Giving inches up; recovery from plunge slow

Charitable giving in the U.S. grew slightly in 2011, regaining some of its losses from the collapse of the economy in 2008 but posting a two-year pace that marks the second-slowest post-recession recovery since 1971, a new report says.

After adjusting for inflation, giving grew 0.9 percent to $298.42 billion from a revised estimate of $268.91 billion in 2010, says Giving USA, a report from the Giving USA Foundation and its research partner, the Center on Philanthropy at Indiana University.

In 2010 and 2011, giving grew by an average rate of 1.1 percent, compared to an average of 2.6 percent, after adjusted for inflation, in the two-year period after each recession over the past 40 years, the report says.

Individuals accounted for 88 percent of all giving, with living individuals accounting for 73 percent total giving, and bequests and family foundations accounting for 15 percent.

Giving by living individuals grew to $217.79 billion, an increase of 0.8 percent after adjusting for inflation.

Individual giving as a share of disposable personal income was flat at 1.9 percent in 2011, the same as 2009 and 2010, but far below the 2005 high of 2.4 percent.

Corporate giving totaled $14.55 billion, down 3.1 percent from 2010 after adjusting for inflation, and represented 5 percent of total giving.

Corporate pre-tax profits, traditionally a key factor in corporate donation levels, grew 4.2 percent, compared to 25 percent in 2010, the report says.

Between 1971 and 2011, giving by companies grew more slowly than the average inflation rate, with donations by U.S. companies growing 3.1 percent a year, on average, during the period, compared to inflation that averaged 4.4 percent a year for the period.

“Corporate generosity is real, and the nation’s charities would certainly feel its absence should the contributions go away,” Jim Yunker, chair of the Giving USA Foundation, says in a statement. “However, at a year-in, year-out 5 percent-sized slice of the giving pie, pragmatic nonprofits should consider additional potential funding sources when planning their appeals.”

The report calculates total giving by roughly 117 million households in the U.S., 12.4 million corporations that claim charitable donations, an estimated 99,000 estates, and about 76,000 foundations.

Those donations go to about 1.1million charities registered with the IRS, plus at least 222,000 religious organizations.

Gifts by bequests totaled an estimated $24.41 billion in 2011, up 8.8 percent from 2010 after adjusting for inflation, and represented 8 percent of total giving.

Giving by foundations totaled $41.67 billion, up 8.8 percent after adjusting for inflation, and represented 14 percent of total giving.

Religious groups received $95.88 million, down 4.7 percent when adjusted for inflation, and accounted for 32 percent of all giving, the most of any sector.

That represented the second straight year of lower giving to religious groups, the report says, citing declines in church membership and attendance, especially among mainline Protestant denominations, as well as the changing economic climate.

Those declines coincide with average population growth in the U.S. of 1 percent a year, on average, the report says.

“Any charity that is heavily dependent on its members for the majority of its annual budget needs to be cognizant of issues that could affect growth, commitment and donations,” Thomas W. Mesaros, chair of the Giving Institute, the group that formed the Giving USA Foundation, says in a statement.

Giving to human-services totaled $35.39 billion, down 0.6 percent after adjusting for inflation, and represented 12 percent of overall charitable donations.

Still, giving to human services was the third-highest ever, trailing only 2008 and 2010, the report says, adding that human-services giving typically is strong during times of perceived need.

“It is possible that pertinent messaging from these charities is still resonating with donors,” it says.

Giving to education totaled $38.87 billion, up 0.9 percent from 2010 after adjusting for inflation, and represented 13 percent of all charitable donations, while giving to health totaled $35.39 billion, down 0.4 percent after adjusting for inflation and representing 8 percent of overall giving.

Giving to foundations fell 8.9 percent in inflation-adjusted dollars to $25.83 billion and represented 9 percent of overall giving, while giving to “public-society-benefit” groups such as United Ways and the Combined Federal Campaign grew 0.9 percent in inflation-adjusted dollars to $21.37 billion and represented 7 percent of overall giving.

In comparison, the report says, the three largest donor-advised funds in the U.S. – Fidelity Charitable Gift Fund, Schwab Charitable Gift Fund, and Vanguard Charitable Gift Fund – realized average growth of 77 percent in contributions received between 2010 and 2012.

