Philanthropy Prospects
With giving trends in flux and the charitable deduction threatened, how can you strengthen your institution's power to attract sufficient voluntary contributions?
By Sandra R. Sabo
In pursuit of its vision to be a premier research university of international stature, even as state funding had begun to dwindle, Michigan Technological University, Houghton, launched a multiyear fundraising initiative in 2006. Now in its sixth and final year, Generations of Discovery: The Campaign for Michigan Tech has raised about $183 million.
"We're on target as far as giving goes," says Dan Greenlee, chief financial officer and treasurer of the board of control at Michigan Tech, who remains confident the campaign will meet its $200 million goal. "In the last two years, we've seen a good uptick in both outright gifts and pledges. Overall giving is coming back up, after the recession in 2008 and 2009," Greenlee reports. In fact, Michigan Tech added a year to the campaign's original length because fundraising in 2009 proved so difficult.
Giving Goes Up
In many respects, Michigan Tech's experience reflects the philanthropic trends at work throughout higher education. In its annual Voluntary Support of Education survey, the Council for Aid to Education reports that charitable contributions to U.S. colleges and universities in 2011 increased 4.8 percent, after being adjusted for inflation. Similarly, in Giving USA 2012, the Center on Philanthropy at Indiana University reports a 5.2 percent increase in inflation-adjusted charitable contributions to educational institutions between 2009 and 2011.
Fueling philanthropy growth has been the increased giving by individuals. According to the Center on Philanthropy, individuals contributed 3.5 percent more in 2011 than in 2009, after adjusting for inflation.
"Year in and year out, we find that about 75 percent of total giving comes from living individuals," says Patrick Rooney, the center's executive director. "When you add charitable bequest gifts and grant making from foundations in which the family is making key decisions, we estimate that almost 9 out of 10 dollars come from individuals."
Giving USA also reports that giving by bequest in 2011—up 8.8 percent over 2010, in inflation-adjusted dollars—registered its second consecutive annual increase. Cumulatively, inflation-adjusted giving by bequest has increased 21.8 percent since 2009.
"There's definitely a tendency toward a higher proportion of planned gifts—or combinations of outright plus planned gifts—than originally projected," acknowledges Shea McGrew, Michigan Tech's vice president for advancement. "Whether they're concerned about paying for long-term care costs or about their portfolio in general, more people are opting for caution right now."
McGrew also serves as president of the foundation that manages the university's gifts and assets, including the endowment. Half of Michigan Tech's campaign goal amount is earmarked for building that endowment. In addition to increasing the scholarships and fellowships it offers, the university hopes to triple its number of endowed faculty positions.
Endowment Rebuilding
Fundraising for endowments hasn't been easy in recent years, according to the annual NACUBO-Commonfund Study of Endowments (NCSE). In FY11, individual endowed gifts and bequests (excluding annual fund contributions) totaled $5.49 billion, down from $7.9 billion in FY08. In other words, the amount of individual gifts and bequests to college and university endowments has fallen by approximately 30 percent since 2008.
The Council for Aid to Education reports that alumni participation has been declining slowly for the past decade.
Davidson College, Davidson, North Carolina, for one, has bucked that trend. Although its endowment plummeted during the recession, Davidson has rebuilt it to $520 million—an increase of nearly 4 percent over the endowment's prerecession peak. What's more, in the past four years the liberal arts college has doubled the dollars raised through its annual fund, to just over $14 million.
Of that total, about $5 million supports the Davidson Trust, an initiative launched in 2007 to provide a permanent source for the college's financial aid budget. "Through the trust, we meet 100 percent of a student's demonstrated financial need without any need-based loans. The typical package is a work-study job and the rest is grant aid," explains Ed Kania, vice president for finance and administration at Davidson, which has a need-blind admission policy. In 2011, 43.3 percent of Davidson's 1,920 students received financial aid through the trust.
