The Economy: How Will It Impact You?
Our country and the world currently face the most severe economic downturn in most people’s memory. In the nonprofit world, emotions run from apprehension to fear to even panic. What does the declining economy mean for our sector? What can we do to meet the increased needs? What can we do to maintain our own capacity meet those needs? What happens to our funding?
Since the Institute of Social and Economic Research (ISER) published The Foraker Group report on the economic impact of Alaska’s nonprofits, we have written two articles for the newsletter, delivered the report to numerous nonprofit boards as well as to Rotary clubs, Chambers of Commerce, and other civic groups in 18 communities. In case you missed any of those venues, or did not see the publication, here are the main messages we have communicated for the last 18 months:
- Alaska has 6,000 nonprofit organizations, one for every 115 people — 4,800 of those nonprofits are charitable organizations recognized by IRS as having 501 (c)(3) status. This fact indicates that based on population we may have the highest density of nonprofits in the country. The effect of that large number could impact funding. However, just as important is the effect it may have on identifying, recruiting and maintaining enough committed people to serve on all those boards. This may actually be the larger challenge. Research on nonprofit effectiveness indicates that a good board is the best measure of nonprofit health because when an organization has a quality board it will attract the best possible staff and have a much better chance to develop sustainable revenue and stay on mission.
- Alaska nonprofits depend much more on governmental, corporate and foundation funding than nonprofits throughout the country. This over dependence on those funding streams also indicates that Alaskan nonprofits rely much less on donations from individuals than the rest of the country. As a matter of fact, charitable nonprofits receive 57% of their income from government in Alaska as compared to 35% across the nation. ISER’s best estimate is that Alaska nonprofits receive 2% of their funding from corporate charitable gifts as compared to less than 1% nationwide, and another 2% of charitable support from foundations as compared to 3% around the country. However, as a percentage of all donations, Alaska nonprofits receive twice the support from foundations and three times the support from corporations as our peers. In addition, Alaska nonprofits only generate 34% of their revenue from earned income as compared to the national norm of 40%.
- That means that Alaska nonprofits only generate 5% of their revenue from individual donations as compared to the 21% national norm. This is a figure that concerns us. For the last eight years, The Foraker Group has shared its insight concerning sustainable nonprofit income. Our experience indicates that corporate, foundation and governmental funding, while critical especially for capital projects, is much less sustainable than income generated by individual donations and earned revenue. We have been very consistent with the message on sustainable revenue. We have worked with our Partners to encourage increased individual giving. We helped to build a sustainable community foundation network for Alaska. We have developed seven specific classes on sustainable fundraising. We support the Rasmuson Foundation’s guideline to encourage board giving. We have featured five nationally renowned fundraising experts as presenters in Alaska through the ConocoPhillips Leadership Series. We provide executive coaching to development officers and to organizations moving into planned giving. We worked with our Partners to pass legislation that allows Alaskans to contribute part of their Permanent Fund Dividend to approved nonprofits. And at every possible occasion, we urge charitable nonprofits to understand their income sources — to begin immediately to increase sustainable individual charitable giving or to enhance earned revenue in order to depend less on corporate support as well as other non-sustainable revenue like earmarked government grants. To assist with earned income, we have developed a nonprofit business plan format, featured two national speakers who presented techniques for nonprofits to enhance earned revenue, and we have worked with our Partners to encourage sustainable funding streams from local and state government, which in many cases can be considered as earned income. We have expressed our concern that over dependence on federal funding may become a liability. We have challenged organizations to be more strategic and work to increase unrestricted income so they can build unrestricted reserves (in cooperation with the Rasmuson Foundation’s guideline for financial reporting). We have pleaded for organizations to prepare for an inevitable future. We have raised the inevitable transition of our Congressional clout. And now, the future is here.
I remember October 1987, when I was listening to public radio while driving to make a solicitation call, I learned about the country’s last major economic downturn. I had recently become the head of fund development for a large United Way in the Lower 48. This United Way had an 80-year record of always raising its announced goal, even during the Great Depression. A month earlier, when the economy seemed okay, we had announced an 8% increase over the prior year. Then the bottom fell out in October. I was terrified. Was I to be the first Campaign Director in 80 years to not reach goal?
As soon as I returned to my office I met with my boss, the executive director who had been in the fundraising business for thirty years. He acknowledged that it would be tough to persevere in such an economy, but he provided me with wise counsel I want to share with you now. He explained that throughout our nation’s philanthropic history, individual giving has rarely gone down from year to year. It had been his experience that especially in tough economic times most people dig even deeper to support each other and the causes that are most meaningful to them. There may be fewer donors and some donors will reduce their giving, but as a whole, individuals have come through in tough times.