Giving to arts, culture and humanities grew 1 percent in inflation-adjusted dollars to $13.12 billion and represented 4 percent of all charitable giving, while giving to international affairs grew 4.4 percent in inflation-adjusted dollars and represented 8 percent of overall giving.

From 2001 to 2011, giving to international groups grew 167.1 percent when adjusted for inflation, representing the fastest growth of any sector for the period.

Since 1987, giving to international affairs grew at an annual average rate of 9.4 percent, compared to a 4.4 percent average annual rate of inflation.

Giving to environmental and animal groups grew 1.4 percent, adjusted for inflation, to $7.81 billion, or 3 percent of overall giving, with gifts of $1 million or more to support the ongoing cleanup from the 2010 oil spill in the Gulf of Mexico likely contributing to the increase.

And giving to individuals, mainly medications from operating foundations created by pharmaceutical makers, accounting for 1 percent of overall giving, and another $8.97 billion, or 3 percent, representing “unallocated” giving.

Nonprofits need to get it together

By Todd Cohen

A lot of nonprofits, boards and funders are in serious denial.

Many are in a deep financial hole, yet precious few can talk straight to their funders about their problems.

Compounding the communications gap, many boards do not understand their nonprofits’ expenses, and far too few use their connections to help their nonprofits raise money.

Those are some of the findings from a new survey by the Nonprofit Finance Fund that offers a grim view of the way nonprofits are faring in the stricken economy.

Among over 4,600 nonprofits surveyed, for example, 85 percent of saw rising demand for services in 2011, 88 percent expect greater demand this year, and 57 percent have only enough cash on hand to last three months or less.

Among human-services organizations, which represent 38 percent of nonprofits surveyed, 58 percent could not meet demand in 2011, and 60 percent said they would not be able to meet demand in 2012.

The charitable marketplace is consumed with big talk about the need for transparency, yet many nonprofits, along with their boards and their funders, operate with their heads in the sand.

Nonprofits’ survival depends on their ability and willingness to communicate more honestly and openly with their funders, while educating their boards about their finances and enlisting them in the fundamental job of fundraising.

For their part, boards need to take their governance and fundraising responsibilities seriously.

Instead of sleeping through board meetings and rubber-stamping whatever the staff puts in front of them, boards need to ask tough questions about the financial health of the organization.

And they need to step up and do a lot more to use their connections to help raise money for their nonprofits.

Funders also need to do more, both in providing the operating and capacity-building support nonprofits need, and also in establishing the trust that is essential if they expect nonprofits to talk openly and candidly about their financial and operating problems.

If nonprofits, boards and funders do not wake up soon, nonprofits will continue to struggle, leaving as victims the clients who count on them to provide the programs and services they need more than ever in our shattered economy.

Value of volunteering grows

An hour of volunteering was worth $21.79 in 2011, up 43 cents from 2010, a new estimate says.

The estimate by Independent Sector is based on the average hourly earnings of all production and non-supervisory works on private non-farm payrolls, as determined by the U.S. Bureau of Labor Statistics.

Independent Sector increases that number by 12 percent to estimate for fringe benefits.

Roughly 62.8 million Americans, or 26.3 percent of the adult population, donated 8.1 billion hours of volunteer services worth $173 billion in 2010, the most recent year for which data are available.

According to the Corporation for National and Community Service, nonprofits employ about 12.9 million workers, or nearly 10 percent of the U.S. work force, and account for about 5.2 percent of gross domestic product, Independent Sector says.

An hour of volunteer time was worth the most in Washington, D.C., at $33.61, and the least in Puerto Rico, at $11.41.

In North Carolina, volunteering was worth at $18.80 an hour.

Nonprofits say they’re still hurting

Nonprofits are adapting their operations and finances to the tough economy but many continue to see rising demand for services and a threat to their ability to serve clients, a new survey says.

Among 4,607 nonprofits responding to a survey by the Nonprofit Finance Fund, 85 percent experienced an increase in demand for services in 2011, compared to 77 percent in 2010, 71 percent in 2009, and 73 percent in 2008 that reported greater demand in previous surveys.

