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The Future of Fund r aising in Independent Schools

Explore the impact of changes in financial incentives, giving channels, and generational behavior on the fundraising landscape for independent schools.

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The Future of Fund r aising in Independent Schools

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  1. The Future of Fundraising • in Independent Schools

  2. How might changes in financial incentives, giving channels, and generational behavior impact the fundraising landscape for independent schools?

  3. Charitable Giving in the U.S. in 2018

  4. Overall donations are up, due to larger gifts. Revenue, Change from 2017 to 2018 “The headline may show an increase in giving, but that increase masks some serious long-term trends that are presenting huge challenges to the sustainability of fundraising and philanthropy…. Smaller and midlevel donors are slowly but surely disappearing—across the board, among all organizations.” Association of Fundraising Professionals, “Giving Up Slightly in 2018, But Only Due to Larger Gifts,” (February 25, 2019) Overall 1.6% Major donors ($1,000+) 2.6% Midlevel donors ($250–$999) -4% General donors (<$250) -4.4% Fundraising Effectiveness Project, Quarterly Fundraising Report: Year to Date Nonprofit Sector Trends, 1/1/2018–12/31/2018

  5. New donor acquisition and donor retention rates have fallen. Change from 2017 to 2018 Number of total donors -4.5% New donors -7.3% Overall donor retention rate -6.3% Fundraising Effectiveness Project, Quarterly Fundraising Report: Year to Date Nonprofit Sector Trends, 1/1/2018–12/31/2018

  6. Charitable giving by individual fell in 2018 following a four-year streak in increases (“Giving USA” report) “Experts involved with the report said 2018 was a complex year for charitable giving, with a relatively strong economy overall and a volatile stock market… Stacy Palmer, editor of the Chronicle of Philanthropy… suggested that the changes would have relatively less impact on charities that rely on wealthy donors, and greater impact on social-service providers and other charities that get broad support from middle-class Americans.” Revenue, Change from 2017 to 2018 Overall giving 0.7% Individual giving -1.7% David Crary, “Charitable Giving by Individual Americans Drops in 2018,” Associated Press (June 18, 2019)

  7. After two years of significant growth, GDP growth outpaced giving. “Historically growth in U.S. charitable giving closely tracks GDP growth. According to the Giving USA 2018 report, charitable giving exceeded GPD growth between 2014 and 2017. In 2018, however, GDP growth outpaced charitable giving growth.” Council for Advancement and Support of Education (CASE), “New Study Suggests Growth in Charitable Giving Has Slowed” (April 16, 2019)

  8. Larger organizations saw the greatest growth. Overall charitable giving in the U.S. increased 1.5% on a year-over-year basis. Since 2016, overall giving has grown 9%. Donations by size of organizations, Change from 2017 to 2018 -0.1% Change in giving for K–12 institutions 2.3% 2.0% -2.3% Small Orgs <$1M Medium Orgs$1M-$10M Large Orgs >$10M Blackbaud Institute for Philanthropic Impact, 2018 Charitable Giving Report: How Giving Performed in 2018

  9. Online giving is up for medium and small organizations. • Overall, online giving grew 1.2% in 2018. Since 2016, online giving has grown 17%, and average online gift amounts have continued to increase. • Medium-sized organizations saw the greatest growth in online giving (3.7%). Small organizations saw some growth (0.7%). • Higher education, human services, and K–12 education organizations captured the largest share of online donations. • Approximately 8.5% of overall fundraising revenue, excluding grants, was raised online. 24% Percent of online transactionsmade using a mobile device Blackbaud Institute for Philanthropic Impact, 2018 Charitable Giving Report: How Giving Performed in 2018

