The economy?s affect on charitable giving

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Problem Statement

As a professional fundraiser, I find the challenges associated with my field an incredibly interesting topic. There are numerous inherent challenges: competition with other non-profit organizations for the same donors; alumni/donor indifference; engaging donors in the university; economic difficulties; leadership changes at the institution; etc. I have previously examined how leadership change affected charitable giving at DePaul University. I now wish to examine how economic instability affects charitable giving from alumni, friends, corporations, and foundations to DePaul University.

Given the recent and ongoing downward trend of the economy, this subject is one that non-profit organizations are monitoring closely. The fluctuation of the stock market affects institutions in two main ways: first, if the institution has an endowment, it will see the value of that endowment rise and fall with the upward and downward trends of the Dow Jones, S&P 500, and the NASDAQ. Second, donorsbe they foundations, alumni, or friendswith significant investments may be hesitant to make a major contribution to a non-profit given the constant up and down of their stock portfolio.

The independent variable in this research project is economic instability and the dependent variable is charitable giving. Economic instability, for the purpose of this research project, is defined as a measurable decline in the three main stock markets in the United States: the Dow Jones; S&P 500; and NASDAQ. Additionally, unemployment figures will be taken into account when determining a period of economic instability, or recession. The indicators of economic instability that will guide this research will be unemployment figures (both national and state); Dow Jones Industrial Average, S&P 500, and NASDAQ index variations over a period of five years. Charitable giving is defined, for this purpose, as making a contribution to DePaul University, in the form of monies, stocks, or annuities, to support any of the university's schools, colleges, initiatives, buildings, or programs. The time period being analyzed is fiscal years 2007-2009 (July 1-June 30).

This research project defines the university as encompassing each of its campuses, schools and colleges, and programs. Alumni of the university are individuals who received a Bachelor's, Master's, Juris Doctor, Doctorate, LL.M., or other terminal degree. Friends of the university are defined as individuals not linked to the university by a degree but who have made a charitable contribution to any of the university's schools, colleges, initiatives, or programs in the past or presently do so. Corporations are defined as a commercial organization that has donated or donates funds to the university. A foundation is defined as a private foundation listed as a 501 c 3 that has a charitable giving mission and has donated or donates to the university.

The hypothesis guiding this research project is: If there is economic instability, then charitable giving from alumni, friends, corporations, and foundations to DePaul University will be negatively affected. To simplify, an economic downturn will result in decreased charitable donations to DePaul University.

Literature Review

The literature on fund-raising challenges is typically found in industry journals, magazines or newspapers. While fund-raising successes of various non-profit organizations, especially higher education institutions and museums, can be found in everyday newspapers and magazines such as the Chicago Tribune or Crain's Chicago Business, there is often little detail or context to fully understand how or why a particular initiative succeeded. The articles often simply state the facts- dollars raised, largest gifts, etc.

Similarly, when there is something affecting several non-profit organizations, such as an economic boom or economic instability, daily newspapers carry stories detailing how these organizations are affected, whether positively or negatively. A recent article in the Chronicle of Higher Education noted that "in the past 12 months, the amount of money raised by a dozen of the colleges engaged in higher education's biggest fund-raising campaigns fell 32 percent from the year before" (Masterson, et.al. A1: 2009). USA Today ran a story in October 2006 stating that "stock market performance has been closely correlated with charitable giving" (Block 1B: 2006). The article further declares that "charitable giving rose sharply in the '90s, then dropped off as the market sank" (Block 1B: 2006). As noted in John Pulley's article in the Chronicle of Higher Education, during the late '90s, "colleges achieved ambitious campaign goals ahead of schedule, raised those goals, and then raised them yet again" (Pulley A29: 2003). However, "the best of times collapsed into the worst the bursting stock-market bubble news that the economy was in recession" (Pulley A29: 2003) followed quickly.

Periods of recession, stock market losses, and other conflicts on a national or international scale make a fund-raising far more challenging than it typically is. Research has been conducted at the Center on Philanthropy at Indiana University, which notes that "a typical recession causes charitable giving to decline between 1 and 3 percent" (Fagan A01: 2008). Patrick Rooney, director of Research at the Center on Philanthropy also notes that "anecdotal evidence from various groups shows that economic pressures from rising gas and food prices, tightening credit and lagging job growth are eroding peoples' philanthropic capabilities" (Fagan A01: 2008). People are more cautious when making donations while the economy is in a precarious position

As noted in the article "Giving to Colleges Reaches a Plateau", Audrey Williams June quotes Ann E. Kaplan as saying, "The economy has gotten better, but not to the point where people feel they are out of the woods in any sector" (June A25: 2004). Donors are often reluctant to commit to a significant gift due to the downturn of the stock market, or their perceived diminished capacity to make such a gift. Many fund-raisers like Vince A. Sales have heard something like "Let's see what happens in the stock market - try me again in six months" (Gose A29: 2003) from donors. Economic instability makes people nervous and unwilling to part with their money for fear of losing it all. This is a very real problem facing donors and universities alike.