The 2012 State of the Sector survey from Nonprofit Finance Fund also found that 88 percent of respondents expect an increase in demand for services in 2012, while 57 percent have three months or less cash on hand, and 87 percent said their financial outlook would not improve in 2012.

“Nonprofits are adapting to continued economic pressure in all sorts of creative and substantive ways, but for many, these are stopgap measures that won’t make up for the bigger forces at play – decreasing government support, the unwillingness of some private foundations to evolve funding practices, and a lack of necessary support from some boards,” Antony Bugg-Levine, CEO of Nonprofit Finance. “We must rethink the way we fund solutions to our most pressing social problems.”

Among human-service organizations, which represent 38 percent of nonprofits responding to the survey, 58 percent were not able to meet demand in 2011, while 60 percent said they will not be able to meet demand in 2012.

Among those same human-service agencies, 56 percent received federal or state funding or contracts, 69 percent received state or local funding, 52 percent received late payments from the federal government, 62 percent received late payments from state or local government, and 65 percent or more that received late government payments used reserves to cover the gap.

Reflecting efforts to adapt to the unsettled economy, 55 percent of respondents added or expanded programs or services; and 52 percent increased the number of people served; 50 percent hired for new positions.

And while 23 percent cut staff in 2011, only 10 percent expect to cut staff in 2012.

The survey showed challenges in communication among funders, boards and nonprofits.

Only one in five nonprofits say they are comfortable talking with funders about cash-flow concerns, for example, and only 6 percent are comfortable talking with funders about debt.

And 73 percent say their boards do not do enough to “leverage” their relationships to support fundraising, while 38 percent say their boards are not able to sufficiently understand and communicate what drives their organizational expenses.

“Year after year, our survey finds nonprofits, and many of the people they serve, in dire straits,” Bugg-Levine says. “Many people believe the crisis is over, but our social safety net is still in peril. Nonprofits dipped into reserves last year to tide themselves over but expect 2012 to be even worse. Government, funders, boards and nonprofits need to work more collaboratively to ensure that crucial services can be delivered and secure a true economic recovery.”

Nonprofits at risk by not planning

By Todd Cohen

Too many nonprofits pay too little attention to planning, and even less to the critical job of developing leaders and plans for replacing them when they leave.

Reasons abound for why planning is missing in action throughout much of the charitable marketplace.

Nonprofits are quick to explain they are financially stressed and operationally strained; their staffs are overworked and underpaid; demands for their services are rising; the job of raising money is all-consuming and seemingly endless; and their boards are asleep at the wheel.

All those explanations are accurate, but they still do note excuse the failure to think ahead.

By ignoring the need to plan, and focusing only on immediate problems, nonprofits put their survival at serious risk when instead they could be looking for ways to manage that risk while also thinking about ways to grow and thrive.

Leadership development and succession planning for senior leader positions represent nonprofits’ single biggest organizational weakness, according to a recent Bridgespan Group survey of over 150 nonprofit leadership teams.

“Strong leadership is a critical component of any organization’s success, but the need in the nonprofit sector is particularly acute,” says Kirk Kramer, a Bridgespan partner who leads the consulting firm’s leadership work.

Bridgespan says research supports the perception that leadership development and succession planning are nonprofits’ most vulnerable organizational soft spot.

Nonprofits promote from within at a far lower rate than for-profits, Bridgespan says, picking 30 percent to 40 percent of senior leaders through internal promotion, compared to 60 percent to 65 percent of senior leaders promoted internally at for-profits.

That failure to promote from within is “particularly troubling given the intensified demand for leaders that many nonprofits are (or soon will be) facing,” Bridgespan says.

By 2016, the nonprofit sector will need over 500,000 new senior managers “as the sector continues to expand as baby-boom leaders retire,” Bridgespan says, citing estimates in its analysis, “The Nonprofit Sector’s Leadership Deficit.”

A key reason that developing future leaders may be so tough, Bridgespan says, is that nonprofits “tend to frame the issue very narrowly as ‘succession planning,’”  a term it says suggests a search to replace an executive director.

“That search may be frantic or it may be well planned and executed,” Bridgespan says. “But in any case, it is an intermittent, isolated activity.”

In comparison, the most successful succession planning “is not a periodic event triggered by an executive’s departure,” it says. “Instead, it is a proactive and systematic investment in building a pipeline of leaders within an organization, so that when transitions are necessary, leaders at all levels are ready to act.”

