Outlook for 2008

Tuesday, January 8, at 12 noon, U.S. Eastern time

Alan J. Abramson is director of the Nonprofit Sector and Philanthropy Program at the Aspen Institute, and an expert on the intersection of government and philanthropy.

Patrick Rooney is director of research at Indiana University's Center on Philanthropy, where he manages the research and writing for Giving USA and the semiannual Philanthropic Giving Index, which gauges and predicts the climate for donor giving and philanthropic activity.

A transcript of the chat follows.

Peter Panepento (Moderator):
    Welcome to today's live discussion about what nonprofit leaders can expect in 2008. This chat will give you the opportunity to ask our two experts about how the economy, fund-raising trends, the federal government, and other factors will affect charities and foundations this year. We have two fantastic experts who have agreed to take your questions: Alan J. Abramson, director of the Nonprofit Sector and Philanthropy Program at the Aspen Institute, and Patrick Rooney, the director of research at Indiana University's Center on Philanthropy. It should be a great discussion. So let's get started.

Question from Stacey, private university grad school:
    Do you expect the trend of donors wanting to make highly targeted and leveraged gifts to continue (or increase) 2008? If so, how can effective nonprofits and educational institutions maintain or increase unrestricted giving? Is it time for us to rethink "the annual fund"?

Patrick Rooney:
    I expect the trend of SOME donors making targeted or restricted gifts to continue, because donors like the idea of paying for something specific or tangible that they can identify as a result (whehter partially or completely) of their philanthropy.

That said, other donors understand the importance of supporting the charity with unrestricted gifts and that these unrestricted gifts play an important role in funding overhead costs, which are important for planning, evaluation, budgeting, and simple things like a roof that does not leak and a an IT system that is integrated. In the for-profit world, we understand that "it takes money to make money" but we balk at the same best practices as being "overhead costs" which some treat as evil.

We have research on these issues from two studies on our website. The first one refers to a project funded by the Aspen Institute on whether or not foundations pay for overhead costs and the impact that has on nonprofits and their constituents (http://www.philanthropy.iupui.edu). We also partnered with the Urban Institute to look at fundraising and overhead costs in charities. There are several short documents as well as some longer working papers at a special website just for that project: www.coststudy.org

This tension between the donors' desire to keep overhead costs low, but to also see impact is a paradox and creates a teachable moment. We need to work with donors, the media and policy makers to help all of them understand these interconnections bewtween the need for unrestricted funding in order to practice what all would concur are best management practices.

Another strategy is to offer some benefits to donors for giving unrestricted gifts. This is easier for colleges and the arts (better seats, etc.), but may be more difficult for human service org's.

I don't think the annual fund is or should go away. Nonprofits need to actively cultivate and bring in new donors each year or the future major and planned gift donors won't be in the pipeline. It may be a matter of semantics but it might be better understood to talk about the need for annual sustainability.

Question from Jennifer Wojcikowski, Campagna Academy:
    How important is online fundraising and promotion for a small to midsized non-profit, and having only three people in my department, how much time and priority should I give it compared with a local, major gifts campaign?

Patrick Rooney:
    We know from research we just recently completed for American Express about online vs. traditional giving that only 1/10 donors currently give online (see abstract and full report on our website http://www.philanthropy.iupui.edu).

20% of online donors said they gave online b/c the charity promoted the online giving with a link or easily found online giving option. Most who don't give online said they did not have a computer, etc.

We also know from our Philanthropic Giving Index (PGI--also available on our website) that fundraising via the web and email is an increasingly important tactic.

Major and planned giving are still the most successful fundraising tactics and as stated earlier, it is important to sustain an annual fund. A big challenge for smaller charities is how to allocate time and talent across all of these activities when it is necessary to have a comprehensive development campaign in order to maintain the best results and to best serve the donors and the charity itself in the long term.

Question from Patti Tolo, Interlochen Center for the Arts:
    What are the ideas and methods on the horizon on how to utilize YouTube, Facebook and MySpace in successful fund raising?

Patrick Rooney:
    We think this is an interesting area for future research but it is a bit premature yet as these tools are relatively new and untested. Org's are just beginning to experiment with ways to use them successfully.

We think that it is likely that their popularity will make them inherently attractive as methods of connecting to and engaging with, if not soliciting, those who have a strong interest in various causes.

