Time for foundations to dig deeper

By Todd Cohen

The looming recession represents a big challenge for nonprofits and foundations alike.

Nonprofits face rising demand for services from people hit hard by the economic downturn. They face higher costs of doing business. And they fear that individuals, corporations and foundations may reduce or shift the focus on their giving.

Times also are tough for foundations, which have seen the value of their endowments shrink because of plunging capital markets.

These challenges represent an opportunity for nonprofits to focus on their mission, strengthen their operations and fine-tune their message and their marketing, making sure they are telling the most compelling story they can about the impact they have and the need for givers to support them.

The economic crisis also should serve as a powerful jolt to foundations.

Using their clout, foundations in recent years have waged a fierce fight to limit to five percent of their assets the annual payout the law requires they make, a payout that includes not only grants but also overhead expenses.

And most foundations are reluctant to make grants to support nonprofit operations, preferring instead to fund programs or projects that often bear the funders’ names.

Foundations need to move beyond giving as usual.

They should give more and they should recognize that nonprofits need funding to build their operations so they can more effectively deliver services.

Foundations claim that increasing the required payout would drain their assets and force them to go out of business.

But the idea that foundations have a right to exist forever defies fairness and common sense.

While the law gives donors up-front tax breaks for creating foundations, it lets foundations hoard most of their assets.

In a typical year, the investment returns on a foundation’s endowment will cover the payout the law requires it to make, and in good years those returns will result in actual growth in the endowment.

So foundations, often controlled by donors and their families, simply accumulate wealth and power out of proportion to what the foundation actually gives back to the community.

In return for tax breaks the donors enjoy up front, and tax-exempt benefits foundations enjoy on an ongoing basis, taxpayers should receive equivalent value, and they should enjoy it sooner rather than later.

That means, simply, that foundations should pay more to address social needs, rather than investing tax-exempt funds to finance high-powered battles to fight moves in Congress to increase the required payout.

The economic crisis is hurting low-income and middle-income taxpayers, as well as the nonprofits that exist to address critical needs in our communities.

Instead of pitching fits about the plunge in value of the endowments they count on to perpetuate their power, foundations should be digging deeper and paying out more to begin to give back what they and their donors have received from taxpayers in the form of tax breaks and tax-exempt benefits.

Advertisements

Asking and giving critical in tough times

By Todd Cohen

To cope with the sinking and uncertain economy, nonprofits should keep asking givers for charitable support, and givers should keep giving.

Nonprofits also should promote planned giving, which includes gifts that are complex or deferred or involve assets other than cash, such as stock or real estate.

And they should take the time to retool the way they ask for support, moving beyond a dry recitation of facts and figures about their organizations to telling compelling stories that capture the passion and importance of their work and its impact on the people they serve.

That is the view of Eileen Heisman, CEO of the National Philanthropic Trust, a $725 million-asset public charity based in the Philadelphia area that has raised over $1.3 billion in charitable assets since it was formed in 1996 and granted over $715 million to over 25,000 nonprofits.

Despite the “worldwide shattering of our financial system,” Heisman says, she is cautiously optimistic about charitable giving.

“Americans are generally philanthropic, but I think Americans feel poorer,” she says. “But I’m hoping the ultra-ultra wealthy will continue to give at the pace they’ve been giving, although that’s a small percentage of people.”

Research shows that 90 percent of individuals with a net worth of $1 million or more give to charity on an annual basis, she says.

But modest givers “may have a tough year” because “building confidence back in the marketplace will be really tough,” she says. “I don’t think we’ll have the pace of the past three years.”

Still, while “you can’t keep your head in the sand,” she says, “I’m very much an optimist.”

Her advice to nonprofits is to keep working to generate contributions.

“You cannot stop asking,” she says. “There are going to be loyal donors who continue to give. People still get their paychecks. A lot of annual giving comes out of paychecks.”

She also encourages wealthy givers who have commitments to nonprofits not to retrench.

