Upcoming Webinar: How to Use Performance Metrics to Manage Up, Down and Out

Join us on Wednesday, January 18, 12 - 1:00 p.m. CT for an interactive webinar on how to best use performics metrics.

Designed for CEOs, Executive Directors, and development staff at all levels, Attendees will learn how to incorporate key performance metrics into the decision-making process. Additionally, Attendees will have access to examples of management and leadership reports and learn effective communication strategies for implementing performance metrics across the organization.

New Study! Impact of the Obama Administration's Proposed Tax Policy Changes on Itemized Giving

Proposals to Cap Charitable Deduction, Raise Tax Rates Likely to Have Relatively Small Negative Impact on Overall Charitable Giving, Study Finds

 Combined with recession’s effects, slow recovery and potential government funding cuts, changes could negatively affect charities

The Obama Administration’s proposals to reduce the charitable tax deduction for wealthy households and to increase the marginal income tax rates they pay would, by themselves, have a modest negative effect on itemized charitable giving, according to a new study conducted by the Center on Philanthropy at Indiana University and sponsored by Campbell & Company.

The first proposal would reduce the value of itemized charitable deductions from the current 35 percent to 28 percent in 2012 for taxpayers with an adjusted gross income over $250,000 for couples or $200,000 for individuals. The second proposal would raise the marginal income tax rate from 35 percent to 39.6 percent in 2013 for those taxpayers.

The study looks at how itemized charitable giving would have been affected in 2009 and 2010 (using historical tax data) if the proposals had been initiated in those years, respectively.

The complete study can be found by clicking here.

Click here to register the following webinar: 



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Questions? Please contact:
Sarah Barnes
312.896.8872
sarah.barnes@campbellcompany.com 

In With The New: Fundraising in 2011

As the nonprofit world continues to emerge from the recession, we want to draw on our experience, as well as a variety of recent studies and surveys from nonprofit observers, to reflect on the past year and begin looking ahead to the immediate future.  Initial data indicate that giving in 2010 was just as strong, if not stronger, than in the previous year, when donors gave more than $300 billion despite the economic downturn.  At the same time, we have seen a number of distinct trends emerge in giving from the three sources of philanthropy: individuals, corporations and foundations. 

We summarize these trends below and hope that this article will serve as the basis for an ongoing conversation regarding changes in fundraising.  Throughout the year, we will be engaging Campbell & Company consultants to discuss how these and other trends have affected nonprofit organizations across the country and share strategies for successfully adapting to the evolving philanthropic marketplace. 

Individual Giving

While individual giving continues to represent approximately 88 percent of total philanthropic contributions, the nature of it has changed in the recent economic slowdown.  Donors have increasingly focused their giving on the organizations with which they have the closest relationships, and many have been more deliberate in their decision-making process in order to weigh the timing, size and vehicle of their contributions. 

Research has demonstrated that three personal factors affect individual philanthropy: income, household wealth and past giving, which strongly determines whether an individual will give in the future.  While nonprofit organizations cannot control the first two factors, they shape giving experiences for all of their individual donors, and effective donor stewardship can foster a strong basis of philanthropic support.

The face of philanthropy is changing.  Though donors tend to be middle-aged, married, well‑educated and employed, several key demographics have increasingly had an impact on philanthropy.  Studies such as the Center of Philanthropy at Indiana University’s Women Give 2010 have revealed how, controlling for education and income, women give more generously than men.  Women’s giving patterns also differ from men’s in significant ways.  Women are more likely to research organizations before committing to gifts and typically give to organizations that have a positive impact on their families and larger communities.  In addition, they tend to favor giving efforts that involve collaboration among women in support of an organization.      

At the same time, Generation X (30- to 45-year-old) and Millenial (20- to 30-year-old) donors understand philanthropy in terms of its global impact and support causes that reach far beyond their communities.  These segments concentrate their giving toward organizations where they and their friends are already involved; many require a longer period of cultivation before they trust an organization.  Not surprisingly, individuals in these groups are best reached through multiple channels, which may include traditional direct mail and telemarketing vehicles in addition to e-mail, mobile phones and social networks. 

As a whole, donors want to know how their gifts make a difference.  Observers have frequently commented on this trend in the past, and it has rapidly become a permanent feature of the philanthropic landscape.  Donors and prospects increasingly come to organizations with penetrating questions regarding their operating models, outcomes and the impact of contributions.

Still, despite this professed preference, Hope Consulting’s recent “Money for Good” report found that while 85 percent of donors identify an organization’s performance as one of the top criteria for their philanthropy, only 35 percent actually engaged in any research.  Further findings showed that three-quarters of those individuals spent less than two hours researching and more than 60 percent only looked for basic facts and figures.  This portion of the report concluded with the surprising statistic that only three percent of all donors ultimately give based on an organization’s relative performance. 

