The Gift of Giving to Non-profits

As a development professional, I am passionate about my belief in the gift of giving to non-profit organizations. At this time of year, mailboxes are brimming with appeals from a variety of organizations, many groups who rely on fundraising dollars to support their worthwhile missions.

Aviv Centers for Living recently sent out an appeal that quoted the Talmud as saying, “One person’s candle is a light for many.” We took a walk down memory lane recalling that when the original founders of Aviv gathered in 1945, the world was a very different place. Gasoline cost about 15 cents a gallon. Elvis Presley debuted at age 10. Harry Truman was sworn in as the 33rd President of the United States as George and Barbara Bush wed and the United Nations was formed. While the darkness of World War II clouded the universe, a group of citizens gathered in Lynn to create light for seniors and founded the Jewish Convalescent Home, fondly called “the Home.”

Well over 66 years ago, while the world was a different place, the desire for good people to galvanize for grand purposes was just as important as it is today. As you prepare for the holidays, take a moment to look in your heart and make a donation to a non-profit organization. It may be the best gift you give this holiday season.

Volunteers: Friend or Friend?

One of my favorite volunteer board members - the chair of the development committee at a university I worked for - once said to the entire board, "Remember, WE volunteer board members are the fundraisers here. The staff is hear to help us do our jobs." This resonated for me because I started out in development as a volunteer for one of the large Jewish Federations. We (the volunteers) always understood that the task of asking for gifts was OUR responsibility, and that the campaign wouldn't be successful if we didn't do our jobs. Believe me, it was difficult, and took a lot of time; and we all had day jobs, too (mine was in the real estate business.)

By the time I was working at that university, development had changed - fundraising was much more in the hands of the professional staff, with limited support from the volunteers. That trend has continued, and the large size of the development staff at some institutions is evidence of it. But that volunteer chair still understood the power of the volunteer ask!

I still believe, as he does, that the best development work is done by volunteers. When a business person asks a peer to support an organization that he or she believes in, the ask is almost always successful. When a development staff person makes a similar ask, the result is not nearly as assured. Peers asking peers still works best! Perhaps it works even better today because it is not as common.

This is not to say that development staff isn't important. I still work in development, and believe that my work in cultivating and soliciting major prospective donors is crucial to the success of the organization I work for. But I also believe that when I can get the Board Chair, or another volunteer, in the room with the prospect, it is much more likely that we will get the gift we are seeking. Sometimes it takes a volunteer just to get the phone answered or the appointment set! Someone once said that when you get the right person doing the ask for the right project at the right time, magic happens. As a professional development officer, I aspire to succeeding at that task, and really try to find the "right person", knowing that it is sometimes me, but is much more often a volunteer!

It really pains me when I hear development staff members deriding volunteers as unskilled or "adding work" to "our already busy days." I am currently volunteering myself (yes, I sometimes take a "bus man's holiday") with an organization that has a half-time development officer who wouldn't be accomplishing nearly what she does if it weren't for a small group of volunteers dedicated to the success of the organization who are doing the hard work of developing strategies, cultivating, and soliciting major donors. I have never heard her complain about a volunteer!

Volunteers are our best friends in development. If you would like some help in figuring out the best ways to work with yours, give me a call.

Tax time?

Recently there has been some discussion in the media that one of the possible "fixes" to the Federal deficit crisis would be to reduce or eliminate the charitable tax deduction. Here's an article from the New York Times on this subject. The reaction from many in the nonprofit sector is nothing short of panic, and I wonder what's really driving that panic. It seems that many are afraid that their donors will stop giving if the charitable deduction goes away. I don't believe that will happen. Do you?

Nonprofit (501(c)3) organizations receive a number of benefits from the government: they pay no income tax on any income that is related to their charitable purpose; they pay no real estate taxes (in nearly all jurisdictions); in most jurisdictions, they pay no sales taxes (California is the biggest location where this isn't true - everyone pays sales taxes in California!); and contributions made to these organizations create a tax deduction for the donor. For the moment, only this last benefit seems to be in danger (and probably not much danger, at that). But why should we care?

