's Prison Association a JEHT grantee:
A memorial service for the JEHT Foundation was held in New York on January 22nd. The death was announced December 12th immediately following the highly publicized arrest of Bernard (Ponzi) Madoff. The cause of death was traumatic exsanguination – i.e., the foundation’s money bled out suddenly and acutely.JEHT was six years old, wiped out like so many others by imprudent investment with Mr. Madoff. JEHT is survived by its board (the donors and a few outside directors) and by its staff which has been let go effective January 31st.
As expected wonderful things were said about the corpse – but nothing about the corpus: pretty much everyone present knew JEHT’s funding came through Norman Levy the father of the founder Jeanne-LevyChurch. He had long invested with Mr. Madoff. A board of presumably financially sophisticated people was snookered like so many others. At the time of its death notice CEO Robert Crane said “the returns had been steady and strong for all these years. It was shocking.”Like observations, and even stronger remarks, have been made by many others similarly affected.
Painful, moving and emotional remarks were made by Ms. Levy-Church the foundation’s driving force whose devotion to progressive causes was described by one onlooker as “rare and remarkable.” Eulogists included the head of Atlantic Philanthropies, a representative of Pew Charitable Trusts and several grantees cut off more or less in the prime of their JEHT support. Mourners were drawn to the foundation’s edgy SoHo offices for the service and they came from the grantee community, public service and other family foundations. Words like “cautionary,” “sad” and “nice wine” were uttered by some. Encomia were reproduced on large posters and a memorial book was available for mourners to record their names and whatever comments they might have cared to make.
It is believed that Mr. Madoff was especially attracted to foundations because the 5% payout they were required to draw down annually was a manageable amount for him to pay back each year, leaving the “principal” at rest- principal that turns out not to have existed, having gone out to pay the other investors who came along later, the essence of the Ponzi investment model as taught in most business schools.
JEHT Foundation, despite its youth, became one of the most effective small foundations in the country partnering with other much larger foundations like Pew and George Soros’s Open Society Institute to fulfill a mission and supporting good work virtually ignored by traditional philanthropy.
The Foundation was established in 2000. “JEHT” is an acronym for Justice, Equality, Human dignity and Tolerance. Its mission was to support programs that promoted reform of the criminal and juvenile justice systems; to ensure that the United States adhered to the international rule of law; and it worked to improve the voting process by enhancing fair representation, competitive elections and government transparency.
A recent posting to its web page said that “the JEHT Foundation Board deeply regrets that the important work that the Foundation has undertaken over the years is ending so abruptly. The issues the Foundation addressed received very limited philanthropic support and the loss of the foundation’s funding and leadership will cause significant pain and disruption of the work for many dedicated people and organizations. The Foundation’s programs have met with significant success in recent years – promoting change in these critical areas in partnership with government and the non-profit sector. Hopefully others will look closely at this work and consider supporting it going forward.”
In its brief life JEHT gave away more than $75 million in aid of what one of the eulogists described as “orphan causes.” In the world of philanthropy – on whichever side of the table one sits - experienced non-profiteers long ago learned that questioning the provenance of money is seldom a good idea. As one observer commented “you wouldn’t want to know.”
It is possible, perhaps even likely, that some of JEHT’s good works came from bad money and that grants to deserving progressive nonprofits were based on ill-gotten gains. Who would ask? No grants are likely to be returned.
A few days ago The New York Times published an Op-Ed piece by the head of Yale's endowment fund arguing that the way to save newspapers in print was to convert them into nonprofit organizations. I responded with this letter and thought I would share it with you, because the Times passed. As always comments welcome.
“News You Can Endow” is ingenious but as a solution to the plight of newspapers in print it falls short from the public interest perspective for four reasons. First, the purpose of granting nonprofit status to an entity is based on the idea that its underlying mission and intent relates to charitable purpose. This taxpayer subsidized privilege is widely abused by far too many organizations able to ride on tax-exempt, tax deductible status but provide little practical charity in their operations in relation to their huge endowments. The focus here is clearly on building a sustainable business model. I don’t see any philanthropic motive. Therefore affording newspapers nonprofit status is inappropriate.
