Advancement officers reported at the time that they had never seen such fear and uncertainty on the parts of donors, and they were concerned that lack of confidence in the economy and changed expectations about investment returns could pose long-term challenges for fundraising.
What is the picture a year later? To assess the current climate, AGB interviewed a group of institutional presidents and advancement professionals, asking how their development programs fared during the past year, what they are hearing from donors, changes they've observed in patterns of giving, and management practices that have enabled programs to operate with maximum effectiveness in the current environment.
The New Normal
"The new normal in educational advancement is a lot like the old normal--only harder. We haven't seen fundamental changes in the way that fundraising is practiced or the keys to success in a fundraising operation," said John Lippincott, president of the Council for the Advancement and Support of Education (CASE). "It still is very much about engagement, aligning donor interests with institutional vision, and good stewardship. Those things haven't changed, but people have to do more of them to achieve, at best, similar results or in most cases, lesser results than they have grown used to."
Although final data on contributions to colleges and universities, compiled annually in the authoritative Voluntary Support of Education (VSE) survey, arenot yet available, preliminary forecasts from a survey by CASE suggest that giving to colleges and universities dropped by an estimated 3.9 percent for the 2008-09 academic year. Over the past 20 years, philanthropic support for higher education has increased annually by an average of 7.1 percent, so the year's decline amounts to an 11-percent decrease over the amount that institutions might have expected based on past experience.
The good news conveyed by CASE's Fundraising Index is that advancement professionals expect philanthropic support to rebound in the coming year, increasing by an estimated 2.5 percent in academic 2009-10. Gene Temple, president of the Indiana University Foundationand former executive director of the Indiana Center onPhilanthropy, observed that giving remained largely steady as a portion of gross domestic product. "While gross domestic product went down, philanthropy held its share, and that's a hopeful sign moving forward," he said.
Peyton Randolph (Randy) Helm, president of Muhlenberg College, said the past year was the worst one for fundraising that he remembers in over 25 years of raising money for higher education. People "were in a state of shock and didn't want to do anything new; they were watching this train wreck of the economy and ... couldn't take their eyes off it," he said. But now that the worst seems to have passed, "I find that people are rebounding rather quickly," Helms said. Whereas a year ago people "were looking for the nearest bomb shelter, they've now come out and are starting to look around again and see that the world hasn't really been devastated." Concluded Helms: "Despite their alarm and concern, people were still committed to the institution and still giving. I find that encouraging. I think the spirit of philanthropy in this country is still very much a part of our culture, and it's going to take a lot more than this to stamp it out."
Patricia Jackson, vice president for advancement at Smith College and a trustee of Scripps College, echoed Helm's conclusion. Early in the year, Smith's board of trustees mandated a 20-percent budget cut, and the advancement staff ensured that constituents were fully apprised of the situation. They received an overwhelmingly positive response, Jackson said, and "that sense of shared commitment and that we're all in this together has been really heartening." Surprisingly, a record number of a group Jackson characterized as "hard-core never donors" made their first gifts this year.
Ann McGee, president of Seminole State College and a former advancement officer, observed a similarly surprising phenomenon at her two-year institution, as well as in other organizations she is involved with: record attendance and money raised at special events. "People still want to support the cause and still want to get out there and have a good time with their peers, and so people are extending themselves to support causes they really believe in."
There was general consensus among those interviewed that donors in the middle of the "gift pyramid" were most affected by the economic situation. While the net worth of mega-donors at the top of the pyramid may have been reduced, they still had ample capacity to give. Donors in the next tier, who are more likely to make gifts out of savings and income, were more seriously constrained and may have been more anxious about their personal financial futures. While the number of gifts from donors at the base of the pyramid decreased, such smaller gifts have less of an impact on total revenue.
While they may be varying their communications and solicitation approaches, depending on the circumstances of individual donors, presidents and advancement professionals unanimously underscored the importance of maintaining contact with prospects and laying the groundwork for future donations.
