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NAIS RESEARCH: PHILANTHROPY IN A RECESSION

2 © national association of independent Schools

ABOUT NAIS AND INDEPENDENT SCHOOLS NAIS is a voluntary membership organization for approximately 1,643 independent schools and associations in the United States and abroad and is the national institutional advocate for independent pre‐collegiate education. Independent schools are distinct from other non‐public schools in that they are independently governed by boards of trustees, and they are funded primarily through tuition, charitable contributions, and endowment income. To be eligible for membership in NAIS, schools must be fully accredited, 501(c)(3) non‐profit organizations that are nondiscriminatory.



Philanthropy in a Recession: History, Trends, and Best Practices Contents

Executive Summary

Background

Methodology

Key Findings

• Giving and Recessions

• Recession Impact by Donor Type

• Demographic and Regional Trends in Giving

• Nonprofit Organizations: Behaviors and Best Practices in Times of

Economic Uncertainty

• Giving and Education

• Fund-Raising in a Recession: Key Points for Educational Institutions



EXECUTIVE SUMMARY Based on numerous data sources, there is a clear link between charitable giving and the state of the economy. This link is particularly noticeable in terms of giving to education, with Giving USA reporting an average drop of 1.1 percent in donations to education during recessionary periods. This pattern has continued through the current recession, which officially began in December 2007. Over 2008 and 2009, total charitable giving to education fell by almost 9 percent, whereas all charitable donations dropped by 6 percent. Donations to independent schools specifically fell 6 percent in total between 2009 and 2010 and by 2 percent when calculated on the basis of giving per student. Based on both current and past experiences in recessionary periods, there is action that independent schools can take to mitigate the impact of the current economic downturn. Such actions include:

1. Developing and implementing a realistic, detailed, and rigorous contingency plan to manage their schools through the economic crisis, including updating and revising the plan as circumstances change.

2. Resisting the temptation to cut fund-raising efforts due to recessionary

pressures. Research suggests that independent schools that were in a campaign in 2010 were more likely to experience an increase in year-over-year giving than were those schools that were not in a campaign.

3. Maintaining close contact with past, current, and potential donors despite

the tough economic climate. Of equal importance, independent schools must guard against taking current donors for granted and should not ignore past donors who have halted their charitable efforts in light of the recession.

4. Being sensitive and flexible enough to design special initiatives,

programs, messages, and outreach that are congruent with these difficult economic conditions. Keeping donors informed on how their donations impact both students individually and the school as a whole is a key message to deliver.

5. Emphasizing the school’s prudent management during this time of crisis,

its commitment to its mission, the effectiveness of its leadership and the importance of education to the future should also be considered as communication elements of a school’s development plan.



Such strategic action planning should help independent schools sustain themselves over the course of the current recession and position themselves for a return to growth once the economy rebounds. BACKGROUND The National Association of Independent Schools (NAIS) asked its research partner, Insightlink, to update a report originally prepared by The Hanover Research Council in 2009. This report analyzes the effect of economic recessions on charitable giving, by examining historical data regarding philanthropic behaviors in previous recessions, as well as indicators from the current economic downturn. The report also identifies giving behaviors by donor type (i.e., corporate, foundation, and large and small donors), as well as trends by recipient type. It provides an overview of demographic and regional trends in charitable contributions and, lastly, presents best practices and guiding themes for nonprofits in general and, more specifically, educational institutions and independent schools, seeking to weather the tough economic climate. METHODOLOGY To update this summary report, Insightlink conducted an online search and review of relevant research and articles about giving during recessionary periods. NAIS staff also provided several studies and articles, as well as StatsOnline data for Insightlink’s analysis.



KEY FINDINGS Giving and Recessions Drawing from a body of applicable research, this report examines how economic downturns impact the nonprofit community across industries, specialties, and donor types, and presents best and advisable practices for nonprofits and, more specifically, independent schools looking to operate effectively in the midst of economic turmoil. Based on a number of indicators, the National Bureau of Economic Research (NBER) announced in late 2008 that the U.S. economy had been in a state of recession since December 2007. In particular, Gross Domestic Product (GDP) contracted at a seasonally‐adjusted annual rate of 2.7 percent in the third quarter of 2008, 5.4 percent in the fourth quarter of 2008, 6.4 percent in the first t quarter of 2009 and 0.7 percent for the second quarter of 2009. For all of 2009, GDP fell by 2.4 percent.1 By contrast, as of May 2010, GDP has been positive for three quarters (from the third quarter of 2009 through the first quarter of 2010) and many other economic fundamentals are signaling that the economic recovery has started. However, the NBER has reported that: “Although most indicators have turned up, the committee decided that the determination of the trough date [end of recession] on the basis of current data would be premature. Many indicators are quite preliminary at this time and will be revised in coming months.”2 In other words, the current economic downturn has not yet “bottomed out” despite indications of improvement. Charitable organizations, dependent as they are upon the largesse of others, are, of course, not immune to the effects of the wider economic downturn. The Target Analytics Index – which evaluates transactions from 79 nonprofit organizations, covering 38 million donors, $74 million in gifts, and almost $2 billion in total giving for the year ending in the fourth quarter of 2009 – has recently reported declines in many key areas of fund‐raising.3 In particular, Target Analytics indicates that 2009 was a more difficult year than 2008 in several respects, with a decline of 1.5 percent in overall revenue per



donor for the first time since their reporting began in 2002. The report also highlights declines in donor numbers that have continued for more than three years, starting in 2005. These declines increased in magnitude in the fourth quarter of 2008 and in the first three quarters of 2009, suggesting that the recession accelerated the rate of shrinkage. Also, new donor populations have fallen faster than the overall donor population since 2005, when relief and animal welfare organizations experienced a large influx of new donors as a result of U. S. Gulf Coast hurricanes and other disasters.4 Examining economic and charitable data from roughly the past 40 years, the Giving Institute has concluded that, on the whole, a slowing economy has a significant effect on charitable giving. The organization examined charitable giving data as well as data from the National Bureau of Economic Indicators and the Standard & Poor’s 500, focusing on the impact of designated recessions on charitable giving levels. The study identified six recent recessionary periods — 1969‐1970, 1973‐1974, 1980‐1982, 1990‐1991, 2001, and the current recession, which began in December 2007. For all recessions prior to the current downturn, the study found that charitable giving to all organizations fell by an average of 1.3 percent, adjusted for inflation. This contrasts with, during non‐recession years, an average annual increase in giving of 4.3 percent. With regard to two of these periods — 1973‐1974, and 2001 — giving failed to keep pace with inflation for three years straight coming out of the recession. Also, during harder economic times, charitable giving can fall as a percentage of national Gross Domestic Product (GDP). This means that, in a slow economy, people shift their spending priorities away from charities, compounding the effects of an economic decline on fund‐raising.5 The Giving Institute’s most recent report — Giving USA 2010 — analyzes charitable donations up to the end of 2009. They estimate that charitable giving in 2009 was $303.75 billion, a drop of 3.6 percent in current dollars (3.2 percent when adjusted for inflation) and the steepest decline in current dollar terms since Giving USA began its annual reports in 1956. The 2009 estimate of charitable giving is equivalent to 2.1 percent of GDP, compared with 2.2 percent in 2008 and 2.3 percent in 2007. Regarding this specific finding, Giving USA notes that “while a decline from earlier levels as high as 2.3 percent of GDP (2000, 2001, and 2005), this level remains above the 2.0 percent threshold that marks the period beginning with the run‐up in stock market values in the mid‐1990s.”6

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raising among a large number of charities are all factors accounting for variation in recession performance among the various types of charities.9 The recent downturn in charitable giving is having a profound effect on U.S. charities, as highlighted in a March 2010 Reuters news story:

Thousands of small U.S. charities are likely to close this year as cautious donors and governments tighten spending and some states consider removing nonprofit tax breaks, experts said on Wednesday. The nonprofit sector is preparing for this year to be harder than 2009 as the delayed effects of the worst U.S. recession hits philanthropic budgets, experts said during a panel discussion on The New Nonprofit Reality. “States are looking for any opportunity for tax revenue this year and nonprofits are increasingly a very big target,” said Stacy Palmer, editor of The Chronicle of Philanthropy. Foundation leaders are very worried that this economy is not doing so well and itʹs time for caution, so the groups that theyʹre supporting are the tried and true groups – the universities, the hospitals. Hawaii has proposed a 1 percent tax on charities, Kansas is considering making nonprofits pay sales taxes and Pennsylvania is thinking about removing a property tax break for charities, The New York Times reported. In a closely watched court battle, an Illinois hospital lost its property tax break last week as nonprofit hospitals come under pressure to justify the breaks they get. ‘The nonprofit sector is like the caboose ... of the economy, so we often go over the cliff last and then we stay over the cliff even after the economy starts going up the other way,’ said Ken Berger, president and chief executive of Charity Navigator, which evaluates the nationʹs big charities. The teeny‐weeny, little local community‐based, grass‐roots charities are hitting a brick wall.10

The extent of the impact on fund‐raising can be quantified by means of the Philanthropic Giving Index (PGI) published every six months by The Center on Philanthropy. The Center on Philanthropy conducts a semi‐annual survey of approximately 350 fund‐raisers and fund‐raising consultants around the U.S. to assess the philanthropic and fund‐raising climate. The PGI report includes three indices on a scale from 0 to 100: the Present Situation Index (PSI) gauges the current giving environment, the Expectations Index (EI) assesses the climate for the next six months, and the overall PGI is an average of the current and future indices. Higher scores indicate more positive or optimistic attitudes about the climate for fund‐raising.



