Fund Raisers Urge Lawmakers Not to Make Changes in Charity Write-Offs

The improved economy has made it easier for charities to bring in large sums, but new regulations Congress has been considering could put a big damper on fund raising, said many of the more than 4,000 people gathered here last week for the annual meeting of the Association of Fundraising Professionals.

Preliminary results of a poll of 345 fund raisers released here found that 72 percent of American fund raisers expect to raise more this year than in 2004. And 65 percent of fund raisers said they had made gains in 2004, the largest percentage in the four years that the association has conducted the survey.

But fund raisers here said they were worried about the effects of possible changes lawmakers will make. At the opening session of the conference, Paulette Maehara, the association’s president, said she was dismayed that some lawmakers had referred to charities as “tax shelters.”

The meeting was held just as the Senate Finance Committee was holding a hearing on ways to crack down on charities and donors who take inflated deductions for their charitable gifts and otherwise abuse the tax system.

Fund raisers said they were most concerned that lawmakers are considering proposals to limit the write-offs donors can take for gifts of land, art, food, and medicine, as well as other noncash gifts.

The association urged fund raisers to tell lawmakers they were opposed to new restrictions on charitable deductions. It used its exhibit hall here to set up a bank of telephones that connected directly to the Senate switchboard, and the group handed out lists of senators in every state, scripts, and other materials such as suggested letters that attendees could send to their Congressional representatives. Over two days, at least 500 calls to senators were made from the exhibit hall, the association said.

In addition to setting up the phone bank, the fund-raising association is forming a coalition of the chief executives of at least a dozen large, national nonprofit umbrella organizations, such as the American Association of Museums, to register their objections to some of the proposals the Senate is considering, said Walter Sczudlo, the fund-raising association’s general counsel.

Mr. Sczudlo said that members of his association believe the best way to deal with the problems in the nonprofit world is for the Internal Revenue Service to do more to punish people who violate tax laws.

The problems being cited by lawmakers, he said, involve the behavior of a relatively small number of donors.

“Instead of going after donors who abuse the tax deduction, they are going after charities by seeking to reduce or eliminate the tax incentives that sustain them. That’s like saying that just because people speed on highways, we are not going to issue tickets to speeders, we are going to close the highway.”

New research findings presented here offered a glimpse of the state of fund raising. The preliminary results of the poll of fund raisers found that not only had many charities fared well last year, but many of them achieved big increases. Forty-five percent said they raised at least 10 percent more than in 2003, with another 25 percent raising at least 20 percent more.

But not every organization has done well in fund raising recently. That became evident when fund raisers were asked whether the tsunamis in South Asia — and the outpouring of more than $1-billion in donations from people in the United States — had any impact on their fund-raising efforts.

Sixteen percent of American fund raisers said they believe the tsunamis had hurt their fund raising, while 37 percent of Canadian fund raisers said they saw a decline in gifts following the disaster.

While some charities had trouble competing for the attention of donors, more than 90 percent of the fund raisers in the United States and Canada said they did not expect the South Asia catastrophe to have a long-term affect on giving to their organizations.

Capital campaigns have changed markedly in the past few years, but many charities have failed to take those changes into account in planning their fund-raising drives, said Sonya Campion, a Seattle fund-raising consultant.

More and more charities are holding campaigns to raise $1-billion or more, she noted. With the expansion of fund-raising goals has come the need for charities to increase the number of new donors they tap for campaign gifts, said Ms. Campion. In several campaigns she has worked on, she said, new donors have accounted for 50 to 60 percent of all contributors. In one nearly completed drive for a social-service group, she added, 80 percent of the donors had never previously given to the charity.

As efforts to attract new donors succeed, Ms. Campion said, fund raisers do not necessarily focus as much on attracting six- or seven-figure gifts — which many groups have long done. Now campaigns are winning many more gifts in the $10,000 to $25,000 range.

Although many groups try to persuade donors to put their names on buildings and other facilities in exchange for big campaign gifts, Ms. Campion said, donors are less and less interested in that type of public recognition. But, she said, they still want a lot of attention from the charities they support. In one campaign for a hospital, she said, a wealthy donor declined to have a cancer ward named for himself or his loved ones. What he wanted, Ms. Campion said, was “a lifelong relation with the cancer ward, he wanted to be informed of new research and advances in oncology.”

Ms. Campion also says some charities are too careful and avoid contacting people who have already made a pledge to a campaign, when in many cases such donors would like to hear from the organization again. She says she was annoyed when one charity never got in touch with her after she made a three-year pledge to its campaign.

“Finally I called them, and they told me that I was on a do-not-disturb list,” she recalled. “They thought they were doing me a favor by not contacting me until my pledge was paid.”

Another change in capital campaigns: Few drives now rely on a single campaign chairman, a volunteer who makes a big gift to start the campaign and then solicits others. Such volunteer leaders have been replaced by multiple leaders or committees, each with specific goals.

In an extreme example, a campaign by an art museum that raised $23-million five years ago had 13 committees, Ms. Campion said. She said one reason for the success of the campaign was that fund raisers encouraged the committees to compete to see which one could raise the most.

People who make campaign contributions, said Ms. Campion, have become more skeptical in recent years. Increasingly, she said, donors are making “tester gifts,” a relatively small initial contribution that is sometimes followed by additional campaign gifts. “Fewer people want to sign five-year pledges,” she said.

The age of the “mega bequest” has the potential to transform philanthropy, as demographic and economic conditions in the United States are leading to the greatest wealth transfer in the history of mankind, said Paul McFadden, chief development officer at Youngstown State University. Charities should not have too much trouble identifying donors who have the potential to make big bequests, he added, because “we already know who these legacy prospects are, as they have been giving for a long time.”

