The last two years have been anything but predictable. Will 2022 be another aberration or will we return to pre-pandemic trends in giving?
From Trends that Will Shape Philanthropy in 2022, Part I — “We’ve seen the sector embrace the new and the old; developing innovative and creative solutions to meet and overcome challenges presented by the pandemic while also maintaining traditional best practices. But normalcy, or at least a kind of normalcy, appears to be on the horizon. Normalcy, in turn, brings stability. With stability comes the opportunity to prioritize the future, to move away from short-term fixes and toward long-term planning.”
We conclude our Trends series with the final four trends we expect to shape philanthropy in the coming year, and how we will advise our clients to leverage them.
Fewer Donors, Larger Gifts
There is nothing new about this trend. We have seen a consolidation of giving since 2008 and don’t expect major changes in 2022.
We do expect to see the continued erosion of mid-level giving that resulted from the 2017 American Tax Cuts and Jobs Act. By increasing the standard deduction from $6,500 to $12,000 for individual filers ($12,550 in 2021 after being indexed for inflation) and raising the limit on deductions from 50 percent to 60 percent of AGI, the monetary incentive for charitable gifts from all but the wealthiest Americans was eliminated.
As fundraising professionals, it’s important for us to make the case for philanthropic growth at all giving levels. The focus on donor retention should be intensified, so lower-level donors have an opportunity to mature into mid-level and then major gift donors. Above all, we must treat donors as investors and continue to demonstrate the impact they make through their charitable gifts.
Increased Corporate Engagement, Not Necessarily Philanthropy
Corporate giving is complex and extends beyond altruism to goodwill, marketing, and overcoming negative publicity. As diversity and social justice issues continue to gain momentum, we expect to see more corporations align themselves with related organizations. Because younger Americans are more cause-focused, we believe this alignment will be strongest among corporations trying to appeal to Gen Z and Millennials.
There is a lot of good that can come from strategic corporate/nonprofit partnerships. For example, corporations that support workforce development programs through local colleges benefit from a higher-skilled workforce. Encouraging workplace volunteer programs builds a stronger culture among employees. Organizations and institutions that recognize these natural synergies should capitalize on them.
However, the majority of giving in the United States will continue to be from individuals (78 percent of all giving including bequests in 2020); only 4 percent of all giving came from corporations. In 2020 corporations gave less than 1 percent (0.8 percent) of pre-tax profits to charities. Public corporations are justifiably accountable to their shareholders—and to quarterly earnings reports. This will not change, so a fundraiser’s time will continue to be best spent building relationships with individual donors.
A Heightened Focus on Performance Ratios
ProPublica’s investigative report into St. Jude last month was eye-opening (Armstong & Gabrielson, 2021). The hospital raised $2 billion in 2020, ranking them third on the Chronicle of Philanthropy’s list of America’s Favorite Charities (2021). But only half of what St. Jude raised over the last five years went to research or patient care. Thirty percent went to cover fundraising costs. Allocations like these cast doubt in donors’ minds about the true impact of their gift.
But spending too little on staff and fundraising expenses can be as dangerous as spending too much. Cultivating and stewarding the donor relationships that result in sustainable funding takes resources; good nonprofit executives and fundraisers should be well compensated to retain top talent.
We are often asked about ideal program expense and fundraising efficiency ratios. While it depends on the organization, we suggest a target program expense ratio of 85 percent and fundraising costs that equate to between $0.05-$0.10 of every dollar raised. The pandemic skewed those ratios for 2020 and 2021, particularly among organizations that received significant government funding. For 2022, however, we expect these ratios to stabilize. We encourage nonprofit leaders to educate their boards about the numbers behind these ratios. It can be dangerous for board members to insist, for example, that an organization maintain a 95 percent program expense ratio—or spend as little as possible on fundraising resources.
DAFs Will Continue their Meteoric Rise
Last month, the Indiana University Lilly Family School of Philanthropy and Giving Institute published a landmark look at gifts made from donor-advised funds between 2014 and 2018 (2021). The report found that the value of assets in DAFs grew from $31.1 billion in 2006 to $141.95 billion in 2019. Those values will continue to climb, driven by DAFs’ popularity among donors and a financial incentive to promote them by firms like Vanguard and Fidelity.
DAFs will also continue to change the way we give and who receives our gifts. The Special Report on Donor Advised Funds found that education and the arts received the most DAF grants (29 percent). However, in terms of total U.S. giving, religion received the biggest percentage but a far smaller percentage of total DAF gifts (31 percent of total US philanthropic giving between 2014 and 2018 but only 14 percent of DAF gifts made during the same period.) As the percentage of total gifts made from DAFs increases, fundraisers from all sectors must recognize the change in giving patterns.
We do not anticipate that the bipartisan legislation introduced in 2021 by Senators Angus King and Chuck Grassley will gain traction and force quicker DAF disbursements. The debate over whether forced DAF payouts will help or hurt community foundations will continue. We anticipate the #HalfMyDAF movement to gain momentum but whether it will make an impact is uncertain. What is certain is that DAFs will continue to pose both challenges and opportunities for fundraising professionals.
About the Author
Jessica Browning, MBA is Principal and Executive Vice President of the Winkler Group, a national capital campaign and strategic planning firm headquartered in Charleston, South Carolina. A former member of the Giving USA Editorial Review Board, Jessica has a B.A. from Duke University and an M.B.A. and M.A. from the College of William & Mary.
Armstrong, D., & Gabrielson, R. (2021, November 12). St. Jude hoards billions while many of its families drain their savings. ProPublica. https://www.propublica.org/article/st-jude-hoards-billions-while-many-of-its-families-drain-their-savings
Indiana University Lilly Family School of Philanthropy. (2021, November). Giving USA special report, donor-advised funds: New insights. Giving USA Foundation. https://givingusa.org/
The Chronicle of Philanthropy. (2021, November 2). America’s favorite charities 2021. https://www.philanthropy.com/article/americas-favorite-charities-2021