"A few years ago, in response to an increased tendency among donors to designate gifts, we adjusted our annual fund model to include the Davidson Trust, in addition to our athletic programs and our public radio station," adds Kania. As a fourth option, donors can designate their gifts to the Living Endowment—a pool of unrestricted funds, expended each year, for faculty salaries, academic resources, and other areas where the need is greatest.
Financial Aid Appeals
Historically, Michigan Tech has used its annual fund to solicit unrestricted gifts to the university. A change is under way, however; starting this year, the annual fund will be positioned as support for financial aid. "The funds will still be spendable in that fiscal year. We're just changing the appeal we're making," McGrew notes. "The idea of people helping others go to school has a natural appeal."
Similarly, John Brown University (JBU), a private Christian institution in Siloam Springs, Arkansas, promotes contributions to its annual fund as money that goes directly to students in the form of scholarships. The school just wrapped up its Keeping Faith campaign, a seven-year initiative to raise $110 million for capital projects, scholarships, and endowments for academic chairs and facilities.
"We not only came in over goal, at $118 million, but also finished a year early—and 99 percent of the funds are in the door," reports Kim Hadley, vice president for finance and administration. Beyond growing its scholarship endowment from $12 million to $34 million through the campaign, JBU focused on putting about $1 in the endowment to fund scholarships and building operations for every $1 spent on a building.
"As the market values were declining during the recession, we were adding new funds to the endowment the whole time," Hadley continues. "With more funded and endowed scholarships to give, less institutional aid was needed during the economic downturn—and that helped reduce the impact of the recession on our discount rate."
JBU's endowment benefited greatly from a $10 million challenge issued by an anonymous donor. "Besides current gifts, the donor matched charitable remainder trusts, charitable gift annuities at a certain percentage, and life insurance, which kept our planned giving efforts going," says Jim Krall, vice president for university advancement. "In some cases, the challenge was a tipping point for people who had thought for years about doing an endowed scholarship or planned gift—with the match, they realized they could create it after all."
Alumni Connections
Despite the success of JBU's campaign, Krall noticed one troubling trend: a continuing slide in alumni participation rates. The Council for Aid to Education reports that alumni participation has been declining slowly for the past decade, decreasing from 13.2 percent in 2002 to 9.5 percent in 2011—a 28 percent drop. This statistic, however, does not reflect donations that alumni made through foundations, donor-advised funds, or their own companies.
Research conducted by the Council for Advancement and Support of Education (CASE) points to slightly higher percentages. The CASE Campaign Report 2011, which surveys institutions with fundraising campaigns still under way or recently completed, shows a median participation rate of 16 percent among alumni overall; at private institutions, the median is slightly higher—18 percent.
Whatever their participation rate, those alumni represent the most generous category of donors to fundraising campaigns, accounting for nearly one third (32 percent) of the total campaign funds received. According to CASE, foundations—which provide 22 percent of the total funds received—come in a distant second.
"No institution can assume anymore that its own alumni will give, and attrition rates are too high for those who do," says McGrew, who reports 16 percent participation for alumni giving at Michigan Tech. "Especially among young alumni, giving is more intermittent—just because they gave $25 this year doesn't mean you can count on them to re-up or increase that amount next year.
"We've found that alumni, particularly younger ones, are more likely to give when we can connect them to Michigan Tech in a way that really engages their time and attention," he continues. The university offers a number of ways to do that:
Many of its alumni groups, for example, get together to sponsor Make a Difference Day, an afternoon devoted to volunteering within local communities.
The university developed an online program that enables alumni, no matter where they live, to be matched to students who would like a mentor.
Each September, Michigan Tech invites its Presidential Council of Alumnae to campus for a two-day meeting with the top female students whose academic departments have designated them as Women of Promise.
In group and one-on-one mentoring sessions with the students, the alumnae share their thoughts and experiences on career development. After the students have graduated, of course, Michigan Tech hopes they'll recall that valuable mentoring experience and make gifts to the university in appreciation.