Foundation Giving

Despite increasing strain on their assets, foundation giving in 2009 actually fell short of the severe drop that some analysts predicted.  Many foundations cut their operating expenses and drew on their reserve funds, and these decisions allowed them to maintain a higher level of grants than expected.  Foundations will not be able to sustain these measures, however, and so are likely to refrain from making new grants in the near term (while those that do will be less inclined to make multi-year gifts).  Still, given recent conditions, foundations have increasingly been willing to support operating expenses at their beneficiaries. 

Typically, foundations set their level of giving based on the market value of their assets on a three-year rolling basis.  Given this window, we predict that foundation giving will begin to recover in the next 18 months. 

Corporate giving

Corporate giving has significantly declined from its 2005 high, when businesses demonstrated unprecedented generosity in response to various global disasters.  Giving levels are tied to companies’ pretax profits, which have suffered during the recent recession.  However, the business world’s increasing emphasis on social responsibility provides an opportunity for certain nonprofits to secure greater corporate support.

Going forward, corporations will continue to align their giving with their social responsibility goals, and many will use increasingly specific guidelines to direct their giving.  On the ground, this trend means that companies may shift their giving from “backyard” initiatives in their communities to more focused social priorities. 

As a result, we expect to see corporate giving concentrated among fewer nonprofits.  Companies’ interactions with these organizations will grow increasingly diversified, including cause marketing efforts, donations of products or other gifts in kind, and skills-based volunteer partnerships.  As their giving becomes more focused on specific issues and programs, companies will be less likely to provide outright support for operations.  Many will likely be more hesitant to underwrite special events, as well.

IN WITH THE NEW

The New Year began with encouraging signs for the nonprofit world.  A Chronicle of Philanthropy survey found that more than 62 percent of nonprofit organizations experienced an increase in giving compared to the previous year.  As 2011 unfolds, we hope to see this upward trend continue.  In the end, nonprofit organizations will need to continue learning about and engaging their donors.  When organizations demonstrate the importance and impact of support to donors, they can build relationships that will last for years to come.  

Article 1040EZ: What Does the Obama Tax Compromise Mean for Nonprofits?

Between 2001 and 2003, the Bush administration passed a series of tax cuts to reinvigorate the faltering economy. Featuring built-in “sunset” provisions, the reforms were set to expire on January 1, 2011 unless renewed by Congress. With that deadline rapidly approaching in an increasingly contentious political environment, the Obama administration has proposed a compromise plan, which recently passed a cloture vote in the Senate. Under the bill, many of the stipulations of the Bush tax cuts would remain in place until 2012; however, the plan faces opposition from some Republicans, as well as House Democrats. 

Below, we have summarized the aspects of the planned legislation most likely to affect major gift donors, although we note that the final shape of the bill could easily change before its passage. While research has consistently shown that few individuals give primarily for tax reasons, nonprofits that understand tax laws can better meet their donors’ needs, ultimately strengthening relationships with these individuals.

Disclaimer: Please note that this article should not be construed as tax preparation advice. For information regarding how changes in legislation could affect you or your organization’s returns, consult a licensed tax professional.

Effects on Charitable Giving

A variety of provisions in the proposed legislation promote charitable giving, including:

• Maintaining the current tax extenders, which permit IRA owners over age 70 1/2 to arrange tax-free gifts from their accounts (a special provision moves the deadline for making 2010 IRA gifts to January 31, 2011)
• Repeal through 2012 of cutbacks in certain itemized deductions – including charitable deductions – for individuals with high incomes
• A two-year extension of low tax rates on long-term capital gains and qualified dividends, meaning people who receive income from charitable gift annuities and charitable remainder trusts will pay tax at only a 15% rate (0% in some cases) 
• In 2010 and 2011, increased deductibility gifts of appreciated real estate for conservation purposes, gifts of food inventory by businesses, gifts of book inventories from C corporations to public schools and corporate gifts of computer equipment and software to public schools
• Favorable tax treatment of shareholders in S corporations that contribute property to charity in 2010 and 2011

The Estate Tax

Benjamin Franklin once wrote, “Nothing can be said to be certain but death and taxes;” however, the status of estate taxes—or, in the words of some pols, “death taxes”—remains slightly more ambiguous. Beginning with the 2001 Bush legislation, the estate tax gradually decreased each year before its repeal in 2010.  Unless Congress updates the current law, estates valued at more than $1 million will be subject to taxes of up to 55 percent after 2011. Under the Obama plan, estates valued at more than $5 million would be taxed at a 35 percent rate. Democrats in the House of Representatives have proposed an amendment to the bill, based on earlier legislation, that would levy a 45 percent tax on estates more than $3.5 million.

