Doug Houser:
From Rea & Associates studio, this is unsuitable. A management financial service podcast for entrepreneurs, tenured business leaders, and others who are ready to look beyond the suit and tie culture for meaningful measurable results. I'm Doug Houser on this weekly podcast thought leaders and business professionals break down complicated and mundane topics and give you the tips and insight you actually need to grow as a leader while helping your organization to grow and thrive.
If you haven't already hit the subscribe button, so you don't miss future episodes. And if you want access to even more information, show notes, and exclusive content, visit our website at www.reacpa.com/podcast and sign up for updates. Charitable giving in 2020 looked a lot different than anyone could have expected. Policy changes, tax updates, and a larger share of household giving than the proceeding year all played a role. Today Laura MacDonald, principal and founder of Benefactor Group, is here to provide insight into what she witnessed as a leader in the nonprofit space during 2020 and what opportunities nonprofits and individuals alike might want to consider in 2021. Welcome to unsuitable Laura.
Laura MacDonald:
Thank you, Doug.
Doug:
Great to have you on as always. This is a topic that we should all certainly pay more attention to, particularly in these times where we've got a lot of folks out there in need, so obviously so much unexpected in 2020. Give us a snapshot, taken a look back at what happened with COVID, and how that impacted you? What opportunities are there for helping folks?
Laura:
A couple of things. The formal counting of philanthropy doesn't come out until June of the next or the following year, so we won't know exactly what happened in 2020 until June of 21. But we do have a few indications on what might've happened in how it compares to what happened in 2019 when about $460 billion was given to American nonprofit organizations by individuals, corporations, and foundations, and about 56% of American households participated in charitable giving in 2019.
Now in 2020, what we saw was really fascinating as the pandemic took hold and the economic hardships became apparent. I know we were working with a number of rights at the front line of providing services, whether that was healthcare or food and shelter. And what we saw was that the number of donations that they received grew enormously. There was an enormous outpouring of support to food banks and homeless shelters. And then in the summer, as we became aware of this moment of racial reckoning, we also saw an outpouring of support to the urban league or HBC news.
And so I suspect what we're going to see is that a higher proportion of American households participated in charitable giving in 2020, after years and years of a steady decline. I think that we've seen at least a temporary reversal in that trend.
Doug:
That's great, yeah.
Laura:
I can tell you, we're talking to food banks that were getting checks after the pandemic relief checks arrived. They were going to gifts of $1,200. It was exactly the amount of the relief check and it was because those households knew that they were fortunate to be in a position that they didn't need the money, and so they were sharing it was really heartening.
Doug:
Yeah. That's really wonderful to see. What are some of the shifts beyond what you talked about certain organizations that were more at the forefront and all of that, but an overall shift in kind of the thinking or planning part of it as people get beyond just the crisis mode and try to think ahead in terms of how do we really have the greatest impact and where can we help?
Laura:
So a few things that I've noticed just a popery of trends. One is what's being called out trust-based philanthropy. And I think the best example of that was the enormous giving from MacKenzie Scott at the end of the year. She made several seven and eight-figure gifts, totaling several billion dollars, about $4 billion. And she gave those gifts to food banks and homeless shelters and United ways and urban leagues with no strings attached. So that's why it's called trust-based philanthropy. It's because she felt that the best thing that she could do was allow that organization to figure out how they can best respond to the community's needs rather than putting our own spin on things.
So trust-based philanthropy from areas when donors want to know exactly how every penny of their gift is. And I know from the inside of a nonprofit, a dollar that is given like that is worth sometimes twice as much as a dollar that has strings attached, like you must spend it on supplying food, you can't spend it on the trucks that get the food to the food pantry and you can't spend it on the staff who drive the trucks and you can't spend it on the heat for the building only food.
So trust-based philanthropy is one. The other thing that we see have seen is that there's another data point only when a donor makes a gift to a nonprofit organization for the first time, there's only a 20% chance that they'll ever make a second gift.
Doug:
Wow.
Laura:
And as with any business model retention, customer retention, donor retention makes them more efficient. And what we've heard from a lot of organizations is that a donor made the first gift to the food bank, a donor made a second gift to the food bank. Donors signed up for monthly giving at the food bank. And so that kind of resilience sticking with the organization over the long haul, that's going to be enormously helpful to those.