Alan J. Abramson:
    I'm pleased to be part of this "live" discussion. What will 2008 mean for the nation's nonprofits and foundations? I hope we will have the chance to discuss a good number of issues over the next hour. One of the most interesting questions for me is how the charitable sector will participate in the electoral process in 2008. Clearly, politics is now dominating the national news. Historically, many nonprofits and foundations have stayed away from politics and policy, and there are very important legal constraints on what these institutions can do. However, I think we are now seeing more sector engagement, especially around critical policy issues like education and health, than ever before. It will be interesting and important to watch how this policy engagement develops in 2008.

Question from Jill, university:
    What is the outlook for planned giving? For online giving in the coming year or 2? Is there any area of giving that you feel is counter cyclical? More vulnerable to recession than other categories? What do you predict for federal regulations vis a vis estate planning in the coming year?

Patrick Rooney:
    Planned giving: I think that with the current and coming transfer of wealth, planned giving will be in a grwoth mode for the next several decades. Whether the trillion dollar transfer estimates are exactly right is immaterial: it will be a huge number! Charities should plan accordingly (pardon the pun). Our latest Philanthropic Giving INdex (PGI), which is available on our website (http://www.philanthropy.iupui.edu) found a significant increase in the success of some planned giving instrumments btwn Summer 2004 and Winter 2007, especially in Donor Advised Funds (DAFs). However, fundraisers report bequests continue to be the most successful planned giving instrument.

Counter-cyclical areas of giving: religious giving grows during all phases of the business cycle. However, religious giving grows more slowly than almost all other subsectors during good times.

Arts lags the business cycle by about a year and human service org's are hit the hardest by economic downturns.

Online giving is likely to grow and has incresed in its perceived successfulness based on our PGI (see http://www.philanthropy.iupui.edu), but still remains a small share of fundraising gifts for most org's. A recent study we did for American Express found that among donors, only 1/10 has given online.

Many donors find online giving convenient but usually have to be led there. Most non-online donors reported the lack of PC or Internet as being the biggest barriers, followed by not knowing they had the option of giving online.

Question from Tom Livers, United Methodist Communications:
    Do you foresee giving for non-disease specific causes in Africa increasing?

Patrick Rooney:
    Yes, I would forecast increased giving for both disease-specific causes in Africa as well as non-disease-specific causes.

First, I think we have seen substantial funding by the Gates Foundation for both of these for years and with the infusion of funds from the Buffett gifts, it seems likely that there will be a rapid growth of both.

Second, Mr. Hilton just recently announced that he was giving 97% of his net worth in his bequest to the foundation his father created which addresses water sanitation and other releated projects.

Third, I think we have seen increased growth from the next generation of donors as well as the current generation for helping ameliorate the plight of the poorest of the poor around the world, as well as those at home.

Question from Rich, community based youth development agency:
    This was a tough year for Wall Street. Bonuses were lower than in previous years. How do you forsee this affecting major gift fundraising?

Patrick Rooney:
    This may affect giving to some charities in the NYC area but I would bet will have a minimal impact on giving overall.

Question from Janet Harrsion, Susan G. Komen for the Cure:
    What are the trends in consolidation/merger and acquisition among nonprofits and are rationales or conditions changing?

Alan J. Abramson:
    Anecdotally at least, the trend in recent years has been toward more collaborations and even mergers in the nonprofit sector. Funders, especially, seem concerned that there are just too many nonprofits, and many funders have encouraged nonprofits to think about how they can work better together. There are also now more resources available to help nonprofits through the collaboration process.

While I do think that there is much that is positive about these trends toward greater collaboration, I also do worry about aiming for too much efficiency in the nonprofit sector. There is an important "expressive" dimension to the nonprofit sector, and it is essential to preserve people's ability to give money, volunteer, and start new organizations where they want, whether efficient or not.

Question from Megan, Denver independent fundraiser:
    Information: My full name is Megan Ream and I am currently unemployed in the Denver area, which is why I gave my title as is. Hopefully the information I list above is enough for you to consider my question. Question: How will changes in the economy effect those of us who work in the nonprofit sector? Do you see about the same number of opportunities as in 2007, less jobs, or more jobs? Any advice for those of us who work in this sector and would like to continue to do so?