Michael Goodwin, president and CEO of the Oregon State University Foundation, said that his board and campaign leaders were very concerned about the impact the economy might have on the university's $625 million campaign. So leaders made sure "that we kept the development officers out on the road talking to people, even if we weren't having direct conversations about gifts," he said. Goodwin observed that even though potential donors were still concerned about the economy, as well as about the financial impact of health-care reforms and tax policy, "There are still people who are making lots of money." In fact, he noted that "at least two or three of our trustees had their best years ever last year. It's really important to get out and find what their individual circumstances are."
Planned Giving Pays Off
One clear lesson coming out of the past year, according to those interviewed, is the value of planned giving. Although outright giving doesn't perfectly track market performance, the large-scale destruction of wealth and ongoing anxiety about the economy have clearly prompted some donors to make planned gifts that may have current tax advantages or provide a predictable source of income, like charitable gift annuities which provide donors with a guaranteed payment throughout their lives in exchange for their gift. Patricia Jackson observed that the predictable income provided by an annuity is particularly attractive to female donors: "That solid, dependable rate of return has always been appealing to women and even more so in this climate." Smith College received over $20 million in unrestricted or budget-relieving cash flow from annuities and other trusts this year.
Michael Goodwin pointed to another factor driving the interest in planned gifts: "It reminds me of the period back in the late '80s and early '90s when the economy wasn't that great and lots of people had value locked up in assets that they couldn't liquidate. Again they're coming to us to see if we can take those assets off their hands and provide some cash flow in return, through a trust or some other vehicle." This is particularly likely to be the case in regions where a lot of wealth is in hard-to-liquidate assets, such as real estate. "That provides a real incentive for people to come and talk with us about ways they might be able to donate the property to us and get some tax benefits and cash flow out of it," said Goodwin.
While current financial factors are motivating people to make planned gifts, institutional revenue from planned gifts is less tied to economic cycles. Goodwin observed, "Bequests are one of the untold stories of giving to higher education. The amount of money that bequests add to the bottom line and the consistency with which they provide some of the bigger gifts are among the reasons that our numbers tend to be stable during periods like this." That was the case for Smith College, which had its best fundraising year ever thanks to realized bequests, noted Patricia Jackson. The college generally receives about $5 million to $7 million a year in realized bequests, but received $23 million in the past year. Jackson joked that Smith did "nothing to induce that." While the timing of the windfall was fortuitous, the bequests were a product of the institution's previous efforts to cultivate donors and promote planned giving.
Present Use or Perpetuity?
The economy has prompted both institutional leaders and donors to rethink giving in light of the current needs of both students and institutions, as well as concerns about the return on investment and stability provided by endowments. Goodwin noted that fundraising for student financial aid at public institutions has benefited from the financial crisis, suggesting that publicity about the impact of cuts by state government to his university system, tuition increases, record enrollment, and record financial need "combine to make a very persuasive case."
The Obama administration contends community colleges could play a strong role in supporting economic recovery, including through retraining laid-off workers and providing job training needed by new industries. Indeed, President Obama has outlined a $12-billion American Graduation Initiative to produce five million more community-college graduates by 2020. Ann McGee suggested that this might prove a "golden age" for community colleges such as hers, Seminole State. "Our communities and our nation are beginning to realize that we have a role to play in economic development and in training the workforce and in getting the nation back to work," McGee said. In terms of fundraising, she added, "It's a great opportunity that community colleges should not miss out on." To this end her college is developing programs to engage alumni and begin cultivating planned giving, both areas that have posed challenges for community colleges in the past.
Beverly Tatum, president of Spelman College, made a similar point the fundraising opportunities for institutions serving financial vulnerable populations during a panel at AGB's National Conference on Trusteeship. "In our donor community, scholarship support has doubled. People are interested and willing to support young people who are trying to go to college and particularly at a school like Spelman," she said. "There are some real opportunities to better tell the story and expand our circle of supporters."
