Moving Away From Donor Designation

As general funds drop, United Ways try to curb gifts to specific charities

Baltimore’s United Way raised $39-million in its 1998-99 campaign — more than it had ever collected before. But the 68 local health and human-services charities that the United Way supports annually didn’t benefit from the record fund-raising year.

The reason: One-third of the money collected last year was earmarked by donors for specific organizations, and thus did not go to the United Way’s general fund, which supports the 68 charities. With a smaller-than-ever proportion of donations for United Way officials and volunteers to distribute, the United Way was forced to trim the amount those groups received this year by 8 per cent.

Now Baltimore’s United Way is doing all it can to convince donors that earmarking money for specific charities and causes both within and outside the United Way network is not necessarily the best way to help the city’s neediest — and it is joining scores of other United Ways nationwide that are trying to get people to give to the organizations’ general funds rather than to channel their donations to particular groups.

While United Way of America doesn’t know how much of the $3.6-billion raised last year came with specific instructions from donors, it does estimate how much of the money given to local United Ways was earmarked for charities outside the United Way system: nearly $1 out of every $5. In 1990, 14 per cent of gifts went to charities not in the United Way network.

Officials at United Way of America, the umbrella organization for local United Ways, point out that even though the proportion of money given to the general funds at local United Ways has slipped, the total dollar amount of gifts given to United Way-affiliated charities has grown — from $2.7-billion in 1990 to $2.9-billion last year.

Some of that increase can be attributed to overall fund-raising gains — from $3.1-billion in 1990 to $3.6-billion last year. And some is probably due to donor choice, since many United Ways allow contributors to direct their gifts to specific United Way-supported charities. In any case, what is not considered in those figures is the loss of United Way-controlled dollars. Setting aside all earmarked gifts, many United Ways and their volunteers are collecting less and less discretionary money to allocate as they see fit.

No national data exist that count all kinds of donor-directed gifts, but a Chronicle analysis of 15 of the largest local United Ways reveals that more than one-quarter of the total amount of money they raised in 1998 came with donor instructions about where the money should go. And at some United Ways — including those in San Diego and Washington — donors earmarked more than three-quarters of last year’s campaign dollars.

The so-called donor-choice movement — which has been growing for more than a decade — has always been divisive among United Ways. It came about largely in response to competition from other fund-raising federations and demands from donors for more control over their money.

Now, nearly all 1,400 United Ways offer contributors more say in the allocation of their gifts. Some United Ways let donors decide what cause they want to support, such as helping kids or the elderly, and then United Way allots their gifts to appropriate charities in its network. Others permit donors to direct their gifts to any organization — inside or outside the United Way — that helps the needy, while some United Ways let donors earmark their gifts for any charity in their region or in the entire United States.

Some United Ways believe that providing donors with opportunities to earmark their gifts has been essential to preserving the organizations’ fund-raising success, and they have no plans to stop it or to turn their attention back to filling up their general funds. But many more are troubled by the shrinking share of United Way-controlled dollars. They say the change has significantly altered the traditional role of United Way, which was to gather volunteers to determine which health and human-service charities were playing essential roles and therefore deserved the biggest share of money raised through on-the-job campaigns.

In one case — at United Way of Santa Clara County, in San Jose, Cal. — the growing amount of money directed by donors contributed to the group’s near-bankruptcy. The organization, rather than cutting its support to local social-service groups as its pot of United Way-controlled money shrunk, kept giving those groups the same amount year after year, in hopes that donations to its general fund would increase. But the United Way eventually used up all of its reserves and spent itself into a crisis (The Chronicle, May 20).

Cleveland’s United Way has taken perhaps the boldest step so far to limit earmarking. Donors who want to give to charities other than the 140 affiliated with the local United Way are required to give at least $100 and to direct no more than half of their total gift to those other charities. The rest must go to the United Way’s general fund. During the 1998-99 campaign — the first time the new policy was in effect — the amount earmarked dropped by $500,000, or nearly 17 per cent, from the previous year.

Baltimore’s United Way is leaving its donor-choice policies untouched while it tries to pump up its Community Care Fund, which supports the 68 social-service organizations that faced cuts earlier this year.

“I don’t want to turn any donor off,” says Larry E. Walton, president of the United Way of Central Maryland, which supports organizations in the Baltimore area. “But at the same time, you have to be true to the mission of the United Way.”

To reinforce the importance of that mission to donors, his group has revamped its fund-raising campaign this year to emphasize the importance of the Community Care Fund. Its new promotional materials, including a new campaign video, are all about the work of the United Way and its affiliated organizations in the Baltimore area.

Perry Heath, executive director of United Way Services, in Richmond, Va., believes that such efforts to promote United Way’s general funds will be able to stem the tide of earmarked gifts.

“If you are going to open up choice for donors, you have to make sure they want to choose the United Way,” Mr. Heath says.

Since 1996, when his group started to make it easier for donors to direct their gifts to specific charities, the share of campaign money to Richmond’s Community Care Fund — the repository for donations controlled by United Way — has been declining. Last year it dropped by nearly 12 per cent compared with 1997’s campaign.

