Local nonprofits face uncertain 2019

By Peter Osborne
Special to Delaware Business Times

Call it the Law of Unintended Consequences: The deep cuts the Delaware General Assembly imposed on nonprofits in 2017 have put those organizations in a better position to cope with the uncertainty of the new federal tax bill, concerns about a possible recession entering 2019, and the reality that the pie isn’t growing even though the need for critical services is.

“People were deeply impacted back in 2017 when statewide funding went away,” says Sheila Bravo, president of DANA, the Delaware Alliance for Nonprofit Advancement. A DANA survey found that nonprofits lost an estimated $25 million between state grants, contracts and grant-in-aid.

Delaware nonprofits “had to expand their donor bases, improve their websites and communications to donors, and do a better job stewarding their donors and sharing successes,” she said. “So, hopefully they’re a bit better prepared to deal with drops in government funding.”

The potential volatility in giving is keeping many nonprofit executives awake at night.

“Demands for service are high, and dollars remain tight. It’s very hard to know what to expect in the economy next year, and that makes planning exceedingly difficult,” said Delaware Community Foundation (DCF) President and CEO Stuart Comstock-Gay.

The 2018 tax bill eliminated the personal exemption but nearly doubled the standard deduction to $12,000 for single people and $24,000 for married couples filing jointly. For taxpayers who are 65 or older, blind, or disabled, an additional $1,300 is available.

While the charitable deduction was left unchanged, the ability to claim the charitable contribution deduction may depend on whether the taxpayer has enough other itemized deductions to exceed the standard deduction.

Philanthropy Delaware President and CEO Cynthia Pritchard said the changes will be most apparent to taxpayers who have traditionally itemized their deductions and give small to moderate amounts to charity. She said some estimates project a $17 million impact (4.6 percent) on donations from Delawareans, with some of that earmarked for out-of-state organizations (e.g., alumni donations, disaster relief).

“The tax bill put the charitable deduction out of reach for most Americans,” said Comstock-Gay. “I think the greater impact will be next year, after donors have finished their 2018 taxes and see how it affected their taxes. People do not give primarily for the tax benefit. But the tax benefit does matter and finding that the amount they give doesn’t matter so much for taxes is very likely to lead some to reduce the giving.”

Comstock-Gay is also concerned by recent volatility in the markets since many foundations and some donors base their gifts on the size of their endowments. If the endowment falls by 10 percent, it’s likely grant dollars will be down by a similar percentage.

“We saw some foundations maintain higher levels in a downturn (as recently as 2008-09), but I was on a board call with an organization just this week where this topic was raised, and we are preparing various ‘worst case’ budgets for the coming years,” he said.

New donor strategies

Nonprofits for the most part are receiving more revenue from a smaller group of donors. The Association of Fundraising Professionals and the Center on Nonprofits and Philanthropy at the Urban Institute released a report in November that said year-over-year total giving revenue was up 2.6 percent at the end of the third quarter with revenue from major gifts ($1,000 and up) driving much of the gain.

The analysis also pointed to a 4.3 percent decline in the total number of donors, with the percentage of repeat retained donors (donors who have given to the same organization for more than two consecutive years) increasing 0.9 percent. But the number of new donors, new retained donors (new donors giving for a second consecutive year to the same organization) and recaptured donors (donors who had stopped giving to an organization before resuming their support in 2018) all fell compared to the third quarter of 2017.

“This is a deeply troubling and a very unfortunate fraying of our democratic participatory system,” Comstock-Gay said. “The flip side is that we see great examples of people volunteering, signing up for fundraising efforts large and small (e.g., runs, golf tournaments, restaurant fundraisers). People want to feel connected and want to have opportunities. So, I remain optimistic, even in the face of some of these changes.”

United Way of Delaware President and CEO Michelle Taylor agrees that most nonprofits have seen donor attrition as a result of mergers, acquisitions, and retirements over the 19 years she’s been at the helm of the United Way, but she has not seen a decrease in payroll-deduction amounts.