The largest number of charitable gifts - the small ones - get no tax deduction because they are made by people who don't itemize their deductions, and therefore get no tax benefit from charitable gifts. And the bigger the gift, the more likely it is being made for other reasons than tax treatment. Charitable intent and a relationship with the organization, for example! I still believe that the main reason someone makes a gift to an organization is a belief in the mission of the organization (and that they were asked). It is possible that in some cases the size of the gift might be impacted by tax considerations - a tax savings could make a gift somewhat larger possible. But I would argue that this increase in size is marginal both for the donors and the organizations. If someone is making charitable gifts only for their tax-sheltering properties, I would also suggest that there are much more efficient ways to reduce one's taxes.

Note that I am not a financial planner; I am basing my statements on many years of working with philanthropists, and on anecdotal information. I haven't conducted a scientific study on this issue. However, indications from past changes in the deductibility of contributions (the amount of savings was reduced in 1986 and giving went up the following year) suggest that there will be minimal or no negative impact of a reduction or even elimination of the charitable tax deduction.

A word about estate planning and planned gifts: Estate planning often includes making provisions for charitable gifts. You probably know some of the terms: gift annuity, charitable remainder trust, charitable lead trust, etc. Much of the work of planned giving involves some amount of creating ways of making gifts and bequests that will reduce the amount of estate (and other) taxes that must be paid upon the death of the donor. These arrangements do, indeed, intertwine philanthropy with reducing taxes, but I believe that most of the time a planned gift gets made because the donor has a charitable intent and a relationship to the organization receiving the gift - not just because the gift reduces the tax bite. People with large estates work with advisers who help them minimize the taxes they must pay. Sometimes that minimization involves charity and sometimes it doesn't, but while the existence of the tax benefit might help increase the size of a charitable gift, it doesn't create it. The organization's mission and case for support, and the donor's charitable intent does.

If your organization is worried that your gifts will dry up because the charitable tax deduction goes away, I'm worried about your organization! If you don't have the faith that your mission is important and attractive to potential donors, we should talk. Perhaps I can help you better communicate what makes your mission compelling and reshape your case for support. There are hundreds of thousands of nonprofits in the U.S. My experience is the vast majority were created to fulfill a valid and compelling mission, and that mission is supportable by donors with or without a tax deduction!

Some things to think about...
What do you really know about the impact of the tax deduction on giving to your organization?
What is the ratio of donors in your data base who take the deduction to those who don't?
Can you run a report to find out?
What will you do proactively with what you learn?

Call me if I can help.

Does the board raise funds from business contacts?

There was a really odd short posting on the Boston Globe website last month. It says that the union representing health care workers asked the board of a hospital to consider whether a trustee "should have disclosed that he helped raise money for the hospital from at least one person with whom he had done business." This makes it sound like raising money for a non-profit medical center is somehow wrong or at least underhanded. At this particular hospital, being a trustee is an honorary position - the board of directors has fiduciary responsibility, and a hospital spokesman said that only directors must disclose conflicts of interest. Further, the spokesman said, "while trustees cultivate relationships with donors, they do not ask for money; that job is handled by hospital staff." This response is what I find so odd about this story. (Aside from the issue of why the union is making these kinds of requests at all.)

I've always understood that the entire role of trustees on non-fiduciary boards is fundraising. And if they aren't fundraising from people they've done business with, they aren't doing their jobs - it's not a conflict of interest - it is the job! Fiduciary board members have a major role in fundraising, too, but they also have some other responsibilities.

A number of years ago, I served as chief development officer for a university foundation. My board chair told the board, "it is our job as volunteer board members to raise funds for this organization. The staff is hear to support us in this vital role." I have always agreed with him. If the board won't, or for some reason is prevented from, raising funds for the organization, the staff will find it very difficult to succeed, no matter how hard they work.