“Even though your investment accounts may have shrunk, you can give from annual income,” she says. “Charities depend on your gifts.”

Yet many charities do a poor job “making their case” for support, she says.

“They state too many bare statistics and don’t talk about the impact” they have, she says. “If there’s any time to retool and look at your case statement and your direct-mail pieces, now’s the time.”

Donors will continue to give, she says, if nonprofits have “made a compelling case and it’s passionate and important. The best case statement is storytelling.”

The stories nonprofit tell should be about the people they serve and “getting people involved,” she says.

Citing the advice of fundraising consultant Mal Warwick, she says a fundraising letter “has to create a personal relationship with the reader about the personal impact” of the charity’s work in fulfilling its mission.

Heisman also encourages nonprofits to continually promote planned giving.

While it can take years after a donor sets up a planned gift for a nonprofit to receive it, marketing those gifts, such as simple bequests set up through wills, can provide “wonderful surprises” and an ongoing income stream, she says.

“It’s really important to keep that in the pipeline,” she says. “That’s all about making the case as well.”

A ‘new spirit,’ a time for giving

By Todd Cohen

The election of Barack Obama as president marks the start of a new era for giving and making a difference.

In his victory speech in Chicago, Obama asked Americans to serve, sacrifice and work together to fix what is wrong in America and strengthen our communities, our economy, our environment and our security.

Throughout the campaign, Obama has urged Americans to pitch in.

He has promised, for example, to repay college graduates who perform public service for groups like the Peace Corps and Teach for America by helping to cover their college costs.

Charitable giving in the U.S. totaled $306 billion last year, and nearly 61 million Americans age 16 and older volunteered, giving 8.1 billion hours worth over $158 billion.

Over one million nonprofit organizations depend on the contribution of time, money and know-how, and the dedication of employees who often are overworked and underpaid, to address the urgent needs our communities face.

“So let us summon a new spirit of patriotism, of service and responsibility where each of us resolves to pitch in and work harder and look after not only ourselves, but each other,” Obama said Tuesday night.

Long known as the “nonprofit sector,” or “voluntary sector,” the charitable work and investment of individuals and organizations more accurately should be known as the “giving sector.”

The giving sector is the heart of America.

And now, in the face of overwhelming economic, environmental and global-security threats, the giving sector needs to be stronger, more strategic and more collaborative.

Nonprofits must equip themselves to truly succeed. They need to engage their givers and their boards. And boards need to know their role, help the organization focus on the mission, and give staff the support they need.

Individuals must connect themselves to causes they care about, and make strategic investments of their time, their expertise and their financial assets.

And charitable foundations and corporate-giving programs must dig deep and do more to address the organizational and operating needs of nonprofits.

Obama promises he will work to engage everyone in the job of fixing what is wrong in America, making government truly diverse and inclusive.

That job will require that we learn to bridge the gaps that divide us and work together, and nowhere is that more needed than in the giving sector.

Nonprofits and foundations talk a lot about collaboration, but few are willing to actually give up even the tiniest measure of control or power to form the partnerships that will be critical to solving problems that are bigger than individual organizations can handle.

And most foundations, for all their talk, still will not give more each year than the law requires them to “pay out,” a mere 5 percent of their assets.

In addition to the financial incentives he has promised to give college graduates who perform public service, Obama can push for incentives for individuals, foundations and corporations to give more.

Obama also can engage in the giving sector the truly remarkable political organization he has built.

And nonprofits, applying the social-networking strategies and technology Obama used to build his organization, now can do a better job mobilizing, engaging and managing their own givers.

“This victory alone is not the change we seek, it is only the chance for us to make that change,” Obama said Tuesday night. “And that cannot happen if we go back to the way things were. It cannot happen without you.”

In this new era of giving, the challenge for the giving sector is to move beyond talk and giving as usual to truly fulfill the dream of a “new spirit of patriotism, of service and of responsibility.”