Typically, the non-profit organizations that suffer the most during such periods of economic instability are small social service organizations. Colleges and universities tend to continue receiving contributions and they also "have fat endowments" (Pfeiffer C1: 2008) from which they can continue operating. This is a generalization; some universities, like Harvard, do have enormous endowments. Harvard University could theoretically stop collecting tuition and still never suffer financially. On the other hand, some universities have a need to grow their endowment. In a 2004 Tribune article, then recently elected president of DePaul University, Rev. Dennis Holtschneider, C.M., stated that "A university can't leap toward greatness without a strong endowment. To make great things happen you have to have a strong endowment" (Becker A1). A large endowment lessens the institution's dependence on tuition income.

However, "research shows that hefty gifts by wealthy benefactors to museums, hospitals, and universities continue during recessions" (Pfeiffer C1: 2008). The smaller organizations, which rely on contributions from middle-class donors, are more vulnerable. Maj. Hood of the Salvation Army noted that "used good donations are down as much as 20 percent while thrift store sales are up 2 or 3 percent" (Fagan A01: 2008). This fact demonstrates the decrease in contributions being made, along with the increase in services offered by the same organization.

Although it seems that some organizations are anticipating or have already experienced a decrease in their charitable donations, according to the Foundation Center, "the economic turmoil that has caused trouble for some foundation investments does not appear to have had any major effect on giving plans for this year" (Barton 18: 2008). The Chronicle of Philanthropy reported that the Foundation Center surveyed "1,240 foundations and examined year-end economic indicators" (Barton 18: 2008) from which it drew its conclusions. The large foundations that contribute the greatest amount of money to non-profit organizations and institutions are, in fact, likely to increase giving in 2008 (Barton 18: 2008). This is due to an increase in foundation assets.

Methodology

In researching how economic instability affects charitable giving at DePaul University, I plan to randomly sample from the population of donors that are present within the university's donor database. Each alumnus, friend, corporation, and foundation has a unique identification number in the database. These numbers follow no discernable pattern. I will analyze the giving records of random alumni, friends, corporations, and foundations, providing they have a consistent giving record over three fiscal years being examined. The level of their giving is insignificant; rather, I am looking, for example, to see if an individual who contributes $1,000 in the years 2004-2008 suddenly decreased his annual contribution to $500.

In analyzing the donor information, I will breakdown the giving monthly, tracking the amount of gifts that came in each month over the course of the three fiscal years. I will also track major gift (gift requests of $25,000 and above) solicitations and analyze the rate of major gifts received over the three-year period. I will utilize the various tools of the university's donor database, while maintaining the integrity and confidentiality of the records.

DePaul University has a donor database of well over 100,000 individuals and organizations. To ensure the records used as part of this project are selected randomly, standard sampling protocol is used to gather as many records as possible to represent a broad spectrum of donors to the university. The primary criteria for a donor record to be included in the project are as follows:

• The donor has made a gift in each of the three fiscal years (2007, 2008, 2009) that are part of this research project;
• The donor record is active- meaning, if the record is of an individual, he or she is alive or if it is of a corporation or foundation, it is not defunct;
• The donor may have had contact with an individual from the Office of Advancement; and
• The donor may have been solicited for a major gift.

Below are some of the categories into which I will separate the donors.

Average annual contribution to DePaul University

a) $1-99 b) $100-999 c) $1000-9999 d) $10,000-99,999 e) $100,000 or above

Where are the funds directed?
a) Restricted
b) Unrestricted
c) Endowment
d) Capital

Major gift prospect?
Yes
No

Decrease in giving during fiscal years 2007-2009
Yes
No

I believe this method of research design will prove to have been the most effective in understanding the effects of economic instability on charitable giving at DePaul University for a few reasons. First, I will be gathering quantifiable data and anecdotal information. Together, the information paints a more detailed picture of the reasons why people and organizations may feel the need to donate less to an organization during a period of economic instability. I want to understand beyond the numbers- to gain some small amount of insight into the motivations people have when making a gift to a non-profit institution and what factors may affect that choice.

Additionally, I plan to interview practicing fundraisers working at DePaul University to gain their perspective on the effects of the economy and how it relates to their success. I will design a similar survey for the fundraisers asking similar questions. A couple of the questions are below.

Over the past three years, of the solicitations that have been declined, what reason, if any, has been given for why a gift would not be made to DePaul University?
a) Stock market losses
b) Job loss
c) Mounting debt
d) Unexpected financial obligations
e) None of these
f) Other {please specify} _____________________________________________

Of your targeted solicitation amount for the most recently completed fiscal year, what percentage has been secured with a formal pledge?
a) 1 - 25%
b) 25 - 50%
c) 51 - 75%
d) 76 - 100%

To gather the necessary sample of donors,

Data Analysis

Findings

Conclusions

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