Patrick Rooney:
    Megan, First, good luck in your search! I will be "Mr. Obvious" for a moment and say to do the usual things: network, volunteer, seek additional educational and training opportunities, float your resume to as many people as possible, etc.

Second, charities face a tough situation in times of fiscal distress: one the one hand they need to reduce costs and for most charities, compensation is 3/4 or more of their costs, so RIF are seen as a necessary solution sometimes. On the other hand, nonprofits must continue to friendraise and to fundraise throughout the business cycle or they will exacerbate any natural tendencies to expand and contract during the business cycle.

Third, we know from our prior research that recessions have a deletarious impact on giving for all subsectors (except religion, which grows throughout all stages of the business cycle--although more slowly than most subsectors in good time and in bad). Human service org's are especially hard hit as they experience an increase in demand for their services at the same time they typically see a decline in their charitable gift receipts.

Finally, I am not suggesting that we are in a recession now, but there are signals such as slowed growth in job creatin which has led to increased unemployment rates, which suggest that the economy is softening. The variability and the recent declines in the stock market is a reflection of this as well.

Question from Miriam, national nonprofit:
    Currently, are there certain trends in terms of the types of agencies donors give to most? For example, do agencies catering to the homeless draw more donors than, say, agencies that cater to education services?

Patrick Rooney:
    We know from our research for Giving USA, Bank of America and the Center on Philanthropy Panel Study (COPPS) that there are differences in these results based on which source(s) of giving one is asking about. For example, Education attracts the second largest piece of the pie overall after religion (Giving USA), but that from COPPS most households are not giving huge amounts to educational charities. However, among high net worth households, education gets a disproportionately high share of the gift dollars. These details are more completely available in studies on our website.

Peter Panepento (Moderator):
    We're approaching the halfway point in today's chat and we've received an array of interesting questions about key issues for the nonprofit sector in 2008. If you have a question, please feel free to join the conversation by clicking on the "ask a question" link above.

Question from Janet Kasler, Ohio Grantmakers Forum:
    What is the outlook for foundation giving in 2008, 2009?

Alan J. Abramson:
    With the continuing increase in the number of foundations in the U.S., overall foundation giving generally goes up year after year. Of course, one factor that might slow giving growth is a downturn in the stock market and the value of foundation assets, and it does seem we are in the midst of an economic slowdown now. So, foundation giving may slow a little, although foundations, if they want, have ways of smoothing out the impact of changes in the economy.

In discussion about foundations, I always like to remind folks that while foundation giving is important - totaling around $40 billion a year - foundation support makes up only a very small portion - less than 5% - of overall nonprofit revenues.

Question from Janelle, small non-profit:
    Could you speak on the connection between volunteering and giving? As a volunteer coordinator at an agency without a development director, I'm often told that if I engage community members in meaningful service and educate them about our programs, they will become donors. Does the evidence support this?

Patrick Rooney:
    There is lots of evidence that volunteers are more likely to be donors than others and that volunteers who are also donors tend to give larger gifts--on average. That said, many more people (twice as many) donate annually as volunteer. Therefore, the strategy to engage people as volunteers is a good one but should not be your only development strategy.

Question from Jane Brookstein, Rails-to-Trails Conservancy:
    What are your suggestions for the most cost-effective ways to build e-mail lists for fundraising, and how frequently should an organization send emails to solicit donations?

Patrick Rooney:
    ePhilanthropy Fndtn is a good resource for these types of questions. We have not done research on these specific questions.

Question from Nancy, statewide non-profit:
    I am concerned with how United Way is treating non-profits lately. Some are shifting into forcing non-profits to fit United Way missions instead of the non-profit's own mission. Some have also started their own programs which has been the domain of agencies, (such as the 211 initiative). Some other United Ways are now into new fundrasing techniques like raffles, that non-profits usually did. (But we still can't solicit in the workplace or during blackout periods.) I also question some of them with high overheads, close to 20%, but then they only want to fund programs and not our agency overheads. As a statewide agency, we have to jump thru multiple incredible and daunting hoops to get United Way funding, as it is all fragmented all over the state. Then we can only apply those dollars to their specific areas. Due to my small staff, I cannot afford the time it would take to ful-fill the requirements for each individual United Way all over the state. This compounds the problem as with only a few United Way Source funds, I have huge areas of the state where I cannot serve people, yet my service population exceeds over 11% of all the citizens, all over the state, many of whom are considered needy and cannot afford to pay for direct services and advocacy efforts they desparately need. To compound the problem, all the united ways want to list us in their 211 files as a resource, but not pay for services we deliver to their referrals. How can we get United Ways to see the "BIG picture, instead of all this micromanagement that we are under?