  10. Trends behind online giving to colleges and schools • “Schools raised significantly more money online in 2018. This growth was driven by increases in the number of online donors and the average online gift size. • “Online giving was just as popular with non-millennials as with millennials. • “… A majority of prospective donors were on mobile devices. • “Recurring gifts were substantially more valuable than one-time gifts. • “Apple Pay emerged as a popular payment method…. • “#GivingTuesday remained a major driver of online giving, even as many schools adopted new #GivingTuesday strategies. • “Peer-to-peer fundraising was as powerful online as it historically has been offline. • “Facebook remained the primary source of social traffic to schools’ fundraising pages.” • GiveCampus, Online Giving to Schools in 2018

  11. Wealthy donors come from a more diverse universe of people. • Key insights from a survey of wealthy donors: • “Giving is being shaped by a diverse donor universe of different ages, ethnic backgrounds, and gender identities. • “Women are at the forefront of philanthropic engagement and impact. • “An opportunity for nonprofits and advisers is highlighted by the fact that only 49% of donors have a strategy for their giving.” • Bank of America and Indiana University Lilly Family School of Philanthropy, The 2018 Study of High Net-Worth Philanthropy

  12. Wealthy donors’ motivations and challenges • “Receiving tax benefits is generally not a prime motivation for giving. Just 17% of wealthy donors said they were always motivated to give by tax benefits…. • “Gifts come with clear expectations. [Donors say it’s important that] the organizations they support demonstrate sound business and operational practices (91%), spend only a reasonable amount on general administrative and fundraising expenses (90%)…. • “Why wealthy donors stop giving. [Top reasons included] receiving too frequent solicitations from the nonprofit organization (41%)…. • “Challenges faced by wealthy donors. Wealthy donors reported that their greatest challenge when it comes to charitable giving is identifying what causes they care about and deciding where to donate (45%)…. • “Wealthy donors also seek knowledge and advice about giving.” • Bank of America and Indiana University Lilly Family School of Philanthropy, The 2018 Study of High Net-Worth Philanthropy

  13. The risky power dynamic between mega-donors and organizations “Not only can [ultra-high-net-worth donors] make gifts individually that can be transformative for even very large organizations, they bring others of similar wealth and prominence along. Social and political capital, along with wealth, can be invaluable for organizations, but comes with risk…. With the ability to provide significant amounts of money… large donors can set societal priorities that reflect very personal interests.” Martin Levine, “Power Shift: How Will Nonprofits Respond to the Rise of the Mega-Donor?” Nonprofit Quarterly (February 20, 2019) “If we believe that we need a sustainable nonprofit economy that is broad-based and accurately reflective of the needs and ideas and dreams of the whole of our population, we need to consider how to maintain and build that bond with our many donors, in pursuit of a real democratic future.” Ruth McCambridge, editor, Nonprofit Quarterly, quoted by Donna Orem in “5 Trends Driving the Future of Philanthropy,” Independent Ideas Blog, NAIS (June 2019)

  14. The impact of the doubling of the standard deduction by the U.S. Tax Cuts and Job Act “[The Tax Policy Center] and others expect charitable donations could drop by as much as 5 percent. However… some experts think many taxpayers are unaware of TCJA changes and thus will remain as charitable as ever in 2018. But they’ll have a rude awakening when they file their tax returns by next April and see they do not qualify for a tax deduction. Perhaps they will respond by giving less next year.” RenuZaretsky, “For Charitable Giving, ’Tis The Season … But Will It Still Be,Post-TCJA?” Tax Policy Center (December 5, 2018) 21% to 8% Predicted change in the number of Americans who would take the charitable deduction for 2018 compared to 2017

  15. Possible impact of tax changes on independent schools - Reduction in charitable giving (fewer people itemizing) and in end-of-life/transformation gift giving (higher estate tax threshold)- Unknown how states will respond: Changes could include states moving to employer payroll tax instead of income tax, allowing charitable contribution of property or other taxes, etc. Possible approaches for donors/fundraisers: - Bundling: Donors give amount they previously would have given over multiple years in one year and take the charitable deduction in that year. - Donor-advised funds (see next slide)- Charitable IRA rollover: Distributions from IRAs are normally taxable income, but distributions to charitable institutions up to $100K/year aren’t; donors don’t need to itemize to take advantage. Debra Wilson and Whitney Silverman, “Tax Reform: What the Final Bill Means for Independent Schools,” NAIS Webinar (2018)