All three components of the PGI experienced steep declines in the winter of 2008 through the summer 2009 compared with the very robust results of winter 2007 and summer 2008. However, it is encouraging to note that there has been some upward movement in the most recent results. In particular, the PGI has increased 8.7 percent since summer 2009 and is up 9.7 percent over the same time last year. At 62.5, the Present Situation Index is up 7.8 percent from six months ago but down 1.7 percent from one year ago. The Expectations Index, at 79.8, increased 9.6 percent from six months ago and 20.7 percent from a year ago. These trends are apparent in the recent history of the Philanthropic Giving Index, as follows: The Philanthropic Giving Index Winter

2007 Summer

2008 Winter 2008

Summer 2009

Winter 2009

PGI (Philanthropic Giving Index) 88.8 82.8 64.8 65.4 71.1 PSI (Present Situation Index) 88.0 81.7 63.6 58.0 62.5 EI (Expectations Index) 89.7 83.9 66.1 72.8 79.8 Source: The Center on Philanthropy11

According to Giving USA 2010, 75 percent of charitable giving in 2009 came from individuals ($227.41 billion) and this proportion increases to 83 percent when charitable bequests are included ($23.80 billion). Foundation grantmaking ($38.44 billion) accounts for 13 percent of the 2009 total, followed by corporate donations ($14.10 billion) at 4 percent.12 Giving to education clearly accounts for a substantial portion of charitable donations within the U.S. However, according to the Giving Institute, education donations in 2008 fell by 5.4 percent in current dollars and 9.0 percent in inflation‐adjusted dollars between 2007 and 2008. In 2009, giving to education declined for the second consecutive year, with a drop of 3.6 percent in current dollars and 3.2 percent when adjusted for inflation. For more detail on the impact of economic recessions on education, see the section, “Giving and Education,” later in this report.



2009 Charitable Giving Patterns and Trends (Current Dollars)

Share of Total Giving

Total Giving ($Billion)

Past Year Change

Total 100% $303.75 -3.6%

Religion 33% $100.95 -0.7

Education 13% $40.01 -3.6%

Gifts to grant making foundations 10% $31.00 N/A

Human services 9% $27.08 +2.3%

Public-society benefit 8% $22.77 -4.6%

Health 7% $22.46 +3.8%

Arts, culture and humanities 4% $12.34 -2.4%

International affairs 3% $8.89 +6.2%

Environmental/animals 2% $6.15 +2.3%

Foundation grants to individuals 1% $3.51 N/A

Unallocated giving 10% $28.59 N/A Source: Giving USA 2010



Recession Impact by Donor Type Corporate Giving Corporate monetary giving in the United States currently amounts to about 4 percent of all charitable donations. As such, one might expect a decline in this area to have only a limited impact. However, corporate money and “in‐kind” donations constituted about $14.1 billion in 2009.13 Corporate giving is, of course, generally a function of the profitability of donor corporations. For 2008, corporate profits were down almost 12 percent in comparison to the same period in the previous year and dropped a further 4 percent in 2009.14 This situation likely contributed to the decrease in corporate giving of 6.1 percent in 2008 reported by Giving USA, followed by an increase of 5.5 percent for 2009, which translates into a net decline of 1 percent.15 Over the past 20 years, corporate giving as a percentage of pretax profits has averaged around 1 percent. Through good times, corporate giving has, on average, risen about 3 percent per year but in recession years, giving typically falls about 2 percent. Assuming these average contribution patterns hold, nonprofit recipients will likely receive 1 percent of a significantly smaller amount (i.e., 1 percent of a decreasing profit value). Experts do counsel, though, that there is good news for nonprofits. Those corporations with a true commitment to giving appear to be ready to follow through on their commitments. They are, as some put it, “past just writing checks,” and “interested in investing in their communities.”16 Studies indicate that consumers expect corporations to be engaged in socially constructive activities in addition to their normal business operations, and, by and large, corporations are endeavoring to meet those expectations. Current economic turmoil aside, the trend has been toward corporations increasingly developing long‐term philanthropic commitments that are built to weather recessions. Almost nine out of 10 large corporations have a foundation for charitable giving and nearly two‐thirds of companies increased their level of giving in 2007, including half of those companies reporting a drop in profits for the year.17 Several news stories in 2010 on the topic of corporate philanthropy have seen “mixed results for company giving amid recession in 2009,”18 have concluded



that “corporate philanthropy in 2010 [is] likely to be steady”19 and that “companies have learned that employees highly value philanthropy – and such efforts may help to attract and retain valued workers. It’s a major reason why company giving held up as much as it did during the recession.”20

Foundation Giving According to The Foundation Center’s Foundation Growth and Giving Estimates 2010, the worst economic crisis since the Great Depression resulted in the biggest reduction in U.S. foundation giving on record. The report’s findings are based on a Foundation Center survey of nearly 1,250 large and midsize foundations across the country. In 2009, the nation’s more than 75,000 grantmaking foundations cut their giving by an estimated 8.4 percent or $3.9 billion to a total of $42.9 billion. This was by far the largest decline in foundation giving ever tracked by the Foundation Center.21 In contrast, foundation giving increased from $44.4 billion in 2007 to $46.8 billion in 2008, which is similar in scale to the change reported by Giving USA.22 The recent decreases in giving were higher among independent foundations and community foundations than among corporate foundations: Estimated Decrease in Giving Between 2008 and 2009

Source: The Foundation Center23

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Corporate Foundations

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However, the decline in giving totaled less than half of the 17 percent loss in foundation assets from $682.2 billion to $565.0 billion recorded in 2008 (see chart below). Several factors helped keep last year’s grantmaking from even deeper cuts, such as the common practice of setting grant budgets based on a rolling average of asset values over several years. In addition, many foundations cut their operating expenses last year or drew more heavily than usual from their endowments to shore up giving. A significant increase in giving by the Bill & Melinda Gates Foundation and new gifts and bequests to other foundations also kept the overall grant dollars from experiencing an even bigger fall. In 2009, foundation assets posted a slight recovery after the sharp drop in value between 2007 and 2008: Foundation Assets

Source: The Foundation Center24

Following the decline between 2008 and 2009, foundation giving is expected to remain flat in 2010 and may show positive, albeit very modest, growth in 2011. “The economic crisis has not ended for this country’s nonprofits, and it will be some time before foundations are in a position to help them return to growth,” Bradford K. Smith, president of the Foundation Center, said in a written statement. “But funders have made exceptional efforts to lessen the pain faced by the nonprofit community.” Among independent foundations specifically — which account for the vast majority of the nation’s foundations — a higher proportion expect to increase

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

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their giving in 2010 (whereas from 2008 to 2009, there were decreases in giving) than reduce it (45.6 percent vs. 38.1 percent). This holds true for corporate foundation giving as well, although the difference was less pronounced (42.9 percent vs. 40 percent). Given the economic volatility of the past two years, the accuracy of predictions about 2010 and 2011 giving will depend greatly on the economy and stock market showing continued stability and, ideally, growth.25

Individual Donors, Big and Small The effects of recessionary periods on individual giving are somewhat more varied than are the effects on corporate and foundation giving. The level of giving among households is generally much more predicated upon disposable income and, thus, more subject to fluctuations in income and cost of living. Most households continue giving even through lean times, though some do so at decreased amounts. Donors earning under $50,000 are more likely to become non‐donors than are those earning more than $50,000.26 A number of studies, though, support the notion that, while they are likely to give in smaller amounts, Americans are just as likely to give during lean times as they are in more financially secure years.27 This pattern can be illustrated by the Generosity Index from The Catalogue for Philanthropy, which is based on IRS data summarizing personal income tax returns. The Average Itemized Charitable Contributions (AICC) grew steadily from 1995 through to 2000 then declined amid the 2001 recession before rebounding in 2003 and 2004: The Generosity Index

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

AVG ICC $2,449 $2,698 $2,962 $3,164 $3,430 $3,618 $3,484 $3,455 $3,724 $4,012

Change in AICC 10.2% 9.8% 6.8% 8.4% 5.5% -3.7% -0.8% 7.8% 7.7%

Source: The Catalogue for Philanthropy, 200628

Large individual donors, too, are affected by economic downturns. The number of contributions of $1 million or more made by individuals — which, during the



first half of 2008, had been on track to exceed the tally for 2007 — fell sharply in the second half of 2008, down 33 percent versus the same period for 2007. This constituted the largest drop since the attacks of September 11, 2001, when donations dropped 35 percent. The 333 instances of million dollar‐plus gifts represent a decline from 2007’s record high of 495 “large” gifts. The numbers show that wealthy donors are thinking harder about how much, when, and where they will donate money in this economy. That these gifts still number in the hundreds, though, shows that the stock market decline and credit crisis have slowed but not halted large charitable action. Furthermore, some have raised concerns over the possible impact of a proposed decrease in the charitable giving tax deduction. If enacted, this decrease in the deductible amount for charitable contributions from couples earning more than $250,000 or individuals making more than $200,000 per year would, essentially, serve as a tax increase affecting 1.4 percent of earners in the United States, who account for 28 percent of the charitable contributions reported as itemized deductions. However, a recent study by the Center on Budget and Policy Priorities estimated that the proposed changes to the tax law would result in a drop of about 1.9 percent in charitable giving. A change of this size would be negligible in comparison to the overall economic climate’s negative impact on charitable donations via decreased personal wealth.29



Demographic and Regional Trends in Giving Demographic Trends As noted earlier, individuals, rather than corporations or organizations, account for the largest share of charitable contributions. Based on Giving USA 2010, individuals accounted for $227.41 billion of charitable giving in 2009, or 75 percent of the total for the year.30 Several factors contribute to an individual‘s likelihood of participating in charitable giving. According to a 2006 article called “Charitable Giving: How Much, By Whom, To What, and Why:”

Decades of research indicated that higher levels of charitable giving are positively associated with higher income, higher wealth, greater religious participation, volunteerism, age, marriage, higher educational attainment, U.S. citizenship, higher proportion of earned wealth versus inherited wealth, and a greater level of financial security.31

The article also notes that gender, ethnicity, and religion in charitable giving and amounts donated suggest more complex relationships for a variety of reasons.