Second assembling a corpus of $5 billion forthwith can be done only through large gifts from a small number of individual and foundation donors. In its essence this is fundamentally undemocratic; in practice my experience is big donors do not stand to the side. They expect a voice and a seat at the table.
Next to equate “incremental income” from hard-copy sales and on-line subscriptions with tuition payments is a bit misleading. For most institutions tuition is anything but incremental. It is the revenue driver.
Finally who is to identify the”nation’s premier newsgathering organizations?” Those big donors will. That is scary.
Remarks presented this morning to the board of directors of the Association of Fund Raising Professionals (AFP) - New York chapter.
Good morning everyone. Good bye to 2008. And welcome to 2009. May it be better. I will keep this as short as I can so we can enjoy some discussion. In the current AFP national e-newsletter Paulette wrote in part as follows:
We now have the opportunity to show just how critical the nonprofit sector is to our communities and our world. But as we do so, let’s be sure not to forget about the important role of ethics and trust. People give because they trust they can make a difference. Let’s continue to be keepers of that trust with every interaction we have with donors.
On that note of inspiration I thank the Society for Cupidity and Malfeasance – SCAM - for making today’s presentation possible. Their man of the year is alleged con man Bernie Madoff. Madoff says he “made off” with $50 billion over nearly 40 years while honoring his muse Charles Ponzi, he of the 1920s stamp scandal. Sixteen separate SEC and other investigations could not prove Madoff was running a fraud.
The relevance of Madoff to this discussion is obvious. An unknown amount of what he stole once belonged to grant-making foundations like JEHT and Picower. These and so many other foundations and generous, caring individuals supported the charities you and I serve; in several cases charities lost serious money. It is also clear that some of the institutions that lost out with Madoff didn’t even know he was holding some or all of their money. However I find our Bernie a compulsive braggart; my personal view is that actual losses will be far less than $50 billion.
Much apparently represents paper loss – as well as paper profit that never existed. That may offer high net worth taxpayers a shot at refunds on taxes paid on mythical gains. On the other hand I doubt that anyone who realized ill-gotten profit over time is now going to step forward to admit it given all the talk about “claw backs” that theoretically at least could be gone after by IRS. Even now your organizations or clients may be getting conscience money. You may have been getting it right along. How would you know?
Meanwhile like me most of you have been touched indirectly by the recession –personally and professionally, not necessarily by Madoff but by the general downturn in the markets. Madoff is but a pimple on the great Wall Street butt. BB – beyond and before Bernie - an estimated ten trillion dollars of wealth went bye-bye last year - maybe more. Though there is unrealized paper loss here too - make no mistake: real people lost real money.
The collapse of the housing markets, the commercial banks and the investment houses got us where we are today. It was all caused fundamentally by rapacity: Wall Street’s obsession with quick profit over prudence. Even before the Madoff story broke on December 11th most investment portfolios were down 20-40%. The Dow was down 33% for the year. When you think about it the root differences between Madoff and Wall Street in general are not readily discernible: Greed trumps judgment and experience. It sucks in people and entities that assuredly know better.
What does this mean for philanthropy in our New York metro market? That of course assumes I know. But we have to begin somewhere.
Let’s start with the huge wealth transfer coming by 2015 - trillions of dollars passing to succeeding generations, at least some of which would have made its way to charity. You’ve all heard about the wealth transfer just not recently. The data came from a landmark study conducted some years ago by Paul Schervish and John J. Havens at BostonUniversity.
In preparing this talk I e-mailed Paul and asked him if the Schervish-Havens wealth model would have to be revised. He gave me permission to quote his response and said that:
“From 1950-2006 the annual real rate of growth in wealth was 3.3%+.That covered a period of 9 recessions.Our estimate is based on only a 2% real annual rate of wealth growth. More importantly, there is no such thing as certain prediction that involves complex and diverse human agency.People can view the great growth in wealth from 1990 through 2006 (with 2000-2002 interruption) and then become greedy and dishonest and carry out risky behavior.In the end it is hard to be more prescient than Greenspan, Democrats and Republicans, derivative makers and brokers, and home buyers.The bigger question, I think, is how to achieve all the government spending without undercutting economic growth and taxing our children to death.”
