Cloudy Forecasts: Fundraising Predictions Face Challenges

Pressmaster/shutterstock

Pressmaster/shutterstock

Predictions about charitable giving, such as the “Philanthropy Outlook” released last week by the Lilly Family School of Philanthropy at Indiana University, are eagerly anticipated and widely read.

But they are increasingly limited in forecasting what will actually happen to charitable giving in the coming year and beyond, fundraising experts say. What’s more, predictions about American giving are often wrong. The tax reforms of 2017 were supposed to diminish contributions starting last year, but Inside Philanthropy found that after a sluggish beginning in 2018, giving grew at a faster clip in the third quarter, with many charities reporting a banner fundraising year. All of the charities interviewed reported zero effects of tax reform—at least not in 2018. 

Researchers at the Lilly School were among those who predicted that changes in tax law would dampen charitable giving—by up to $13 billion annually, according to a May 2017 report. But the school’s recent “Philanthropy Outlook” report predicts that giving will instead rise both this year and next.

The effects of tax reform remain to be seen as taxpayers prepare their first returns under the new system and learn of impacts that could influence giving this year and beyond. Unfortunately, the tax changes will further obscure analysts’ ability to quantify what’s really happening in American philanthropy, says Robert Sharpe, a Memphis consultant to nonprofit organizations nationwide.

That’s because the 30 percent of Americans who itemize donations on their annual tax returns have historically accounted for about 80 percent of donations by living individuals reported by Indiana University in its annual Giving USA report. But now, a higher standard deduction will eliminate many people’s ability to itemize and report their giving, and it’s therefore expected that only 15 percent of Americans will itemize charitable donations.

“Nobody has any idea, really, what Americans give,” says Sharpe. “Now, we’re losing much of the value of the best indicator [IRS data on giving by itemizers] we had for individual giving.”

While it’s expected that the 15 percent of Americans who still itemize their contributions will account for more than half of the donations made by living donors, Sharpe says, the tax changes limit the utility of the most comprehensive, fact-based barometer with which to gauge charitable giving trends. And, Sharpe adds, reports and predictions about giving will rely more heavily on econometric models, anecdotal evidence, and relatively narrow surveys of individuals and charities.

Changes in the tax law regarding estates will also make it harder to track giving, says Sharpe. With new higher tax thresholds, only one in 2,100 estates will pay estate taxes, now. “That means we lose IRS data on estates, as well,” he says. “There is currently no other reliable national repository of that information.”

Perhaps a bigger problem with predictions about charitable giving is that the Lilly Family School of Philanthropy uses reports from the Internal Revenue Service to adjust their estimates two years or more after making them. That’s another reason why early reports and predictions about charitable giving are of questionable value.

For example, nearly a decade ago, Giving USA reported that individual contributions declined just 2.7 percent and .4 percent in 2008 and 2009, respectively, during the Great Recession. But the Lilly Family School’s adjusted figures now show an 8.3 percent and 6.1 percent decline for those years—the worst decrease since the Great Depression. 

The earlier small declines were celebrated as a victory for philanthropy in the face of recession, while many charities struggled to understand why their fundraising totals lagged behind the national benchmark. In fact, according to inflation-adjusted totals reported by Giving USA last year, individual donations did not recover to pre-recession levels until 2016, nearly a decade after the official start of the financial crisis in late 2007.

Academics and other experts say they have strived to improve Giving USA reports and other predictions. For this year’s fundraising outlook, there was an effort to factor in public policies that affect giving such as tax reform. But even so, “the overall complexity of the mix of tax policy, economic climate, and other policies such as international trade and immigration are making things more difficult to predict,” says Phil Hills, president of Marts & Lundy, one of the consulting companies that sponsors Giving USA.

Instead of basing their fundraising plans on Giving USA and other predictions, nonprofits could get a more practical read on their situation by comparing fundraising results to those of similar organizations, Sharpe says. And they should pay close attention to their own operations. “Look at your own trends,” he says. “If you are not raising as much as you were, determine why and implement changes to fix it.”

Another way charities can enhance their fundraising, Sharpe says, is by paying attention to generational differences among donors. Much ado has been made about engaging millennials, but the largest outright gifts are coming from donors over the age of 60, he says.

Data published by the IRS show that more than 60 percent of all itemized donations in 2016 came from people over 55. Further, some 8.4 million people over age 65, who accounted for just 3 percent of the adult population, itemized donations that amounted to nearly 30 percent of the total that individuals gave that year, says Sharpe. The share of gifts from those over 65 would only grow, he adds, if donations by older people who don’t itemize could be counted.

Some older organizations are hampered by the fact that they’re still trying to raise money the way they did with donors in the Silent and World War II generations, which are quickly being replaced by baby boomers, Sharpe says.

“Stop relaying on fundraising methodologies that worked with the GI generation,” he says. “Match your fundraising approaches to each of the younger generations.”