Income Based on the 2001 Survey of Consumer Finances, the article “Charitable Giving: How Much, By Whom, To What, and Why” concluded that, except for families with the highest income levels, families at every income level are roughly equally philanthropic in terms of the percentage of income donated, donating an average of about 2 percent of their household income to charity. In other words, while those families of greater income will contribute a greater amount to charity in absolute terms relative to families of lower income, the amount contributed in proportion to their income is roughly equal. On the other hand, households in the highest income brackets represent a disproportionately large percentage of charitable donors. The highest income families — those with income above $300,000 — represent just 2 percent of families across the nation but represent 37 percent of all charitable dollars contributed. Furthermore, “the proportion of families that contribute at least $500 to the financial support of charitable organizations increases substantially as



family wealth increases, from 8.3 percent of families with a net worth below $10,000 to 93 percent of families who have $10 million or more in net worth.” Using the 2001 results, this study found that those families with a net worth of $1 million or more represent 7 percent of the nation’s households, but accounted for 50 percent of all charitable donations.32 In 2007, the Center on Wealth and Philanthropy at Boston College summarized data on the participation rates, average contributions, percentage of income donated, amounts given to religious purposes and amounts given to secular purposes among U.S. families by income level in 2002 in a report called Geography and Giving: The Culture of Philanthropy in New England and the Nation.33 The results indicated that “both participation rates and amounts donated increase as both income and as net worth increase. As family income increases from below $10,000 to $200,000 or more, participation increases from 34 percent to 95 percent and the amount contributed, averaged over all families, increases from $314 to $6,944.” Not surprisingly, a household’s net worth has the same impact on charitable donations. Nationwide Religious and Secular Giving by Financial Resources (2002 Dollars)

Household Income

Overall Giving Participation

Rate

Average Contribution Per

Family Average Percent of

Income Given Average Amount Given to Religion

Average Amount Given to Secular

<$10,000 34% $314 5.6% $191 $123

$10,000-24,999 50% $471 2.6% $338 $134

$25,000-49,999 66% $868 2.3% $566 $302

$50,000-99,999 81% $1,509 2.2% $998 $511

$100,000-149,999 93% $2,336 2.0% $1,412 $924

$150,000-199,999 92% $2,943 1.8% $1,460 $1,483

$200,000 or more 95% $6,944 2.4% $3,130 $3,814

National 70% $1,314 2.5% $803 $511 Source: Center on Wealth and Philanthropy at Boston College, based on data from the 2003 Panel Study of Income Dynamics

However, the current recession is having a detrimental impact on incomes in the U.S., which is likely contributing to the cumulative decline in individual giving between 2007 and 2009 of 2.4 percent in current dollars and 5.7 percent in inflation‐adjusted dollars. Over that same time period, there was a 3.8 percent decrease in personal income and unemployment peaked at 10.1 percent in October 2009 and held steady at 9.7 percent through the first quarter of 2010.



These unemployment rates are substantially higher than those experienced from 2000 through 2008:

Annual Unemployment

Year Rate

2000 4.0

2001 4.7

2002 5.8

2003 6.0

2004 5.5

2005 5.1

2006 4.6

2007 4.6

2008 5.8

2009 9.3

Source: Bureau of Labor Statistics

Looking forward, there is the potential good news on the horizon for charitable giving based on a new statistical model called the Individual Giving Model (IGM) and developed at Boston College’s Center on Wealth and Philanthropy (CWP). The purpose of the IGM is to estimate how the most recent changes in financial resources affect the aggregate level of individual household charitable giving and to “forecast giving during, rather than after, a calendar year.”34 Calculating both low‐growth and high‐growth scenarios, “the IGM estimates U.S. household charitable giving for calendar year 2009 will total between $216‐218 billion (current dollars), representing a decline of between 4.8 percent and 5.7 percent from the 2008 total of $229 billion. Preliminary projections for 2010 are somewhat rosier, offering the possibility that total household charitable giving could return to the pre‐recession (2007) level of approximately $234 billion, in the best‐case scenario, or, on the low end, decline an additional 3.9 percent from the 2009 estimates, to a total of $212 billion by the end of 2010. These 2010 estimates will be lower if unemployment remains high throughout 2010, and higher if the



recovery is stronger than expected.”35 It is worth noting that actual household giving for 2009 fell just 0.4 percent.36

Religious Affiliation In addition to positive correlation with wealth and income, the article, “Charitable Giving: How Much, By Whom, To What, and Why,” stressed that religious affiliation and regular attendance at religious services have long been positively correlated with participation in charitable giving. In 2000, “the average contribution of households where the respondent belonged to a religious organization was more than twice that of households where the respondent reported no religious affiliation, and the average amount of income donated was more than double.”37 Moreover, giving is also positively associated with frequency of religious service attendance, with those who attend church services at least once per month giving nearly double the amount, and almost three times as much as a percentage of income, as those who participate in church services less frequently. These religiously‐affiliated households do not just donate greater sums to religious causes, but to secular causes as well. “The 52 percent of households that give to both religious and secular causes give more to secular organizations than do the 28 percent of households that give to secular organizations only, $1,001 versus $651 respectively.”38 Giving USA 2010 reported that contributions to religious organizations reached an estimated $100.95 billion in 2009, down 0.7 percent compared to 2008, which was up 0.8 percent over 2007.39 However, this pattern of giving is not meant to suggest that charitable donations to religious institutions have been immune to the ongoing economic downturn, with a variety of indications that such donations have been experiencing a more recent downturn. A new Barna Group study, conducted in the fourth quarter of 2009 among a nationwide sample of 1,114 Protestant leaders, explores how the nation’s faith‐driven organizations are faring in the new economy.40 The study’s findings indicate that:

Like many other sectors, pastors and church executives admit that churches are feeling the results of the economic pinch, though for most congregations it has not been severe so far. Overall, 57 percent of pastors said the economy has negatively impacted their church over the last year. Still, only 8 percent of



leaders said the effect was “very negative.” About one‐third of leaders (35 percent) describe their churches as unaffected by the economy, while one of 11 churches (9 percent) defied the odds and described the last year as financially positive.

The Barna study findings continue that:

Across all Protestant churches, budgets are down about 7 percent from a year ago, though that indicator masks extremes. The typical “down” church has lost, on average, 14 percent of its budget. Among those churches with contracting income, smaller churches were the hardest hit: churches of 100 or fewer adults that had shrinking revenue had lost 16 percent; those with 100 to 250 adults were off by 13 percent; churches with 251‐999 adults were down 11 percent; and churches of 1,000 or more adults were down 9 percent. Some churches have been even more significantly hurt by the economy than others: one out of every 11 churches (9 percent) has lost 20 percent or more of their budget from 12 months ago. Within that proportion are 2 percent of churches with incomes off by 35 percent or more. Among the rare churches that have grown financially, the average annual budget increase was 10 percent.41

For a somewhat different viewpoint, the Lake Institute on Faith & Giving recently released the 2009 Congregational Economic Impact Study. This study was conducted among 1,500 congregations that are members of the Alban Institute. A large majority of these are Protestant congregations, meaning that this study is not a nationally representative study of all congregations in the U.S.42 The key findings from this study on how the economy has impacted congregations are as follows:

Overall, congregations responding to the study were more likely to

report fund‐raising receipts increased in the first half of 2009 compared to 2008 than to report a decrease.

However, more congregations reported a decrease in fund‐raising receipts between 2008 and the first half of 2009 than reported a decrease between 2007 and 2008. This may indicate that the recession has had a greater impact on congregations’ fund‐raising receipts in 2009 compared to 2008.

Nearly 37 percent of congregations reported an increase in fund‐raising for the first half of 2009 compared to 2008, a drop of 13



percentage points from those reporting an increase in 2008 compared to 2007.