He also added that they are doing a piece that will appear shortly in Trust and Estates Magazine. In any case real wealth growth is now in a minus mode. As for Greenspan he was horrendously wrong and admitted it in sworn Congressional testimony!
The local story is a huge sucking sound: hundreds of thousands of gasping New Yorkers, maybe even a million or more, who lack good economic options. An estimated 150,000 of them used to work in the financial markets – or are on their way out in the next few months. Poor New Yorkers have long depended on a fragile economic structure dressed in the trappings of affluence if not real wealth. But now the nonprofit economy is serving people who have never before had to avail themselves of the frail social net our private health welfare and social service agencies provide. They are now consumers of a shrinking product: the ability of our charity network to meet the demand. One example you’re all aware of is food banks. But human services in general have been clobbered.
Giving USA reported last July that US charitable giving in 2007 was $306.3 billion. That would make the estimated New York philanthropy handle $76-92 billion. How much of New York philanthropy was exposed in Madoff’s claimed $50 billion steal is obviously an unknown number and maybe never will be known.
My close friend and colleague Nancy Raybin (who is the new chair of Giving Institute) - and I - estimate that the New York metro area philanthropy market may account for 25-30% of all US charitable contributions. However this has never been systematically studied as far as I know. A few years ago as chair of Giving USA Foundation I tried to interest NYRAG in having its members sponsor such a study New York is still the largest concentration of wealth in the world - at least until good hard data refutes it. I got nowhere. But this work should be done. Perhaps AFP-NY can take up the cudgel.
Market forecasting is of course a fool’s game. As an investor I long ago learned nobody knows anything until after the fact but even a broken clock is right twice a day. So I’ll jump right in! What will philanthropy’s near term look like? In an address to AFP-NY’s luncheon meeting in December consultant Ted Hart prophesied that individual giving would drop 3-5% this year, foundation giving 5-7% and corporate giving 6-10%. I asked Ted in an e-mail where this provocative data came from and he e-mailed back that it came from his company; in other words he guessed. But it is clear that he looked back at the actual recession data over several years as published by Giving USA. So he could be right. Or not.
Our data covers roughly 40-45 years. Boiled down we see percentage losses nationally that are not far off from Ted’s estimates. But my reading of the data also shows that philanthropy is a trailing edge in declining: i.e., we feel the effects of recession somewhat later than the general economy. Foundation lags for example are not felt for up to a year or more. Drops in individual and corporate giving are more sensitive and are felt more quickly. However the data also seem to show that philanthropy is a leading edge in recovery, meaning we come back faster than other sectors of the economy.
For a very rough approximation of what we might be facing as we march bravely into 2009 let’s for the moment make three assumptions: first, Ted is right; second his projections do indeed extrapolate to the New York market; and third New York philanthropy comports to the national data model on foundation, corporate and individual giving. Living individuals account for 75% of the money, bequests 7%, foundations 13% and corporations 5%.
Applying and rounding to the New York estimate of $76-92 billion in charitable gifts for 2007:
Living individuals now account for $57-69 billion. At a 3% drop the numbers are $55.3-66.9; at 5% $54.65.5. The other numbers are billions as well:
Bequests - now at $5.3-6.4 decline to $5.1-6.2 at 3% and $5-6.1 at 5%.
Foundations now show $9.8-12.9. A 3% drop takes them to 11.6-9.3; a 5% slide goes to $9.5-11.4.
Corporations would be $3.8-4.6 under our model but with a 3% fall go to $3.7-4.4 and at 5% to $3.6-4.3
This may not be pretty. Yet if this were all giving was about it still would not be the end of the world as we know it though the hit to New York City’s nonprofit economy is likely to be higher for several reasons. In addition to the increased demand for social services Wall Street earnings and profits have accounted for about 20% of City tax revenues that are already way down and may decline further as unemployment continues to rise. That has to include some of your smaller and mid-market donors.
