United Way Fights to Stay Abreast in Changing Fund-Raising Climate

Over the decades, the United Way system has weathered all sorts of difficulties,

from recessions that have squeezed giving to a financial scandal involving the federation’s top leader that caused donations to plunge.

But now, United Ways face perhaps their most daunting challenge ever.

The rise of Internet fund raising, which allows donors to direct their gifts to virtually any charity at the push of a button, leaves many observers wondering about the need for a complex system like United Way to channel money to charities.

What’s more, changes in employment patterns have undermined United Way’s traditional base of support in on-the-job giving campaigns. Thousands of jobs at big companies have disappeared through mergers, downsizing, and globalization. At the same time, many loyal rank-and-file donors have joined small companies, where United Way officials say it is expensive and cumbersome to raise money.

Such changes are forcing United Ways to turn increasingly to donors who make relatively large gifts to keep their revenue growing. Annual gifts of $1,000 or more accounted for nearly a fourth of United Way’s 1998 campaign total, up from 13 percent five years earlier. What’s more, such gifts grew more than six times as fast as overall United Way contributions during those five years.

Despite the growth in big gifts, however, overall giving to United Ways has remained flat over the past decade, after adjusting for inflation. Some of that weakness is the result of donors’ reaction to a financial scandal in 1992, when William Aramony was forced to resign as president of United Way of America, the umbrella organization for local United Ways. But many observers say that the seeds of United Way’s challenges were taking root long before Mr. Aramony’s downfall.

One such challenge stems from the rapid growth in the number of charities — and charitable programs — in recent years. At last count, more than 776,000 charities and foundations were registered with the Internal Revenue Service in the United States. That growth has created unprecedented fund-raising competition for United Ways and spawned thousands of new social-service programs that vie for support.

As a result, many United Ways are becoming far more strategic in their distribution of money.

“In an era when the number of non-profits is growing at 20,000 or 30,000 a year, no organization can be an umbrella” covering every request for charitable dollars, says Irv Katz, a United Way of America vice president. “United Way will inevitably be ineffective if it attempts to serve too broad a range of issues and needs.”

As United Ways narrow their sights, United Way dollars are making up a smaller slice of revenue at many charities. Observers say that trend already is eroding the traditional ties that have bound United Ways, charities, and local employers to one another.

As one sign of that, more and more charities are reducing their dependency on United Ways by forming their own relationships with corporations, not only by going directly to companies for contributions but also by cultivating joint marketing deals with them. In such deals, a corporation may, for example, pay royalties to a charity for the use of its name on a product.

As such deals grow, experts say, companies may become more and more connected to individual charities that serve their business goals and less connected to United Ways, whose on-the-job fund-raising efforts may enhance a company’s public image but provide less direct marketing benefit to the company.

“It’s a domino effect,” says Eleanor L. Brilliant, a Rutgers University professor and author of a book on United Way. “The corporation has an independent relationship with individual charities, and therefore United Way also becomes less significant as a means of corporate contact for those same charities.”

Besides the growth of competing marketing deals, United Ways also face changes in employment patterns at companies where they raise money.

Southern California provides an example. The United Way of Greater Los Angeles raised $85-million in its 1989-90 campaign, but the amount subsequently plummeted, to $57-million in 1994-95, as thousands of jobs were lost in the aerospace and banking industries. “Our traditional donor base just kind of disappeared,” says Todd Rosin, a spokesman for the United Way.

Contributions to the Los Angeles United Way have since risen, to about $62-million in 1998-99. The increase is due partly to the United Way’s recent success at raising money among employees of small, entrepreneurial, minority-owned businesses, Mr. Rosin says. But, he says, most of the increase stems from growth in the number of donors making significant gifts to the United Way. Of the organization’s 330,000 donors last year, he says, about 3,000 gave more than $1,000. The 271 biggest donors gave a total of $9.3-million.

At the same time that the nation’s employment patterns are shifting, many companies are allowing workers an unprecedented degree of freedom to choose where to direct their on-the-job charitable giving. Many of those dollars are flowing to charities outside the United Way system.

Employees of the IBM Corporation, for example, donated $24.5-million in the company’s on-the-job campaign last year, and as much as 30 percent of that money was earmarked for non-United Way recipients.

Likewise, at Sears, Roebuck & Company, 47 percent of the charitable dollars collected in 1998 went to charities that were outside the United Way system. And among government employees who participate in the annual Combined Federal Campaign, the portion of charitable donations that was earmarked for United Ways fell from 37 percent of total donations in 1989 to 28 percent in 1998.

The tendency of American workers to channel their charitable dollars away from United Way is likely to grow with the rise of Internet fund raising and other technological advances. That trend points to a question that is raised by many observers, including Ms. Brilliant of Rutgers.

“The issue,” she says, “is, What do you need United Way for if you can channel money directly?”

She and many others say the ultimate answer to that question depends on how well United Way carves out a new niche in the emerging economy and plays a part in setting the human-service agenda in local communities.

Betty Beene, president of United Way of America, says she is confident that United Way will be a player in the new technological era. The federation, Ms. Beene says, is working with United Way of Canada and United Way International on ways to put the Internet to better use within the United Way system, though she declines to discuss the details of such a strategy.

As for the influx of competing charities, Ms. Beene acknowledges that it is a concern. “The rate of giving in this country is not growing commensurate with new entrants to the non-profit sector,” she says. “More of us are fishing in the same pot.”

As the number of charities grows, the United Way’s focus will be on collaboration and accountability, Ms. Beene says.

“As stewards of the quality of care in a community,” she says, “it’s incumbent upon us to try to make sense of this explosion of organizations and try to create a system that effects real change.”