The percentage of congregations reporting a decrease in fund‐raising receipts for the first half of 2009 compared to 2008 was 29.4 percent. This is 8.1 percentage points more than reported a decline in giving in 2008.43

Importantly, the study also examined the impact of the financial crisis on different types of congregations based on the growth of weekly attendance and the growth of congregations’ finances. The study categorized congregations into one of three main groups:

1. Survival (declining attendance and just barely enough finances) — 29 percent of participating congregations

2. Maintenance (attendance and finances have stayed relatively the same) —

21 percent

3. Growth (increases in attendance and a growth in finances) — 45 percent. Overall, congregations in a survival or maintenance mode for the past five years were more likely to see a decrease in pledge amounts for 2009. As James P. Wind, president of the Alban Institute, noted, “The surprise is that so many congregations held their own or increased their ability to raise funds and provide resources for their ministry. It’s easy to think that everybody is experiencing the recession in the same way. The reality is, in the religious sector, it’s a very mixed story.”44



Percentage of Congregations Reporting a Change in Fundraising Receipts, 2007-2008, by Type of Congregation

Source: 2009 Congregational Economic Impact Study

Age and Marital Status The article, “Charitable Giving: How Much, By Whom, To What, and Why,” indicated that charitable giving increases from age 21 up to approximately 65. While the average annual dollar contribution begins to decline at age 65, the average percentage of income donated actually increases. Married couples have a higher rate of charitable giving than do single, widowed, divorced, and separated households (nearly 10 percent higher, in some cases) and a higher average household contribution (nearly double, in some cases). Much of this higher generosity is attributable to the fact that marriage works as an “engine of wealth formation,” and the combined income of a married couple is often 35 percent higher than the combined incomes of two single people.45

27.7

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46.6

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15.7

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0

10

20

30

40

50

60

70

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Education Education, likewise, is positively correlated with charitable giving. Even when controlling for income, education is found to have an independent, positive effect on the amount an individual donates to charitable causes. College graduates typically earn an annual income two and a half times that of non‐high school graduates, yet they contribute over four times as much to charitable causes.46

Giving by Type of Recipient While the greatest percentage of individual overall giving goes to religion, among the wealthy, education is the number one priority. The wealthy tend to focus charitable donations on the area of education due in part to “the increasing trend in philanthropy toward tackling the root cause of social problems rather than ameliorating them.”47 Many wealthy donors have derived a great proportion of their wealth from their educational background, and they “identify strongly both with their alma mater and with the notion that equality of education is one of the main ways of reducing inequality in a society.”48

Regional Trends According to The Fraser Institute’s 2009 Generosity Index – which measures private monetary generosity using the percentage of tax filers who donated to charities (i.e., the extent of generosity), and the percentage of aggregate personal income donated to charity (i.e., the depth of generosity) – 26.6 percent of American tax filers donated to charity and, in total, donated 1.6 percent of their aggregate income to charity.49 However, the amounts donated to charitable causes and the reasons and drivers behind those donations vary widely by geographic region within the U.S.50 In 2009, almost 34 percent of Utah residents donated a total of 3.7 percent of their income to charities, Maryland is the second most generous state, where donations total almost 2 percent of the income. At the opposite end of the spectrum, Louisiana places 48th and North Dakota 49th on the U.S. Generosity Index, slightly ahead of bottom‐ranked West Virginia. 51



Top Fifteen Least and Most Charitable States 200952

The destinations for charitable gifts vary by region as well. For example, donors in the New England area give primarily to secular causes, while donors in the South and the Plains States give a higher percentage of their income to religious causes. The one constant in charitable giving is support for local organizations. Some sources estimate that as much as 70‐80 percent of all charitable giving is donated to local causes.53 Prospective donors’ willingness to give to charitable causes is also influenced by their geographic region, as some states have been hit harder than others by the current recession. However, while the impact of the recession may be felt more intensely in a few states, the current economic woes are widespread and will affect prospective donors across the country. In March 2008, the first states to have slipped into economic recession were Michigan, California, Nevada, Arizona, and Florida, while many other states continued a period of economic expansion.54 By February 2009, Moody‘s placed almost all states in a recession, with the only exceptions being the District of Columbia and three states — Wyoming, North Dakota, and Alaska — which were classified as being “at risk” areas.55

Most Charitable Least Charitable

1 Utah 36 Indiana 2 Maryland 37 Kentucky 3 Washington DC 38 Tennessee 4 Connecticut 39 Wyoming 5 Georgia 40 Mississippi 6 New Jersey 41 Arkansas 7 Minnesota 42 Texas 8 New York 43 Vermont 9 Virginia 44 Maine 10 Colorado 45 New Mexico 11 Massachusetts 46 South Dakota 12 North Carolina 47 Alaska 13 Oregon 48 Louisiana 14 California 49 North Dakota 15 Delaware 50 West Virginia



In September 2009, Moody’s reported that 11 states were in recovery, 38 states were showing evidence that the recession was slowing and just 1 state — Nevada — remained “firmly gripped by the worst recession.” 56 By April 2010, the Associated Pressʹ monthly analysis of conditions around the country found that economic stress declined in March in nearly three‐quarters of the nationʹs 3,141 counties. AP’s Economic Stress index calculates a score from 1 to 100 based on unemployment, foreclosure and bankruptcy rates, with a higher score indicating more stress and, under a rough rule of thumb, a county is considered stressed when its score exceeds 11. The details of the March findings were as follows:

• The gains were due to an improving job market in the Mid‐Atlantic and Southeast and a steadying of foreclosure rates across the Sun Belt. In 38 of the 50 states, economic distress dipped or was unchanged from February, APʹs Economic Stress Index found. Nationwide, foreclosures worsened slightly. Bankruptcy rates did, too. But those declines were offset by a better jobs picture.

• The March improvement, though, belies the depth of the recession and

how far the recovery still must climb, said Frank Hefner, an economist at the University of Charleston in South Carolina.

• The APʹs index found the average countyʹs stress score in March was 11.5.

That was down from Februaryʹs average score of 11.8 and Januaryʹs 11.9. The January average was the highest since the AP began publishing the stress index a year ago.

• Just over half the counties in the country were deemed stressed in March.

That compares with nearly 55 percent in February.

• Numerous indicators are flashing signs of an improving recovery. The overall economy, as measured by the gross domestic product, grew at an annual rate of 3.2 percent in the first three months of 2010, the Commerce Department said Friday. It was the third straight quarterly gain.



• The first‐quarter growth was driven by the strongest increase in consumer spending in three years. But economists worry that consumers wonʹt spend enough to drive the economy much higher and significantly shrink the unemployment rate, now at 9.7 percent.

• In the APʹs index, the order of the most economically stressed states was

unchanged from February: Nevada, a center of the nationʹs housing boom and bust, again had the highest Stress score, 21.3. It was followed by Michigan (18.15), hit by the battered auto industry. Next were California (17.21), Florida (16.14), and Illinois (15.13).

• Michiganʹs and Californiaʹs scores worsened in March; those of the three

other states, Nevada, Florida, and Illinois, improved. The least stressed states were: North Dakota (5.61), South Dakota (5.97), Nebraska (6.5), Louisiana (7.7) and Vermont (7.76).57

Generational Trends in Economic Perspective Different generations have varied perspectives on the current economic situation and have been affected at varied levels, which may influence how much they will cut back on charitable contributions during the recession. Most senior citizens have a clearer idea of the troubles inherent in a weak economy, which may make it easier psychologically to cut back. Furthermore, older generations have less time during which they may continue to earn an income and build their savings. They will face more difficult times than younger generations and may be more panic‐stricken by the economic turmoil. Most experts agree that the baby boomers will feel the economic crunch most intensely, as they struggle to care for both aging parents and adult children who return home, all on a tighter budget. In contrast, workers in younger generations who have yet to have been directly affected by the economy through job loss or home foreclosure may be in a state of denial. The millennial generation — those born between 1980 and 2000 — will likely be the least stressed over the economic situation. In addition to a “sense of entitlement” that insulates them from worries, the Millennials have many years ahead of them and will have the option to return to school or change careers as the economy evolves.58



Nonprofit Organizations: Behaviors and Best Practices in Times of Economic Uncertainty In the midst of this economic uncertainty, nonprofits are handling things in a number of ways, and seeing mixed results. While a recession might seem like the time to scale back fund‐raising efforts, some nonprofits are reporting returns higher than one would expect from outreach efforts. In January 2008, DM News reported that the use of direct marketing at nonprofits was up in the face of a flagging economy. Their examination found a $14.47 average return on investment per dollar spent on direct marketing by nonprofits in 2007.59 In November 2008, the Bridgespan Group conducted a survey of 117 nonprofits to determine the degree to which nonprofits had already felt the impact of the downturn, what approaches these organizations were taking to address the crisis, and what contingencies they had in place to cope with an uncertain future. This survey found that organizations had been hit hard by the slump and were struggling to meet demand for services. Three out of four reported already feeling the effects of the recession, while more than half had already experienced funding cuts. Of those reporting funding cuts, nearly half reported cuts between 10 percent and 20 percent, while a quarter reported cuts of more than 21 percent. At the same time, the demand for their services was increasing, with 30 percent having had an increase in demand due to the economic crisis. 60 The Bridgespan survey also found that few nonprofits had any sort of contingency plan in place. Nearly half of nonprofits initially reported having constructed some sort of contingency plan, but under a more rigorous definition (i.e., a well‐defined plan), only 28 percent reported having a plan that specified:

• Key “tripwires” determining when to enact the plan, • Which programs are mission‐critical; and • Where and how to cut spending in the event of large budget cuts.