  16. Growth in donor-advised funds (DAFs) in response to changes in incentives and preferences 20%Percentage growth from 2016 to 2017 in number of grants from donor-advised funds to charities (to ~$29 billion).The number of individual donor-advised funds grew 60.2%. National Philanthropic Trust, The 2018 DAF Report Donor-advised fund:A giving vehicle established by a “sponsoring organization” (often a community foundation or a nonprofit arm of a financialservices firm, e.g., Schwab Charitable). It allows donors to make a charitable contribution and receive an immediate tax deduction. The accounts are controlled by the sponsoring organization, which invests the assets for tax-free growth. Donors indicate which nonprofits they’d like to donate to and contribute to the fund as frequently as they wish. The Chronicle of Philanthropy, “Working With Donor-Advised Funds: The Basics” (May 1, 2018)

  17. Growth in donor-advised funds in higher education “Many colleges and universities, including Stanford, Yale, and Dartmouth, have set up DAFs to allow alumni and others connected to the institution to put their philanthropic dollars to work. The college or university, as the sponsoring organization, can set a minimum investment of cash or stock with annual fees typically ranging from 1 to 5 percent. Although alumni and their families can recommend other charities to receive distributions, the school will typically request and encourage a certain percentage of giving from the DAF go to the school.” 66%Growth in dollar value of DAF grants received by higher education in 2018. The number of DAF grants grew by 19%. Council for Advancement and Support of Education (CASE),2018Voluntary Support of Education George Suttles, “Donor Advised Funds: Changing the Philanthropic Landscape for Higher Education,” Commonfund (April 24, 2019)

  18. Higher education: After record-breaking giving, growth expected to slow in 2019 “Donations to colleges and universities increased by an inflation-adjusted 4.6% for the 2017-18 academic year to reach a record-breaking $46.7 billion, marking nearly a decade of growth…. A bull market likely lifted contributions, but CASE warns charitable giving to higher ed may slow or even decline in 2019 if the economy falters.” The gifts were largely concentrated among a relatively small group of elite colleges and universities. Harvard University led the pack, followed by Stanford and Columbia. 28% Percent of all donations in 2017–2018 that went to just 20 colleges. Natalie Schwarz,“Strong Stock Market Lifts Higher Education Giving to Record $46.7B,” Education Dive (February 12, 2019)

  19. Higher education: Fundraising challenges at small colleges “Fundraising for the yearly operating budget should be based on year-over-year performance. Instead, many institutions have pushed their annual-fund goals to unrealistic levels. They have then managed disappointing results by drawing more from their endowments or by budgeting unrealized estate gifts or pledges, actions that are highly unsustainable…. “Small private colleges and universities have not experienced a failure in execution at the campus level, but rather a fundamental change in financing, demographics, and priorities forced by changes in the external environment. Short-term tactics may allow an institution to survive without long-term damage for a while. But, barring a dramatic change in external fiscal and demographic realities, these strategies will not return the campus to the days of stewardship.” Mary B. Marcy, “The Small College Imperative: From Survival to Transformation,” AGB (May 9, 2017)

  20. Generational Behavior

  21. For the foreseeable future, organizations’ well-being lies primarily with boomers and Gen Xers. Blackbaud Institute for Philanthropic Impact, The Next Generation of American Giving (April 2018)

  22. For all generational cohorts, giving is distributed across more channels. • Digital options are important even to late adopters. They should be part of the cultivation and engagement strategy for all donors. • At the same time, some experts theorize that “choice anxiety” (too many options for how to give) has influenced the drop in overall giving. • “From 2010 to 2018, reported use of direct mail has fallen from 49% of donors to 23%. What is worrying about direct mail’s precipitous decline… is that there does not appear to be a concomitant increase in online giving over the last five years. In terms of dollars, online giving is making steady gains. However, online does not appear to be filling the void left by direct mail’s decline.” • Blackbaud Institute for Philanthropic Impact, The Next Generation of American Giving (April 2018)