“I’m conservatively optimistic,” she said. “Last year was our best funding year in a number of years. Our current campaign will run through June 30 but we’re tracking on par with last year. The key is to continue to go after more donors, even if it’s for smaller amounts.”

The next generation

The answer may be digital fundraising. A generation of donors is now comfortable with using online platforms, forcing nonprofits to diversify their method of engaging and finding easy ways to donate for everyone.

Delaware ranked in the Top 5 nationally for digital-centric Giving Tuesday donations in 2018, said Philanthropy Delaware’s Pritchard. Yet Delaware ranks near the bottom among the states in per-capita charitable giving.

“Delaware is a great place to take advantage of the digital options,” said Pritchard. “I think the digital outreach is the acquisition; the relationship they develop beyond that requires cultivation and appreciation.”

The costs of raising money

But with those expanded donor options comes a different problem. It costs a lot to raise money and many local nonprofits are struggling to hire the people they need to engage donors the way they want to be engaged.

“It can be difficult (for small- and midsized nonprofits) to add another person when they prioritize their resources toward programs and have to raise money to hire someone to raise money,” Bravo said.

Pritchard said acquiring new donors requires nonprofits to be relevant to donors and the communities they serve.

“They need to have a grasp of who their competitors are – both actual and perceived – to determine their roles within the service sector,” she said. “They also need to work together to address all the challenges and barriers of the clients they serve. Nonprofits share clients, but they may not know or realize it. If they work collaboratively, they can see how each one of the services a client may access can work in tandem with each other to create long-term, sustainable change. The state has been dependent on foundation and corporate giving and not cultivated individual giving beyond the known donors. It is time to figure out who their potential donors are, especially with the influx of new residents.”

How can we help?

Each of the organizations interviewed for this story devote resources to educating and engaging Delaware nonprofits and foundations and have put plans in place for 2019.

DANA’s Bravo says her organization is focusing its 2019 educational initiatives on:

• Succession planning as more long-tenured executives with strong relationships with donors transition out of their roles.

• Diversity and Inclusion, particularly at the board level. “We’re seeing boards that are older age-heavy. We need new thinking as workforces become more diverse and we try to understand the diversity of millennial giving.”

• Strategies and resources to help nonprofits improve their donor acquisition and retention.

• Contingency Planning. Organizations that have a goal of raising $100,000 need to have a Plan B if they only raise $80,000 or $90,000.

“One of our roles at DANA is to remind policymakers that the same level of funding they have given to a nonprofit for the past 10 years doesn’t go as far as it used to with rising costs and more people to serve,” Bravo said.

Taylor says the United Way’s approach now focuses on solving community problems collectively with other organizations, with an emphasis on three pillars — Early Education, College and Career Readiness (diversity talent pipelines); and Financial Stability for Families.

“What keeps me awake at night? Serving the communities that need us most and the complexity of the problems we face,” said Taylor. “Eighty percent of Wilmington kids can’t read at grade level by the end of the third grade. We haven’t gotten the strategy right yet. We have to get people moving in the right direction; it’s a tsunami.”

Reasons for optimism

Despite the concerns about tax laws, the economy and shrinking donor lists, the nonprofit executives see reasons for optimism.

“I’m seeing many wonderful projects and partnerships up and down the state,” said the DCF’s Comstock-Gay. “Things can and will be done even in more difficult times. The Riverside Project is evidence of an almost audacious confidence with an alignment of community activities, the city, funders and business leaders. I’m excited about the La Colectiva project in Sussex County, where Latino-serving organizations are working together to develop collective efforts to serve the needs of the rapidly growing Latino population there. And the Dual School program here in Wilmington shows an innovative way to bring a new model for educational programs.”

“I see nonprofits as community innovators — filling the gap between government and corporations,” said DANA’s Bravo. “They need the support of the community — volunteers, board service, donations. Delawareans have historically been very generous. I hope they’ll continue regardless of the changing environment.”

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