Mr. McFadden conducted a survey of the motivations of 33 people who have put gifts to charities in their wills. Those donors have promised a total of $2.6-million to charity after they die, and one additional donor’s will includes a bequest of $100-million. Mr. McFadden found that nearly 80 percent of the donors, who had included at least one nonprofit organization in their estate plans, had given annually to some nonprofit groups for 10 or more years.

The man who planned the $100-million bequest, which was to go to a single charity, said that he had not informed the would-be recipient organization because he may yet change his mind.

“Stewardship is absolutely critical,” Mr. McFadden said, noting how much might be riding on the misspelling of a longtime donor’s name in a charity’s newsletter, or forgetting to shake his or her hand at an event.

The survey also found that half of the respondents never had a face-to-face meeting or even a phone conversation with someone from the charity to discuss the possibility of a bequest. Mr. McFadden urged charities to find ways to subtly remind donors to think about charities in planning their estates, such as including in their newsletters testimonials from people who have already put the nonprofit group in their wills.

Some 70 percent of Americans have not written a will, and major life events — marriages, divorces, births — are often what sparks someone to do so. With that in mind, Mr. McFadden said, it is important to begin pitching the idea of a bequest to people age 40 or younger, “so that when they get married or have that new child and are writing up their wills, they may say they want to include your nonprofit in their estate plans.”

The survey also found that many people who included a charity in their estate plans continued to give to the organization annually. Indeed, some 40 percent of donors who had put charities in their will said they began giving more to the groups once they had made that decision.

Drawing from his own experience in soliciting bequests for Youngstown State, Mr. McFadden said fund raisers should share their personal estate plans with potential donors. Though acknowledging that his finances and family status curtail his ability to promise a substantial gift after he dies, he lets bequest candidates know the specifics of how Youngstown University and other charities figure in his personal will. “It begins with us,” Mr. McFadden said.

When Joan Kroc, the widow of the founder of McDonald’s restaurants, Ray Kroc, died in 2003, she left the Salvation Army $1.5-billion — one of the largest charitable bequests in history. Robert Sharpe, a fund-raising consultant, said that kind of gift serves as a reminder of the powerful philanthropic force widows can be.

Mr. Sharpe said charities should “back off” from approaching women who were recently widowed, and outside of sending a letter of condolence they should avoid any solicitations for two or three years and should not even mention any pledges their husbands had yet to pay off. Widows, Mr. Sharpe noted, need not only grieving time, but also time to adjust to handling their own finances, perhaps for the first time.

During the time when a widow might not be giving a lot, charities can continue to cultivate her. For instance, he suggested finding ways to honor longevity of giving, such as by listing donors who have given consistently for 10 or even 25 years in a “silver circle” or other such honorific. “Recognize the culmination of giving, so when a widow opens an annual report she feels like a major donor, even if she’s not giving at the same level she did before,” Mr. Sharpe said.

Widows who have been longtime donors — or whose husbands gave a lot — should continue to be invited to special events held by a charity, regardless of how much they give now. Widows might be on the cusp of making an “ultimate gift,” Mr. Sharpe said, even though a charity might not have heard much from the women or seen any significant gifts.

Large organizations might want to designate a “director of widow relations,” possibly as a rotating position, to help manage memorial gifts, keep in contact with estate-planning advisers, and find ways to be sensitive to what kind of financial questions widows might have.

When executive directors leave charities, fund raisers are in a key position to steer their organizations through the challenges organizations face during leadership transitions, said John Kivimaki and Scott Smith of the Stonehill Group, a consulting firm in Longmont, Colo.

Based on their experience in helping more than 30 charities through departures of top leaders, Mr. Kivimaki and Mr. Smith said that too many organizations make the mistake of putting fund-raising and other important projects on hold until a new leader is appointed, a practice they say dooms charities to financial shortfalls and months — or longer — of stagnation.

Instead, they said, nonprofit groups should step up fund raising during a leadership change, as well as efforts to reassure donors about the future direction of their organizations. While those tasks can be difficult, especially if a leader departs on hostile terms or is accused of wrongdoing, Mr. Kivimaki and Mr. Smith said, charities that fare the best are those that take an aggressive role in both fund raising and communications.

Unlike other charity officials, fund raisers understand both the internal politics of their organization as well as its external relationships with donors and other important constituents, they noted. That puts them in a good position to persuade board members and other leaders of the need for increased fund-raising and communication efforts during a leadership change.

If the charity is reeling from a leader’s departure and uncertain of its future course, Mr. Smith said, it can still reassure donors by telling them that the group’s mission is unchanged and outlining concrete steps it is taking to handle the issue while ensuring the organization’s health. “When you don’t know the answer,” said Mr. Smith, “switch to the process of how you’ll move toward finding out. Ask for their input.”

The difficulties posed by leadership transitions are likely to intensify for charities in coming years because many people in the field are reaching retirement age. Even though the average tenure for nonprofit executive directors is four years, Mr. Smith said, few charities have any plan to guide their organizations through a leadership change. He advised fund raisers to download a free publication, “Capturing the Power of Leadership Change,” which was released last year by the Annie E. Casey Foundation at http://www.aecf.org/publications/data/etm.pdf.

Without a succession plan, boards and staff are unprepared and frequently “go into denial or panic,” said Mr. Kivimaki. Meanwhile, donors become confused or uncertain about the organization’s future direction. Donors are like investors in the stock market, Mr. Kivimaki said. “With confusion and uncertainty, their wallets close.”