To respond to the trend, this year’s campaign promotions will demonstrate how dollars allocated by United Way help solve problems, says Mr. Heath. For example, in the past the charity may have touted the number of young people who participated in a United Way-supported tutoring program. This year’s materials will go much further, he says, and explain the purpose of the program and how many kids improved their grades as a result.

“We are not going to stand by and watch our Community Care Fund shrink,” Mr. Heath says. “It is all about aggressive marketing, selling what we do and what we can accomplish.”

Charities like the Daily Planet, which offers services to homeless people in Richmond, Va., are banking on their local United Ways’ new marketing plans. One of the 63 charities that receives money annually from United Way’s discretionary fund, the Daily Planet has seen its allocations shrink, by 9 per cent last year and by an additional 12 per cent this year.

The decrease in United Way dollars, along with the loss this year of a local-government grant, led the Daily Planet to cut its weekend services to the homeless.

James E. Price, the Daily Planet’s executive director, says that when he speaks at companies that are gearing up for their United Way campaigns, he tries to steer donors away from making their own decisions about where their gifts go.

“It’s important that people see that the United Way serves good programs with good track records,” he says. “If everything is based on designations, then maybe youth services are popular with donors one year and other agencies, like ours that serve the homeless, are left out.”

But if donor designations have caused charities like the Daily Planet to be left out, others are being hurt as a result of new efforts to limit donor choice.

For the past seven years, the North Coast Health Ministry, a non-profit medical clinic near Cleveland, has relied on getting about $40,000, or 20 per cent of its annual budget, from the local United Way. Because the clinic is not part of the United Way system, all of that money has come from donors who specifically earmarked all or part of their United Way gift for the clinic.

This year, however, after the Cleveland United Way restricted donor choice, only $23,000 reached the clinic through the United Way drive.

The clinic may be able to recoup some of its loss through a two-year grant program that Cleveland’s United Way is setting up to help charities hurt by the change in its donor-choice policy.

But officials at North Coast and at other charities say their concerns stretch beyond this year’s money loss.

“The United Way has access to the workplace like no other organization has, and it has a responsibility to the community, not just the United Way agencies, but the entire community,” says Lee E. Elmore, North Coast’s executive director.

K. Michael Benz, president of Cleveland’s United Way, says that he and his colleagues are continuing to work with officials at the North Coast Health Ministry and other agencies affected by the policy change. But, he says, “while the idea is not to hurt anybody, we must protect our core.”

San Diego’s United Way, which saw gifts to its fund for social-service groups plunge last year to $1.8-million — from $4.4-million in 1995 — also wants to protect its ability to allocate money. To do so, the group hopes to coax its donors to do what Cleveland requires of them: give at least half of their donation to United Way’s general fund — what San Diego calls its Community Impact Fund. This year, it is encouraging donors to make a so-called partnership gift — donating money to United Way in the same amount as any designations that are made.

Not every United Way is seeking to limit donor choice — no matter how big a chunk of donations is going outside the traditional United Way network.

At the United Way of the National Capital Area, in Washington, 8 of every 10 dollars raised are earmarked by donors for specific charities, many of which are outside the District of Columbia. As a result, the group has faced criticism over the way money has flowed from inner-city charities to suburban organizations.

But Brian Ferguson, a United Way spokesman, says that while the group tries to educate donors about its nine Community Service Funds — which distribute money to charities that serve the needy in Washington and neighboring regions — it feels strongly that it should encourage donors to give any way they choose.

“We believe that the donor is king,” says Mr. Ferguson.

Frank Melcher, executive vice-president of the United Way of the Bay Area, in San Francisco, says that his organization has no qualms about the fact that more than half of the $60-million it raised last fall was earmarked for particular causes or charities.

But, he says, he worries about the administrative costs of handling donor-directed gifts — about 15 cents for every dollar donated as compared with about 10 cents, on average, for undesignated gifts.

Last year, donors to the Bay Area United Way earmarked their gifts for roughly 10,000 charities around the country, with some donations as small as the minimum gift amount of $24. This year, the group has raised the minimum size of a designated gift to $48.

The change, according to Mr. Melcher, is not intended to dissuade donors from making their own choices. Instead, he says, he hopes it simply will discourage donors from spreading their donations too thinly among many different organizations.

Observers say they expect United Ways to continue to grapple with donor choice.

Kevin Ronnie of the National Committee for Responsive Philanthropy, a Washington group that promotes alternatives to United Way, says United Ways need to realize that they “can’t be everything to everyone.”

“If they want to be the workplace campaign,” he says, “they have to offer choice because that’s what people want. But, gosh darn it, if you offer choice, people will do it, and that comes at the expense of what the United Way also wants to be — the community caretaker.”

At the United Way of America, Dorothea Heiden, head of resource development, says that continually reviewing donor-choice policies and the impact they have on the way local United Ways do business is the best way for the groups to make sure they are doing what is best for charities in their regions.

“As with any business strategy, you put things on a teeter-totter — in this case with money going outside the system on one end and money going to the community funds on the other,” she says. “Each local United Way must decide for itself where it wants its teeter-totter to be.”