Alan J. Abramson:
    The United Way system has certainly received its share of criticism - much of it deserved - over the last decade or more. However, I believe that the current head of United Way of America, Brian Gallagher, has tried to address some of the system's problems head on, and has been able to turn some things around. All I can do is encourage you to take up your concerns with United Way leaders. Finding other nonprofits who share your concerns should also help your cause.

Question from Janelle, small non-profit:
    With international charities having such high visibility in recent years (support of the large foundations and the stars) and national charities able to use the media to increase name recognition, what strategies should local agencies use when "competing" for the same funds?

Patrick Rooney:
    I don't think you should compete per se. The reality is the small local nonprofit is not going to be able to attract the star power but that does not diminish the importance of its mission and its need for gifts. Rather, focus on how to convey your mission and your success, your impact in a way that donors can understand and connect to. Identify the donors who are passionate about your cause. Have them help you raise the funds and awareness of your mission as volunteers and board members.

Question from June, Boston nonprofit:
    What are your thoughts on donor advised funds?

Alan J. Abramson:
    I think donor advised funds (DAFs) have been a terrific way to get more donors engaged in philanthropy. At the same time, however, there is a lot we don't know about how DAFs are working and how they should work. It sounds a little self-serving for a researcher like me to call for more research, but I really do think this is one area - i.e., DAF activity - that is ripe for more research.

Question from Miriam, national nonprofit:
    Any thoughts on how giving/donations to agencies serving children and families will fare in the following year?

Patrick Rooney:
    Our prior research has shown that human service org's are among the worst hit when there have been down turns in the economy--at least historically. This is not to say that we are in a recession per se but there are clearly signals that show that the economy is softening now. There is usually in increase in demand for services by these org's and you might be able to incorporate that into a more powerful case statement. There is also more media attention focused on these needs at such times, which might help make your case with donors.

Question from Pam, national organization:
    Will fundraising via special events be more of less relevant in the coming year(s)?

Patrick Rooney:
    Special events has the lowest return on ivestment of all fundraising tactics. That said, special events remain popular b/c they help bring new donors into the group, it helps motivate the board's involvement and it helps raise public awareness of the charity and its mission.

For all of these reasons, I don't foresee special events becoming less relevant in the future, but I do think nonprofits need to evaluate how and why they are conducting special events and then carefully deliberate whether they are the best use of resources.

The PGI just released in dec. 2007 found that health care fundraisers reported more success with special events than other nonprofits.

Fundraisers also expect special events to be more successful in 6 month than it is today.

Question from Peter Panepento:
    What impact, if any, is the current foreclosure wave having on charities? Is it taking attention away from other issues and/or cutting into fund-raising efforts in any meaningful way?

Patrick Rooney:
    It does not have a direct impact per se but does raise anxiety about the economy and its growth. We know from our research that economic factors are important in predicting the increases and decreases in overall giving from year to year. The subprime market fiasco has definitely hurt Wall Street which we know has an adverse effect on giving, but it remains to be seen how far out these ripples go and their effects on giving.

Question from Dan Marks, Multiple Non-profit boards:
    How would you expect a triple democratic victory in 2008 to impact 2009 giving to arts and health related charities?

Alan J. Abramson:
    Economists have written about "crowd out" effects, where increases in government spending lead to some cutbacks in private philanthropy.

IF Democrats were to win big in 2008 and IF they were to legislate big increases in arts and health spending, then MAYBE, OVER TIME, there might be some reduction in private giving for the arts and health.

Obviously, there are a lot of "if's" and "maybe's" involved in trying to make a prediction. Moreover, the arts and health are large, complicated fields, and government funding and private philanthropy flow to lots of different kinds of institutions in these fields. And, of course, lots of other factors affect private giving besides the political party in power, which probably, in fact, has only a very modest impact on giving.

