Commentary: What happens if charitable deduction is tossed over the fiscal cliff?

Clayton Lord, ArtsJournal.com blog "New Beans," 12/10/12

Individual charitable donations to the arts are crucial to the survival of most organizations - moreso than for other nonprofits. About $9 billion in individual donations came into the US arts sector in 2011. Which gets us to the proposed limitation on the tax deduction for charitable giving.  Does the deduction actually drive charitable giving?  Research on that question is relatively mixed.  The latest seems to say the overall effect of the deduction is small, but is largest with the richest donors, which means changing the deduction might hit disproportionately since those are the donors who are likely to give the largest gifts. Let's get to a crucial distinction: are we arguing for a tax break for the wealthy, or are we arguing for a society that rewards contributions to organizations devoted to the social good?  Arguing for the tax deduction for charitable giving isn't about saving a vibrant cultural sector from ruin, although that would be a major benefit.  Arguing for the tax deduction is about reminding the government of the importance of societal well-being as a lubricant that keeps the more profitable cogs and wheels of our industry moving healthily. Encouraging private support of the arts is encouraging the responsibility of the population for its emotional and empathetic health, its future and its past.  I've made that argument to my [government] representatives, and I suggest you do the same.  Americans for the Arts has set up an easy way for you to do just that, and it only takes two minutes.  These fiscal cliff negotiations are taking place now, behind closed doors, and if we're interested in making sure that in saving our financial souls the politicos don't accidentally do lasting damage to our more general well-being, we must let them hear what we have to say, now.

Commentary: The arts face their own fiscal cliff

Kennedy Center president Michael Kaiser, The Huffington Post, 12/10/12

There has been an endless amount of discussion about the impending fiscal cliff faced by the United States government. It strikes me that the arts face their own fiscal cliff. Earned income has failed to keep up with inflation and fundraising has plummeted for too many organizations. It is not uncommon to read about huge deficits and cancelled seasons. Not surprisingly, orchestras are suffering the most and the most visibly (although no art form is immune). Orchestras have the highest level of fixed costs and therefore are the least flexible during hard times; they simply cannot lower costs as much as dance or theater companies who can save money by doing smaller works or museums that can mount exhibitions from their own collections. This has left many suggesting we need new models for running arts organizations (although I have yet to hear of new models that could save large organizations) and others looking for draconian cuts to overhead; for orchestras this typically means reducing musicians' salaries. This 'remedy' is not dissimilar to the Conservative movement's solution for America's fiscal woes: severe cuts to entitlement programs. A second approach (might we call it the Democratic approach?) is to increase revenue so that programming would not be cut. How can we plan on higher revenues when there is increasing competition for entertainment dollars and the economy has made fundraising so much more difficult? I have spent the better part of my life arguing that, over time, those organizations that reduce salaries of artists and cut artistic initiatives are going to have a harder time raising funds and selling tickets. I believe growth must be the long-term answer. And a combination of judicious cost cutting matched with aggressive marketing and fundraising aimed at creating more revenue must be the short-term answer. But unlike the unilateral way this problem will be solved by Congress, every arts organization must make this choice for itself.

Commentary: How nonprofits can avoid the 'fundraising cliff'

Steve MacLaughlin, Blackbaud's npENGAGE blog, 12/10/12

Over the past few months I've been asked a lot of questions about giving trends: What explains the flat trend in overall fundraising? Is it the economy? Was it the election cycle? What about Hurricane Sandy? Are we approaching the fundraising cliff? Will it get better? When will it get better? There are opinions and there is data. I prefer to show actual data and suggest what may be or may not be happening in the nonprofit sector.

Are people giving more to presidential campaigns and less to nonprofits?  No. Campaign fundraising has historically had no apparent impact on overall individual giving. It's worth noting that less than 1% of Americans give campaign contributions of more than $200 to political candidates, parties or PACs.

Are people giving less because of possible changes to charitable tax deductions?  No. The exact opposite is more likely especially for wealthier donors. The potential for tax code changes are more likely to encourage these donors to give now instead of waiting. Also keep in mind that only 30% of American taxpayers itemize their deductions, which often gets overlooked in end-of-year holiday appeals.

Are people going to give less because they donated to Hurricane Sandy relief?  No. Disaster giving is not a zero-sum game. Giving to disasters does not take away from other nonprofit causes. While giving related to Hurricane Sandy may boost total fundraising in 2012, it is unlikely to change fundraising results for most nonprofits.

Are people giving less because of the economy? Maybe. The National Bureau of Economic Research said the recession ended in June 2009, and fundraising historically takes three years recover from a recession. But the Center on Philanthropy at Indiana University says we are experiencing the second slowest recovery since 1971. I believe that uncertainty about the economy is probably a bigger factor here than anything else.

What Is Happening: The data shows a troubling trend in the nonprofit sector: Donor populations have been shrinking for the past five years and revenue per donor has been flat. The good news is that in the first half of 2012, new donor numbers are on the rise with almost every sector experiencing some degree of growth. For most sectors this growth appears to indicate a leveling-out and it's possible that we have reached a bottom. If we've reached a bottom, then it's going to take time to recover. It will not happen overnight and there is going to be some continued pain. But there are steps nonprofit organizations can take back from the edge of the fundraising cliff:

Engagement Over Acquisition. Just getting more new donors isn't enough. It doesn't work long term. There must be more focus on using multiple channels, including direct marketing, phone, online, social, and mobile. Acquisition is often an on/off switch. Engagement is a volume knob -- not always on '11' but never on zero.

Sustainable Donors Over Disaster Donors. Showing outcomes and impact is proven to turn episodic donors into long-term supporters.

Smart Data Over Big Data. The use of analytics in fundraising is not a new concept. The focus now needs to be on the broad use of information that helps make smarter decisions. No more guessing.

All Year Over End of Year. Get ready for the 57 blog posts, articles, emails, and webinars about how much giving happens at the end of the year. This is "best practice" gone bad at its best. Diversify your fundraising across the entire year.

Retention, Retention, Retention. None of this works if retention rates do not significantly improve. Losing 30% to 40% of donors each year limits fundraising's ability to grow. "What if it was all about retention?" needs to be the question every board, leadership team, department, task force, and partner asks.

Change Means Changing. Change is hard. And the best way to start changing things is to change things. That sounds really simple -- because it is. Change is what is needed to truly get fundraising growing again.

Take a deep breath. Take a step back. Let's get moving in the right direction.