Funding is a top priority for any nonprofit but changes in donation trends are making fundraising particularly difficult. Recent reports show that while giving is up, it is the result of megagifts from a small number of wealthier people.
Giving from middle- and low-income donors is declining. And that’s a big concern for nonprofits as those smaller donors historically have been the bread and butter of most charities.
Americans gave $427.71 billion to charities in 2018, which is about 2% of GDP, according to “Giving USA 2019: The Annual Report on Philanthropy for the Year 2018,” a publication of Giving USA Foundation, which is researched and written by the Indiana University Lilly Family School of Philanthropy. While 2018 revenue is the third highest on record, individual donations (as a percentage of all giving) dropped from 70% in 2017 to 68% in 2018, per the report, and bequests flatlined.
Kathleen Reardon, CEO of the NH Center for Nonprofits, points to a 2017 report from The Chronicle of Philanthropy, “How America Gives,” which shows, despite an increase in revenue, the total number of Americans contributing dropped from 31% to 24%.
“The wealth disparity we see in our nation is playing out in charitable giving,” says Betsy McNamara, a principal of Full Circle Consulting in Concord. “While the number of large gifts has gone up, the number of small gifts has gone down.”
Megagifts, the millions of dollars given out by the Gates and Zuckerbergs of the world—are on the rise and “mask that fewer households are giving. That is a real challenge,” Reardon says.
It is particularly bad news for NH. While there is certainly wealth in the state, there are also 6,547 charitable organizations in the state competing for dollars. Seventy-three percent of those organizations operate on budgets of less than $50,000 and 83% have budgets of under $1 million. New Hampshire is not solely a state of small businesses, but also a state of small nonprofits tackling big, complex social issues that are often government funded in other states. And those small nonprofits typically rely heavily on middle-class donors giving gifts of $25 to $100.
“The percent of overall income given by households in the lowest wealth bracket (less than $50,000) declined significantly from the pre- to post-recession era, while the percent of income given by households in higher wealth brackets remained stable despite the recession,” according to “Changes to the Giving Landscape,” a report co-produced by Vanguard Charitable and the Lilly Family School of Philanthropy.
“Nonprofits need smaller gifts to build relationships with [donors] so when they are capable, they can give a $1,000 gift,” McNamara says.
This decrease in the number of households giving will disproportionately hit smaller and medium-sized organizations, Reardon says.
Part of the reason for this downshift in giving among the middle class is the elimination of a tax incentive to give, says Al Cantor, principal of Alan Cantor Consulting in Concord. The tax change in 2017 that doubled the standard deduction led to fewer people itemizing as they did not need nonprofit donations as a write-off.
More than 45 million households itemized deductions in 2016, according to a Giving USA report, which states “numerous studies suggest that number may have dropped to approximately 16 to 20 million households in 2018, reducing an incentive for charitable giving.” “Politics has consequences,” Cantor says.
Reardon says the nonprofits have raised concerns about how the tax changes are affecting them and what they must do to compensate. “Some are seeing declines in giving. Others see flat giving, but it’s taking more time and effort,” Reardon says.
“Amongst larger donors who use tax incentives, we see bunching of gifts. They might give at a higher level one year and not give at all in subsequent years,” Reardon says, depending on their need to maximize itemized giving.
The Granite State already has a reputation for being generous with volunteering but not giving as much financially as other parts of the country. A recent report in the “Chronicle of Philanthropy,” noted that NH donors gave $150 million overall, which is 97% below same-size cities elsewhere in the country, Reardon says. If more NH donors gave at rates of their counterparts nationwide, NH donations would total $296 million, she says.
There are mitigating factors behind NH’s notoriously low donation rate. First, most charitable giving nationwide is through religious institutions and NH ranks among the lowest in religious participation.
“Data indicates we are not giving to our potential. It’s complicated because the data comes from itemized tax returns. I’m not sure New Hampshire itemizes at the same rate,” she says. In other words, if fewer people itemize then the full measure of what NH gives may not be reflected in the data.
Cultivating Wealthy Donors
The shift in giving means nonprofits must reexamine their fundraising strategies. Cantor says many nonprofits are struggling because they rely on special events for much of their fundraising such as golf tournaments, auctions and road races, which tend to attract middle- and lower-tier donors. With those donors now giving less, those events aren’t as lucrative as they once were, he says.
Nonprofits need to focus more on cultivating relationships with those who have the capacity to be major donors, Cantor says. “There is tremendous competition to get in front of those wealthy donors,” he says. “It’s really a challenge to identify these folks, build relationships with them and position your organization as worthy of significant gifts.”
Nonprofits also need to stop underselling their requests. “I encourage nonprofits to set a high giving point,” Cantor says. Instead of asking for $50 to $100 donations, ask for $5,000. “Let them know these organizations are worth it.”
Smaller nonprofits without a large development staff often don’t have the bandwidth to build relationships, McNamara says. “When I give trainings, what people want me to say is start a GoFundMe campaign and raise a million dollars. What I tell them is start relationships with donors and tell the story about what their donation will buy.”
The reliance on wealthier donors also raises concerns about who dictates the type of services that will be funded. The NH Center for Nonprofits and the Center for Ethics and Governance at St. Anselm College will explore that issue at an event this month, where keynote speaker Ben Soskis of the Urban Institute, will talk about tension between philanthropy and democracy.
“Nonprofits are a vehicle where concerned citizens can come together to make change,” Reardon says. “If more and more funds are coming from fewer people, it creates a power dynamic that runs counter to what we think democracy is.”