Randy Helms said he is reminding donors that the institution can't tell students to take a year off. To underscore the point, he's been sharing a student handbook, course catalogue, and welcome letter sent to a student planning to matriculate at Muhlenberg in August of 1930--material a friend of his had run across in a flea market. When Helms tried to track down information on the student, he found that the Great Depression had put an end to the student's plans--he never made it to Muhlenberg, working for most of his life in a diner.
While state budget cuts, drops in endowment revenue, and student needs are driving current giving, some donors are concerned about the endowment model. This could shape higher-education finances and fundraising for years to come, some fundraisers caution.
Jackson mentioned that she had been involved in conversations, both as an advancement professional and as a board member herself, regarding whether seeking funding for current capital needs might provide a better return on investment for an institution than adding to the institution's endowment in the current economy. "Capital expenditures are an investment, just like an endowment, and it might make sense to move more quickly on some of our capital projects than we were intending to," she said. Jackson also noted that "trustees and other major supporters are much more willing and eager to consider a different mix of current and endowment gifts, so that a bigger percentage of the gift is for current use and can be used immediately."
David King, president and CEO of Alexander Hass Martin & Partners, which provides fundraising counsel to colleges, universities and other nonprofits, suggested that donors may have more fundamental doubts about endowment: "One thing we're hearing in conversations with donors is real questioning about endowment policies and endowment in general. I think a strong case was made over the past 10 or 15 years that endowment was a source of stability for institutions--that it provided a stable source of income that we could count on even if fundraising and admissions were up and down. Well, that hypothesis has now been proven incorrect. We are seeing donors who say, 'You had an endowment, you lost half of it. I'm not sure I want to put my money in there now.' "
Oregon's Goodwin concurs: "We're going to have to be prepared to defend our need for endowment and our endowment management and perhaps reposition what we claim the value of endowment to be. It depends too on how big the endowment was and how much the institution depended on it. If you had a significant endowment, and it was making up a significant portion of your budget, and it went away-- this has given people some pause. It has led them to really think about endowment in light of how we 'd positioned it as a stabilizing force in an otherwise ever-changing world. That argument is not going to hold water anymore."
CASE's Lippincott noted that some institutions are responding by asking donors to make a current gift to support a scholarship or other purpose that would normally have been funded by endowment earnings, with the understanding that the donor will establish an endowment to provide ongoing support for the same purpose when the economy recovers. Some institutions are also considering smaller fundraising campaigns focused on student financial aid, not out of concern about their ability to raise a larger amount, but out of a desire to tap current donor interests and avoid potential backlash to the announcement of an enormous campaign goal.
Sustained Strategic Investment
While regional contexts, alumni demographics, and simple luck all had an impact on fundraising success during the past year, David King suggests that the economy magnified particular weaknesses in development programs and impacted revenues accordingly. Booming economic times, he said, hide "flaws in all kinds of systems: banking, finance, and fundraising. When things started to get tight, those weaknesses really caused problems. One factor that seemed to align with relatively poor fundraising performance was the way institutions, particularly public institutions, reacted when public budgets started to be cut. Institutions that responded to 10-percent state budget cuts by cutting funding for all departments, including fundraising and admissions, evenly by 10 percent are the ones who now seem to be swimming upstream the most. The institutions that kept those programs intact seem to be the ones that are doing better."
Sustained support for fundraising may also set the stage for future performance. CASE's Lippincott observed that there tend to be shifts in market share for all sectors, including philanthropy, in the wake of economic downturns. "It is going to be those institutions that stuck with their donors in the difficult times and those institutions that stuck with their advancement programs and continued to fund them in the difficult times that are likely to come out of this in a stronger position and with a larger market share when it comes to charitable giving."
While aware that such spending may be harder to justify when institutional leaders face the need to make hefty budget cuts in many areas, Lippincott added: "When you're flying into a head wind is the worst time to pull back on the throttle. Even if your fundraising is down 4 percent, it's still the best investment you can make; nothing else is going to give you the kind of return that the fundraising operation can provide to the institution."
