Giving Slowly Rebounds

Big charities cautiously optimistic as donations rise 2.3%

This article was reported by Holly Hall, Leah Kerkman, Cassie J. Moore, Nicole Wallace, and Brad Wolverton.

Giving to the nation’s 400 most-successful fund-raising groups rose by a

total of 2.3 percent last year, a sign that charities are beginning to see a recovery from 2002, when the organizations on The Chronicle’s annual Philanthropy 400 suffered a loss of 1.2 percent.

Many charities are also expecting healthy returns in 2004. Seventy-four charities that provided figures for their contributions in the 2004 fiscal year projected a median increase in contributions of 5.8 percent by year’s end, meaning that half expected to fare better and half expected to do worse.

But even though the overall picture for 2004 and beyond seems to be improving, fund raisers see worrisome signs. Many organizations are still not raising as much as they did in the late 1990s and 2000, when many large groups regularly achieved double-digit percentage increases.

As charities head into the two busiest fund-raising months of the year, with the holidays and the end of the tax year motivating many donors, fund raisers say trends that are mostly out of their control could cause another slowdown in giving. Among them: the forthcoming presidential election, stock-market fluctuations, the war in Iraq, the possibility of a terrorist attack, and growing Congressional scrutiny of charities, which has already led to new legislative restrictions on certain types of donations.

Those threats make fund raising for the nation’s biggest charities “like a piece of Waterford glass: It is well crafted, but it could break at the slightest drop,” says Karen Dempsey, director of development at the international relief group, Brother’s Brother Foundation (No. 101). Donations to her charity dropped by nearly 20 percent last year, but she says she sees signs of a turnaround for 2004.

The Salvation Army, which raised $1.3-billion last year, took the top spot on the Philanthropy 400, which ranks charities according to how much they raise from private sources. Last year’s Philanthropy 400 rankings were the only year in which the Salvation Army did not appear in the No. 1 position; it was knocked out by the American Red Cross, which raised more than $1-billion in its 2002 fiscal year for recovery efforts after the September 11, 2001, attacks. In this year’s survey, the Red Cross fell to the No. 8 spot, with $587.5-million. The Salvation Army can probably expect to keep its top spot in the future: In January, the charity announced a $1.5-billion bequest from Joan Kroc, the heiress to the McDonald’s fortune.

The American Cancer Society, which raised $794-million, rose to No. 2 in this year’s rankings, up from No. 4, in part because it has placed new emphasis on attracting big gifts and is hiring dozens of new fund raisers. Rounding out the Top 10 list were Gifts in Kind International (No. 3), the YMCA (No. 4), Lutheran Services in America (No. 5), the AmeriCares Foundation (No. 6), the Fidelity Charitable Gift Fund (No. 7), Feed the Children (No. 9), and Harvard University (No. 10).

$47.1-Billion Raised

Aggregate donations to the 400 charities in the survey totaled $47.1-billion last year, which means the nation’s biggest charities raised nearly $1 out of every $5 contributed to the nation’s more than 850,000 charities last year. Nationwide, charities raised $240.7-billion last year, according to “Giving USA,” an annual estimate of philanthropic giving compiled by the American Association of Fundraising Counsel, in Glenview, Ill.

The Chronicle calculated the percentage gain among the Philanthropy 400 in a way that was designed to avoid giving undue emphasis to the extraordinary fluctuations caused by donations made in the wake of the 2001 terrorist attacks.

Besides the Red Cross, the New York Community Trust and the United Way of New York City were also big beneficiaries of September 11 donations. In the 2002 fiscal year, the trust received more than $137.8-million, largely in September 11 donations, and the United Way received more than $500-million in September 11 gifts. To avoid giving disproportionate weight to the three organizations’ drop in donations in the 2003 fiscal year, the groups were removed from the calculations for 2002 and 2003. The Philanthropy 400 then showed a 2.3-percent gain in private support last year, after an adjusted drop of 5.5 percent in 2002. If the three groups’ figures had been included with the 397 other charities in the survey, the percentage increase would have been just 0.6 percent last year.

Trying New Approaches

Many of the charities on the Philanthropy 400 are moving fast to restructure operations and change their approaches to improve fund-raising returns.

Numerous groups expanded their fund-raising staffs so they could become more aggressive in seeking big gifts of cash or stock, as well as bequests and other planned gifts. Others concentrated on training fund raisers to solicit donors for other less-common gifts, such as real estate, stock in family-owned businesses, or intellectual property. And some organizations stepped up their efforts to seek donations from people they had not previously focused on, such as wealthy women and baby boomers.

Many religious organizations are especially interested in doing more to solicit planned gifts, says Paul Nelson, president of the Evangelical Council for Financial Accountability, a Winchester, Va., organization that represents 1,135 religious charities, including many groups on the Philanthropy 400. One reason, says Mr. Nelson, is that about 40 percent of the members of his organization are still not raising as much as they did before September 11 and the economic downturn; the other 60 percent have recovered, reporting that contributions have returned to what they were before the slowdown.