Second a substantial majority of the City’s 20,000 nonprofits are human service agencies most of which rely heavily on government funds to meet their budgets. Human services are where demand is the greatest. As those government grants and contracts shrink human service agencies will have to shrink as well. The place to make meaningful cuts is in labor - typically 70% or more of an agency budget. Though these workers are not for the most part highly paid many will have to be laid off thereby contributing to an already dismal scenario. For example at Women’s Prison Association, of which I am to become president next Tuesday, we have already cut our budget 20% and laid off about 20% of the staff.
One important problem affecting human service agencies in particular is that though legally private they are de facto public, essentially functioning as conduits for government money. Unhappily many have developed a dependency culture; private fund raising is weak. Most lack technical know-how, they lack boards with clout and they do not have a broad base of individual givers – though many once did. Where they have penetrated philanthropy most is with foundations that as we know are - or will be staggering. It is a little late and not the best time to tune up for private fund raising but they have little choice.
Nonprofit organizations depend on their boards of trustees for leadership, stewardship and action. I speak to this as a consultant serving boards as well as a trustee of three estimable nonprofits – one national, two local. That said by definition a board is a long, thin, wooden object. We all know one, few board members like asking for money in the best of times; and two, it doesn’t take much to discourage them. Depending on your organization the CEO usually reflects the board mood. Once in a while a good CEO sets the board mood.
In the last several months, and especially the last several weeks I have seen a deer-in-the-headlights look in boardrooms. Beyond the 1000 yard stare decision making is on hold. Organizations are having difficulty figuring out what to do next given that economically we are in the loo or at least circling the drain. In my long career I have been through war, fire, flood, recession, high hem lines and low; Nixon who presided over the most severe inflationary spiral since World War II, and Bush the Younger of whom there is nothing more to be said.
So here we are. Despite the bad news there are indeed positives and opportunities for the near term; I have some thoughts to leave you with for the long term and I’ll get to them soon.
But for now repeat after me:
PLAN FOR THE TURNAROUND!
Go ahead say it.
PLAN FOR THE TURNAROUND!
·Even if the data cannot be pinned down for lack of academic inquiry I believe we can agree that in this market, despite the worst, we are still sitting on a huge pile of money. Much of it is discretionary. For example if we go back to the level of philanthropy in 2000 we would be talking about $275 billion in inflation-adjusted dollars of which the New York market would have been nearly $68.7 to $82.5 billion dollars! At that time this was the largest amount of money ever reported raised. What is different now is less the money and more the mood!
·Who’s got it? The biggest challenge we face as consultants and staffers is to comb our donor files. Not to be brutal but who’s really wiped out and not a prospect this year regardless of their previous giving history? Who has been “Madoff-ed?” Who’s left? That’s where your time goes. Because for the most part you will be cutting back on acquiring new donors this is an opportune time to concentrate on exploring the existing data base – especially that vast dark space between $10,000-100,000 that no one ever seems to have time to examine in sufficient depth.
·Despite Madoff and the tanking markets high net worth donors are mostly still high net worth donors and they need to be asked. Most may be complaining but thy will still give especially if they are already wedded to your cause. Signing them up as new donors to your organization may not work as well as it has before. From what I can see or report anecdotally most charities held up fairly well in all categories last year: major gifts, planned gifts, mail and events. This year may be harder and expectations may have to be readjusted as I have already said. But I am a great believer in keeping at it.
·Planned giving is an opportunity. An estate’s worth may decline but many of your donors will still have significant net assets posthumously. They must either will them away or give them to Sam. Most of the time we are not as assertive as we should be in going after planned gifts because cash now takes priority. This may be the year to re-think how we concentrate our time.
·Despite the well publicized and humongous money losses and large number of layoffs huge bonuses were paid out on Wall Street and elsewhere at the end of the year; maybe less than in other years, and maybe not to 20 or 30 alpha dogs at the very top.
·Corporate giving may be hurting but keep in mind that none of the reported data measure cause-related marketing. CRM is the fastest growing area of corporate “philanthropy” and often represents considerable unmeasured goods and services output for charity’s benefit.