Preliminary findings in a long-term Bridgespan research project to better understand the investment nonprofits should make in succession planning suggest that good leadership development and succession planning “should resemble a set of six linked processes that build on an organization’s underlying human-resource foundation,” the consulting firm says.

Those processes apply to any nonprofit, although the time, effort and resources needed to pursue each one thoroughly will vary based on an organization’s mission, individual characteristic, needs and size, Bridgespan says.

The processes include engaging senior leaders; understanding future needs; developing future leaders; hiring leaders externally, as needed; measuring and improving practices; and building a culture that supports development.

Failing to address the looming crisis in nonprofit leadership simply will make that crisis a self-fulfilling prophecy.

Modest recovery forecast for giving

By Todd Cohen

RESEARCH TRIANGLE PARK, N.C. – Charitable giving will grow slightly this year but charities still will need to work to raise more money.

That was the prediction of Michael Walden, an economist at N.C. State University who spoke to an audience of 175 people on Jan. 30 at the fourth-annual Philanthropy Forecast sponsored by the Triangle chapter of the Association of Fundraising Professionals.

Giving follows the economy, and the economy is starting to pick up after a deep plunge during the recession, Walden said.

Still, he said, the recovery still trails the rebounds from other recent recessions because the dive was deeper, he said.

And in North Carolina, which continues to depend heavily on manufacturing jobs, the recovery trails that of the U.S. overall.

“Giving will improve,” Walden said, “but nudges will be needed.”

After falling in 2008 and the first half of 2009, including two quarters during which it fell roughly 6 percent each quarter, gross domestic product now is projected to grow at a “very modest” rate of 2 percent to 3 percent, Walden said.

In a robust economy, by comparison, the economy would be growing at a rate of 4 percent to 5 percent.

“We’re growing, but growing very slowly,” he said.

The reason is that while the massive job losses that occurred during the recession have stopped, employment has been posting only small gains.

The U.S. lost 8 million jobs during the recession but has regained only 2.5 million jobs, Walden said.

“A record number of people were unemployed for more than a year,” he said.

Job loss hurts the economy, he said, because consumer spending accounts for 70 percent of gross domestic product.

After a sharp drop during the recession, while they are spending more now, he said, consumers still are spending below their level before the recession.

And they are spending 12 percent below the level they would have been been had consumer spending continued to grow at pre-recession levels, Walden said.

The recovery in household wealth also has lagged behind the rebound from previous recessions, he said.

In fact, he said, the plunge in the economy arguably can best be characterized as a “loss-of-wealth recession.”

The decline in wealth has been a crucial factor both in the severity of the recession, and in the economy’s slow recovery, Walden said.

Wealth consists of financial wealth as well as wealth from real estate, primarily home ownership, he said.

While financial wealth always declines during a recession, he said, this recession was fundamentally different from previous recessions because of the collapse of the real-estate market following a 10-year boom.

That boom create a lot of jobs and a lot of wealth, and many people “accessed that wealth” through home-equity loans and other means, and then spent that money, helping to drive the economy, Walden said,

“Then it came to an end,” he said, with “appreciation rates” for housing prices falling into “negative territory,” where they remain.

The result was a plunge in household wealth.

“Forty percent of household wealth comes from real estate, and real estate has crashed,” Walden said. “The housing market has to get better before household wealth from real estate will recover.”

He voiced “cautious optimism” that the housing market was “moving toward equilibrium, where demand and supply match up again.”

Charitable fundraisers should be looking for any signs of recovery in the real-estate market as indicators that the economy is recovering, he said.

Walden said the recession hit North Carolina hard, and that the state’s job market has been slow to recover, with the employment base growing 0.7 percent in the state overall, compared to 1.9 percent in the U.S.

He also said the federal debt had reached its biggest share of gross domestic product since World War II, and warned the U.S. faces long-term fiscal challenges because of the projected costs to government of an aging population.

Walden predicted 2012 would be a “growth year,” and would be “a little better” than 2011.

“I don’t see a return of the recession,” he said.

The housing market and household finance will be absolutely key to the recovery, he said, adding that the economy still will not be “normal.”