Does your board help with fundraising, and do they cultivate and solicit business contacts? If not, would you like them to? If your board needs some help in understanding their responsibilities to your organization, let me know. I'm happy to help.

How much should a non-profit executive be paid?

I've seen a number of articles and reports recently (this happens every time a new crop of 990s are filed) bemoaning the "huge" salaries paid to non-profit executives. Here in the Boston area, two of the recent "profligates" were the CEO of the Citi Center for Performing Arts and the President of Suffolk University. In both cases the reports in the 990s included deferred compensation of $1 million or more. In the case of the Citi Center, it was a large payment to the CEO's retirement account, paid as a bonus in recognition of many years of successful work. In the case of Suffolk, it was two years worth of extra contributions to the President's retirement account to, in the words of the board chair, make up for the fact that he "had been woefully underpaid' over his 52-year tenure at the school".

So what should we make of this? First, the media (and much of the populace) is fascinated by big salary numbers - the media wouldn't report on it if they didn't think it would sell newspapers or raise ratings for the TV news. Second, those big numbers at non-profits are seen by many as inappropriate. But are they?

It is not hard to argue that a university with a multi-million dollar budget should be run by someone with the skills it would take to run a multi-million dollar corporation. That doesn't require paying corporate-level salaries, but it does require coming close in order to attract high-quality talent. The same goes for non-profit hospitals and health systems, which tend to be even bigger and more complex than universities (and usually pay more, too.) On the other hand, should anyone working in a non-profit be paid more than the president of the United States? Since 2001, the "leader of the free world" has been paid $400,000 per year. Of course it could be argued that this is worth much more than anyone else's salary since it comes with a house, transportation (limos, helicopters, planes, etc.), expense accounts, and many other perks! That being said, a salary in the $400,000 to $600,000 per year for the CEO of a major non-profit is probably not unreasonable.

But what about the rest of the staff? One of the major complaints about development officers these days is that "they keep moving around." Unfortunately, often true. It's hard to really know an organization and all its parts in less than three years, and that happens to be the average tenure of a chief development officer. Why is that? Part of the reason is that salaries below the CEO level at most non-profits are very low. In addition, they rarely rise. In order to get more than a 2-3% raise in a non-profit organization, you generally need to leave for another position. Then the organization replaces you at a salary you would have stayed for - perhaps 10% more than you were being paid. This is unfortunate and short-sighted on the part of non-profit boards. It is also unlikely to change anytime soon. Too bad. Admittedly, there are other contributing reasons for the high turnover rate for development officers, but pay levels and little or no raises certainly play a part.

So, if you are interested in helping to stop turnover at your non-profit, give me a call. I'd be happy to help you analyze your situation and set up a system to help raise the funds needed to provide the raises to keep the staff!

Death of a Theater

I was saddened to read this week about the closing of the North Shore Music Theater in Beverly, Massachusetts. This non-profit theater had been around for 54 years, but couldn't survive a combination of a fire, borrowing to rebuild (beyond what the insurance paid,) an apparently rocky transition of leadership, and the precipitous downturn of the economy. I don't know all the details, but what I have learned about NSMT over the past several months seems to provide some lessons for non-profit arts organizations, and other non-profits.

Full disclosure: I learned about NSMT this past fall, as I was in the midst of negotiating with them for either a consulting contract or employment as their full-time VP for Development (it wasn't clear at the time which way they wanted to go, then became clear that neither would be possible due to their financial disaster.)

One of the stories I heard from several sources was that while NSMT has always been a non-profit theater, it didn't like to admit it! That is, under the previous administration, the theater attempted to operate on its ticket revenues (and education, etc.) alone. It really didn't want to behave like a non-profit by making a substantial effort at development. Only in the past year or so had the theater begun putting a donation envelope in all of its programs and mentioning that it depended on contributions to help fund its programs in its evening-opening announcements.

