2018 FUNDRAISING OUTLOOK. A synopsis of America s donation habits and trends for the future

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1 2018 FUNDRAISING OUTLOOK A synopsis of America s donation habits and trends for the future

2 Giving USA published its latest report¹ in June of last year revealing that giving by individuals had increased nearly 4% in 2016, to $282 million dollars. Following close behind with an increase of 3.5% over 2015 are foundations who gave $59 billion, and corporations at $19 billion. Who is giving the most? General Population More Generous than High Net Worth Individuals It is generally agreed that individual giving grew due to the charity of the general population, rather than high net worth individuals, whose gifts were less robust than in prior years. Digging deeper, both personal consumption and disposable personal income grew by nearly 4% in The S&P 500 index finished 9.5% up, further adding to the confidence of the American public. Corporate donations rose, not quite as quickly, and their slower increase is attributed to a GDP growth down from 2015 and 2014.² 2

3 Who is getting the most? Religion $11 $22 Educa.on $18 Human Services $123 $30 Founda.ons $ Recipient Organizations Donations $ Billions $41 $60 $47 Health Organiza.ons Public Society Benefit Arts, Culture, Humani.es Interna.onal Affairs Donations to the 9 major categories of charitable organizations in 2016 are shown in the graph to the left. Clearly, faith-based donations are principally directed to donors places of worship. As such, their stability and pre-eminence persists year over year. Environment & Animal Welfare Source: GivingUSA.org In 2016, however, the remaining categories experienced remarkable change,³ as illustrated to the right. Environmental & Animal Welfare International Affairs Donations Received Percentage Growth in 2016 Arts, Culture, Humanities Public Society Benefit Health Organization Foundations Human Services Education Religion Source: GivingUSA.org % Growth 3

4 Economic Impact For the most part, stronger economic conditions drive charitable contribution growth. Economic forecasts for 2018⁴ call for a real GDP growth in the U.S. of 2.3%, up from 1.4% in Tax Reform: Will it Cut Both Ways? Real GDP growth means good news for consumers in general. There is however, an ominous cloud, which hangs over the charitable organizations, owing to the December 2017 reform of the U.S. tax code. Most charities are now eyeing the tax reform as a duel-edged sword. On the one hand, the standard deduction for a married couple has nearly doubled to $24,000. This means that potentially, they will have smaller taxable incomes, and therefore, more money to donate. On the other hand, because the standard deduction is so high, many taxpayers will no longer need to itemize their charitable deductions to get a refund. The tax incentive is gone for most donors. In 2014, over 44 million returns out of 149 million⁵ included itemized deductions. Put another way, nearly 30% of filers claimed state and local taxes, mortgage interest, medical bills and charitable donations which when totaled, exceeded the standard deduction of $12,700. In 2018, the critical question is, how many itemizers will disappear, and take their donations with them? The Tax Policy Center estimates that charitable giving will decline between $12.3 to $19.7 billion,⁶or as much as 5%. The itemizers may be reduced to only 10%⁷, down from 30% a few years ago. Within these figures a charity will need to single out those individuals who itemize charitable donations. A review of the IRS statistics for 2015⁸ reveals that there were only 33,200,000 filers who claimed a charitable cash deduction. Within this group, the following chart reveals the income ranges most influential in making cash donations. They gave $163 billion, or 62% of all individual giving for that year.⁹ 4