And then the final thing that we saw, there's a whole study of disaster-related philanthropy. What happens when somebody gives in the wake of a natural disaster? And there's some thinking that what we're in now is just a slow-motion disaster. It is a slow-motion disaster, and that the giving is similar in that, if you were traditionally a supporter of the ballet, you're still given to the ballet and you carved out more room in your giving budget to support the food bank or the YWCA or planned Parenthood, what have you.
And so it's interesting, it will be interesting to see whether or not this also results in a long-term increase, the percent of just a gross domestic product that is given through philanthropy.
Doug:
Yeah. It's really interesting. You get into this kind of philosophical discussion. This really piques my interest because you mentioned that overall, prior to the pandemic that charitable giving had been declining for a number of years overall in terms of percentage, is that correct?
Laura:
Yeah. So we say dollars up donors down. So the amount that's given has been increasing consistently, the only slight decline that we saw, and it was slight was during the great recession when the equity markets dropped 40%, charity giving dropped 4%, and it dropped about the same amount two years in a row, the only time that's ever happened. But since then, it has regained everything at last and continued its climb at about 4% per year. But the number of donors has been declining and that's not healthy. That giving many things in our economy has become concentrated in the hands of fewer and fewer donors. It's also riskier than the nonprofits, you miss one of those big gifts and it takes a whole lot of small ones to make up for it.
Doug:
That was going to be the point I was leading to is that it plays into wealth distribution, right? Because that's obviously been exacerbated over the previous several decades and become even more concentrated through the pandemic and that is the risk, I see you've got all your eggs in one basket, so to speak or very few baskets, it is more risk. So hopefully we can do some things to reverse that trend.
Laura:
I think we can, one is there's talk about the democratization of philanthropy and I'm not even sure if philanthropy is the right word to use if that's the conversation we're going to have. I just, this morning I had a young woman say to me that she thinks philanthropy is something rich people do. And so we need to get back to a system in which gifts of every size are recognized and then are thanked and appreciated, not just it's great that Mackenzie Scott got those deadlines for her billions of dollars with giving, but let's make sure we're not crowding out the person working on $250 is a sacrificial amount.
Doug:
It's a huge thing, obviously, yeah. Now, do you think some part of that is also the decline over the same period of time of a religious belief?
Laura:
Exactly. You nailed it. That's exactly, there's a very strong correlation, we can't say causation, but the correlation between the decline of participation, the percentage of households that participate in weekly worship of any tribe, weekly worship, and the percentage of households that participate in charitable giving. So that's, and for many of us of a certain generation learned through offering envelope to church on Sunday or to the temple or to the mosque. And so what's what replaces that in American society is families aren't going to church in same numbers anymore.
Doug:
Yeah, the difficult topic certainly to deal with. Let's get into our world a little bit, Rea & Associates, what about tax impact? What do you think of philosophically? What have you seen obviously the huge increase in the standard deduction a couple of years ago was thought to negatively impact again your middle income givers. What's your thought there?
Laura:
So it used to be that about 30% of American households itemized their tax deductions. Now because of the change from the tax cuts and jobs act, it's really only about 5% of American households that will itemize their charitable deductions, because you have to add up your state and local taxes with $10,000, your mortgage deduction, which for all practical purposes is capita $7,500.
So unless your charitable giving is at least $7,500, there's no point in filing any kind of deductions. You might as well just do the easy form. So we do believe, and it's interesting because it's not the primary motivation for giving usually the charitable deduction, but it's part of the calculation of land and how much and how to give and so yes, it created a headwind.
Doug:
Yeah and there's some of this theory that you obviously those and try to concentrate maybe every third year or something like that.
Laura:
Yeah, I know that there's been a lot of talk of what's called bundling and maybe, or maybe giving to a donor-advised fund one year, and then using that to do your annual giving for the next two or three years. There's very little data to say that that is being widely adopted.
Doug:
Yeah, interesting. As we move and start to think post-pandemic, do you really see some philosophical change in the way people will think and the types of organizations they will support, or do you think it will pretty much revert to where we were previously?
Laura:
It depends on, I guess the data-driven answer would be the, in the past. So for example, if we go back to the great recession where many donors ship what they're giving to human services, giving to human services never declined during the great recession, not giving to higher ed and giving to the arts and culture did decline. That's where the big declines were, but eventually, donorship that their interests back to their core charities and the balance, the relative balance of giving to each of those sectors and others was restored.