After the fire in 2005, there was apparently some fundraising done, but the loss from the fire, the shortened season, and the reconstruction was apparently more than $4 million, and this debt was never paid down by fundraising or any other means. Understand that I am not suggesting that a campaign to pay down debt would have been easy - it's never easy to fundraise to pay down debt. However, the rebuilding campaign that was held apparently did not raise nearly enough. Perhaps this is a case (I've seen this kind of behavior in other institutions) of wanting to build a certain kind of facility, and deciding to do so whether or not the money has been raised. "We can borrow the money to finish the building, and then raise the money later to pay off the debt." Too many non-profits say this, and then end up in trouble. The truth is that the board has the responsibility to either find the money to pay for the building at the time, or find the money to pay off the debt. Too many non-profit boards don't live up to their fiduciary responsibilities to oversee the staff when it comes to making realistic financial decisions, or to raise the money to fund those decisions. This is the hard work non-profit boards must do, and too often do not. North Shore Music Theater is not the only non-profit in the Greater Boston area that has had financial difficulties in the past few years because of overspending on construction projects not fully funded by donations or income.

We hear often about how important it is for non-profits to behave more like businesses. This is true especially when it comes to living within your means, but this is also one of the most difficult things for non-profits to do when it comes to fulfilling their missions. It is very hard to say "no" to mission-critical expenditures. So where does the money come from? It is the responsibility of the board to provide the funds needed to fulfill the mission of the organization. That doesn't mean board members need to give it all themselves, but if they aren't willing and able to participate fully in the process of raising the funds needed for the organization to fulfill its mission, they probably shouldn't be on the board. What this really means is working to develop relationships with potential funders (mostly individuals and families, but also including corporations and foundations) that will lead them to make gifts to the non-profit. The hardest thing for most organizations to figure out is that you can't just turn on the spigot of charitable contributions. If you haven't built relationships before you need the money, you almost certainly won't be able to raise the money when you need it! This is the sad cause of the failure of the North Shore Music Theater. The new administration had recently begun building relationships with potential funders, and there were some promising starts; but unfortunately there weren't enough potential donors ready to step in when the crisis really hit.

So we must sadly say "good-by" to the North Shore Music Theater. There are apparently still some options for rebuilding. If a buyer can be found to take over the property and lease it back. Or if an "angel" comes forward. Unfortunately, there were not enough relationships built with those who might be able to help for any of these possibilities to be very likely. Too bad.

So what's the takeaway? It's never too early to start a development program, but unfortunately it can get to be too late. People make gifts to organizations they feel connected to - especially large gifts. So they won't respond to emergency appeals if they haven't already been connected. Want to talk about ways to better connect your donors? Give me a call.

Why are board members afraid of development?

I have had several conversations in the last couple of weeks that are variations on the same theme: Why is it so difficult to get board members of non-profit organizations to help with development work?

It seems to me there are two main reasons. First, we often don't ask. Someone once told me that the number one predictor of someone not giving to a charity is that he wasn't asked. The same holds true for action by board members. If we don't ask them to get involved in development work, they won't. Of course, you don't need to ask them directly. Try asking them to call people to thank them for their gifts. Or try asking them to host a parlor meeting at their home to cultivate some prospective donors. Once they've participated in activities like these you can tell them they've been helping with development!

This brings us to the second reason: board members are afraid of development work. Even the most sophisticated (about development) board members harbor the fear that when they are asked to help in this area it means they are going to be handed fifteen or twenty names of people they have never met and asked to solicit each of them for thousands of dollars (or more!) That's why it is so important to ask board members to participate in the kinds of activities mentioned above. And its important to be sure they understand that development really is about the cultivation process - building relationships with people so they feel more connected to the organization. People make gifts to the organizations they feel connected to, and they make large gifts to the organizations they feel most connected to. If board members are hesitant about "doing development work", just ask them to help people feel connected to your organization. When the time comes for the solicitation, they won't panic because it will seem like a natural part of the relationship building.

How can you help your board members become more comfortable with their development role? If you need some additional suggestions, please give me a call! I'd be happy to help out.