Additionally, this survey found that operating reserves at nonprofits are thin. More than half (54 percent) had three months or less of operating reserves, while 74 percent reported having operating reserves of six months or less.



At the same time, however, nonprofits were not indicating that, in the face of the recession, they were taking cost‐cutting measures. Fully a third had already experienced funding cuts, but had not made use of any cost‐cutting tactics, although 40 percent indicated that they realized cutting staff might have to play a major role in any future financial decisions. The 2008 Bridgespan survey also found that while some organizations had identified cost‐cutting measures, it appears that many — even those that have already experienced cuts — were being slow to take action on this front. Instead, they seem to be spending the lion’s share of their attention on improving their fund‐raising capacity. The study suggested that this hesitancy to take cost‐cutting measures was influenced, at least in part, by organizations’ overly optimistic outlook about the impact of the recession on their financial prospects. Many nonprofit leaders believed that their organization would not be affected by the recession to the same extent that others will be. In particular, 74 percent of leaders agreed that funding for nonprofits like theirs would decline by more than 5 percent, while only 55 percent of them believed that their own revenues would decline by this same amount. The Bridgespan Group then updated these findings in May 2010, repeating the study among the same group of nonprofits. These follow‐up responses showed that nonprofits are turning to much tougher measures than foreseen six months earlier to cope with the economic downturn. The percentage of nonprofits that have resorted to layoffs has increased, as has the percentage that has made broad‐based programmatic reductions. More organizations have drawn down their reserves.61 In contrast to these difficulties, nonprofit leaders also appear to be optimistic about the future. Almost half believe their organization will be on stronger financial footing in a year’s time and two thirds have employed contingency planning, a key step for weathering the economic storm. The specific findings of the following Bridgespan survey are as follows:

Finding No. 1: The financial situation for nonprofits has worsened in the past six months, while the need for their services has increased, making it



more important than ever for organizations to focus on their core programs. As the economic crisis has deepened, the situation for nonprofits has continued to deteriorate. Ninety‐two percent of nonprofits responding to the May 2009 survey indicated they were experiencing the effects of the downturn, up from 75 percent in the November 2008 survey. Forty‐nine percent reported that their financial situation had worsened in the past six months. Finding No. 2: More organizations are tapping into reserves. Also, more nonprofit leaders are developing contingency plans, a key step that can help them respond purposefully when crises arise, and also prepare for better times ahead. The percentage of organizations reporting that they have tapped into their reserves has increased from 19 percent to 33 percent over the past six months. The number of nonprofits with contingency plans has increased from 48 percent to 62 percent since the previous survey. Additionally, respondents reported that their organizations were being more rigorous about contingency planning. The percentage claiming a “well‐defined” contingency plan has increased from 28 percent to 38 percent. Finding No. 3: The deepening recession has led more nonprofits to lay off staff and reduce program activity, while taking action to protect core services and activities. The specific tactics used to cope with the downturn have varied by organization size. But now, more than ever, it is important to identify the people who matter most to an organization, and to keep that group strong. Finding No. 4: Nonprofits increasingly have received relief via additional support from funders, which points to the value in nonprofits forging close, transparent relationships with the individuals and organizations that support them. A sizable minority is counting on further assistance from the stimulus package. And almost half of the survey respondents expressed optimism about their organization’s future financial health.62

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Based on their survey findings, the Bridgespan Group developed the following operational advice, recommending that nonprofits find their way through tough times by learning from what others have done before, as these times are relatively novel, but not entirely without precedent:63

• Act quickly, but not reflexively, and plan contingencies. Anxiety in leadership can cause you to react without thinking or to freeze, and neither of these is helpful in a crisis. Managers are encouraged to handle costs aggressively, doing away with “nice‐to‐haves” and delaying undertaking new initiatives that do not cut costs or increase efficiencies. Have a Plan B, C, and D in place and know when you need to implement each.

• Protect your core. Perhaps you will not be able to pursue all of your

current activities, or even most of them. But, in all likelihood, not all of those are essential operations. Allocate discretionary dollars and your best staff to mission‐critical activities, those making the greatest difference in your ability to achieve and sustain results.

• Identify the people who matter most and keep that group strong. Who

would you name as your strongest performers? Which individuals are critical to your organization’s success, both current and future?

• Stay very close to your key funders. The donors and organizations you

know best are the ones that will help you weather this storm. Use the current climate as an opportunity to let them know what you are seeing and what your plan is to respond. Explain your situation and ask them to be equally forthcoming with you regarding what they expect their funding levels to be in the immediate future. Work to free up as much funding as possible for high‐priority activities. Analyze your revenue streams and categorize each on its reliability: Is it “in the bank,” committed, fairly certain, or at risk?

• Shape up your organization. Take a hard look at your organizational

structure. Where can it be made more efficient? Do programs need to be cut or merged? Can you combine operations with another nonprofit organization to, perhaps, cut operating costs? Can you consolidate



purchasing? The current focus is on trimming the fat and making a lean, efficient, organization.

• Involve your board. Your board needs to be informed of, and involved in,

the process now more than ever. Board members provide experience and expertise from other domains and sectors, help pressure‐test your assumptions, and play an active role in fund‐raising efforts. You should call upon your board at a time like this, as they are likely expecting it, and are ready to provide thoughtful management.

• Communicate openly and often. It is generally a good idea to keep critical

players “in the know” Leading a team through difficult economic times requires openness and frequent communication from the top so that those below have confidence that their leader is in control and knows where the organization is going.

In addition to these recommendations, there are a number of advisable “do’s and don‘ts” in weathering the current economic storm, particularly in dealing with foundations:64

• Do ask about condensing existing multi‐year grants. If you know funds are disappearing from other sources, ask multi‐year funders if they can speed up the cash flow. The idea is to use the expedited cash to cushion expenses through lean times, while potentially avoiding the negative impacts of the continuing recession on multi‐year givers.

• Do consider new and expanded programs. Even though these programs

are difficult to acquire funding for, new and expanded programs can indeed pick up funding if they are shown to reduce costs and increase efficiencies. If you can reduce the per‐unit cost of a grant‐supported service — that is, the cost per person clothed, acre saved, child educated, etc. — then a new program may be worth starting. If you can demonstrate such an effect to funders, they are more likely to disperse the extra cash for funding it.

• Don‘t slash budgets in anticipation of funding cuts. Maintain contact with

your funders. Check out funding association sites and development roundtables. Get as much information on funder behavior and the current



philanthropic climate as you can and, from there, develop staggered contingency plans of action for varying funding levels (i.e., light cuts, moderate cuts, serious cuts, etc). Preemptively slashing budgets can leave you without the tools to accomplish your mission should your worst fears prove to be just fears.

• Don’t become, or sound desperate. Instead, emphasize to your donors

that every year, good or bad, your needs continue. Donʹt talk about grand plans for expansion, but do talk about solid plans for today. Donʹt lose your enthusiasm and optimism about your cause. Donors will notice and pull back if they think that you, the fund‐raiser, have doubts. If your organization is in human services and the need for those services increases during a recession, let the public know. Emphasize that your organizationʹs survival is crucial because of the clients you serve. Tell your clientʹs stories but not in a desperate way that demeans them. Show their strength in the face of diversity and invite your supporters to help them. 65

• Prove that you are responsible. Let your donors know that you are doing

your part by being fiscally responsible. Cut costs where you can, make sure you have good controls in place, and that you are examining marginal programs for possible deletion. Keep your money safe by making sure it is in FDIC insured banks. Avoid non‐insured investments.

• Donʹt give up on your corporate and cause‐marketing activities. Gifts

may decrease, but keep your corporate contacts strong. It is very hard to get back on the corporate charitable list if you are dropped. Avoid this by staying visible, and keep cultivating your contacts within the company. Likewise, donʹt give up on cause‐related marketing. Companies are finding that these activities pay off for them with consumer loyalty. Remember, too, that just because a companyʹs stock price has been depressed doesnʹt mean that it is not a strong company. Look at the balance sheet to identify companies that are in a good position, and that will likely come back strong from the economic meltdown.

• Diversify your funding sources by identifying all types of financial

support. Avoid depending on one or two major donors or foundations. Most charitable giving is made up of small donations. If you are not



doing direct mail to a large base of supporters, start working toward doing so. Use the Internet to reach more people. The cost is low so that donations can be smaller. Those add up quickly. Explore payment options with low transaction costs and online donation sites.

• Put your fund‐raising programs under the microscope. Determine which

fund‐raising programs work best and are the most efficient in terms of resources. Then cut the least efficient ones and shift those resources to the ones that are doing the most good. Maybe that big special event eats up precious time and resources for very little return. Or the product sale you started last year just doesnʹt seem worth the time and effort. But, donʹt let the money and volunteer time you use in those efforts just dissipate. Put them to use by expanding the annual fund campaign or making more major donor calls or doing another planned giving seminar.

• Donʹt pull the plug on major campaigns, but do slow down. If you were

starting a capital campaign (or endowment campaign) when the economic crisis hit, donʹt stop. But do slow down. Recognize that getting those lead gifts in the size you want will take longer and be dependent on how the economy is doing. If you ask for a multi‐year gift, and the donor resists, fall back to asking for part of that gift now, and plan to go back later for the rest. Donors are understandably shy about making long‐term commitments in this economic environment.