So if you take a look at history, you think that, well, you know, we are going to continue to see giving to religion be about 30%. I'm going to giving to education being 14 or 15% and everything else trailing behind. But I do think that there are some other factors at play here, some of them are generational. If you look at surveys of younger generations and what they're interested in giving to. So things like giving to the environment, giving to social justice cause those really seem to be more of a priority for a younger generation of donors, and so that might be a long-term shift that we'll see.
I know a lot of our higher education clients recognize that the mega gift just with a level of Alma mater is something that is waning, particularly as we see younger generations giving and so they're shifting their tastes to talk more about the impact of the gift to make higher education, more of a cause, first-generation college students, non-traditional students, things like that. So, I do think that we're seeing a shift in either the causes donors will support or the way that the sort of traditional pauses are articulating the appeal for funds.
Doug:
Do you see... The other thing that makes me think, I have three 20 somethings as children and it makes me think that their mindset is very much more community-based whatever community they're in. Do you see much more support for those kinds of local based in your community or County or whatever it is versus some of the say the bigger national organizations or my maybe misreading that one?
Laura:
Well, the one thing that is going to cloud our ability to see that picture clearly is the fact that the big national organizations are the ones that are attracting support from mega-donors. And so when you take a look when the Chronicle of philanthropy, which is one of our trade journals releases its numbers every year on the charities that received the most philanthropic support, it will continue to be some of those big national charities, because they're the ones who get the million and multi-million dollar gifts, and as much as the local support and a few hundred dollars a pop is the lifeblood of that local organization. It's just not going to allow them to eclipse what's happening with those. Again, it's the negative gifts that are driving some of the trends, or at least some of the qualifications of various organizations, and who's at the top of the heat.
But there's another trend although I do think is helpful in that is political giving. It's interesting that there's... You would think that, Oh, if somebody gave to a candidate or to a valid issue, it's going to reduce the likelihood that they're going to give to charity. There's a very strong, positive correlation between the two and given all of the activity some of it, unfortunately, very partisan and divisive, whichever side of the dividing line beyond, but participating in political giving has a very positive correlation with participating in charitable giving. So that's one factor that I might help to continue to hold the line on the percentage of households that participate in charitable giving.
Doug:
Yeah, that's interesting. I wouldn't necessarily have guessed that that was a strong correlation. Laura, talk a little bit about the health overall of not for profits. I mean, we've seen that obviously suffer mightily and how do they, depending on obviously their mission and what exactly they do, how do they sort of alter their model through all of this? It's been so difficult for many of them because they're either event-driven or whatever the case might be. What can folks do there?
Laura:
I've seen all sorts of things. I've talked yesterday with a performing arts organization and they obviously earned revenue is a big driver for them. They can no longer hold their performances, and so that revenue has left and they can barely replace it with either online concerts or sending individual musicians out to do small gigs. That is not going to make up for a full house three or four nights in a row, eight times a year.
So they took a revenue hit in that regard. Some of the COVID relief legislation has helped them to some extent they've also done some pivots, like shifting. I know of one, it completely gave up its office space and no longer has that monthly expense. And unfortunately, we've also seen a lot of job loss, especially in the arts, especially the performing arts. So they've been hit hard, there have been some legislative remedies for them, but it hasn't been enough to make the wall, and I think they've got a steep climb ahead of them.
Same thing with the visual arts to a somewhat lesser degree because the visual arts tended not to be as reliant on earned revenue. It's funny for a long time with 12 nonprofit organizations, they need to be more self-reliant because, for some reason, philanthropy is not self-reliance, but earned revenue is. Well, I can tell you science centers, which tend to have the highest earned revenue of sort of the cultural sector because they did not have the discipline of maintaining relationships with a large core of donors.
They didn't have that to fall back on. So whereas an art museum or a symphony or another kind of performing arts organization had maintained out of necessity, strong relationships with donors, the donors were there for them when they were needed. And so the hit wasn't quite as bad. So I think maybe that will change the conversation to say, let's have a balanced approach and philanthropy can be part can and should be part of a resilient business model moving forward.
Doug:
So fascinating that all the things that impact all of that of course, it's just.
Laura:
I will stay there on the other side of the ledger. There are organizations that have been the beneficiaries of this windfall of charitable giving. We're now helping some of them figure out how they can retain more of those donors more than 20% of those donors. But I will say that one of their concerns is that when they release their financial reports at the end of their fiscal year, they will look like they're in pretty talk on.