  23. Across generational cohorts, crowdfunding has grown. Change over 5 years in those that have given via crowdfunding campaignsMillennials 17% to 48% Gen Xers 10% to 36% Baby Boomers 6% to 25% Crowdfunding: Using social networks to bring communities together around a single cause Peer funding (often seen as a type of crowdfunding): Calling on loyal supporters to fundraise on behalf of a cause or nonprofit Blackbaud Institute for Philanthropic Impact, The Next Generation of American Giving (April 2018)

  24. For all donors, but especially millennials, efficiency and impact are important. • Three-fourths of donors (76%) saythey are concerned about a charity’s overhead expenses. • Websites are, by far, the main source of due diligence for researching an organization’s efficiency and the impact of a gift. • “It is incumbent on nonprofits to make the case that they are well-managed and yield great impact with those funds.” • Blackbaud Institute for Philanthropic Impact, The Next Generation of American Giving (April 2018)

  25. “Making a difference” differs by generation. • Older generations are the most likely to prioritize giving money as the way they can make a difference. • The three youngest generational cohorts are more likely than other cohorts to say volunteering makes the most difference. • Gen Zers are the most likely group to think they’ll make the most difference through word-of-mouth, advocacy, and peer-to-peer influence. Blackbaud Institute for Philanthropic Impact, The Next Generation of American Giving (April 2018)

  26. Millennials see social investing as a way to “give.” “High-net-worth millennials think about charity entirely differently from the Gen X and boomer generations. A study by Bank of America-owned U.S. Trust showed the youngest of the three generations isn’t as interested in writing a check for a good cause—millennials would rather contribute in other ways.… “Far more than other generations, millennials said ‘giving’ meant investing in companies making a positive impact and ‘social entrepreneurism.’” WealthManagement.com, “Millennials Think About Charity Entirely Differently” (September 26, 2017) 36%Percent of millennials who defined “giving” as making a charitable financial donation, compared to 61% of Gen Xers and 83% of boomers

  27. Fundraising at Independent Schools

  28. Fundraising is an important part of the budget at independent schools. 5.5% and 11%Percent of independent school income that comes from gifts and grants, for day schools and boarding schools, respectively. Annual giving and capital giving increased in 2017–2018.NAIS Data and Analysis for School Leadership (DASL), 2017–2018 data Reliance on parents for annual giving is an area of concern. “The bulk of annual fund proceeds—more than one-third—comes from current parents. This may present multiple challenges. Schools rely most heavily on gifts from the group … primarily responsible for paying tuition. Increases in tuition may hurt this group’s ability to give. And the expectation that parents should provide tuition plus gifts may heighten the perception that independent education is unaffordable.” Myra McGovern, “The Philanthropic Outlook,” NAIS Trendbook 2017–2018

  29. Five giving trends in 2019: Considerations for independent schools • Trend 1: ‟Giving bigger donations, but less frequently” • School advancement professionals need to plan now for how they will deal with what could be the new normal of gift bundling from a budgetary and communications perspective. • Trend 2: ‟Using technology to mobilize support” • School advancement professionals need to explore how these new channels can be used to maximize giving. • Trend 3: ‟Growing clout of big donors” • School advancement professionals should prepare policies that set out clear expectations even for the largest donors. Donna Orem, “5 Trends Driving the Future of Philanthropy,” Independent IdeasBlog, NAIS (June 2019) and Martha C. White, “5 Ways Charitable Giving Is Likely to Change in 2019,” TimeMagazine (December 17, 2018)