As context, it may be helpful to note that overall, government dollars are more important than private philanthropy in health, and private philanthropy is more important in the arts.

Question from Caroline, small nonprofit:
    A couple of major donors who give to the end of year appeal have not yet given. What is the "protocol" for trying to secure these gifts? Please let me know what you have done. A phone call with a direct ask, a request for a visit, a call to be sure the appeal was received... Thanks for your feedback.

Patrick Rooney:
    We think it depends on the individual donors and how they prefer to interact with the charity. If they are regular donors and have not given, there is probably a reason, so trying to follow up with them is the right step to take, but be sensitive to the fact that they may have had a change in their personal and/or fiscal circumstances that led them to not make this gift this year. This offers you an opportunity to learn whether the lack of a gift is due to their personal circumstances or whether they have any concerns about the org, its stewardship, mission fulfilment, etc.

Our latest research from looking at three waves of giving in the Center on Philanthropy Panel Study (COPPS) found that around two-thirds of households gave in each of the three years, but it was not always the same 2/3. For example, only 56% gave in ALL three years and 15% never gave at all. About 3/10 gave in some years but not all years surveyed.

Peter Panepento (Moderator):
    We're closing in on 1 p.m. and have a few more questions outstanding. Please stay tuned to see what our experts have to say on topics such as 501c4 organizations and environmental charities.

Question from Janet International cancer nonprofit:
    What is the trend among nonprofits setting up 501c4s to expand their advocacy efforts?

Alan J. Abramson:
    I don't have the appropriate statistics in front of me to provide a definitive answer to this questions. However, you may want to consult data available from the National Center on Charitable Statistics at the Urban Institute.

Anecdotally, I do think that nonprofits are getting a little more serious about advocacy, although overall they could still be doing a lot more. The Aspen Institute, where I work, recently published a new book, "Seen but not Heard," by Gary Bass and his colleagues, which provides a terrific analysis of issues related to nonprofit advocacy.

Question from Kurt Theobald; ChurchLink, LLC:
    What steps should nonprofit organizations take to mitigate negative donation trends as a result of the sharp decline and probable elimination of the use of paper checks as a method of payment?

Patrick Rooney:
    I have talked with several consultants who have said that the use of EFT (electronic funds trnasfers) actually increases giving to religious org's by 20-30%. The net result is based on the fact that many members may miss a service and not "make up" their on-site giving the following week. However, if they have EFT, then the gift is made whether or not the family misses that week's religious service for whatever reason(s).

Question from Han, Paper research:
    What priorities (statistics if any) are given to: Education, Reducing Poverty Levels, Health, Food, Housing

Alan J. Abramson:
    I'm not quite sure what you're asking here. If you are interested in foundation support in these areas, you should check with data put together by the Foundation Center. The U.S. Budget will give you information about government spending in these different areas. The Statistical Abstract of the United States also has a wealth of data on a broad range of policy areas.

Question from Jamie, Growing Seeds of Hope:
    How often to people who leave bequests let the organization know they have left one?

Patrick Rooney:
    My recall from the NCPG study that last asked this was that ~20% of the time a bequest comes in from somebody who has not had any prior connection to the charity. This suggests that most of the time, they do. Not all of these have informed the charity about the bequest in their will.

Question from Barbra Jotzke, Iowa Environmental Council:
    With the national attention given to issues such as Global Climate Change, how do you see environmental groups fairing in 08?

Patrick Rooney:
    Environmental giving has been the second fastest growth subsector (after international) in the percentage growth of dollars given to these charites (per data from Giving USA)--at least since 1987 when Giving USA began tracking international and environmental nonprofits and their charitable receipts. Clearly, all of the "free" publicity around these issues will help environmental charities make their case and should lead to increases in future funds raised.

Peter Panepento (Moderator):
    Thank you to everyone who participated in today's live chat -- and a special thanks for Alan Abramson and Patrick Rooney for their thoughtful answers to your questions.

Just a reminder, we're going to be hosting these live chats every Tuesday at noon Eastern. Next week, Independent Sector President Diana Aviv will be our guest to take your questions about her organization's new ethical standards for nonprofit groups and other key issues.

And on Jan. 22, we've lined up two of the nation's most prominent philanthropists to answer your questions about fund-raising, planned giving, and the state of philanthropy.