Wycliffe Bible Translators (No. 120), in Orlando, Fla., whose donations dropped 6.7 percent last year, created the Wycliffe Foundation, a separate tax-exempt organization, to pursue planned gifts and has hired 20 new staff members to manage the planned-giving solicitations formerly handled by the charity’s stewardship department.

Pointing to the expected wealth transfer of trillions of dollars as the World War II generation dies, Tom Van Gorkom, director of field programs, says “we felt we could begin to realize a portion of the wealth that a generation worked hard to achieve and wants to use in leaving a legacy. We were not doing an adequate job by keeping planned giving in a small section of our development office.”

Hiring Fund Raisers

In addition to planned gifts, many organizations are spending large sums to pursue big cash gifts. The American Cancer Society hired more than 50 fund raisers last year to obtain gifts of $100,000 or more and expects to add another 120 over the next three years in a push to raise bigger gifts, says Rob Mitchell, the Atlanta organization’s chief development officer.

At Children’s Memorial Hospital (No. 231), in Chicago, donations rose 55.2 percent to $55.9-million last year, in large part, say officials there, because of the addition of fund raisers who specialize in winning big donations.

“There is no question that the payoff is phenomenal when you increase the size of your major-gifts staff,” says Thomas J. Sullivan, president of the hospital’s fund-raising arm.

Over the last three years, KCET/Community Television of Southern California (No. 284) has hired 14 additional fund raisers, including four who specialize in big gifts and another person who focuses on ways to build ties to people who have given the station large sums.

A board member made a gift of $1.3-million to pay for the new fund raisers’ first year on the job and to enable the development office to make other improvements, such as upgrading its computer hardware and software.

Last year, giving to the station rose 8.6 percent, to $46.5-million.

Public-broadcasting stations have only recently started to focus on seeking big gifts, rather than placing most of their energy on pledge drives and the relatively small amounts they bring in from each viewer or listener, says Roger Workman, KCET’s chief fund raiser. “It takes a lot less effort to get a $1,500 gift or a $25,000 gift from somebody who likes you than to send out 100,000 letters asking for $40,” he says.

Real Estate and Patents

As the competition for big gifts of cash and planned gifts intensified last year, some charities put more emphasis on other types of donations, such as real estate, gifts of closely held stock in family businesses, and copyrights, patents, and other forms of intellectual property.

At the Nature Conservancy (No. 15), contributions have remained “fairly flat” since 2001, fund raisers say, with the exception of a large gift of property in 2002.

The organization, based in Arlington, Va., has always relied heavily on gifts of land, but it has also started to look for other types of donations and last year trained 150 fund raisers to become more aware of the potential for other types of gifts among donors they solicit. “Only about 10 percent of what people have to give is cash,” says David Whitehead, the organization’s director of philanthropy.

Nature Conservancy fund raisers were taught to identify donors in the process of selling a business, for example, who might be interested in working with them to structure the sale in a way that would both help the charity and enable the donor to obtain significant tax savings and other financial benefits.

In Los Angeles, the California Community Foundation (No. 290) found that one way to deal with a tough local economy was to encourage financial planners and other advisers to the wealthy to make their clients aware of benefits associated with gifts of real estate or stocks in closely held businesses.

The foundation has raised $25-million from real-estate gifts in the past four years. Even with such gifts, the foundation still suffered a 36.3-percent decrease in contributions, to $45-million, last year.

Tax Laws

Changes in the tax laws, or the prospect of change, are making a big difference at some organizations.

The National Institute for Strategic Technology Acquisition and Commercialization (No. 107), in Manhattan, Kan., which accepts donations of patents and other intellectual property from large companies and uses the related technologies to develop businesses in rural areas, received $124.4-million worth of intellectual-property donations last year, a 53.5-percent jump over 2002.

Officials at the institute say 2003 was a bountiful year because many business leaders knew that Congress was considering reducing the tax write-off that companies can take for intellectual-property gifts, and they wanted to make their donations before new limits took effect.

Congress did pass such a measure this month. While in the past, corporations and other donors could always deduct the fair market value of patents or other intellectual property donated to charity, now they can only do so if that sum is less than the amount it cost to develop the intellectual property. If the fair market value is more, the donors can only write off the development costs. Lawmakers said they were concerned that corporations and other donors inflated the market value under the old system.

The bill also limits deductions that donors can take when they give cars and other vehicles to charity.

Many fund raisers at nonprofit groups say they are concerned about the new legislation and the possibility that next year Congress will place additional restrictions on gifts of intellectual property, as well as new restrictions on other types of noncash gifts such as real estate.

“Our donors have a lot of different assets, and we want to help convert them into philanthropic gifts,” says Sterling Speirn, president of the Peninsula Community Foundation (No. 125), in San Mateo, Calif., which raised $107.6-million last year, a 22.9-percent increase fueled by an upswing in real-estate gifts. “We want to be clean with the IRS and attorneys general,” says Mr. Speirn, “but we also want to protect the ability of our clients to give nontraditional assets.”