Only a handful of estates would owe tax under a $5 million estate tax exemption, but estate tax savings will continue to be a motivating factor for wealthy individuals considering charitable bequests. All donors, regardless of wealth, should be reminded that estate planning goes far beyond estate taxes, and that they need to plan for a thoughtful distribution of their assets at death. Important considerations include the reduction of estate expenses such as probate, state estate taxes, income taxes on retirement accounts, as well as the donor’s legacy to future generations. In the final analysis, everyone needs a will and should be encouraged to consider bequests to the organizations they supported during life.

Income Tax

The compromise would extend the Bush-era tax cuts, effectively:

• Maintaining the current tax brackets (note that the table lists the maximum income in each bracket):

 

• Extend the modified child tax credit, which allows taxpayers with children to claim a $1,000 credit on their returns.“Child Tax Credit” 

• Continue the  marriage penalty relief policies, which double the income levels in each tax bracket for married couples. “Marriage Penalty” 

Capital Gains Tax

Like income tax rates, taxes on long-term capital gains (which include income from the sale of stocks, bonds, real estate and other assets sold at a higher price than their initial cost) are also due to return to earlier levels, effectively increasing from 15 to 20 percent. Taxes on dividend income, also currently at 15 percent, would revert to the asset holder’s tax bracket rate.  (For instance, if a stockholder fell in the 25 percent tax bracket, her dividends would also be taxed at 25 percent.)  Under the current compromise, both the capital gains and dividend income tax rates would remain at 15 percent.  

Certain Strategies for Uncertain Times: Peter Fissinger on Fundraising During the Economic Recovery

Who Really Cares?

by Jeff Wilklow, Senior Consultant

As part of the continuing Advanced Executives Breakfast Series sponsored by Campbell & Company in conjunction with the Greater Washington DC chapter of the Association of Fundraising Professionals, we were pleased to host preeminent public policy expert, Dr. Arthur Brooks on October 26.  Dr. Brooks is professor of public administration at Syracuse University’s Maxwell School of Citizenship and Public Affairs, and has done extensive research and writing on the topic of charity and civic life.  He offered many provocative revelations on the philanthropic nature of various groups on the political and ideological spectrum, as presented in his latest book, Who Really Cares -- America’s Charity Divide - Who Gives, Who Doesn’t, and Why It Matters.

Dr. Brooks’ research has provided insights into the forces behind much of American charity. A self-professed social and political liberal, he was surprised to discover that the characteristics that motivate the most charitably inclined among us are more aligned with conservative values, including strong families, church attendance and the belief that individuals, not government, offer the best solution to social problems. The more thoroughly he reviewed the data in an attempt to discredit this thesis, the stronger it became.  In the end he was forced to conclude that the preconception held by many, including himself, that the political Left is more compassionate than the Right, is a myt—and in fact the opposite is true.

Beyond showing us who the real philanthropists are and are not in our society, Dr. Brooks’ work takes an important look at why charity matters a great deal – to donors, to recipients, and to society as a whole.  Through careful analysis of the data, Dr. Brooks makes a compelling case that people who are charitably inclined become more successful – that charitable behavior is financially rewarding to the donor.  Even more importantly, he shows that giving is a critical aspect of our nation’s economic prosperity, and is fundamental to our happiness, health and ability to govern ourselves as a people.

Whether you are personally predisposed to agree or disagree with Dr. Brooks’ findings, his animated review of the data is persuasive and thoroughly engaging.  Who Really Cares is a must read for anyone in the business of philanthropy, and should be required reading for architects of social policy as well.

New Research on Campaign Funding and Budgets

A study from national consulting firm Campbell & Company and researcher Slover Linett Strategies provides important insights for nonprofits that are examining fundraising expenses and budgets.  The web-facilitated survey of more than 300 nonprofits, conducted in January and February and released on March 31, 2009, gathered campaign funding and budget information from nonprofits that have undertaken capital or endowment campaigns within the past ten years.

The study found that fundraising campaigns during the past decade have provided strong returns on investment, with 68 percent of respondents reporting spending less than a nickel for each dollar raised. The study also found that the majority of respondents were spending less than five percent of their operating budgets on fundraising. 

The amount of money organizations spent on their campaigns varied widely, with some paying for campaign expenses out of the existing fundraising budget and others creating a separate campaign budget that hit seven figures or more.

Thirty-seven percent of respondents funded their campaign entirely through the institution’s operating budget – a strategy more common among healthcare and K-12 education organizations than others. Seventeen percent included the campaign budget needs in the goal. Less common funding sources included the institution’s operating reserves, a designated gift from one or more trustees or donors, or a change in the endowment draw policy or spending plan.