  30. Five giving trends in 2019: Considerations for independent schools (cont.) • Trend 4: ‟Investing with a social conscience” • Advancement professionals need to start investing in strategies to reach the younger generational cohorts who will one day makeup the bulk of the donor base. • Trend 5: ‟Making transparency a key determinant” • Because so much of donors’ research about organizations’ efficiency and the impact of a gift is conducted through the organization’s website, advancement professionals have the ability to provide the needed transparency and to tell their story in a way that engages donor loyalty. Donna Orem, “5 Trends Driving the Future of Philanthropy,” Independent IdeasBlog, NAIS (June 2019) and Martha C. White, “5 Ways Charitable Giving Is Likely to Change in 2019,” TimeMagazine (December 17, 2018).

  31. Questions for independent school leadership teams • Are your fundraising goals realistic (based on year-over-year performance) and tied into overall school strategy? • Do you track new donor acquisition and donor retention rate? Are you training even the newest staff on the key components of relationship building and retention? • Do you provide multiple ways for people to give? Are there any obstacles for those who want to give via a mobile device? • Is your mix of communications creating “choice anxiety” or offering the right mix of options for giving? • Does your website (and your staff) clearly communicate the efficiency with which you handle gifts and the impact of the gifts themselves? • What is your plan for engaging multiple generational cohorts? Are you focusing on short-term priorities (especially related to boomer and Gen X donors) but also cultivating the givers and influencers of the future (millennials and Gen Zers)? • Have you explored donor-advised funds? Do you provide education about financial management and about your school’s goals and outcomes to help individuals decide where and how to give? • Do you have policies in place that set clear expectations (even for the wealthiest of donors) for what donors can and can’t influence? • Do you have a plan in place for how you will address gift bundling? Are you continuing to steward givers who may now be giving only every few years?

  32. Resources • Fundraising Effectiveness Project, Quarterly Fundraising Report: Yearto Date Nonprofit Sector Trends, 1/1/2018-12/31/2018 • Association of Fundraising Professionals, “Giving Up Slightly in 2018, But Only Due to Larger Gifts” • CASE, “New Study Suggests Growth in Charitable Giving Has Slowed” • Blackbaud Institute for Philanthropic Impact, 2018 Charitable Giving Report 2018: How Giving Performed in 2018 • GiveCampus, Online Giving to Schools in 2018 • Bank of America and Indiana University Lilly Family School of Philanthropy, The 2018 Study of High Net-Worth Philanthropy • Martin Levine, “Power Shift: How Will Nonprofits Respond to the Rise of the Mega-Donor?” Nonprofit Quarterly • Donna Orem, “5 Trends Driving the Future of Philanthropy,” Independent Ideas Blog, NAIS • Renu Zaretsky, “For Charitable Giving, ’Tis the season… But Will It Still Be, Post-TCJA?” Tax Policy Center • Debra Wilson and Whitney Silverman, “Tax Reform: What the Final Bill Means for Independent Schools,” NAIS Webinar • National Philanthropic Trust, The 2018 DAF Report • The Chronicle of Philanthropy, “Working With Donor-Advised Funds: The Basics” • George Suttles, “Donor Advised Funds: Changing the Philanthropic Landscape for Higher Education,” Commonfund • CASE,2018Voluntary Support of Education • Natalie Schwarz,“Strong Stock Market Lifts Higher Education Giving to Record $46.7B,” Education Dive • Mary B. Marcy, “The Small College Imperative: From Survival to Transformation,” AGB • Blackbaud Institute for Philanthropic Impact, The Next Generation of American Giving • WealthManagement.com, “Millennials Think About Charity Entirely Differently” • Myra McGovern, “The Philanthropic Outlook,” NAIS Trendbook 2017-2018 • NAISData and Analysis for School Leadership (DASL) • Martha C. White, “5 Ways Charitable Giving Is Likely to Change in 2019,” TimeMagazine • David Crary, “Charitable Giving by Individual Americans Drops in 2018,” Associated Press (June 18, 2019)

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