• Keep up your marketing and PR. Building buzz about your good work

will help you with your donors. The more they know and see your name about, the more likely they are to contribute to your cause. Got PR professionals on your board or committees? Seek their advice before you launch anything big. Let them organize a PR/Marketing Committee that might bring in other professionals to help. See if their firms can do pro bono work, or work at a discount. This kind of help is really priceless.

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Spending By Education Philanthropies In 2009 The impact of the current recession can also be seen in the recent declines in planned giving levels by many education grantmakers, as reported by Education Week in January 2010. Among a national network of 140 education grantmakers, ranging from family foundations of all sizes to corporate philanthropies, six‐in‐10 (59 percent) projected “that their 2009 grantmaking budgets would decline over the previous year.” Just one‐quarter expected their giving to remain the same and only 14 percent were planning to increase their grants.68 As the report “Best Practices in Education Grant Making” reports:

Grant making in education works to influence policy; to positively impact educational outcomes; to level the playing field across racial, socio‐economic, and geographic divides; and to harness private and public, financial and social support. Excellent grant making in education begins by gathering knowledge regarding the gaps in access and success; first, by targeting core areas of need, then by formulating a proactive plan of action matched by identification of observable results, and finally by the careful implementation of resources. Long‐term impact requires, at times, innovation and a bit of risk (Grant Makers for Education, 2009).69

In particular, the main focus of grant makers in education includes high school reform and effective schools, along with family and community social supports. Approximately 60 percent of surveyed grant makers in education address college access, while 40 percent make grants supporting college success and retention: Best Practices in Education Grant Making

Percentage of Funders Supporting Key Education Issues

Public Schools or districts 68% Key School Reform, College or Career Readiness 68%

Public Policy, Direct or Indirect 66% Effective School/District Leadership 62%

General Operating Support 57% Family Community and Social Support 62%

Support of Community Organizing 50% Math/Science/Technology Knowledge Funding 61%

College Access 59%

College Success and Retention 40% Source: Best Practices in Education Grant Making 2009



The 2009 report, Trends in Education Philanthropy, identified four main themes shaping education philanthropy at this time:

1. Focus in the face of challenge. “Grantmakers are using a variety of strategies to avoid ‘thinning the soup,’ including keeping grant sizes constant while making fewer grants overall and taking administrative cuts to minimize the impact on their grantmaking.”

2. Increased collaboration. Nine‐in‐10 grantmakers are collaborating with

other funders and establishing cross‐sector partnerships with key constituencies, such as parents and teacher unions. “Collaboration not only allows grantmakers to leverage funds and knowledge, it also helps align the efforts of the many players involved – essential in a field as vast and complex as education.”

3. Innovation and scaling what works. “Many grantmakers commented on the

need to build the field’s knowledge base by identifying and promoting best practices in education and education grantmaking so that efforts are primed for success.”

4. Engagement with public policy. “Many spoke of feeling a sense of

momentum and opportunity in 2009 as a result of the economic stimulus and other new federal initiatives.” 70

When asked to identify their current funding priorities and expectations over the next two years, the key themes that arose included:

1. Innovation and new learning methods 2. More effective teachers 3. School leadership 4. Strengthening the high school‐to‐postsecondary pipeline 5. Supports outside of school 6. Early learning opportunities 7. Focusing on key curricular areas 8. Access to and success in higher education71

In addition to reductions in grantmaking for education, institutions of higher education will be affected by the recession this year, similar to last year, as they



struggle to stay on track with fund‐raising goals. According to the Voluntary Support of Education (VSE) annual survey, in 2009, U.S. universities and colleges raised $27.9 billion, which represents a drop of 12 percent compared to 2008, when these institutions raised $31.6 billion. As the Council for Aid to Education (CAE) noted, “the 2009 decline is the steepest in the survey’s history.”72 Furthermore, the 20 institutions that raised the most in 2009 received $7.28 billion, which is $1.13 billion less than the top 20 institutions raised in 2008. (Note that the top 20 institutions in 2008 are not exactly the same institutions as the top 20 in 2009). In contrast, the total of $31.6 billion for 2008 represented a record for contributions to higher education and it had increased by 6.2 percent over 2007, which is higher than the average annual increase in contributions over the past decade of 5.7 percent.73 In March 2009, Ann E. Kaplan, director of the VSE, envisioned a grim outlook, stating “when the country is in a recession while the stock market is also declining, the scene is set for a decline in overall support.” She also went on to note that “even at institutions that reported healthy gains in fiscal 2008, advancement professionals told us they had ʹhit a wallʹ in January 2009 and that the decline was substantial. Both the number and value of contributions dropped early in the calendar year.”74 By early 2010, that prediction had clearly come true. As noted in the table on page 24, the largest declines in giving have been among individuals, including alumni and non‐alumni (both are down 18 percent), and in contributions for capital purposes, to endowments and for property, buildings and equipment, which are down 25 percent. As CAE notes, “contributions from alumni and other individuals represented 43.5 percent of the gifts in 2009. Typically, such gifts comprise closer to half of all contributions to higher education institutions.”75



Voluntary Support of Higher Education by Source and Purpose 2009

(Dollars in millions)

Percent Change2008 to 2009

2008 2009 Current $ Adjusted for CPI

Total Voluntary Support $31,600 100% $27,850 100% -11.9 -11.5

Sources:

Alumni $8,700 (25.5%) $7,130 (25.6%) -18.0 -17.7

Non-alumni individuals $6,120 (19.4%) $4,995 (17.9%) -18.4 -18.0

Corporations $4,900 (15.5%) $4,620 (16.6%) -5.7 -5.3

Foundations $9,100 (28.8%) $8,235 (29.6%) -9.5 -9.1

Religious Organizations $380 (1.2%) $325 (1.2%) -14.5 -14.1

Other Organizations $2,400 (7.6%) $2,545 (9.1%) 6.0 6.5

Purpose:

Current Operations $17,070 (54.0%) $16,955 (60.9%) -0.7 -0.3

Capital Purposes $14,530 (46.0%) $10,895 (39.1%) -25.0 -24.7 Source: Council for Aid to Education, 2010

Among independent schools specifically, NAIS reports that total giving for 2009 was down 6 percent in total and about 2 percent when calculated as giving per student. These declines reverse the steady increases seen between 2001 and 2008 and are consistent with the impact being seen in donations to education in other sectors.



Total NAIS Giving 2001 - 2009

Source: NAIS StatsOnline, Annual Giving Core Sample 2001-2009, April 2010.

The current recessionary period appears to be having a more severe impact on independent school giving than in the past. Based on historical NAIS data (with recessionary years marked in red), average giving per student to independent schools has not been affected by previous recessionary periods, except for 1969‐1970 and 1973‐1974, with a carry‐over to 1975‐1976.

$1,059$1,129

$1,196$1,263

$1,341$1,484

$1,570 $1,604 $1,567

$538,115$617,016 $614,158 $646,921

$710,742

$800,976$856,765

$902,271$847,634

$0$100,000$200,000$300,000$400,000$500,000$600,000$700,000$800,000$900,000$1,000,000

$0$200$400$600$800

$1,000$1,200$1,400$1,600$1,800

2001 2002 2003 2004 2005 2006 2007 2008 2009

Giving Per Student Total Giving



Annual Giving to Independent Schools During Recessionary Years

Recession Years

Schools Reporting

Enrollment Total

Enrollment Average

Enrollment

Schools Reporting

Annual Giving

Total Annual Giving

Annual Giving per

School

Annual Giving per

Student

68-69 592 200,904 339 519 $34,134,706 $65,770 $170

69-70 592 204,502 345 519 $30,134,706 $58,063 $147

70-71 627 211,552 337 552 $31,661,017 $57,357 $150

72-73 604 209,795 347 575 $42,625,000 $74,130 $203

73-74 611 219,237 359 585 $48,190,000 $82,376 $220

74-75 676 244,004 361 518 $49,469,000 $95,500 $203

75-76 770 277,406 360 517 $48,098,000 $93,033 $173

79-80 784 303,361 387 581 $80,860,000 $139,174 $267

80-81 806 314,575 390 574 $101,638,528 $177,071 $420

81-82 833 330,523 397 387 $54,864,491 $141,769 $313

89-90 895 360,373 403 815 $285,911,907 $350,812 $862

90-91 903 368,519 408 823 $297,675,911 $361,696 $875

91-92 905 374,612 414 828 $318,912,598 $385,160 $907

00-01 895 436,024 487 840 $514,816,285 $612,877 $1,248

01-02 1005 487,024 485 896 $571,602,015 $637,949 $1,273

02-03 1000 482,203 482 730 $508,939,740 $697,178 $1,343

Source: NAIS StatsOnline, National Tables, October 2008

In October 2009, Campbell & Company released the results of a survey called “Effects of the Economy on Independent School Fund‐raising.”76 These findings, collected from a total of 109 independent schools across the U.S. in August and September 2009, corroborate the recent reduction in fund‐raising reported by NAIS.



Specifically, the study found that:

• The current economic downturn has had a major impact on fund‐raising for almost six‐in‐10 independent schools (59 percent).