He also told me the real concern should be about contributions from corporations. It had been his experience that while individuals dig deeper during tough times, institutions become more conservative with their giving. He encouraged me to keep an eye on corporate giving, but focus my efforts to maximize individual giving.
In 1987, during an economic crisis and for my first ever campaign in a large city, we not only met our goal, we exceeded that goal. As my boss predicted, corporate giving was level but individual giving increased. United Ways are lucky because most generate around 75% of their total income from individuals, with only 25% or so from corporations. There is no mystery about why my United Way made goal. As a matter of fact, United Way giving was up around the country that year. They had focused on one of the sustainable revenue sources, individual charitable giving.
So now to us in Alaska in 2008 — how will we fare in these new tough economic times? Two weeks after the bad news about the economy, many of our public radio stations held their fall membership drives. Most results were up, much better than last year. Both KAKM and KTOO reported that they exceeded pledges from last fall, 2007, and did so in style. KAKM was up over 25% from the prior fall drive. KTOO had a huge increase in underwriting and also exceeded their membership goal by over 10%. They gained 125 new members, many under 34 years old.
Other organizations that depend on individual giving and that had a campaign in the middle of this bad news — like the state’s United Ways — report that most are on schedule to meet their goals. The United Way in the Mat Valley is seeing some ups and downs, but the board is confident that they will do very well this fall. Both the United Ways in Fairbanks, Juneau and Kenai indicate that while early in their campaign, they are seeing increases in individual giving in many of their completed workplace efforts. United Way of Anchorage is tracking almost one-million dollars ahead of where it was last year at the same time. All of this hopeful news was shared with us in late October, during the initial shock of the declining stock markets and federal bailouts.
The lesson is that when organizations like public radio or United Way have a mature individual giving strategy, they can manage the tough times with less risk than organizations that rely on events, or corporate or foundation giving. I also have concerns for organizations with large governmental support. With the bailouts, the war, and all the other issues facing our federal and state governments, I am concerned we may have some organizations with few options over the next years.
In Alaska, we have come to depend too much on easy money, big events that almost always do poorly during recessions, large grants from the federal government that are always the first items to be cut during downturns, corporate giving that has up to now been supporting our sector at three times the national rate. We have become addicted, even feeling entitled to fast-easy-money.
It often takes times of crisis for people to act. We have done our best to prepare our sector for this current crisis. I wish we had been more skilled at presenting the facts we learned from the ISER study — maybe the sector would be better prepared to maintain critical service during the downturn.
Last month in the November newsletter we provided links with some national stories on the potential impact of this economy on philanthropy. We provide those links again so if you want to confirm my message with thoughts from throughout the country, you have the opportunity. A summary of the insights from those articles includes:
- Individuals will continue to give even during hard economic times;
- Foundation giving may show a downturn for the next few years since their corpus will have likely declined (20% to 35%) similar to all other savings accounts;
- Corporate giving will at best be level;
- Federal funding for all but the most basic services will likely decline;
- Needs will increase;
- Organizations providing basic needs will likely do better than organizations involved with culture, environment, and recreation.
There is no silver bullet. Jim Collins in Good to Great describes “The Flywheel Effect.” This occurs when organizations have the discipline to continue on the right path, doing the right things with patience over time until all that hard work pays off. That pay off can appear to be a rapid improvement causing others to find the shortcut to have the same result. He determined that any organization that went for the fast, easy result (a silver bullet) may have a temporary boost, but only those who do the right thing, with discipline over time, truly become great. The right things for a nonprofit include:
- Build and maintain a great board,
- Hire and develop a quality staff,
- Stay focused on the mission and the future direction of the organization,
- Identify and work with your partners, who are not in this alone, nor will you survive alone, and
- Dedicate your efforts to increase sustainable income through effective earned income strategies and through the long-term cultivation of committed individual donors.
We are here, we are with you, and we know you can succeed. I’d like to close with some simple thoughts for tough times:
- Focus on individual giving since history shows that it is far more consistent during tough times than institutional giving from foundations or corporations;
- Maintain a positive focus on results and the future, not on the loss and the fear of scarcity;
- Resolve to prioritize efforts to do the best you can with what you have, and not waste time on what you cannot control, like the economy;
- Determine what functions demand perfection and perform as required, and then do the best possible job on the functions that are less critical.
Best wishes to you, your staff, your board and your families during this holiday season.