Planned Giving Suffers As US Nonprofits Battle The Effects of the Recession

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When Plato wrote a provision in his Will to leave his farm to support students and faculty at the academy he founded, little did he know that he would create a tool that now accounts for 8 percent of all charitable giving in the United States. No one knows for sure if this was the first planned gift in history, but certainly one of the first. Despite the vital role that planned giving plays in healthy endowments and the long term security of our nation’s nonprofits, it still faces formidable obstacles, both internally and externally. Let’s take a close look at the internal obstacles and save the external challenges for another time.

“Endowments are essential to the health of every nonprofit,” states David Nicholas CPA, CFWC, a planned giving consultant from Bakersfield, California.

Harvard University’s endowment, the largest, climbed $1.4 billion to $27.4 billion as of June 30, 2010 according to a report by Harvard Management Co., which oversees the fund. However, it’s still well below $36.5 billion, the 2008 value before markets plunged and the endowment lost a record 27 percent, leaving the school short of cash.

During the recent recession, when one regional hospital faced an operating loss in the millions, it was their endowment that came to the rescue by providing the needed funds. The hospital faced, as many nonprofits do, the triple whammy: annual giving was down; the need for services was up; and income from their shrunken endowment was down. According to a recent Guidestar survey, 58 percent of nonprofits reported an increased need for services and 1 in 12 say they still face closure.

The financial “safety net” benefits of a strong endowment have been experienced profoundly through this recession; along with the clear message that endowments must be strengthened even more in the future. However, the benefits extend far beyond securing an organization through a recession. In addition, they allow nonprofits to reduce the pressure on annual fund raising; to fund special projects; to strengthen donor confidence; and to give donors in-perpetuity options, thereby strengthening the lifelong connection with donors.

“A proactive and sustainable planned giving program is essential to a strong endowment and the long term stability of every nonprofit.” says Sal Salvo, a planned giving consultant from Parsippany, NJ.

Problematically, many nonprofits are struggling to maintain a strong, vibrant planned giving program. Urgent financial needs and short-term organizational goals often compete with the long-term nature of planned giving. Leadership must face these issues with courage, conviction and commitment, particularly during these times when short term needs threaten to dampen the commitment to planned giving and drain limited resources – both time and money.

Think about this, how crucial are nonprofits to America’s economic recovery and future? Absolutely vital! As the government cuts back on social programs, more of that burden will fall on many of our nation’s nonprofits, increasing the need for services and the cost to deliver those services. Most people are unaware of the sheer size of the nonprofit sector and the role that it plays in our economy. If U.S. nonprofits were a country, it would rank as the sixth largest economy in the world—larger than Canada or Russia! Therefore, it represents a significant portion of our economy, overseeing almost 13 million employees, or 1 out of every 10 employees in the United States workforce. U.S. nonprofits produce $1.1 trillion in annual revenues percent of our Gross Domestic Product (GDP).

Pittsburgh, my hometown, was recognized as leading the way in charitable activity in a survey earlier this year, by Charity Navigator, which evaluates the financial health of over 5,500 of America’s largest charities. However, the news is not so rosy around the country. The recession has negatively impacted giving among individuals, who make up three quarters of U.S. charitable giving, according to Giving USA 2010. In this last year, giving from individuals dropped 3.7% from the year before, adjusting for inflation. Giving USA 2010 states, “This reflects the continued recession…”

In terms of planned giving, bequests declined over 23 percent according to the same report and have declined four of the last seven years. According to the latest information from the IRS, the number of charitable trust tax returns was essentially flat from 2002 to 2007, a time when market gains should have made charitable trusts very attractive.

If a proactive, sustainable planned giving program is so essential to the health of nonprofits, why do you face so many internal challenges? These challenges include lack of board support, inadequate financial resources, out-of-date donor tools, inability to focus your attention, and lack of organizational stewardship due to short term myopia.

According to Philanthropy Journal’s Planned giving can ward off disaster, “In times of economic turmoil, planned giving provides a reliable way of building endowments and staving off financial crisis, experts say… Especially during economically stressful times, nonprofit fundraisers tend to set aside future concerns to address immediate needs. As a result, they miss out on opportunities to fortify their organizations.” Yet, the boards of many charities do not understand the value of planned giving in building and stewarding relationships with key donors, and therefore do not prioritize gift planning in the nonprofit’s budget.

You know the phrase, “But we’ve always done it that way.” It’s rooted in our desire for things to remain the same. Inherently, we resist change. Someone once said, “I don’t mind change as long as I don’t have to change.” Meanwhile, times have changed. More importantly, donors have changed. The tools of yesteryear are no longer producing sufficient results. We must incorporate new and more efficient ways to communicate the benefits of planned giving.

In the Non Profit Times latest survey, the 2008 National Salary Survey, the national average was: Development Director – $70,568; Planned Giving Officer – $79,112; Major Gifts Officer – $71,968. With benefits, that is an investment of close to $100,000. If the typical planned giving officer can see 100 to 150 donors per year, that puts the cost per donor contact at between $667 and $1,000. More effective tools and systems must be used to leverage the investment that nonprofits are making in planned giving and major giving officers. Some belief that these tools and systems can be created internally, that just doesn’t make good business sense. If a fundraiser is gifted at face-to-face meetings with donors, they will not have the skills to create and perfect tools and systems to leverage their time and impact. These tools and systems can be brought in. It’s the very same reason that franchises enjoy such a huge success rate – proven recipes and systems. It’s not simply doing more things… it’s doing more “right” things.

The latest Gift Planner Survey 4 underscores the challenge every planned giving officer faces: lack of focus due to too many priorities and not enough time… like a one-armed paper hanger! Only 17 percent of fundraisers enjoy the luxury of spending all their time and energy focused on planned giving! That’s less than 1 in 5… and 1 in every 3 planned giving officers spend less than a quarter of their time focusing on planned giving.

Lastly, urgent, short term need and wants often overshadow an organization’s dedication to long term stewardship. Farmers have a phrase for it – eating your seed corn. And any good farmer worth his salt will tell you, “Never eat your seed corn.” A number of farmers have vividly described to me times growing up when their dad locked the seed corn in the barn, despite the fact that their family was hungry. Nonprofits are eating their seed corn, putting the burden on the next leaders and team that will follow in their footsteps.

Lack of board support, inadequate budget, out-of-date tools, inability to focus, and lack of organizational stewardship due to short term myopia… the result of these internal obstacles is a planned giving program that starts… stops… starts… stops. What message do your donors hear when that is what they see?

And a start/stop process is self-fulfilling, “We tried that for a year or two and we didn’t like the results. No, we didn’t put enough time and effort into it, but we were busy.” You can’t eat the fruit from farming when you don’t persevere. That’s why the popular fitness program is called P90X… it doesn’t work as P20X or P35X or P45X. It’s P90X! Planned giving is no different than farming or fitness!

Granted, there are also external obstacles that make planned giving a challenge. Yet, as an organization, we have the ability to remove the internal obstacles and create the environment where planned giving can thrive… and sustain. Let’s recommit to a long term perspective and… get our board – on board; allocate sufficient money and time; shed the old tools in favor of more cost effective, time efficient tools and systems; and be willing to persevere and enjoy the fruit of planned giving.

Since 1995, The Donor Motivation Professionals of North America have helped North American charities “motivate planned giving” through The Donor Motivation Program, a proactive planned giving seminar and donor development system. Would you like more information on planned giving or a copy of our Special Report? Go to http://www.DonorMotivation.com.

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