Rules of Engagement
Alumni of Chicago's Robert Morris University (RMU)—which began granting bachelor degrees in the mid-1990s and graduate degrees in the mid-2000s—are just getting to the point in their careers when they might consider larger gifts to the institution. Most of them, like RMU's current student population, were first-generation college students who may not have grown up in philanthropic-minded families.
As long as the economy—and people's perception of it—remains uncertain, encouraging philanthropy will require more finesse and diplomacy than usual.
"In families that have several generations of college graduates, giving into the future is almost inbred—it's what you do," says Ron Arnold, vice president for business affairs at RMU, which provides some type of financial aid to more than 90 percent of its students. "We have to develop that understanding of giving back to the institution, starting with our student base."
"What makes students want to give back after graduating? If you provide a high level of caring, engagement, and financial support when they're in school, then they'll certainly be more willing and able to engage with the institution as alumni," believes Susan Lindahl, executive vice president for administrative services and chief operating officer at Baker University, Baldwin City, Kansas.
Davidson College tugs on the heartstrings a bit by reminding seniors of the wonderful experience they have had and emphasizing the importance of providing that same experience to others through philanthropy. Ed Kania describes the sessions as a combination of fun and education—and, clearly, the college is doing something right. For the past 10 years, Davidson has registered alumni giving rates of more than 60 percent.
Here are some other approaches to involving students in philanthropy so they'll develop the habit of giving:
- Names and faces. "Each year, we have a special reception to recognize the people who give money for scholarships, which gives them the opportunity to meet the students they support," says Kristin Watkins, associate vice president for college advancement at Portland Community College, Oregon. In turn, those students can put names and faces to the concept of philanthropy. Similarly, Baker University hosts a scholarship night to introduce recipients of endowed scholarships to the donors. "That event provides donors with a deeper level of engagement and connection than they feel from just writing a check," says Lindahl. "Some students stay in touch with those donors for years." In addition, Baker often taps current scholarship recipients to speak about their campus experiences at alumni events.
- Capitalizing on community. Baker University is fortunate to have a president who is extremely outgoing and often seen around its main campus in Baldwin City, says Lindahl. She notes, "Our president makes a point of knowing students by name, so when they graduate they have a more personal relationship with the university community." To reinforce that connection, Baker's president frequently attends alumni events throughout the country.
- Making the call. After years of contracting with a third party for alumni fundraising calls, New England College, Henniker, New Hampshire, recently brought much of its phone-a-thon operations back in-house and uses student callers. The students' first names and photos appear on the college's Web site, along with brief biographical material, to personalize the connection with alumni. As for the students, the experience leaves them with an understanding of the importance of any gift, no matter what its size, to the annual fund. "It's too early to know how effective the student callers are," says Paula Amato, vice president of finance and administration. "But, not counting the dollars, it makes sense from a public relations standpoint to have alumni talking to students rather than to someone reading off a script."
- Reality checks. As Robert Morris University sees it, fundraising appeals will resonate only with alumni whose degrees have led to steady employment and ongoing professional opportunities. That's why RMU's curriculum includes four required courses related to exploring and managing a career. In addition to emphasizing career counseling throughout the undergraduate years, RMU requires each senior to complete an externship (in which he or she has an opportunity to observe or shadow a professional on the job) before graduation.
- Sincerely yours. Early each school year, John Brown University hosts several parties—complete with light refreshments—during which scholarship recipients write thank-you notes to donors. "We encourage the students to share a little bit about themselves, such as their hometown and major, and explain how the scholarship has made a difference in their lives," says Krall. "Many donors keep those notes, rereading them again and again." This year alone, JBU mailed 1,000 thank-you notes, all handwritten.
- Special excursions. Shortly before graduation, the senior class at New England College typically sponsors a one-day trip, which is free for soon-to-be alumni who make a minimum gift to the college's annual fund.