·Many huge fortunes are not related to the stock markets. There are people who actually make things and people who actually deliver services. Often these people are not significant stock market investors. They retain money in their businesses instead. Like the Yankees!
·This is stuff you folks know very well. But I have been reminding my clients that their mission trumps all else. Beyond that I admonish them to … :
-Stick to basics; there are no magic fixes
-Face up to budgeting reality
-Cover the money you’ve got; only then go after the new donors
-Collect good intelligence
-Research thoroughly: most files are much richer than anyone knows
-Alower gift is better than no gift
-Ask for more. You may be pleasantly surprised.
McCain was right: the fundamentals are sound. Just not at the moment. Planning for the turnaround is important because things do evolve. When will the recession end? It will end when it ends.
For the longer term I have a five-point “philanthropy platform.” Time won’t permit as much discussion of this as I would like but perhaps we can to get to some of it later.
1.A White House Conference on Philanthropy during the second year of the Obama administration. (It will take a year of planning). The last such was in 1975 when the Filer Commission a Rockefeller funded endeavor issued a signal report on American philanthropy. Much is the same. Much has changed. Though I can thinkof major philanthropists like Gates or Buffett I really can’t think of a truly national leader, a person who stands out as a spokesperson for private philanthropy -as a process, as an aspiration, as a promise. Ted Turner came close some years ago when he excoriated his fellow billionaires for their stinginess relative to their wealth. I call it the “myth of philanthropy.” We need to talk about it in a national context.
2.Require foundations to increase their payout rate from 5% to 7%. This is not an enormously popular idea among the major foundations of course. Grassley has mumbled about it; it has gone nowhere though it has been talked about for years. The foundation lobby is very strong. The nonprofit community has done an absolutely crappy job of advocacy. It is scared to death of offending foundations for obvious reasons and hides behind the idea that by law they are not allowed to advocate – which is simply not true. Activist Robert Egger has written about what I would call the “Nice-Nervous-Nelliness” of US charity. His remarks – published in Financial Times in April of 2008 should be required reading in every nonprofit boardroom, every executive office and every development office. In a word, writes Egger, “charity must harness the power of politics.” Go to www.robertegger.org to access this ground-breaking essay. Read it yourself and pass it around.
3.No private foundation can exist for more than two generations. Gates for example is doing just that. But this is entirely voluntary and should be law. At the end of 50 years the assets must be distributed to charities or transferred to an independently governed community foundation. Based on 2007 datafoundation giving was $38.5 billion. Assuming a 5% payout this is an aggregate caucus of $770 billion in idle capital. The debate is whether the use of nearly a trillion dollars can be better optimized.
4.Institute a sliding charitable deduction or tax credit. I am no economist and I may be getting at this incorrectly. What I intend is to differentiate between real charities - like human service agencies - and others that though equally worthy: arts, education, environment, et. al. – may not fit a definition of “true” charity. Perhaps this could be related to budget size ion the likely sloppy reasoning that larger organizations have an easier time raising money. An example would behospitals afforded 501-c-3 status that provide minimum real charity care often less than one per-cent of a $500 million or even a billion dollar budget. When I brought this up at a conference on food, hunger and democracy held at Baruch last December Bob Egger said from the podium “we don’t know each other but we have the same mother!” I liked that.
5.Federalize charity registration requirements. Don’t emulate the SEC but do get the states out of this business. They have screwed it up royally. The regulations are a hodge-podge of regulations with huge loopholes. Virtually nothing has been done to eliminate the bad guys and the rest of us are stuck with multi-state registrations, high cost and so on. It would not be much to extend the IRS’ responsibility given its 990 responsibilities.
Thanks so much for sharing your time with me. I look forward to our Q and A.
Thanks for visiting Oram Matters. On this page you can find commentary on current events of broad interest to the nonprofit community and other observations.
My colleagues and good friends at Raybin Associates have put out the best thing I have so far seen on fund raising in these daunting times. What makes it different is that it has real ideas that nonprofits - regardless of size, cause, or experience can put to use.