5 2015 Cash Contributions By Adjusted Gross Income 33,198,961 Returns Itemized $ Billion Dollars Given Itemized Returns '000,000s Up to $25K $25-50K $50-75K $75-$100K $ K $ K $500-1MM $1-1.5MM $1.5-2MM $2-5MM $5-10MM $10MM+ Adjusted Gross Income Source IRS SOI Tax Statistics The most influential income group shown in this chart is the $100-$200K household, which claimed an average $3,703 in charitable cash contributions. This group will see a change in their tax rate moving from 28% in 2017 to between 24%-32% in The Irony of Reform This up and down shift means: some will have a tax break, and some will have a tax hike. Some will have more cash to donate, and some will have less. It also means that for those that continue to itemize, the higher their marginal tax rate, the greater their savings from every dollar donated. The Silver Lining In The Cloud While the public has focused on the impact of tax reform for their pocket books, financial analysts have been much more sanguine about the positive impact of corporate tax reform. In 2018, corporations will enjoy a flat tax of 21%. This is compared to a scale of 15% for under $50,000 profits up to 35% for $18.33 million dollar profits. The relief will be enjoyed by shareholders, 401K holders, employees and business leaders as more dollars stay in the private sector. Charitable organizations will also benefit from the influx. 5

6 Re-think your strategy Going forward, charitable organizations need to re-think their strategy for maximizing contributions. Here are some recommendations: 1. Grow Retentions According to the Association of Fundraising Professionals¹⁰ revenues are hampered by losses: for every $100 gained in 2016, $95 was lost through gift attrition. Compounding that, for every 100 donors gained, 99 were lost. Given the high cost of acquisition, retention is the key. Focus on improving donor retention programs to maximize revenue. 2. Change Your Story There will be more discretionary income in the market place. You need to take advantage of the tax reform story as most individuals hear it. Only a small percentage of itemizers will have actually figured out what the new standard deduction means this year. By 2019 they will be fully aware however. You need to head that off now with a new purpose. 3. Sell Personal Fulfillment Maslow s hierarchy¹¹ of needs was designed for charitable causes, ultimately. Your most promising donors are targeting the top of the pyramid, and you need to help them reach the summit with thankful praise, supportive news, affirmation and encouragement. A single thank you may not be enough. Continue to remind them of your appreciation for their contributions. 6

7 Re-think your strategy (Con t) 4. Pursue the Corporate Dollar There is a glaring absence of corporate donations in the overall purse. While the tax savings on corporate donations are reduced by the smaller taxation rate, there will be measurably larger pools of funds available. Not since the years leading up to the great recession of 2008 have we seen a major corporate fiscal turnaround like this. Corporate philanthropy is virtually untapped. Look closely at small business.¹² 5. Integrated Multi-Channel Multi-touch, from mail to , SMS, web, content, search and display all play a role in building and strengthening your brand and transactions. It s time to integrate these channels for best results. 6. Analyze Your Housefiles How many of your donors fall into the income ranges that count? Where can you find more of the kind that provides the biggest contribution? Review your demographics. Use advanced data analytics to target the audience you most want to reach. And, test your messaging to ensure you are encouraging the most beneficial rate of giving from every individual. Personalized messaging is easier to achieve today than ever before. Make sure your message resonates with each person on your list. The year of 2018 will be pivotal in building your brand and filling your coffers. Take advantage of the changes to do the most good. 7

8 If you would like to learn more about our Nonprofit Direct Marketing Solutions, contact us today at or Footnotes: 1. Giving USA 2017: The Annual Report on Philanthropy for the Year 2016, a publication of Giving USA Foundation, 2017, researched and written by the Indiana University Lilly Family School of Philanthropy. Available online at givingusa.org Giving USA 2017: The Annual Report on Philanthropy for the Year 2016, a publication of Giving USA Foundation, 2017, researched and written by the Indiana University Lilly Family School of Philanthropy. Available online at givingusa.org Giving USA 2016: The Annual Report on Philanthropy for the Year 2015, a publication of Giving USA Foundation, 2016, researched and written by the Indiana University Lilly Family School of Philanthropy. Available online at givingusa.org Response Marketing Solutions 4101 Winfield Road Warrenville, IL R.R. Donnelley & Sons Company, all rights reserved. RR DONNELLEY, RRD, RRD (Stylized) and COMMUNICATIONS ENABLED are trademarks or registered trademarks of R. R. Donnelley & Sons Company. All other trademarks are the property of R. R. Donnelley or their respective owners.