- Learn and do. Portland Community College offers a special program known as Students4Giving. Participants learn about philanthropy, conduct an auction to raise money, then decide as a group how to allocate the profits. "The class is not led by the foundation, nor is it a broad approach to educating a lot of students, but it's a step toward cultivating a culture of giving," says Watkins.
- Meet and greet. Each year, Baker Univ-ersity selects about 20 students to serve as ambassadors for the university at special events on campus and as liaisons between the student body and the administration. Competition is stiff for this parMentors program (named after historic Parmenter Hall), which looks for students who are socially adept and willing to learn about the university's history and traditions. In addition to participating in high-level networking events while still a student, each parMentor is paired with a Baker trustee for mentoring in a particular professional field, such as banking, insurance, or law.
- Welcome to the club. In years past, New England College presented actual diplomas at graduation. "Now, we mail the diplomas and during commencement we present graduates with a diploma cover, inside of which is material welcoming them as new alumni," says Amato.
- A class act. For the past decade, it's been traditional for members of the graduating class at Davidson College to make a gift to the annual fund, often in honor of a professor, a classmate, a coach, or someone else who influenced them during their time on campus. Students designated as Senior Class Gift Agents stand ready to accept the gifts, which are promoted as a rite of passage into the alumni ranks. The Class of 2012 registered 95 percent participation, so the pressure is on for this year's seniors. To make things more interesting, Davidson's president issued a challenge: If the Class of 2013 reaches 90 percent paid participation in the annual fund before graduation day, the president will match all dollars raised, up to $15,000.
- Cost consciousness. New England College organized a philanthropy club for students who want to work with alumni and learn more about the institution's fundraising initiatives. Each year, working with the finance and advancement offices, club members identify essential items and services on campus and then attach large "price tags" showing how many annual fund or tuition dollars are needed for that item. "The students make it fun. For example, they may put a tag reading 'Priceless' on someone to represent a scholarship recipient," says Paula Amato. "Our students want to know how the college spends its money, whether tuition dollars or gifts, and this approach shows them firsthand where all the money goes."
- Tuition and beyond. Since 2008, John Brown University has annually celebrated Tuition Freedom Day—the day after which gifts to the university cover the costs of the remaining school year. Generally taking place in mid-March, the celebration spotlights the generosity of alumni and other supporters, JBU hopes to instill gratitude in students as well as inspire their future participation in philanthropy. "Tuition Freedom Day communicates, in an understandable, simple way, the impact that donors have on the students' college experience," explains Kim Hadley. "We hope students grasp that, even if they're borrowing money to attend JBU, they'd be borrowing even more if it weren't for our donors."
As for the near future of philanthropy, much will depend upon the economy. Rooney notes that total giving grew, on average, 1.8 percent in 2010 and 2011. "That compares to a 40-year average of 2.7 percent growth for the two years following a recession," he says. "If giving continues growing at that 1.8 percent average, it could take another decade just to get back to where we were in 2007, before the recession began."
As long as the economy—and people's perception of it—remains uncertain, encouraging philanthropy will require more finesse and diplomacy than usual. "Some people believe we've recovered, while others are certain we're falling off the fiscal cliff tomorrow. Addressing those different perspectives makes fundraising more difficult," says Kania.
Meanwhile, in terms of funding challenges, the prospect of sequestration of the national budget (should Congress fail to reach an agreement on a deficit reduction plan by Dec. 23, 2012) is being defined as an impetus that truly may send the American economy over a fiscal cliff. Other government policies under discussion right now (see sidebar, "Policy Choices Shape Charitable Giving") only add to the uncertainty.
Despite it all, Kania describes himself as cautiously optimistic about the economy's direction and his institution's continued ability to attract gifts both large and small. "Personally, I'm an eternal optimist," he says, "but I'm also the CFO—so I have to be rational and realistic as well."
SANDRA R. SABO, Mendota Heights, Minnesota, covers higher education business issues for Business Officer.