• Almost eight‐in‐10 schools (77 percent) have witnessed a decrease in their endowment values, compared with just 6 percent each who saw their endowments increase or stay the same.

• Similarly, although one‐third of independent schools had an increase in fund‐raising in FY2009 (34 percent), 56 percent of schools experienced a decrease in fund‐raising and just one‐in‐10 (9 percent) had their fund‐raising remain the same.

At the same time, though, the study identified several influences that appear to have mediated the impact of the recession. In particular, schools that were conducting a campaign other than their annual fund drive in 2009, schools that increased their development budget in 2009, and schools with a religious affiliation all reported smaller decreases in fund‐raising than seen among all independent schools: Year-Over-Year Fund-raising Results in Independent Schools

FY2009 Fund-raising

All Independent

Schools

Conducted 2009

Campaign No 2009

Campaign Development

Budget Increased

Development Budget Stayed Steady

Development Budget

Decreased

Increased 34% 41% 29% 44% 32% 29% Stayed the same 9% 10% 9% 15% 9% 7%

Decreased 56% 48% 62% 41% 59% 65% Source: Campbell & Company: Effects of the Economy on Independent School Fund-raising, October 2009



Based on these findings, the study concludes that:

The results of the survey demonstrate the value of investing in the overall development operation and also suggested that being in a campaign during an economic recession can lessen the impact of the downturn on fund‐raising results. Schools that were in a campaign were more likely to experience an increase in year‐over‐year results than those that were not in a campaign. Additionally, among organizations that increased their development budgets, the highest percentage experienced an increase in year‐over‐year fund‐raising results. Among organizations that decreased their budgets, the highest percentage experienced a decrease in year‐over‐year fund‐raising results.77

It is also encouraging to see that most schools are projecting an increase in fund‐raising results for 2010. However, six‐in‐10 schools have no plans for an upcoming campaign, compared with just 16 percent who are starting a campaign in 2010 and 26 percent who are continuing a campaign. Similarly, “while many schools were optimistic of the year to come in terms of fund‐raising results, many were also under the impression that they would be able to increase those results without investing in staffing or programs.”78



Fund‐raising in a Recession: Key Points for Educational Institutions Private educational institutions may use a number of strategies to help combat the detrimental effects of economic recession on capital campaign and annual fund goals. Institutions should strive to avoid cuts in fund‐raising staff and to maintain contact with potential donors despite the tough economic climate. The institutions best prepared to profit when the recession comes to an end will be those that have maintained a consistent presence with donors. Continued efforts to visit donors and to make a case for support in the future helps ensure that donors’ contributions will bounce back as the economy recovers. Successful institutions will be the ones that resist the temptation to significantly scale back outreach efforts.79 In 2008, the Chronicle of Philanthropy turned to Chicago‐based consultant John Glier for advice on how nonprofits can successfully weather an economic downturn. Glier, who has conducted a review of the experiences and outcomes at over 20 large institutions of higher education during four previous recessions, notes that those institutions that continue to flourish during economic downturns are also those that are well prepared for the economy to sour, that are sensitive to the need for special initiatives in hard economic times, and that use long‐range planning for advancement operations. On the other hand, institutions that see donations decline are those that fail to maintain sufficient staffing levels in the fund‐raising department, that scale down donor recruitment efforts, and that fail to promptly fill key leadership roles.80 In a February 2008 article for the Chronicle of Higher Education, David L. Wheeler compiled a brief list of tips for institutional advancement offices to follow in times of economic uncertainty, summarized below.81

• Avoid across‐the‐board, or any but the most necessary, staff cuts. A technique mentioned by numerous sources, eliminating development staff during a recession may prove counterproductive as periods of economic uncertainty and difficulty can often be the times when institutions most need to maintain strong fund‐raising efforts. Shrinking the development staff leaves the institution underprepared to boost fund‐



raising efforts as the economy recovers, and staff cuts may harm the acquisition of bequests and other types of planned gifts.

• Keep in touch with the institution’s best donors. As mentioned above, it is

vital that the institution continues to keep donors involved. For instance, institutions should update donors on how their gifts have impacted students and the institution alike.

• Do not ignore those donors who have halted their charitable efforts in

light of the recession. These donors are more likely to later give to organizations with which they have maintained an uninterrupted relationship.

• Redirect emphasis to smaller gifts. Messages should focus less on the size

of the donation and more on the potential impact it will have on students and the campus community.

• Create flexible payment plans. Encourage donors to commit to a project

that will be paid for over several years, with payments increasing over the course of the commitment.

In a March 2009 article, Associated Press writer Justin Pope notes that, in light of the current economic situation, college fund‐raisers have transitioned messages to focus less on new construction and campus improvements and more on student financial aid and other high‐impact areas. As private colleges and schools approach donors, they should signal being sensitive to the situation. Michael Stitsworth, vice president for advancement and college relations at St. Olaf College, notes that he now opens potential donor meetings with acknowledgement of the current economic situation.82 Furthermore, the Council for Advancement and Support of Education (CASE), a Washington, D.C.‐based organization with a membership of over 3,400 colleges, universities, and independent elementary and secondary schools, published a report entitled Weathering the Economic Climate: Storms, Strategies and Silver Linings in April 2009.83 Among other topics, the report addresses messages and strategies that may be used by advancement professionals at independent schools and colleges as they seek to maintain the momentum of their fund‐raising efforts despite the rough economic climate. The CASE Philanthropy



Commission, a group of senior‐level practitioners appointed by the organization‘s board of trustees, developed the following list of institutional messages and strategies being used by fund‐raising professionals.

Messages

• Accountability: Many institutions are talking about preventive measures taken in anticipation of a downturn; institutional efficiency; reductions that reduce administrative costs while preserving academic quality; and prudent management of endowment portfolios.

• Commitment to mission: Some institutions are focusing their messages on

commitment to students and student financial aid as well as to funds for academic facilities.

• Education as part of the solution: Institutions are reminding donors that

education is part of the solution to current challenges and will position the workforce to thrive in the knowledge economy.

• Importance of giving within the current economic context: Some

institutions are telling donors that in the current economic climate, their gifts are more valuable than ever and can make an immediate difference.

• Matched funding: Institutions in the U.K. participating in a government

matched funding program are emphasizing the greater power of a gift when it is matched 3:1. One U.S. institution created and promoted a trustee challenge of $100,000 to match annual fund gifts.

• Stability: Some institutions are assuring constituents that they remain

healthy and financially stable, with full enrollments anticipated in the fall.

• Internal communications: Many commissioners noted that institutional leaders communicated regularly with internal audiences and that faculty and staff appreciated being informed, even if the information they receive is about salary freezes, layoffs, furloughs, and budget cuts.



Strategies

• Keep fund‐raising staff focused on message: Remind the development team that donors don’t give because the institution needs money. They invest because their gifts make a difference and help dreams come true.

• Be flexible: Reach out to select donors whose pledges could be

restructured to express understanding of the challenging economic times. Extend flexibility to those with multi‐year pledges who need additional time to meet their commitments.

• Focus on impact: One commissioner noted that an institution’s

constituents demand relevancy and immediate impact; they need to see urgency in giving to a university at a time when dollars are tight, anxiety is high, and there are many important, meaningful choices for their giving. Another commissioner‘s institution focused fund‐raising efforts on targeted projects with an emphasis on those initiatives that provide immediate impact and serve the long‐term interest of the donor and the institution. Another institution is tapping into donors’ growing interest in supporting financial aid.

• Explore partnerships: One institution is leveraging the national (U.S.)

agenda in healthcare, energy, the environment, and education by aligning itself with what might be considered competing organizations and looking at joint regional initiatives that would benefit everyone in the community.

• Focus on stewardship: Remain in touch with prospects and donors on a

consistent basis, especially to thank them for what they have already done. Don‘t take current donors for granted. One institution hand‐delivered stewardship reports that reflected the impact of the donors’ gifts. Another, knowing that donors may decide in these times to give gifts to fewer organizations, decided to “secure the donors we already have” by increasing face‐to‐face visits and phone calls. Several institutions are using events to connect donors with scholarship recipients as part of the stewardship strategy.



• Focus on productivity: Get out in front of more people, monitor visits by gift officers and be more aggressive — but be sure not to push to a “no.”

• Focus on alternative ways of giving as well as alternative sources: Some

institutions are refocusing their efforts on estate giving or life‐income arrangements. Others are giving greater attention to private foundations.

• Focus on, and display strong institutional leadership: Many institutions

are making sure their leaders are highly visible at reunions, regional events, and one‐on‐one meetings. Several institutions with new leaders are taking advantage of the additional opportunities to connect leadership with curious constituents.

• Challenge donor groups: One institution asked members of a reunion

class to consider giving five times what they would have given in a non‐reunion year. Others challenged trustees to set the example for other donors by increasing their donations — or by making their donations unrestricted — in challenging economic times.

• Don‘t make assumptions: Many donors are still waiting and able to give,

and many are giving more because they know others have had to scale back. Don‘t assume that anyone will be unable to give small or large gifts.

• Be creative: One institution sent letters to all donors who had underwater

endowments (i.e., funds that are below the donor‐restricted endowment gift amount) that benefitted students, asking the donors to provide the difference in the payout from last year to this year in order to keep students “whole.” More than 90 percent of the donors responded favorably.