Now, what they know is that for some of them like those who are dealing with food insecurity, they probably got a seven-year slog ahead of them in serving the clients who have become food insecure as a result of all of this and will continue to be reliant on them for nutrition and three, four or five years from now, the donation levels are not going to be the same as they have been in the last year, but they're concerned about the perception that they've got significant reserves, they know they're going to be essential but is that something that they're going to be able to convey to the everyday dawn.
Doug:
Right. And how obviously you help with a lot of that messaging and communicating. I was going to ask you what are some of the resources you would recommend for either individuals or business owners who are part of our audience to really go look at and seek out in terms of where they can best assist and what the organization's all about.
Laura:
So if you're thinking about, who can I, where could my charitable dollars make the greatest impact at this moment in time? There are a couple of... There's a group now it's not called Candid it's the amalgamation of something called GuideStar, which is sort of a charity, a regulator, you can go to the GuideStar website and see a quick profile on any number of organizations and the kinds of things that they do. They're now aligned with the foundation center. So a lot of research and opportunity there, but I would look also at some of the local clearinghouses.
So if it's arts that you're interested in, then you're here in central Ohio, but, or the greater Columbus arts council website, and take a look at some of the ways in which either your support for them to get, especially the individual artists, if that's what you want to support or look at who some of their members are, the significant arts organizations and museums, the performing arts organizations council happen.
If it's something more like human services that you're supportive of, there's a human service chamber of commerce. You can look them up and see who are the members there and what is the work that they're doing and how might I be supportive? Give a thing I do is ask around, ask your neighbors, do you serve on a board? Are you involved with a local organization? If you really want it to get hyper-local, you can look at say, you're the Clintonville Resource Center that serves neighbors right there, where you are. And there's something like that in almost every community.
Doug:
Yeah. That's such, such great advice. And I think this is such a fascinating topic. We could talk about all day, the different ways to get involved and help. And I think what you've done today is really helps folks take a step back and think of the bigger picture, which we all need to do from time to time. So thank you very much for that Laura it's fascinating stuff. You're doing great work.
Laura:
Doug, before we leave, do you want to talk a little bit about some of the CARES Act?
Doug:
Sure, give us-
Laura:
Do we one or two.
Doug:
Give a quick overview.
Laura:
So, as far as charitable giving is concerned, the first CARES Act provided for all a $300 universal charitable deduction, which frankly is not going to that's putting a drop in the ocean. We don't believe that that'll have a significant impact on charitable giving. The second COVID relief bill that took effect for 2021, increased it to $600 above the line, so every household in America can take a $600 charitable deduction it's better, but it's still not great. The average American household that gives, gives more like $2,400 a year. So I know that what most would like to work toward is a universal charitable deduction which truly meaningful, and you've got to get up to at least $4,000 for that, and for it to be truly meaningful or make it dollar for dollar, but after your first thousand dollars of giving, right?
The other thing that some people might want to take advantage of is the fact that for 2020, and now for 2021, you may give and deduct up to 100% of your adjusted gross income. So you can eliminate your federal tax liability through charitable giving this year. And they're a sliver of folks for whom that's relevant. I think it's mostly people who have, are living largely off of a heightened asset base and have a lower comparative income. And it's complicated. So go talk to your accountant at Rea & Associates about how you have to structure your getting to get there.
But I do think that there are those I've talked to donors to, "Hey, they're disappointed that they're not hearing about it from their professional advisors, because they do think that it's something that they could take advantage of, but what would really love to see them after all of this, after we get past whatever this is, we're in the midst of a truly universal charitable deduction above the lines of every household in America and let's get it up to a meaningful amount, a couple of thousand dollars at least.
Doug:
Yeah. Agreed. I wholeheartedly agree with you on that. That's great. Great stuff. Well, thank you, Laura. And if you want more business tips and insight, or to hear previous episodes about unsuitable, visit our podcast page at www.reacpa.com/podcast. And while you're there, sign up for exclusive content and show notes. Thanks for listening to this week's show, be sure to subscribe to unsuitable on Apple podcasts, Google podcasts, or wherever you listening to us right now, including YouTube I'm Doug Houser, Join us next week for another unsuitable interview from an industry professional.
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