Donations of Securities

Donations of stock have been on the rebound at some charities, compared with the loss of such gifts that came after the stock market began to decline in 2000. But the ups and downs of the market are still causing fund-raising difficulties for many organizations, in particular for the six organizations on the Philanthropy 400 whose sole purpose is to offer donor-advised funds, which are very often started with donations of stock. Six charities created by financial companies are on this year’s list, including the Fidelity Charitable Gift Fund. With its 15.9-percent decline in contributions last year, Fidelity slid to No. 7 from its No. 5 ranking in the 2003 Philanthropy 400.

Another of the organizations, the Schwab Fund for Charitable Giving (No. 192), saw donations last year fall by 31.3 percent, to $71.7-million, in large part because of concerns about the stock market.

“Donors have been spooked by how their investments have performed in recent years,” says Kimberly Wright-Violich, president of the Schwab Fund.

In hopes of attracting more contributions, Schwab has started offering a new type of fund that allows donors to manage the assets in their fund themselves. In most donor-advised funds, the financial companies manage the money and administrative paperwork, while donors get a tax break for their gifts and help direct their money to the charities they want to support.

Role of Big Contributors

Last year continued a trend in which fewer and fewer donors are providing most of the contributions to many big organizations.

“The old 80-20 rule is ancient history,” says Allen Peckham, chief development officer at Partners HealthCare System (No. 82), in Boston, referring to the fund-raising principle that 80 percent of a charity’s donations come from 20 percent of its donors. At Partners, a single $25-million bequest in 2002 helped explain the institution’s 10-percent dip in contributions to $153.7-million last year. “A very small percentage — perhaps as small as 5 percent — of our donors now contribute the vast majority of our money,” Mr. Peckham says.

That was true last year for arts groups in San Francisco, where a wealthy donor was single-handedly responsible for high double-digit increases in private support. The San Francisco Opera Association (No. 240), the San Francisco Symphony (No. 288), and the San Francisco Museum of Modern Art (No. 387) each saw their 2003 contributions rise by more than 50 percent as a result of multimillion-dollar bequests made by Phyllis Wattis, a well-known arts patron who died in 2002.

Seeking Female Donors

Some charities in the Philanthropy 400 have made efforts to reach out to donors who weren’t previously a main target of their solicitations, such as women or young people.

Donations to the American Heart Association (No. 21), in Dallas, rose 4.3 percent in 2004 to $401-million — after a 12.1-percent decline last year — in part because of a new program it created to encourage women to give.

The heart association’s “Go Red for Women” campaign, which educates women about their risk of heart disease, raised more than $10-million in the 2004 fiscal year by getting companies to encourage female employees to give money to the campaign and to donate a portion of the sales price for women’s clothing and other products to the campaign. “We definitely feel like women are our greatest constituents,” says Suzie Upton, executive vice president for development. “They’re our greatest donors and volunteers.”

An annual lunch for women created four years ago has helped Children’s Hospital Boston (No. 227) increase donations by 20 percent this year, after a 30.1-percent drop in donations to $56.8-million in 2003. The “Women in Medicine” event, as it is called, features female scientists and physicians, who speak to potential donors about important medical issues facing women. Attracting 400 women every spring, the luncheon has been instrumental in persuading several women to make large gifts of more than $100,000, according to Janet Cady, the hospital’s chief fund raiser. “When you look around and see 400 other women, there’s power in that,” she says.

For organizations that depend on direct-mail appeals, the aging of the population has been a growing concern. Many elderly donors who have been most generous in response to mailings are passing away, and charities are finding that younger people are not as likely to give through the mail.

Last summer, the Salvation Army conducted focus groups with people age 35 to 45, to learn more about their attitudes toward giving. Participants said they wanted to support local charities that are making a difference in their communities and that, in many cases, their first point of contact with those groups is through volunteering or special fund-raising events, says Maj. George Hood, national community-relations secretary of the Salvation Army. He says he now believes that charities seeking to attract younger donors will have to start to think differently about events.

“Special events are labor-intensive for very little return on the investment, but I think we have to start looking at it the same way as you do with donor acquisition through the mail,” says Major Hood. “You lose money on the first gift.”

Regional Economies

No matter how they did in 2003, many of the charities among the Philanthropy 400 are hoping to end 2004 with a healthy increase, but a fund-raising recovery remains stubbornly elusive for some.

For example, the big losses at technology businesses continue to cause trouble for the Community Foundation Silicon Valley, in San Jose, Calif., which raised $37.6-million last year. The foundation dropped to No. 358 on the Philanthropy 400, down from No. 206 on the 2003 list and No. 55 in 2002.

The health of regional economies has also played a key role for the 300 local human-services organizations that make up Lutheran Services in America (No. 5), says Jill Schumann, the charity’s chief executive officer.

“It’s very uneven,” Ms. Schumann says. “Some organizations are reporting that they’re able to tap into reliable, productive fund-raising streams. Others really have very dry wells.”

GROUPS WHOSE NON-CASH GIFTS ACCOUNTED FOR MORE THAN HALF OF DONATIONS

CAUSES AND THE SUPPORT THEY GARNERED