• Pay attention to perception: In planning and executing an event

celebrating the end of a campaign, one institution was mindful of the economic climate and held the celebration on‐site, moderating expenses so that it didn‘t appear to go “over the top.”

• Increase participation: Focus less on the amount than on the act of giving.

One institution started a special society to recognize donors regardless of the amount they gave.



• Start a monthly giving program: Give donors the option to donate

monthly/quarterly. What rules says they can only mail in donations once a year? How about twice or three times per year?

• Research, research, research: routinely scope out new sources of

foundation giving. Send out letters on a weekly basis. 84 In conclusion, there are a variety of policies and procedures that independent schools can implement in order to help them manage the adverse effects of the ongoing economic slowdown, as well as helping them rebound effectively once the economy recovers.



ENDNOTES

1 Bureau of Economic Analysis News Release, May 27, 2010

2 See http://www.nber.org/cycles/april2010.pdf

3 Index of National Fund‐raising Performance, 2009 Fourth Quarter Calendar Results

4 Index of National Fund‐raising Performance, 2009 Fourth Quarter Calendar Results

5 Giving USA: “Charitable giving during recessions doesn‘t keep up with inflation.” See: https://www.givinginstitute.org/press_releases/releases/PR_021108.pdf. See also Giving USA 2006

6 Giving USA 2010

7 Giving USA 2010

8 See http://givingusa.org/press_releases/gusa/GivingReaches300billion.pdf

9 Giving USA: “Charitable giving during recessions doesn‘t keep up with inflation.” See: https://www.givinginstitute.org/press_releases/releases/PR_021108.pdf

10 “US charities hit by recessionʹs impact on spending”: 24 Mar 2010 19:41:37 GMT Source: Reuters

11 See http://www.philanthropy.iupui.edu/research/fundraising‐climate.aspx

12 Giving USA 2010

13 Giving USA 2010

14 Bureau of Economic Analysis News Release, May 27, 2010

15 Giving USA 2010

16 Boney, Ret. “Corporate Donors Adjust to Economic Slump.” See: http://www.philanthropyjournal.org/resources/special‐reports/corporate‐giving/corporate‐donors‐adjust‐economic‐slump

17 “Corporate Donors Adjust to Economic Slump”

18 “Bumpy Ride for US Corporate Giving Amid Recession,” Reuters, March 5, 2010

19 “Bumpy Ride for US Corporate Giving Amid Recession”

20 “Philanthropy: Companies Seek Greater Returns in Tough Times.” Bloomberg Business Week, January 14, 2010

21 Foundation Growth and Giving Estimates, Current Outlook, 2010

22 Both reports use the same data, although it is allocated differently (Conversation with Reina Mukai of the Foundation Center)

23 Foundation Growth and Giving Estimates

24 Foundation Growth and Giving Estimates, 2010

25 Foundation Growth and Giving Estimates, 2010



26 “Briefing on the Economy and Charitable Giving.” See http://www.philanthropy.iupui.edu/Research/docs/December2008_BriefingOnTheEconomyAndGiving.pdf

27 Lampman, Jane. “Signs that, amid tough times, Americans will keep giving,” The Christian Science Monitor, October 27, 2008. See http://www.csmonitor.com/2008/1028/p02s01‐usec.html

28 See http://www.catalogueforphilanthropy.org/natl/generosity_index/2006.html

29 “Charity tax limits upset many”, The Washington Times, Friday, February 27, 2009; “Proposal to Cap Deductions for High‐Income Households Would Reduce Charitable Donations By Only 1.9 Percent”, Center on Budget and Policy Priorities, March 2009

30 Giving USA 2010

31 “Charitable Giving: How Much, By Whom, To What, and Why.” Paul G. Schervish, John J. Havens and Mary A. OʹHerlihy. The Nonprofit Sector: A Research Handbook, Second Edition. Walter W. Powell and Richard Steinberg (eds.) Yale University Press. 2006

32 “Charitable Giving: How Much, By Whom, To What, and Why.”

33 “Geography and Giving: The Culture of Philanthropy in New England and the Nation.” John J. Havens and Paul G. Schervish , Center on Wealth and Philanthropy Boston College, The Boston Foundation, June 2007. See http://www.bc.edu/content/dam/files/research_sites/cwp/pdf/geoandgiving2007.pdf

34 “Individual Giving Model: Forecast for 2009,” Advancing Philanthropy, January/February 2010

35 Center on Wealth and Philanthropy: Good News for Charitable Giving? Maybe. Published: February 18, 2010

36 Giving USA 2010


38 “Charitable Giving: How Much, By Whom, To What, and Why

39 Giving USA 2010

40 See http://www.barna.org/barna‐update/article/18‐congregations/327‐the‐economys‐impact‐on‐churches‐congregational‐budgets‐part‐1‐of‐3

41 See http://www.barna.org/barna‐update/article/18‐congregations/327‐the‐economys‐impact‐on‐churches‐congregational‐budgets‐part‐1‐of‐3

42 2009 Congregational Economic Impact Study

43 2009 Congregational Economic Impact Study

44 “Stepping Up to the Plate,” Philanthropy Matters, Volume 17, Issue 2 2009







49 See http://www.fraseramerica.org/newsandevents/news/7075.aspx

50 Hoffman, L. November 25, 2005. “Most Charitable States,” Forbes. See http://www.forbes.com/2005/11/23/most‐charitable‐states‐cx_lh_1125home_ls.html



53 Hoffman, L. November 25, 2005. “Most Charitable States,” Forbes. See http://www.forbes.com/2005/11/23/most‐charitable‐states‐cx_lh_1125home_ls.html

54 “Is Your State In A Recession?” USA Today. March 6, 2008. See http://www.usatoday.com/money/economy/2008‐03‐04‐local‐differences_N.htm

55 U.S. Regional Recession Status. See http://www.economy.com/dismal/recession.asp

56 Report: 11 states emerging from recession, Thursday, November 05, 2009, special to Stateline.org

57 AP analysis: Economic stress drops in most areas, posted on Mon, May. 3, 2010

58 Megan, Kathleen. “Stress Levels About the Economy Vary Among Generations.” November 19, 2008. AARP Bulletin Today

59 Lehr, Lisa. “Fund‐raising ‐‐ Why a Recession is No Time to Cut Back.” See http://ezinearticles.com/?Fundraising‐‐‐Why‐a‐Recession‐Is‐No‐Time‐to‐Cut‐Back&id=993483

60 Managing Through Tough Times Survey. See http://www.bridgespan.org/tough‐times‐survey‐themes.aspx

61 Managing in Tough Times: May 2009 Nonprofit Leaders Survey Update

62 Managing in Tough Times: May 2009 Nonprofit Leaders Survey Update

63 See http://www.bridgespan.org/LearningCenter/ResourceDetail.aspx?id=2638&parentID=106&taxid=130

64 See http://www.socialedge.org/blogs/dr‐o/archive/2009/01/11/foundation‐giving‐and‐the‐recession‐what‐next

65 See http://nonprofit.about.com/od/fundraising/tp/recessionfundraisinghub.htm

66 USA Giving Spotlight Issue 3, 2008: “Giving during recessions and economic slowdowns

67 Giving USA 2010

68 Education Week: Spending by Education Philanthropies Drops in 2009; Benchmarking 2009: Trends in Education Philanthropy

69 The Center for Philanthropy at Indiana University: Best Practices in Education Grant Making 2009

70 Benchmarking 2009: Trends in Education Philanthropy

71 Benchmarking 2009: Trends in Education Philanthropy



72 Council for Aid to Education Press Release, February 3, 2010: “Contributions to Colleges and Universities Down 11.9 Percent to $27.85 Billion, Greatest Decline Ever Recorded”

73 MacGregor, Karen. “U.S. Universities Break Fund‐raising Records.” University World News. March 1, 2009. See http://www.universityworldnews.com/article.php?story=20090227150122840

74 MacGregor, Karen. “U.S. Universities Break Fund‐raising Records.” University World News. March 1, 2009. See http://www.universityworldnews.com/article.php?story=20090227150122840

75 Council for Aid to Education Press Release, February 3, 2010

76 Campbell & Company: Effects of the Economy on Independent School Fund‐raising, October 2009



79 Wheeler, D. February 8, 2008. “Colleges Prepare for Fiscal Downturn.” See http://chronicle.com/free/v54/i22/22a00103.htm

80 Holly Hall, “How Colleges Can Improve Their Fund Raising in Hard Economic Times,” The Chronicle of Philanthropy (September 22, 2008). See http://philanthropy.com/news/prospecting/5756/how‐colleges‐can‐improve‐their‐fund‐raising‐in‐hard‐economic‐times

81 Wheeler, D. “Colleges Prepare for Fiscal Downturn,” op. cit.

82 Pope, J. March 2, 2009. “Colleges’ Fund‐raising Efforts Challenge with Economy.” See http://www.pantagraph.com/articles/2009/03/02/news/doc49ab1d78768bd391702635.txt

83 Council for Advancement and Support of Education (CASE): Weathering the Economic Climate – Storms, Strategies and Silver Linings,”April 2009

84 Council for Advancement and Support of Education, Weathering the Economic Climate: Storms, Strategies and Silver Linings (April 2009). See http://www.case.org/Content/AboutCASE/Display.cfm?CONTENTITEMID=9359

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